Deck 13: Common Stock Market: I

Question 1

Common stock represents:

A) Ownership interest in a corporation.
B) A liability.
C) Program trading.
D) Arbitrage.
E) None of the above.

Answer 1

Ownership interest in a corporation.

Question 2

The secondary market for common stock has undergone significant changes since the 1960s as a result of:

A) The institutionalization of the stock market.
B) Changes in government regulation of the market.
C) Advances in computer technology.
D) A and b only.
E) All of the above.

Answer 2

All of the above.

Question 3

Secondary market trading in common stocks occurs:

A) On organized exchanges, such as the NYSE.
B) In the over-the-counter market, such as NASDAQ.
C) In the call market.
D) a and b only.
E) All of the above.

Answer 3

a and b only.

Question 4

The "Big Board" is the name commonly used for:

A) The American Stock Exchange.
B) The Philadelphia Stock Exchange.
C) The New York Stock Exchange.
D) The London Stock Exchange.
E) None of the above.

Question 5

Private transactions between institutional investors who deal directly with each other without an intermediary take place in the:

A) First Market.
B) Second Market.
C) Third Market.
D) Fourth Market.
E) None of the above.

Question 6

The Third Market is the market for:

A) Trading in the OTC market of stocks not listed on an exchange.
B) Trading in the OTC market of stocks listed on an exchange.
C) Trading on exchanges of stock listed on an exchange.
D) Private transactions between institutional investors without an intermediary.
E) None of the above.

Question 7

The largest membership category on the NYSE is that of:

A) A specialist.
B) Commission broker.
C) Independent floor broker.
D) Registered trader.
E) Local.

Question 8

Which of the following statements is most correct?

A) The NYSE is called a membership organization.
B) NYSE's owners are its seat holders.
C) NASDAQ is owned by the NASD.
D) NASDAQ is a for-profit organization.
E) All of the above.

Question 9

An important structural difference between exchanges and the OTC market with respect to the activities of dealers is that:

A) On exchanges, there is only one market maker or dealer per stock called the specialist.
B) In the OTC market, there may be many dealers for a stock depending on the trading volume.
C) There is not competition among specialists.
D) a and b only.
E) All of the above.

Question 10

On June 5, 1997, the NYSE voted to adopt a system of trading in:

A) Sixteenth.
B) Decimals.
C) Percent.
D) Pennies.
E) Tennies.

Question 11

Which of the following is false with respect to the regulatory changes in trading?

A) The SEC cost study in 2001 indicated that for many types of orders, investors get worse prices when they trade on the NASDAQ than on the NYSE.
B) Stocks are now traded with a spread of 1/16.
C) Regulation FD requires that information be made available to all investors at the same time.
D) Decimalization was adopted in 2001 with minimum price changes of one cent.
E) Cost differences exist because of structural differences between the NYSE and NASDAQ.

Question 12

Firms seek to list their shares on the exchanges of several countries because:

A) They seek to diversify their sources of capital across national boundaries.
B) It diminishes the prospect of takeover by other domestic concerns.
C) It boosts their name awareness.
D) It helps increase their sales revenues.
E) All of the above.

Question 13

When a U.S. corporation's equities are traded in a foreign market, they are typically issued in the form of:

A) A Global Depository Receipt.
B) An American Depository Receipt.
C) A Depository Receipt.
D) A foreign share.
E) None of the above.

Question 14

The financial reform, which occurred in England in 1986, is called:

A) The Big Board.
B) The Big Bang.
C) Decimal Monday.
D) The Black Monday.
E) None of the above.

Question 15

In Germany, the shares of smaller growth companies are traded:

A) In the official market.
B) In the regulated market.
C) In the Neuer Market.
D) a and b only.
E) None of the above.

Question 16

The goals of the Big Bang reforms for the Japanese financial markets were to develop a:

A) Free market, which employs market principles.
B) Fair and transparent market.
C) Global market.
D) A market, which is less susceptible to domestic political pressures.
E) All of the above.

Question 17

A stock issue, which is offered simultaneously in several countries by an international syndicate is called a(n):

A) International equity.
B) Foreign equity.
C) Euroequity.
D) ADR.
E) GDR.

Question 18

Prior to February 2001, the Chinese stock market was divided into:

A) A shares.
B) B shares.
C) H shares.
D) a and b only.
E) All of the above.

Question 19

Most stock markets around the world use:

A) The specialist system.
B) Some version of competitive dealer system.
C) An electronically assisted market maker system.
D) b and c only.
E) All of the above.

Question 20

On the Tokyo Stock Exchange, a satori:

A) Functions as an intermediary between the dealers and the brokers who are members of the exchange.
B) Cannot buy or sell for their own accounts.
C) Arrange transactions among dealers.
D) Conduct auctions during the trading day.
E) All of the above.

Question 21

The trading mechanism on exchanges is the negotiated system.

Question 22

OTC markets are called multiple market maker systems.

Question 23

The cost of a seat on an exchange is determined by supply and demand.

Question 24

A fragmented market is one in which some orders for a given stock are handled differently from other orders.

Question 25

ADRs are denominated in U.S. dollars and pay dividends in U.S. dollars.

Question 26

Differentiate between the four types of markets where stocks are traded in the U.S.

Question 27

Discuss the basic characteristics of the exchanges in the U.K. and Germany.