Question 1

The NASDAQ is the largest electronic stock exchange.

Accepted Answer

This statement is true. The NASDAQ (National Association of Securities Dealers Automated Quotations) is the largest electronic stock exchange in the world, based on the number of listed securities and trading volume.

Question 2

Churning occurs when a broker engages in excessive trading in a client's security account to generate more commissions for the broker.

Accepted Answer

This is a common practice done by some brokers, where they excessively trade in a client's account to increase their commission earnings, even though it may not be in the client's best interest.

Question 3

An individual investor should look for a stock broker who will churn their accounts for them.

Accepted Answer

An individual investor should look for a stock broker who will act in their best interests and provide sound advice, not one who will excessively trade and generate commissions without regard for the investor's goals and risk tolerance. Churning accounts is unethical and can be detrimental to an investor's portfolio.

Question 4

You have just purchased shares of stock from a stockbroker. These shares were previously traded on the NYSE. This trade took place in the ________.

Accepted Answer

The NYSE is a secondary market where previously issued shares of stock are traded among investors. The primary market is where newly issued securities are sold for the first time, while the tertiary market and quaternary market are not commonly used terms in financial markets.

Question 5

A circuit breaker protects individual investors from losing money on their investments.

Accepted Answer

A circuit breaker is a safety mechanism implemented by stock exchanges to prevent panic selling and extreme price volatility during periods of market stress. It temporarily halts trading when a specified threshold is reached. It does not protect individual investors from losing money on their investments as market risks and losses are inherent in investing.

Question 6

You and your spouse have decided to incorporate bonds into your newly-formed retirement portfolio. You will most likely purchase them ________.

Accepted Answer

It is most likely that bonds will be purchased through a broker acting as an intermediary. Brokers have access to a wide range of bond offerings and can provide guidance on selecting appropriate bonds based on individual retirement portfolio needs and goals. Purchasing directly from a bond dealer or issuing institution may limit the selection of available bonds and may not come with the same level of guidance and support. Using an underwriter as an intermediary may also limit choices and increase costs.

Question 7

You just concluded a stock purchase transaction via a computer hookup rather than in an organized exchange. This trade took place in the ________.

Accepted Answer

The over-the-counter market (OTC) is a decentralized market where securities are traded through a computer network rather than on a centralized exchange such as the NYSE or AMEX. OTC transactions can occur between two parties directly or through a broker-dealer network.

Question 8

Most of the bonds that are bought and sold are not transacted on the organized exchanges. They are bought and sold through bond dealers who do not sell many ________ bonds but do trade many ________ bonds in the secondary market.

Accepted Answer

The statement mentions that dealers do not sell many corporate bonds but do trade many government bonds in the secondary market, indicating that corporate and government bonds are the types being compared. Therefore, the answer is A, which correctly identifies corporate and government bonds.

Question 9

Patti DeVry has been trading stocks in the over-the-counter market. When she wants to sell her stocks she will specify the ________ price and when she wants to purchase stocks she will specify the ________ price.

Accepted Answer

The answer of Patti DeVry has been trading stocks in...

Question 10

A(n) ________ advertisement provides a listing of the underwriting syndicate involved in a new offering.

Accepted Answer

A tombstone advertisement is used to announce a new securities offering and typically lists the name of the issuing firm, the type of securities being offered, and the names of the underwriting syndicate involved in the offering.

Question 11

A(n) ________ is a legal document that describes a securities issue and is made available to potential investors.

Accepted Answer

A prospectus is a legal document that provides details about a securities issue, such as the terms and risks involved, and is available to potential investors. A disclosure statement may also provide financial information but is not necessarily specific to a securities issue. An offering contract is a binding agreement between the issuer and underwriters. A tombstone is a short announcement of a securities issue, often used for advertising purposes, and does not provide detailed information.

Question 12

The difference between an organized exchange and an over-the-counter market is that the transactions that occur on an organized exchange ________ and the over-the-counter transactions ________.

Accepted Answer

Organized exchanges, such as the New York Stock Exchange, have a physical building where transactions occur. In contrast, over-the-counter markets are conducted over the phone or via a computer without a physical meeting space. The other choices are not accurate descriptions of the difference between the two.

Question 13

ABC Corporation is selling additional shares of common stock. Although ABC Corporation has already sold shares of stock in the public equity markets, these are new shares of stock, and have never been sold or traded previously. This is called a(n) ________.

Accepted Answer

This is called a seasoned new issue, which refers to the process of a company that has already gone public issuing additional shares to the market. An initial public offering (IPO) is the first sale of stock by a company to the public. A secondary issue would involve existing shares being sold by one investor to another, not the company issuing new shares. A blue chip issue refers to the stock of a large, well-established, and financially sound company that has operated for many years, not specifically to new or additional shares being issued.

Question 14

Although some bonds are traded on the NYSE, most of the buying and selling of bonds doesn't occur on organized exchanges.

Accepted Answer

Most bond trading occurs over-the-counter (OTC) through dealers and brokerage firms rather than on a centralized exchange like the NYSE.

Question 15

IBM went to a(n) ________ who served as a(n) ________ to sell an IPO in the primary markets.

Accepted Answer

The answer of IBM went to a(n) ________ who served...

Question 16

You have just recently started your investment activities for retirement. You were happy to learn from your broker that your investor's account balance would be insured for up to $500,000 through the ________ in the event their brokerage firm goes bankrupt.

Accepted Answer

The Securities Investor Protection Corporation (SIPC) provides insurance coverage for investors' brokerage accounts in the event of a brokerage firm's bankruptcy. The coverage limit is up to $500,000 per investor, including up to $250,000 in cash balances. The other options listed (FDIC, FSLIC, NCUA, and FTC) provide different types of insurance coverage for other types of financial institutions or consumer protection, and are not applicable to brokerage accounts.

Question 17

ABC Corporation is selling additional shares of common stock. These are new shares of stock, and have never been sold or traded previously. The selling of these shares would take place in the ________ market.

Accepted Answer

The primary market is where new securities, such as new shares of stock, are issued and sold for the first time. This is different from the secondary market, where existing securities are bought and sold between investors. The tertiary and quaternary markets are not commonly used terms in finance.

Question 18

The two major organized stock exchanges in the Unites States are the ________ and the ________.

Accepted Answer

The two major organized stock exchanges in the United States are the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). Option B lists both of these exchanges. The Chicago Stock Exchange and Pacific Stock Exchange are not as large or significant as the NYSE and AMEX.

Question 19

IBM is considering hiring an investment banker who will purchase and subsequently resell an issue of stock for them. This service is called ________.

Accepted Answer

The service IBM is considering is called underwriting. Underwriting involves an investment banker purchasing stock from a company and then reselling it to the public. The investment banker assumes the risk of selling the stock and may buy additional shares to ensure the stock is fully sold.

Question 20

Securities that are less frequently traded, along with many new and high-tech stocks, are relegated to the

Accepted Answer

The OTC (Over-the-Counter) market is where securities that are less frequently traded, along with many new and high-tech stocks, are typically traded. The NYSE and AMEX are larger exchanges that handle more established and widely-traded securities. The ADR (American Depository Receipt) market is specific to foreign companies and their stocks traded in the United States.

Quiz 12: Securities Markets