Deck 13: International Equity Markets

Question 1

At year-end 2015,total market capitalization of 80 organized stock exchanges tracked by the World Federation of Exchanges stood at

A)$67,125 billion.
B)$67,125 trillion.
C)$97,125 billion.
D)$97,125 trillion.

Answer 1

A

Question 2

A measure of "liquidity" for a stock market is

A)the times interest earned ratio.
B)the ratio of stock market transactions over a period of time divided by the size,or market capitalization,of the stock market.
C)the LIBOR rate.
D)the times interest earned ratio,as well as the ratio of stock market transactions over a period of time divided by the size,or market capitalization,of the stock market.

Answer 2

B

Question 3

Generally,the higher the turnover ratio,

A)the less liquid the secondary stock market,indicating ease in trading.
B)the more liquid the secondary stock market,indicating ease in trading.
C)the more liquid the primary stock market,indicating ease in trading.
D)the more efficient the stock market is.

Answer 3

B

Question 4

A measure of liquidity for a stock market is the turnover ratio; defined as

A)the ratio of stock market transactions over a period of time divided by the size,or market capitalization,of the stock market.
B)the ratio the size,or market capitalization,of the stock market divided by the value of the stock market transactions over a period of time.
C)the ratio of aggregate company sales over a period of time divided by the size,or market capitalization,of the stock market.
D)none of the options

Question 5

Investment in foreign equity markets became common practice in the 1980s as investors became aware of the benefits of

A)international portfolio diversification.
B)debt forgiveness.
C)international portfolio diversification and debt forgiveness.
D)none of the options

Question 6

Only in the 1990s did world investors start to invest sizable amounts in the emerging equity markets,as

A)the economic growth and prospects of the developing countries improved.
B)the economic growth and prospects of the developing countries declined.
C)the economic growth and prospects of the developed countries improved.
D)none of the options

Question 7

Total market capitalization for exchanges increased nearly ________ percent over 2011 to 2015.

A)10
B)20
C)30
D)40

Question 8

During the 1980s,cross-border equity investment was largely confined to the equity markets of

A)developing countries.
B)developed countries.
C)both developing and developed countries.
D)none of the options

Question 9

Public traders do not trade directly with one another in a dealer market.

Question 10

The sale of new common stock by corporations to initial investors occurs in

A)the primary market.
B)the secondary market.
C)the OTC market.
D)the dealer market.

Question 11

Only in the ________ did world investors start to invest sizable amounts in the emerging equity markets.

A)1970s
B)1980s
C)1990s
D)none of the options

Question 12

In a dealer market,the broker takes the trade through the dealer,who participates in trades as a principal by buying and selling the security for his own account.

Question 13

Which investment is likely to be the most liquid?

A)A share of publicly traded company trading on the NYSE.
B)A bond issued by a Fortune 500 company.
C)A house in a nice part of town.
D)A share of publicly traded company trading on the NYSE and a bond issued by a Fortune 500 company are equally liquid.

Question 14

A "primary" stock market is

A)a big internationally-important market like the NYSE.
B)a market where corporations issue new shares to initial investors.
C)where brokers and market makers trade.
D)none of the options

Question 15

Investment in foreign equity markets became common practice in the

A)1960s.
B)1970s.
C)1980s.
D)none of the options

Question 16

The turnover velocity percentages for 75 of the stock exchanges beginning with 2011 were measured.Over 40 percent of the exchanges,in most years,had in excess of

A)15 percent turnover per month.
B)25 percent turnover per month.
C)30 percent turnover per month.
D)75 percent turnover per month.

Question 17

Relatively low turnover ratios

A)indicate poor liquidity.
B)indicate good liquidity.
C)indicate strong investment performance.
D)none of the options

Question 18

The sale of previously issued common stock traded between investors occurs in

A)the primary market.
B)the secondary market.
C)the on-the-run market.
D)the dealer market.

Question 19

A liquid stock market

A)is one in which prices reflect all relevant information quickly.
B)is one in which prices reflect all publicly available information quickly.
C)is one in which prices reflect price and volume information quickly.
D)is one in which investors can buy and sell stocks quickly at close to the current quoted prices.

Question 20

Which investment is likely to be the least liquid?

