Deck 2: Securities Markets and Transactions

Question 1

Stocks and bonds are traded in

A) securities and exchange commissions.
B) money markets.
C) federal trade commissions.
D) capital markets.

Answer 1

D

Question 2

The over the counter market describes transactions

A) that involve the purchase and sale of smaller, unlisted securities.
B) that take place in a broker's office.
C) that are not reported.
D) that are not regulated by the SEC.

Answer 2

A

Question 3

IPOs are typically underpriced so that the price rises during the first few days of trading.

Answer 3

True

Question 4

Stocks purchased in the secondary market are purchased

A) directly from the issuing corporation.
B) from other investors.
C) from small, little-known brokerages.
D) indirectly through financial institutions.

Question 5

IPO activity tends to peak when stock prices

A) have fallen sharply.
B) have risen sharply.
C) are volatile and unstable.
D) Stock prices have relatively little influence on IPO activity.

Question 6

A rights offering is the

A) initial offering of securities to the public.
B) offering of new securities to current shareholders on a pro-rata basis.
C) sale of newly issued shares of stock to the general public.
D) sale of securities directly to a select group of investors.

Question 7

IPOs are relatively safe investments.

Question 8

Capital markets deal exclusively in stock. Money markets deal exclusively in debt instruments.

Question 9

A red herring.is a term referring to false or misleading statements in the prospectus.

Question 10

The price of stock sold in an IPO is set by bids submitted in the month before trading begins.

Question 11

Which of these alternatives is NOT an option available to companies offering their stock to the public for the first time?

A) a public offering
B) private placement
C) rights offering
D) prospectors

Question 12

Underwriters are responsible for promoting and facilitating the sale of securities.

Question 13

Stocks, bonds and exchange traded funds (ETFs) are bought and sold in the capital market.

Question 14

The governmental agency that oversees the capital markets is the

A) Federal Trade Commission.
B) Federal Reserve.
C) Securities and Exchange Commission.
D) Fair Trade and Banking Agency.

Question 15

The purpose of the "quiet period" a company must observe from the time it files a registration statement with the SEC until after an IPO is complete is to assure that all investors receive the same information.

Question 16

The primary market tends to be more active when

A) the economy is slowing and stock prices are falling.
B) the economy is expanding and stock prices are rising.
C) interest rates are rising.
D) early in the calendar year.

Question 17

Primary markets deal in the stocks of larger, well-known companies; secondary markets deal in the stocks of smaller, less well-known companies.

Question 18

The document that describes the issuer of a security's management and financial position is known as a

A) balance sheet.
B) 10-K report.
C) prospectus.
D) red herring.

Question 19

Short-term securities are bought and sold in the

A) capital market.
B) primary market.
C) money market.
D) stock market.

Question 20

Which one of the following statements concerning the primary market is correct?

A) A transaction in the primary market is between two private stockholders.
B) The first public sale of a company's stock in the primary market is called a seasoned new issue.
C) The first public sale of a company's stock is called an IPO.
D) A rights offering is a direct sale of stock to an institution that participates in the primary market.

Question 21

Market makers in dealer markets

A) bring sellers and buyers together by matching offers.
B) earn commissions paid by the sellers of securities.
C) buy securities at a bid price and hope to resell them at a higher offer price.
D) all of the above.

Question 22

In a broker market such as the NYSE, the broker

A) will not be able to execute a trade if there are no matching buy and sell offers.
B) will act as either broker or dealer depending on which will maximize his or her profit.
C) will first attempt to sell from his or her own inventory.
D) must attempt to match sellers and buyers at the mid-point of the bid/ask spread.

Question 23

Describe the initial public offering (IPO) process and explain the role of the underwriter, the Securities and Exchange Commission (SEC), and the red herring.

Question 24

Federal laws that control the sale of securities are called blue sky laws.

Question 25

The great majority of transactions on the NYSE are executed

A) automatically through electronic technology.
B) on the trading floor by brokers known as specialists.
C) by dealers known as market makers.
D) by auction in trading areas known as pits.

Question 26

Securities that trade in the over-the-counter market are called unlisted securities.

Question 27

Firms that list their stock on an exchange can be delisted for failing to meet the requirements of the exchange.

Question 28

Relative to a traditional IPO process, a direct listing

A) can save the issuer millions of dollars in investment banking fees.
B) is illegal in the United States.
C) is much more costly so rarely used.
D) has a much longer road show.

Question 29

The NYSE is part of the world's largest international trading network known as NYSE Euronext.

Question 30

In dealer markets, the market maker buys securities at the bid price and sells at the ask price.

Question 31

Direct listings are more common among

A) small firms.
B) large firms.
C) publicly-traded firms.
D) established firms with long track records.

Question 32

The NYSE and AMEX are examples of broker-dealer markets.

