Deck 4: Securities Markets and Market Indexes

Question 1

BATS is a(n):

A)security market regulatory agency.
B)electronic communication network.
C)exchange traded fund (ETF).
D)security exchange.

Answer 1

D

Question 2

Which exchange member is assigned to a specific trading post?

A)Commission broker
B)Floor trader
C)Specialist
D)Dealer

Answer 2

C

Question 3

In-house trading refers to:

A)trades made only on the floor of the exchanges.
B)direct trades made between OTC dealers.
C)trades by fund managers without the use of brokers or exchanges.
D)trades made between specialists on the NYSE.

Answer 3

C

Question 4

Which of the following statements regarding the NASDAQ Stock Market is not true?

A)It was less affected by the 2008 financial crisis than the NYSE.
B)NASDAQ dealers make a market by posting offers to buy or sell securities.
C)Stocks listed on the NYSE may also trade on NASDAQ.
D)NASDAQ's electronic trading system provides instantaneous transactions.

Question 5

Investment bankers operate in the:

A)primary market.
B)secondary market.
C)tertiary market.
D)fourth market.

Question 6

What document summarizes information about a new security issue?

A)The syndicate offer
B)The IPO
C)The prospectus
D)The shelf registration

Question 7

A block trade is defined as a transaction involving at least: ?

A)1,000 shares.
B)5,000 shares.
C)10,000 shares.
D)1 million shares.

Question 8

The issue of common stock of which there are already shares publicly held is known as:

A)an IPO.
B)a secondary market issue.
C)an EPO.
D)a seasoned issue.

Question 9

Investment bankers are compensated by:

A)the underwriting spread.
B)commissions paid by the buyers of the security.
C)commission paid by the sellers of the security.
D)guaranteed investment contracts.

Question 10

In a firm commitment underwriting arrangement,the risk of placing the security is typically assumed by the:

A)issuer of the security.
B)investment bankers.
C)commercial bankers.
D)institutional investors.

Question 11

Which of the following statements about the NYSE is true?

A)The NYSE is the oldest and most prominent primary market in the U.S.
B)Specialists account for over 50 percent of the seats on the NYSE.
C)The NYSE is the oldest and most prominent secondary market in the U.S.
D)Institutional investors do not trade on the NYSE.

Question 12

NASDAQ stocks:

A)are generally foreign stocks.
B)trade via the Blue Sheets.
C)are sometimes not listed on organized exchanges.
D)represent less than 1,000 companies.

Question 13

Some OTC stocks are traded through the:

A)blue sheets.
B)red sheets.
C)pink sheets
D)green sheets.

Question 14

NASDAQ listed stocks tend to be concentrated in the:

A)aerospace industry.
B)energy industry.
C)technology industry.
D)telecommunications industry.

Question 15

A type of trading involving a basket of 15 stocks or more and often used in conjunction with arbitrage strategies is called:

A)swapping.
B)program trading.
C)day trading.
D)insider trading.

Question 16

A computerized trading network that matches buy and sell orders electronically entered by customers is a(n):

A)national market system.
B)electronic communication network.
C)internet investment service.
D)global investment network.

Question 17

A major appeal for U.S.firms selling bonds in private placements is potential:

A)lower interest expense.
B)greater regulatory protection.
C)savings from not registering with the SEC or incurring underwriting costs.
D)fewer restrictions on subsequent borrowing activities.

Question 18

Automatic shelf registration refers to the practice of allowing seasoned issuers to file registration statements with the SEC that become effective immediately upon:

A)the filing of a "base prospectus," enabling efficient stock issue.
B)the filing of a "base prospectus," enabling efficient debt issue.
C)the filing of a "base prospectus," enabling efficient stock or debt issue.
D)the filing of a "red herring prospectus," enabling efficient stock or debt issue.

Question 19

The NYSE is now part of a:

A)not-for-profit corporation.
B)quasi-federal agency.
C)publicly-owned company.
D)government-sponsored agency.

Question 20

The price that a dealer offers a stock for sale is known as the:

A)the bid quote.
B)the ask quote.
C)the closing price.
D)the specialist price.

Question 21

For a given percentage change in price,which of the following stocks would have the greatest impact on the Dow Jones Industrial Average (DJIA)?The stock with the:

A)largest market capitalization
B)highest stock price per share
C)largest number of shares outstanding
D)largest amount of free float

Question 22

The largest electronic screen-based equity securities market in the U.S.is known as:

A)BATS.
B)Instinet.
C)Amex.
D)NASDAQ.

Question 23

Stocks traded on NASDAQ are bought and sold from specialists,who are often affiliated with brokerage firms.

