Deck 12: Securities Markets

Question 1

Stocks of most larger companies trade on the American Stock Exchange, while the stocks of most smaller companies trade on the New York Stock Exchange.

Answer 1

False

Question 2

An IPO is the sale of previously issued shares to the general public.

Answer 2

False

Question 3

Stocks are initially sold in the primary markets with the help of an investment banker serving as the underwriter.

Answer 3

True

Question 4

The price at which an individual investor is willing to buy a security is the bid price.

Question 5

When an individual investor sells their shares on the OTC, the price at which they are willing to sell is called the bid price.

Question 6

Seasoned new issues are stock offerings by companies that already have common stock traded in the marketplace.

Question 7

The New York Stock Exchange and the American Stock Exchange are considered regional stock exchanges.

Question 8

An ask on offer price is one at which an individual is willing to sell a security.

Question 9

Any company can have its securities listed on the NYSE.

Question 10

The Securities Act of 1934 created the SEC to enforce trading laws.

Question 11

An initial public offering is the first time the company's stock is traded publicly.

Question 12

The OTC market is a link-up of dealers, with stringent listing and membership requirements.

Question 13

In the over-the-counter market, the individual investor must be physically present to purchase the security over-the-counter.

Question 14

A sale of a security in the primary markets is the only time the issuing company receives the proceeds from the sale.

Question 15

A primary market is a market in which new, as opposed to previously issued, securities are traded.

Question 16

Firms raise outside financial capital through the sale of stocks in the secondary markets.

Question 17

An over-the-counter market has a physical location where trading occurs.

Question 18

A prospectus is an advertisement placed in a newspaper or magazine that provides a listing of the underwriting syndicate involved in the new offering, in addition to basic information on the offering.

Question 19

American Depository Receipts are receipts given by American banks for deposits in foreign countries.

Question 20

An individual selling previously issued shares to another individual is a transaction that would be traded in the primary market.

Question 21

The NASDAQ is the largest electronic stock exchange.

Question 22

Churning occurs when a broker engages in excessive trading in a client's security account to generate more commissions for the broker.

Question 23

An individual investor should look for a stock broker who will churn their accounts for them.

Question 24

You have just purchased shares of stock from a stockbroker. These shares were previously traded on the NYSE. This trade took place in the ________.

A) primary market
B) secondary market
C) tertiary market
D) quaternary market
E) none of the above

Question 25

A circuit breaker protects individual investors from losing money on their investments.

Question 26

You and your spouse have decided to incorporate bonds into your newly-formed retirement portfolio. You will most likely purchase them ________.

A) directly from a bond dealer
B) with your broker acting as intermediary
C) directly from the issuing institution
D) with an underwriter acting as intermediary

Question 27

You just concluded a stock purchase transaction via a computer hookup rather than in an organized exchange. This trade took place in the ________.

A) over-the-counter market
B) NYSE
C) AMEX
D) primary market
E) none of the above

Question 28

Most of the bonds that are bought and sold are not transacted on the organized exchanges. They are bought and sold through bond dealers who do not sell many ________ bonds but do trade many ________ bonds in the secondary market.

A) corporate; government
B) government; corporate
C) high par value; corporate
D) government; low par value
E) corporate; firm-specific bonds

Question 29

Patti DeVry has been trading stocks in the over-the-counter market. When she wants to sell her stocks she will specify the ________ price and when she wants to purchase stocks she will specify the ________ price.

A) ask on offer; bid
B) bid; ask on offer
C) starting; minimum
D) ask; minimum
E) bid; minimum

Question 30

A(n) ________ advertisement provides a listing of the underwriting syndicate involved in a new offering.

A) prospectus
B) underwriting notification
C) brokerage notification
D) tombstone
E) none of the above

Question 31

A(n) ________ is a legal document that describes a securities issue and is made available to potential investors.

