Question 1

A(n) ________ is a marketable document (a receipt) that certifies a bank holds shares of a foreign firm's stock that backs the receipt.

Accepted Answer

ADR stands for American Depository Receipt, which is a marketable document that certifies a bank holds shares of a foreign firm's stock that backs the receipt.

Question 2

What is the purpose of a circuit breaker for the market?

Accepted Answer

Circuit breakers are designed to temporarily pause trading to avoid extreme price volatility or to provide investors with an opportunity to analyze and respond to market swings. They are not meant to prevent declines in market value or shield investors from losses. Therefore, only option C accurately describes the purpose of a circuit breaker.

Question 3

Jordan has a few thousand dollars to invest. He wants to find newly issued stock of a fast‑growing new company. He will contact an underwriter and attempt to purchase the shares in the ________ market.

Accepted Answer

Jordan is looking for newly issued stock, which is only available in the primary market. The secondary market is for buying and selling previously issued stock, the New York Stock Exchange and NASDAQ are both exchanges where stocks are traded, and the commodity market deals with goods such as agriculture products, metals, and energy.

Question 4

Securities are generally sold in the primary markets with the help of a(n) ________ serving as a(n) ________.

Accepted Answer

Investment bankers often serve as underwriters in the primary markets, helping companies issue new securities to the public. They play a crucial role in determining the price of the securities, buying them from the issuer, and then selling them to investors.

Question 5

General Electric is the only stock originally listed and still remaining on the "Big Board." This means that its stock is traded on the ________.

Accepted Answer

General Electric is listed on the NYSE, also known as the "Big Board". It is not listed on NASDAQ, regional exchanges, AMEX, or international exchanges.

Question 6

Specialists maintain a fair and orderly market by buying and selling stock from their inventory to keep the market from fluctuating more than it would otherwise.

Accepted Answer

Specialists are tasked with buying and selling stocks from their inventory to maintain a fair and orderly market. They do this by providing liquidity and stabilizing prices, which helps prevent excessive fluctuations.

Question 7

Name the major organizations regulating the stock market and tell why they came about.

Accepted Answer

The answer of Name the major organizations regulating the stock...

Question 8

Differentiate between primary and secondary security markets.

Accepted Answer

The answer of Differentiate between primary and secondary security markets....

Question 9

Acting upon assumed good advice, your brother buys stock in I-Link, an upcoming communications firm. Since this is the first time I-Link is trading its stock, your brother will be involved in a(n) ________.

Accepted Answer

An initial public offering (IPO) is when a company offers its stock to the public for the first time. This is what is happening with I-Link in this scenario, so the correct answer is B. A secondary market transaction is when an investor buys or sells a security that has already been issued, so this does not apply. A seasoned new issue refers to a subsequent offering by a company that has already gone public, so this also does not apply. A tombstone purchase is a type of advertisement used to announce a completed securities offering, so this also does not apply. "Buy low transaction" is not a commonly used term in finance.

Question 10

A discount broker executes trades but does not provide much advice.

Accepted Answer

A discount broker typically charges lower commissions than full-service brokers but usually does not provide personalized investment advice. Instead, clients are responsible for making their own investment decisions.

Question 11

The two types of securities offerings in the primary markets are ________ and ________.

Accepted Answer

The two types of securities offerings in the primary market are initial public offerings (IPOs) and seasoned new issues (SNIs). IPOs are the first-time issuance of securities to the public by a company, while SNIs are subsequent offerings made by companies that have already gone public. Therefore, choice C is the correct answer as it mentions both IPOs and SNIs. Choices A, B, D, and E are incorrect as they either misrepresent the types of securities offerings or mention only one type of offering.

Question 12

All of the following are true about the American Stock Exchange except

Accepted Answer

The statements A, B, C, and E are all true about the American Stock Exchange except for statement D, which is false. The dollar volume of the American Stock Exchange is smaller than that of all the regional exchanges.

Question 13

Much of the day-to-day regulation of the market is left to the securities industry and is performed by the exchanges and the

Accepted Answer

FINRA (Financial Industry Regulatory Authority) is responsible for regulating the securities industry in the United States. They oversee firms and brokers who trade securities and enforce rules related to trading practices, market manipulation, and investor protection. The other options listed (SRC, FDIC, OTC, SIPC) do not have regulatory authority over the securities industry.

Question 14

Explain the bid and ask price system when trading in stocks.

Accepted Answer

The answer of Explain the bid and ask price system...

Question 15

Securities include both ________ and ________.

Accepted Answer

Securities typically refer to financial instruments that can be traded on financial markets, such as stocks and bonds. While mutual funds, real estate, and money market funds may also be traded on financial markets, they are not considered securities in the traditional sense. Therefore, the best choice is D, which accurately identifies the two most common types of securities as stocks and bonds.

Question 16

Gracie Johnson saw the securities announcement for New York Bagel Enterprises that provided the details of the offering and a listing of the underwriting syndicate. She saw the

Accepted Answer

A tombstone advertisement is a public notice used to announce an upcoming securities offering that includes the details of the offering and the underwriting syndicate. This fits with the description provided in the scenario.

Question 17

Jeffery is an underwriter and sells shared on the ________ market for his job. However, in his personal investment life, he will purchase his stocks through the ________ market.

Accepted Answer

Jeffery, as an underwriter, sells shares on the primary market, where new securities are issued. For personal investments, he buys stocks on the secondary market, where existing securities are traded among investors.

Question 18

Compare and contrast organized exchanges and OTC markets. List the nine major U.S. stock exchanges in the secondary market.

Accepted Answer

The answer of Compare and contrast organized exchanges and OTC...

Question 19

The Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 made it illegal to trade while in the possession of inside information, or "material" non-public information held by

Accepted Answer

The Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 apply to officers, directors, and major stockholders. Therefore, choice D (All of the above are correct) is the best answer.

Question 20

Which organization would handle frequently traded OTC stock, bonds, and foreign stock?

Accepted Answer

The answer of Which organization would handle frequently traded OTC...

Quiz 12: Securities Markets