Deck 4: Securities Markets

Question 1

Stock prices tend to adjust rapidly to new information.​

Answer 1

True

Question 2

A purchase of 50 shares is an example of an even lot.​

Answer 2

False

Question 3

​NYSE is a system for providing bid and ask prices for over-the-counter (OTC) stocks.

Answer 3

False

Question 4

Investors are protected from failures of brokerage firms by the Securities Investor Protection Corporation.

Question 5

​The person who makes a market in a stock traded on the NYSE is called a broker.

Question 6

​The efficient market hypothesis suggests that investors should not expect to outperform the market.

Question 7

The SEC sets the margin requirement.​

Question 8

A broker makes a market in stocks traded on an organized exchange.

Question 9

​The margin requirement for stocks is set by the Federal Reserve.

Question 10

​In a short sale investors sell stock they own with the intention to buy it back within a short period of time.

Question 11

Short sellers profit when security prices decline.​

Question 12

Stocks not traded on an organized exchange are traded over‑the‑counter (e.g., the Nasdaq stock market).​

Question 13

​The use of margin increases the potential percentage return on an investment in stock.

Question 14

​A brokerage firm that offers to buy and sell a stock at specified bid and ask prices is "making a market."

Question 15

​Securities markets are often inefficient, so investors can anticipate beating the market over a period of years.

Question 16

​The New York Stock Exchange is an example of a secondary market.

Question 17

The larger the margin requirement, the greater the proportion of a stock purchase the investor may borrow.

Question 18

If a stock is quoted 10‑11, an investor can sell the stock for $11 a share.​

Question 19

The major function of the New York Stock Exchange is to raise funds for corporations.​

Question 20

​After investors purchase securities, they must make payment by the settlement date.

Question 21

​The efficient market hypothesis suggests
1) American securities markets are not competitive
2) American securities markets are very competitive
3) investors can expect to outperform the market
4) investors cannot expect to outperform the market

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 22

The efficient market hypothesis​

A) ​suggests that the market for securities is becoming less efficient
B) ​implies that investor can consistently outperform the market
C) ​is built upon competition and the rapid dissemination of information
D) ​suggests that security prices change slowly over time

Question 23

American Depository Receipts
​1) represent American securities traded abroad
2) represent foreign stocks traded in the United States
3) facilitate trading in foreign stocks
4) facilitate trading in American securities
​

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 24

Buying stock on margin​
1) is an example of financial leverage
2) is buying stock with borrowed funds
3) requires leaving the stock with the broker

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​all three

Question 25

Which of the following is inconsistent with efficient securities markets?​

A) ​stock prices change rapidly in response to new information
B) ​investors cannot expect to outperform the market consistently
C) ​bond prices change rapidly in response to new information
D) ​analysis of financial data will lead to superior investment performance

Question 26

Entering a sell order at $18.50 when the bid is 18-19​

A) ​is a market order
B) ​illustrates a short sale
C) ​requires a margin payment
D) ​is a limit order

Question 27

In an efficient market, security prices​

A) ​adjust rapidly to new information
B) ​adjust slowly to new information
C) ​poorly value a firm's future prospects
D) ​indicate that the firm is overvalued

Question 28

The individual (or firm) who makes a market
1) guarantees to buy at specified (bid) prices
2) guarantees to buy at specified (ask) prices
3) guarantees to sell at specified (bid) prices
4) guarantees to sell at specified (ask) prices​

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 29

The New York Stock Exchange​

A) ​is a financial intermediary
B) ​is a secondary market
C) ​transfers funds to businesses
D) ​forbids buying stock on margin

Question 30

​If an investor sells short, the individual
1) sells borrowed securities
2) sells securities from his or her portfolio
3) anticipates a price increase
4) anticipates a price decrease

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 31

If the quote on a stock is reduced,​
1) supply exceeded demand
2) demand exceeded supply
3) some potential buyers leave the market
4) some potential buyers enter the market

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 32

An investor may place a limit order that​

A) ​limits the amount of commissions
B) ​specifies when the stock will be purchased
C) ​establishes the exchange on which the security is to be bought or sold
D) ​states a price at which the investor seeks to buy or sell a stock

Question 33

Efficient securities markets imply that​

A) ​investors cannot outperform the market
B) ​investors cannot expect to outperform the market
C) ​security prices are randomly determined
D) ​there is little risk of loss over an extended investment horizon

Question 34

Organized securities markets​

A) ​are examples of financial intermediaries
B) ​transfer resources from savers to borrowers
C) ​are secondary markets
D) ​are not subject to regulation

Question 35

The regulation of security markets ​

A) protects investors from poor investments​
B) ​is enforced by the Federal Reserve
C) ​is enforced by the SEC
D) ​applies only to government securities

Question 36

The minimum margin requirement is established by​

A) ​brokerage firms
B) ​Congress
C) ​the SEC
D) ​the Federal Reserve

Question 37

If an individual buys stock on margin and its price rises,​

A) ​the investor must put up additional collateral
B) ​the investor must pay tax on the unrealized gain
C) ​the investor must pay interest on the borrowed funds
D) ​the investor may take delivery of the stock

Question 38

Over-the-counter stock quotes may be obtained through​

A) ​Nasdaq
B) ​SEC
C) ​SIPC
D) ​FDIC