A)A share of publicly traded company trading on the NYSE.
B)A bond issued by a Fortune 500 company.
C)A house in a nice part of town.
D)A share of publicly traded company trading on the NYSE and a bond issued by a Fortune 500 company are equally liquid.

Question 21

An all-or-none order is a limit order either to buy or to sell a security in which the broker is directed to attempt to fill the entire amount of the order or none of it.An all-or-none order differs from a fill-or-kill (FOK)order in that

A)with an all-or-none order,immediate execution is not required.
B)with an all-or-none order,immediate execution is required.
C)with an all-or-none order,over subscription is allowed-filling the order for more shares.
D)none of the options

Question 22

Price discovery in the secondary stock markets

A)occurs due to the competitive trading between buyers and sellers,just like on eBay.
B)is set once a day at the close.
C)is set by the investment bankers at the IPO.
D)all of the options

Question 23

In which type of policy actions by the Fed can liquidity "dry up"?

A)Easy money
B)Tight money
C)Decrease in the reserve requirement
D)Decrease in the discount rate

Question 24

Many of the larger emerging equity markets (e.g.,China,India)

A)have poor liquidity at present.
B)are more liquid stock markets than the developed world,since the poor people living in the developing world are eager to sell their securities.
C)have high turnover ratios.
D)none of the options

Question 25

A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order.Once the stop price is touched in the market,the stop-limit order becomes a limit order to buy or to sell at the limit price.Which of the following are true?

A)The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed.
B)A stop-limit order may never get filled if the stock's price never reaches the specified limit price.This may happen especially in fast-moving markets where prices fluctuate wildly.
C)The use of stop limit orders is much more frequent for stocks that trade on an exchange than in the over-the-counter (OTC)market.
D)In addition,your broker-dealer may not allow you to place a stop limit order on some securities or accept a stop limit order for OTC stocks.
E)all of the options

Question 26

As a measure of liquidity,

A)generally,the lower the turnover,the greater the liquidity of a secondary stock market.
B)generally,the higher the turnover,the greater the liquidity of a secondary stock market.
C)the more a financial asset gurgles when shook the greater the liquidity.
D)none of the options

Question 27

In which type of market can liquidity "dry up"?

A)A bull market
B)A bear market
C)A speculative bubble
D)A financial panic

Question 28

Fair prices for existing issues is established in the secondary market due to

A)competitive trading between buyers and sellers.
B)decreased trading activity between buyers and sellers.
C)destructive competition between buyers and sellers.
D)none of the options

Question 29

The first automated national stock market was the

A)NASDAQ.
B)TMX.
C)AMEX.
D)none of the options

Question 30

The secondary stock markets

A)are the markets for "pre-owned" or "used" shares of stock.
B)provide marketability to shares.
C)provide price discovery or share valuation.
D)all of the options

Question 31

The exchange markets in the U.S.are

A)agency markets.
B)auction markets.
C)agency/auction markets.
D)none of the options

Question 32

Generally,the lower the turnover ratio,

A)the less liquid the secondary stock market,indicating difficulty in trading.
B)the more liquid the secondary stock market,indicating difficulty in trading.
C)the more liquid the primary stock market,indicating difficulty in trading.
D)the more efficient the stock market is.

Question 33

Many of the small foreign equity markets (e.g.,Argentina,Sri Lanka)

A)have poor liquidity at present.
B)are very liquid stock markets,since the poor people living there are eager to sell their securities.
C)have fairly high turnover ratios indicating strong liquidity.
D)none of the options

Question 34

A market order

A)is an instruction from a customer to a broker to buy or sell at the best price available when the order is received (immediately).
B)is an instruction from a customer to a broker to buy or sell in a particular market (e.g.,NYSE).
C)is always and everywhere "fill-or-kill."
D)is always and everywhere "good-till-cancelled."

Question 35

In general,if an investment

A)has poor liquidity,it should offer investors a liquidity premium.
B)can be sold fairly quickly at a fair price,it has good liquidity.
C)has poor liquidity,it should offer investors a liquidity premium.Additionally,if it can be sold fairly quickly at a fair price,it has good liquidity.
D)none of the options

Question 36

The secondary equity markets of the world serve two major purposes.They provide

A)marketability and share valuation.
B)liquidity and price support.
C)price discovery and arbitrage.
D)safety and stability.

Question 37

Which of the following are true?