A) disclosure statement
B) offering contract
C) prospectus
D) tombstone
E) none of the above

Question 32

The difference between an organized exchange and an over-the-counter market is that the transactions that occur on an organized exchange ________ and the over-the-counter transactions ________.

A) are initial offerings; are seasoned issues
B) are seasoned issues; are initial offerings
C) take place in a physical building; are conducted over the phone or via a computer
D) are conducted over the phone or via a computer; take place in a physical building
E) are initial offerings; are conducted over the phone

Question 33

ABC Corporation is selling additional shares of common stock. Although ABC Corporation has already sold shares of stock in the public equity markets, these are new shares of stock, and have never been sold or traded previously. This is called a(n) ________.

A) initial public offering
B) seasoned new issue
C) secondary issue
D) blue chip issue
E) none of the above

Question 34

Although some bonds are traded on the NYSE, most of the buying and selling of bonds doesn't occur on organized exchanges.

Question 35

IBM went to a(n) ________ who served as a(n) ________ to sell an IPO in the primary markets.

A) underwriter; investment broker
B) underwriter; investment banker
C) investment broker; underwriter
D) investment banker; underwriter
E) investment banker; underachiever

Question 36

You have just recently started your investment activities for retirement. You were happy to learn from your broker that your investor's account balance would be insured for up to $500,000 through the ________ in the event their brokerage firm goes bankrupt.

A) FDIC
B) FSLIC
C) NCUA
D) SIPC
E) FTC

Question 37

ABC Corporation is selling additional shares of common stock. These are new shares of stock, and have never been sold or traded previously. The selling of these shares would take place in the ________ market.

A) primary
B) secondary
C) tertiary
D) quaternary
E) none of the above

Question 38

The two major organized stock exchanges in the Unites States are the ________ and the ________.

A) AMEX; Chicago
B) NYSE; AMEX
C) NYSE; Chicago
D) NYSE; Pacific
E) AMEX; Pacific

Question 39

IBM is considering hiring an investment banker who will purchase and subsequently resell an issue of stock for them. This service is called ________.

A) stock brokerage
B) full-service brokerage
C) underwriting
D) churning
E) none of the above

Question 40

Securities that are less frequently traded, along with many new and high-tech stocks, are relegated to the

A) NYSE
B) AMEX
C) ADR market
D) OTC market

Question 41

A(n) ________ is a marketable document (a receipt) that certifies a bank holds shares of a foreign firm's stock that backs the receipt.

A) FINRA
B) MDR
C) FFS
D) ADR

Question 42

What is the purpose of a circuit breaker for the market?

A) It prevents the market from declining in value.
B) It prevents investors from losing money in the market.
C) It temporarily stops computerized trading to allow investors to analyze the extraordinary market swings.
D) All of the above are correct.
E) Only A and B are correct.

Question 43

Jordan has a few thousand dollars to invest. He wants to find newly issued stock of a fast‑growing new company. He will contact an underwriter and attempt to purchase the shares in the ________ market.

A) secondary market
B) New York Stock Exchange
C) primary market
D) NASDAQ
E) commodity market

Question 44

Securities are generally sold in the primary markets with the help of a(n) ________ serving as a(n) ________.

A) individual investor; underwriter
B) corporation; investment banker
C) regulatory commission; individual investor
D) underwriter; regulatory commission
E) investment banker; underwriter

Question 45

General Electric is the only stock originally listed and still remaining on the "Big Board." This means that its stock is traded on the ________.

A) NASDAQ
B) NYSE
C) Regional
D) AMEX
E) International

Question 46

Specialists maintain a fair and orderly market by buying and selling stock from their inventory to keep the market from fluctuating more than it would otherwise.

Question 47

Name the major organizations regulating the stock market and tell why they came about.

Question 48

Differentiate between primary and secondary security markets.

Question 49

Acting upon assumed good advice, your brother buys stock in I-Link, an upcoming communications firm. Since this is the first time I-Link is trading its stock, your brother will be involved in a(n) ________.