Question 24

In private placements,new security issues are sold directly to financial institutions.

Question 25

Relative to the yields on corporate bonds issued in the primary market,the yields on comparable corporate bonds trading in the secondary market are:

A)much lower.
B)exactly the same.
C)slightly higher.
D)similar.

Question 26

The type of bond with the thinnest secondary market is:

A)agency bonds.
B)corporate bonds.
C)Treasury bonds.
D)municipal bonds.

Question 27

The S&P 500 Index is a:

A)price-weighted index that is adjusted for free float.
B)price-weighted index that is not adjusted for free float.
C)capitalization-weighted index that is adjusted for free float.
D)capitalization-weighted index that is not adjusted for free float.

Question 28

A criticism of the Dow Jones Industrial Average (DJIA)is that:

A)it includes too few stocks.
B)it is a value-weighted average.
C)it is an equal-weighted average.
D)it includes too many risky stocks.

Question 29

The NASDAQ 100 Composite Index is a value-weighted index.

Question 30

The Dow Jones Industrial Average consists of high quality stocks that are considered to be:

A)OTC stocks.
B)cyclical stocks.
C)blue-chip stocks.
D)defensive stocks.

Question 31

Smaller companies with fewer publicly held shares are more likely to meet the listing requirements of the NYSE.

Question 32

Most trading of bonds in the secondary market takes place on:

A)the NYSE.
B)the American Stock Exchange.
C)the OTC.
D)the CME.

Question 33

The difference between the bid and the ask price is known as the:

A)commission.
B)premium.
C)quote.
D)spread.

Question 34

Which of the following limits the usefulness of the S&P 500 Index as a market benchmark?

A)It is too heavily weighted with NYSE stocks to be representative.
B)It is too difficult to calculate for the average investor.
C)Its use of a base year in its calculations affects its performance.
D)Its performance can be greatly affected by a small number of stocks.

Question 35

Prices of stocks traded on the NYSE are determined through supply and demand.

Question 36

Orders on NASDAQ come from market makers,ECNs,and on-line brokers.

Question 37

A large public offering is often handled by a syndicate of investment banking firms,with one lead managing underwriter.

Question 38

A market capitalization-weighted index obtains the current market value of each stock by:

A)averaging the trade price for each day.
B)multiplying price times shares outstanding.
C)multiplying price times daily volume.
D)dividing earnings by shares outstanding.

Question 39

All OTC stocks are included in the NASDAQ.

Question 40

Which of the following is a major difference between the S&P 500 Index and the Dow Jones Industrial Average (DJIA)?Relative to the DJIA,the S&P 500:

A)includes stocks with a much smaller average market capitalization.
B)includes more foreign firms.
C)is a much broader index.
D)is more stable.

Question 41

The DJIA is a _______-weighted index.

Question 42

What is the difference between a seasoned issue and an IPO?

Question 43

The DJIA adjusts for stock splits by adjusting the market value of included stocks.

Question 44

What is Instinet and what does it offer for investors?

Question 45

What is the Nasdaq National Market System?

Question 46

The S&P 500 comprises approximately ___ percent of the market capitalization of all U.S.publicly traded companies.

Question 47

An NYSE market maker awaits news of a merger involving one of the stocksin which she makes a market.Why does she set the bid-ask spread higher?

Question 48

What is the difference between a price-weighted index and a capitalization-weighted (value-weighted)index?

Question 49

Normal stock exchange hours in the U.S.are 9:30a.m.to 4 p.m.Eastern Standard Time.

Question 50

Global Stock Index is a value-weighted index with just 2 stocks in the index: ABC stock and XYZ stock.
ABC ended 2015 at a price of $55 and had 1 million shares outstanding. XYZ stock ended 2015 at a price of $32 and had 4 million shares outstanding.
ABC ended 2016 at a price of $29 (after a 2-for-1 split). XYZ stock closed at $35 for 2016.Calculate the new value of the index.

Question 51

ECNs offer the advantages of automation,lower costs,and anonymity to its members.

Question 52

Why do the DJIA and the S&P 500 have a high correlation?

Question 53

What are the major advantages of a private placement for the issuer of securities?

Question 54

What factors does the NYSE consider important in determining if a company should be listed on the exchange?

Question 55

How do you think the globalization of the securities markets will impact the NYSE and the Nasdaq? What specific developments do you foresee happening soon for the global marketplace?

Question 56

What impact does the increasing amount of institutional investing have on the securities markets today,and what role do you think institutional investors will play in the future?

Question 57

What are the major similarities and differences between a specialist and a
dealer?