A)Unless you give your broker specific instructions to the contrary,orders to buy or sell a stock are day orders.
B)Orders that have been placed but not executed during regular trading hours will automatically carry over into after-hours trading but not the next regular trading day.
C)Similarly,day orders placed during after-hours trading will automatically carry over into the next regular trading day.
D)If your order is not executed during a trading session,you are not allowed to place a new order in the next trading session.
E)all of the options

Question 38

A limit order is an order away from the market price that is held in a ________ until it can be executed at the desired price.

A)continuous order book
B)limit order book
C)dealer book
D)none of the options

Question 39

A limit order

A)is an instruction from a customer to a broker to buy or sell in at a particular price (or better).
B)can be a "day order"-that is the order is cancelled if not executed during that day's trading.
C)can be "good-till-cancelled."
D)all of the options

Question 40

OTC stocks are generally

A)unlisted stocks.
B)listed stocks.
C)traded at a discount due to their high risk.
D)none of the options

Question 41

A "specialist"

A)makes a market by holding an inventory of a particular security,like IBM or Intel.
B)is a participant on the floor of the exchange,like the NYSE.
C)has a designated station on the floor of the exchange.
D)all of the options

Question 42

A specialist on the NYSE

A)is obliged to fill limit orders if they are more favorable than the specialist's posted bid and ask quotes.
B)is obliged to fill limit orders at the specialist's posted bid and ask quotes.
C)is actually a computer program,not a human.
D)is obliged to fill limit orders if they are more favorable than the specialist's posted bid and ask quotes,and is actually a computer program,not a human.

Question 43

Call markets and crowd trading offer advantages for ________ because they mitigate the possibility of sparse order flow over short time periods.

A)thinly traded issues
B)actively traded issues
C)stocks but not bonds
D)none of the options

Question 44

A type of non-continuous exchange trading system is crowd trading.

A)Unlike a call market in which there is a common price for all trades,several bilateral trades may take place at different prices in crowd trading.
B)Unlike a continuous market in which there is a common price for all trades,several bilateral trades may take place at different prices.
C)Unlike a call market in which several bilateral trades may take place at different prices there is a common price for all trades in a call market.
D)none of the options

Question 45

In an agency market,the broker takes the client's order through the agent,who matches it with another public order.The agent can be viewed as

A)a dealer.
B)a specialist.
C)a broker's broker.
D)none of the options

Question 46

The Toronto Stock exchange

A)is a fully automated.
B)features electronic matching of public orders.
C)has continuous order flow.
D)all of the options

Question 47

In an agency market,the broker takes the client's order through the agent,who matches it with another public order.Names for the agent are

A)official broker.
B)central broker.
C)a broker's broker.
D)all of the options

Question 48

The advantages of a market order include the fact that

A)you are pretty much guaranteed that your order will be executed.
B)a market order typically has lower commissions than a limit order.
C)market orders increase your liquidity.
D)you are pretty much guaranteed that your order will be executed,and a market order typically has lower commissions than a limit order.

Question 49

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price,known as

A)the stop price.
B)the limit price.
C)the last price.
D)the sell price

Question 50

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price,known as the stop price.When the specified price is reached,your stop order becomes

A)a market order.
B)a good-till-cancelled (GTC)order.
C)a day order.
D)none of the options

Question 51

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price,known as the stop price.When the specified price is reached,your stop order becomes a market order.The advantage of a stop order is that

A)you don't have to monitor how a stock is performing on a daily basis.
B)the stop price can be activated by a short-term fluctuation in a stock's price.
C)once your stop price is reached,your stop order becomes a market order and the price you receive may be much different from the stop price,especially in a fast-moving market where stock prices can change rapidly.
D)all of the options

Question 52

The Paris Bourse was traditionally a call market.In a call market,an agent of the exchange accumulates,over a period of time,a batch of orders that are periodically executed by written or verbal auction throughout the trading day.Both market and limit orders are handled in this way.The major disadvantage of a call market is that

A)traders are not certain about the price at which their orders will transact because bid and ask quotations are not available prior to the call.
B)traders are not certain about how many shares will be able to sell or buy at the price they quote because order volume is not available prior to the call.
C)there is a lack of liquidity inter call.
D)none of the options

Question 53

A "call market"

A)is OTC and over-the-phone.
B)features an agent of the exchange that accumulates a batch of orders that are periodically executed by written or verbal auction throughout the day.
C)provides traders with execution at certain prices.
D)features an agent of the exchange that accumulates a batch of orders that are periodically executed by written or verbal auction throughout the day,and provides traders with execution at certain prices.