A) secondary market transaction
B) initial public offering
C) seasoned new issue
D) tombstone purchase
E) buy low transaction

Question 50

A discount broker executes trades but does not provide much advice.

Question 51

The two types of securities offerings in the primary markets are ________ and ________.

A) seasoned new issues; long-term bonds
B) long-term bonds; government bills and notes
C) initial public offerings; seasoned new issues
D) seasoned new issues; penny stocks
E) initial public offerings; seasoned old issues

Question 52

All of the following are true about the American Stock Exchange except

A) it is the second most important of the organized exchanges
B) it is one of the secondary markets
C) its trading volume is a small fraction of that of the NYSE
D) its dollar volume is larger than all the regional exchanges
E) it ranks as number two in terms of the number of companies it lists

Question 53

Much of the day-to-day regulation of the market is left to the securities industry and is performed by the exchanges and the

A) SRC.
B) FDIC.
C) OTC.
D) SIPC.
E) FINRA.

Question 54

Explain the bid and ask price system when trading in stocks.

Question 55

Securities include both ________ and ________.

A) stocks; mutual funds
B) bonds; mutual funds
C) real estate; stocks
D) stocks; bonds
E) bonds; money market funds

Question 56

Gracie Johnson saw the securities announcement for New York Bagel Enterprises that provided the details of the offering and a listing of the underwriting syndicate. She saw the

A) tombstone advertisement.
B) prospectus.
C) initial post.
D) exchange advertisement.
E) underwriter's issue.

Question 57

Jeffery is an underwriter and sells shared on the ________ market for his job. However, in his personal investment life, he will purchase his stocks through the ________ market.

A) primary, secondary market
B) secondary, primary
C) primary market, bond
D) open, closed
E) none of the above

Question 58

Compare and contrast organized exchanges and OTC markets. List the nine major U.S. stock exchanges in the secondary market.

Question 59

The Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 made it illegal to trade while in the possession of inside information, or "material" non-public information held by

A) officers.
B) directors.
C) major stockholders.
D) All of the above are correct.
E) Only A and B are correct.

Question 60

Which organization would handle frequently traded OTC stock, bonds, and foreign stock?

Question 61

A GTC order remains effective until filled or cancelled.

Question 62

The share price is always less with a round lot than with an odd lot purchase.

Question 63

When purchasing stock short, you must put up some collateral.

Question 64

A limit order specifies a securities trade is to be made only at a certain price or better.

Question 65

The collateral an investor must put up when conducting a short sale is known as a margin requirement.

Question 66

A margin call requires you to replenish the margin account by adding additional cash or securities to bring the account back up to the minimum.

Question 67

For most typical married couples, joint tenancy with the right of survivorship is not an appropriate form of account ownership.

Question 68

When placing a market order to purchase shares of stock, you will be required to make the order good-till-canceled.

Question 69

Full service brokers are legally obligated to analyze the recommendations they receive from analysts.

Question 70

A market order is an order to buy or sell a set number of securities immediately at the best price available.

Question 71

Reesa is purchasing stock through the NYSE and the AMEX, as a result she will need to have a different broker to purchase stocks listed on each of these different exchanges.

Question 72

Discount brokers are so named because they are able to get you discounts on the market price of stocks.

Question 73

With short selling you are hoping for the stock price to fall.

Question 74

Merrill Lynch, Edward Jones and Morgan Stanley Smith Barney are all full service brokers.

Question 75

Stock can only be purchased in round lots.

Question 76

A day trader is an individual who trades with a very long-term investment horizon.

Question 77

If you purchases securities jointly with another person, how the account is registered is not very important.

Question 78

Reggie believed that the price of his stock was going to drop in the near future his strategy was to short sell that stock to make a profit.

Question 79

A full service broker will always get you a lower share price on your purchases of stock.

Question 80

Placing a market order exposes the buyer to more risk than placing a limit order.