Question 33

A market maker brings together buyers and sellers in an auction market.

Question 34

Stocks of many large foreign companies such as Toyota trade on the NYSE as well as on exchanges in their own country.

Question 35

When the offer price is lower than the market price on the first day of trading, the difference is known as

A) the spread.
B) over pricing.
C) the underwriter's fee.
D) underpricing.

Question 36

Investment bankers who join together to share the financial risk associated with buying an entire issue of new securities and reselling them to the public is called a(n)

A) selling group.
B) tombstone group.
C) underwriting syndicate.
D) primary market group.

Question 37

Most commodity futures are traded on the NYSE Amex.

Question 38

The majority of bonds trade in the OTC market.

Question 39

The income paid to a market maker is referred to as the spread.

Question 40

Explain the role of investment bankers and brokerage firms in the issuance of new securities.

Question 41

At the market close on June 13, 2019 Apple Inc. (AAPL) common stock was trading at an ask price of $191.10 and a bid price of $190.35. Apple's previous closing price was $194.19. What is the bid/ask spread of Apple?

A) $0.75
B) $3.84
C) $3.09
D) -$0.75

Question 42

In recent years

A) broker markets have grown at the expense of dealer markets.
B) there has been a major consolidation of trading venues.
C) dealer markets have grown at the expense of broker markets.
D) retail trading has come to be dominated by electronic communication networks while traditional broker and dealer markets have lost ground.

Question 43

At the market close on June 13, 2019 Alphabet Inc. (GOOG) common stock was trading at an ask price of $1,099.99 and a bid price of $1,082.04. What is the bid/ask spread?

A) $17.95
B) $14.32
C) 1.017x
D) )9837

Question 44

Diversification is the inclusion of a number of different investments in a portfolio with the goal of reducing risk.

Question 45

Which of the following are correct statements concerning the NYSE?
I) Each stock has a designated location, called a post, at which its shares are traded.
II) The NYSE is a dealer market.
III) Supply and demand determines the price of each security.
IV) A designated market maker buys and sells to maintain a market for a particular security.

A) I and II only
B) I and III only
C) I, III and IV only
D) I, II, III and IV

Question 46

The dominant exchange for trading options contracts is the . The dominant player in the trading of futures contracts is .

A) NYSE; Nasdaq OMX BX
B) PHLX; CBOE
C) CBOE; CME Group
D) ISE; CBOT

Question 47

Which of the following is currently a requirement for a stock to be listed on the NYSE?

A) A price of at least $10 per share.
B) Three consecutive years of profitable operations.
C) Gross revenue of at least $15,000,000.
D) Global market capitalization of at least $200 million.

Question 48

The ask price is always _______ the bid price.

A) higher than
B) lower than
C) equal to
D) unrelated to

Question 49

Participation in foreign stock markets is complicated and expensive for American investors.

Question 50

Which of the following are associated with bull markets?
I) investor pessimism
II) government stimulus
III) economic recovery
IV) low inflation

A) I and II only
B) II and III only
C) I, II and III only
D) II, III and IV only

Question 51

The price an individual investor will pay to purchase a stock in the OTC market is the

A) spread.
B) ask price.
C) bid price.
D) broker price.

Question 52

The dominant options exchange is the

A) Chicago Board Options Exchange.
B) American Stock Exchange.
C) Pacific Stock Exchange.
D) Philadelphia Options Exchange.

Question 53

Large technology companies such as IBM and Microsoft trade

A) exclusively on the NASDAQ.
B) exclusively on the NYSE.
C) on either the NASDAQ or the NYSE.
D) exclusively on alternative trading systems.

Question 54

Which of the following are associated with bear markets?
I) investor pessimism
II) rising profits
III) economic slowdown
IV) rising security prices

A) I and III only
B) II and III only
C) I, II and III only
D) II, III and IV only

Question 55

The NYSE Euronext includes exchanges in all of the following cities EXCEPT

A) Amsterdam.
B) Brussels.
C) Paris.
D) Tokyo.

Question 56

Options contracts on stocks may

A) grant the owner the right to buy the stock at a specified price over a specified period of time.
B) grant the owner the right to sell the stock at a specified price over a specified period of time.
C) depending on the type of contract, grant the owner the right to either buy or sell the stock at a specified price over a specified period of time.
D) legally oblige the owner to buy the stock at a specified price over a specified period of time.

Question 57

ECNs are

A) publicly owned auction markets for listed stocks.
B) networks that transact trades between institutional investors.
C) facilities used by market makers for trading unlisted securities.
D) part of the third market which trades listed securities between individual investors.

Question 58

The automated system for trading highly active regulated OTC securities is the

A) Big Board.
B) Kansas City Board.
C) Chicago Board of Trade.
D) OTC Bulletin Board.