Question 54

To avoid buying a stock at a price higher than you intend,you need to place ________ rather than a market order.

A)a stop-loss order
B)a day order
C)a good-till-cancelled order
D)a limit order

Question 55

Unlike day orders,a good-till-cancelled (GTC)order is an order to buy or sell a security at a specific or limit price that lasts until the order is completed or cancelled.Which of the following is true?

A)A GTC order will not be executed until the limit price has been reached,regardless of how many days or weeks it might take.
B)Investors often use GTC orders to set a limit price that is far away from the current market price.
C)Some brokerage firms may limit the time a GTC order can remain in effect and may charge more for executing this type of order.
D)all of the options

Question 56

The over-the-counter (OTC)market is a dealer market.Almost all OTC stocks trade on the National Association of Security Dealers Automated Quotation System (NASDAQ),which is a computer-linked system that shows

A)the limit orders of all available counterparties.
B)the last price at which a security was sold.
C)the bid (buy)and ask (sell)prices of all dealers in a security.
D)the bid (sell)and ask (buy)prices of all dealers in a security.

Question 57

Dealers in an OTC market

A)stand ready to buy at the bid and sell at the ask price.
B)set their own bid and ask prices.
C)do not charge commissions.
D)all of the options

Question 58

A crowd of floor traders on the NYSE

A)may arrive at a more favorable price for their clients "inside" the specialist's bid and ask quotes.
B)are obliged to execute their trades through a specialist.
C)are allowed to "front run" their own trades ahead of customer trades.
D)all of the options

Question 59

The OTC market

A)does not accept credit-the dealers "only take cash."
B)is a dealer market.
C)includes the NASDAQ in the U.S.
D)is a dealer market and includes the NASDAQ in the U.S.

Question 60

Which type of trading system is desirable for actively traded issues?

A)Continuous trading systems
B)Call trading systems
C)Crowd trading systems
D)none of the options

Question 61

The large exchange markets in the United States are

A)agency markets.
B)call markets.
C)auction markets.
D)agency/auction markets.

Question 62

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

A)by moving to a better county.
B)by listing their stocks in countries with strong investor protection.
C)by voluntarily complying with the provisions of the U.S.Sarbanes-Oxley Act.
D)having a press conference and promising to be nice to their investors.

Question 63

Stock in Daimler AG,the famous German automobile manufacturer trades on both the Frankfurt Stock Exchange in Germany and on the New York Stock Exchange.On the Frankfurt bourse,Daimler closed at a price of €54.34 on Wednesday,March 5,2008.On the same day,Daimler closed in New York at $83.55 per share.To prevent arbitrage trading between the two exchanges,the shares should trade at the same price when adjusted for the exchange rate.The $/€ exchange rate on March 5 was $1.5203/€1.00.Thus,€54.34 × $1.5203/€ = $82.61,while the closing price in New York was $83.55.The difference is easily explainable by the fact that

A)transactions costs exceeded the price difference,so no arbitrage was possible even for market makers.
B)no one noticed the arbitrage that day,but in a day or so the opening price will adjust.
C)the New York market closes several hours after the Frankfurt exchange,and thus market prices or exchange rates had changed slightly.
D)none of the options

Question 64

Comparing agency versus dealer markets,which combination of the following statements is true: (i)In a "dealer market," the broker takes the client's order through the agent,who matches it with another public order.
(ii)In an "agency market," the broker takes the trade through the dealer,who participates in trades as a principal by buying and selling the security for his own account.
(iii)In an "agency market," the broker takes the client's order through the agent,who matches it with another public order.
(iv)In a "dealer market," the broker takes the trade through the dealer,who participate in trades as a principal by buying and selling the security for his own account.
(v)An agent can be viewed as a "broker's broker."
(vi)A dealer can be viewed as a "broker's broker."

A)(i),(ii),and (v)
B)(i),(ii),and (vi)
C)(iii),(iv),and (v)
D)(iii),(iv),and (vi)

Question 65

Following monetary union and the advent of the euro:

A)The countries of the European union have enacted common securities regulation.
B)A pan-European stock exchange has developed in London,similar to the NYSE in scope and trading practices.
C)Development of a common securities regulations,even among the countries of the European Union,has not yet occurred.
D)none of the options

Question 66

A firm may cross-list its share to

A)establish a broader investor base for its stock.
B)establish name recognition in foreign capital markets,thus paving the way for the firm to source new equity and debt capital from investors in different markets.
C)expose the firm's name to a broader investor and consumer groups.
D)all of the options

Question 67

American Depository Receipt (ADRs)represent foreign stocks

A)denominated in U.S.dollars that trade on European stock exchanges.
B)denominated in U.S.dollars that trade on a U.S.stock exchange.
C)denominated in a foreign currency that trade on a U.S.stock exchange.
D)non-registered (bearer)securities.

Question 68

Transactions in shares of the iShares Funds will typically generate tax consequences.This is because

A)iShares Funds are obliged to distribute portfolio gains to shareholders.
B)iShares Funds are not allowed to be held in tax-qualified accounts such as IRAs.
C)iShares Funds feature daily resettlement.
D)none of the options

Question 69

A market-value index

A)is calculated such that the proportion of the index a stock represents is determined by its proportion of the total market capitalization of all stocks in the index.
B)is calculated as the average price of all the stocks in the index that trade that day,one example is the NASDAQ.
C)is calculated like the DJIA.
D)none of the options

Question 70

Advantages of cross-listing include

A)providing their shareholders with a higher degree of protection than may be available in the home country.
B)a possible signal of the company's commitment to shareholder rights.
C)possibly making investors,both at home and abroad,more willing to provide capital and to increase the value of the pre-existing shares.
D)all of the options

Question 71

On the NYSE,limit order prices receive preference in establishing the posted bid and ask prices if they are more favorable than the specialist's.Therefore,

A)a specialist must fill a limit order,if possible,from his own account before trading the flow of public orders.
B)specialists must fill a limit order,if possible,from the flow of public orders before trading for his own account.
C)a specialist must change his posted bid and ask prices to reflect the available limit orders.
D)none of the options

Question 72

"Yankee" stock offerings are

A)shares in foreign companies originally sold to U.S.investors.
B)dollar-denominated shares in foreign companies originally sold to U.S.investors.
C)U.S.stocks held abroad.
D)none of the options

Question 73

Which factors fuel the sale of "Yankee" stock offerings?

A)Privatization by many Latin American and Eastern European government-owned companies.
B)The rapid growth in the economies of the developing world.
C)The expected large demand for new capital by Mexican companies now that NAFTA has been approved.
D)all of the options

Question 74

ADRs

A)are American Depository Receipts.
B)denominated in U.S.dollars that trade on a U.S.stock exchange.
C)are depository receipts for foreign stocks held by the U.S.depository's custodian.
D)all of the options

Question 75

The European Stock Exchange,comparable in volume to the NYSE

A)is located in Milan.
B)is located in London.
C)is located in Frankfurt.
D)none of the options

Question 76

Yankee stocks

A)often trade as ADRs and have higher risks than trading the actual shares.
B)often trade as ADRs and have lower risks than trading the actual shares.
C)are bank receipts representing a multiple of foreign shares deposited in a U.S.bank.
D)often trade as ADRs,have lower risks than trading the actual shares,and are bank receipts representing a multiple of foreign shares deposited in a U.S.bank.

Question 77

iShares MSCI are

A)exchange traded funds that are subject to U.S.SEC and IRS diversification requirements.
B)open-end mutual funds sold OTC.
C)exchange traded funds that are NOT subject to U.S.SEC and IRS diversification requirements.
D)none of the options

Question 78

Which factors appear to be fueling the sale of Yankee stocks?

A)The push for privatization by many Latin American and Eastern European government-owned companies.
B)The rapid growth in the economies of the developing countries.
C)The large demand for new capital by Mexican companies following approval of the North American Free Trade Agreement.
D)all of the options

Question 79

"Call market" and "crowd trading" take place on

A)a non-continuous exchange trading system.
B)a continuous trading exchange system.
C)non-continuous markets and continuous markets,respectively.
D)continuous markets and non-continuous markets,respectively.

Question 80

The first ADRs began trading ________ as a means of eliminating some of the risks,delays,inconveniences,and expenses of trading the actual shares.

A)in 1997
B)in 1987
C)in 2017
D)in 1927