Question 59

The financial markets are becoming more globally integrated.

Question 60

A market where securities are are bought from or sold to a market maker is known as a

A) broker market.
B) dealer market.
C) exchange floor.
D) board of exchange.

Question 61

Insider trading is the use of nonpublic information about a security to gain a profit.

Question 62

Dollar-denominated debt securities issued by foreign corporations and traded in U.S. markets are called

A) ADRs.
B) Yankee bonds.
C) ETFs.
D) global bonds.

Question 63

Which of the following characteristics apply to trading before and after regular hours?
I) Most after hours trades match a bid price to a corresponding offer price.
II) Most brokerage firms require individual investors to place only market orders for after- hours trades.
III) Electronic Communications Networks (ECNs) play a key role in after hours trading.
IV) After-hours trading begins at 4:00 P.M. and ends at 9:30 A.M. eastern time.

A) II and IV only
B) I, II and III only
C) I and IV only
D) I, III and IV only

Question 64

Assume the foreign exchange rate for the euro was U.S. $1.00 = .91 euro last month. This month, the exchange rate is U.S. $1.00 = .88 euro. This information indicates that over the past month the

A) U.S. dollar remained unchanged relative to the euro.
B) U.S. dollar appreciated relative to all foreign currencies.
C) euro appreciated relative to the dollar.
D) euro depreciated relative to the dollar.

Question 65

Research indicates that investors are more likely to overreact to news when trading after hours.

Question 66

SEC regulations strictly prohibit trading outside the normal hours of 9:30 A.m. to 4:00 P.M. EST.

Question 67

Which one of the following statements about foreign investments is true?

A) In general, major foreign markets always tend to underperform the U.S. market.
B) Investing in foreign markets may involve specific risks not encountered with domestic securities.
C) Investing in foreign markets will always produce higher returns because of exchange rate fluctuations.
D) Foreign markets include equity securities only.

Question 68

The Sarbanes-Oxley Act of 2002 strengthens accounting disclosure requirements and ethical guidelines for financial officers.

Question 69

The U.S. stock markets tend to produce the highest rate of return each year.

Question 70

Including foreign investments in a portfolio

A) increases the overall risk of the portfolio.
B) reduces the potential rate of return.
C) provides potential benefits from changes in currency values.
D) limits the diversification amongst industries.

Question 71

Assume the foreign exchange rate for the euro was U.S. $1.00 = .91 euro last month. This month, the exchange rate is U.S. $1.00 = .88 euro. All things equal, the dollar value of European stocks

A) decreased.
B) increased.
C) stayed the same.
D) would vary depending on the country.

Question 72

Functioning securities exchanges are located in
I) Brazil
II) China
III) Russia
IV) South Korea

A) I, II, III and IV
B) I, II and IV only
C) I and IV only
D) II, III, and IV only

Question 73

The effects of fluctuating foreign exchange rates may
I) increase a U. S. investor's rate of return.
II) decrease a U. S. investor's rate of return.
III) can be avoided by investing in ADRs.
IV) can be avoided by investing in mutual funds that specialize in foreign stocks.

A) I and II only
B) I and III only
C) III and IV only
D) I, II, III and IV

Question 74

Which of the following can be encountered when investing in foreign markets?
I) foreign taxation of dividends
II) different accounting standards for financial disclosure
III) restrictions on types of investments
IV) illiquid markets

A) II and III only
B) II and IV only
C) I, II and IV only
D) I, II, III and IV

Question 75

The Securities Act of 1933 deals mostly with primary markets.

Question 76

High frequency trading (HFT) accounts for roughly half of all equity trades in the U.S. and Europe.

Question 77

American investors can participate in international stock markets by

A) purchasing shares in a mutual fund that invests in foreign companies.
B) purchasing shares of a U.S. based company such as Coca Cola or McDonald's with extensive international operations.
C) purchasing ADSs (American Depositary shares).
D) all of the above.

Question 78

Kayla purchased 500 ADRs in Pearson PLC, a British Company. How will fluctuations in the dollar/pound exchange rate affect the value of her investment?

A) Because the ADRs are denominated in dollars, the exchange rate will have no effect on her investment.
B) Changes in the exchange rate will be directly reflected in both the ADR value and dividends.
C) If the pound weakens against the dollar, the dollar value of her ADRs will increase.
D) If the dollar weakens against the pound, the value of her ADRs will decrease.

Question 79

Adding foreign stocks that are riskier than the portfolio average will always increase the risk of the portfolio.

Question 80

American Depositary Receipts represent

A) receipts for dollar deposits in foreign banks.
B) receipts from foreign broker-dealers establishing ownership of foreign stocks.
C) receipts for the stocks of foreign companies held by banks in the companies' home country.
D) receipts for shares of foreign companies held by U.S. broker-dealers.