Question 1

Common stock represents:

Accepted Answer

Common stock represents an ownership interest in a corporation, giving shareholders a claim on part of the company's assets and earnings.

Question 2

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

Accepted Answer

The secondary market for common stock has indeed undergone significant changes due to the institutionalization of the stock market, changes in government regulation, and advances in computer technology. These factors have collectively transformed how stocks are traded, managed, and regulated, leading to more efficient, accessible, and regulated markets.

Question 3

Secondary market trading in common stocks occurs:

Accepted Answer

Secondary market trading in common stocks occurs on organized exchanges like the NYSE and in the over-the-counter market like NASDAQ. The call market is not a typical venue for secondary market trading of common stocks.

Question 4

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

Accepted Answer

The "Big Board" is a nickname for the New York Stock Exchange (NYSE), one of the largest and most well-known stock exchanges in the world.

Question 5

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

Accepted Answer

The Fourth Market refers to direct transactions between institutional investors without the use of an intermediary, such as a broker or an exchange. This allows for large blocks of securities to be traded privately, often with the aim of minimizing market impact and trading costs.

Question 6

The Third Market is the market for:

Accepted Answer

The Third Market refers to the trading of exchange-listed stocks in the over-the-counter (OTC) market. This allows for trading of these stocks outside of the traditional exchange environment, providing flexibility and potentially different pricing or fees.

Question 7

The largest membership category on the NYSE is that of:

Accepted Answer

Commission brokers represent the largest membership category on the NYSE. They execute orders on behalf of clients, typically working for large brokerage firms, and play a crucial role in the trading ecosystem.

Question 8

Which of the following statements is most correct?

Accepted Answer

All of the statements are correct. The New York Stock Exchange (NYSE) operates as a membership organization where ownership is represented by owning a seat on the exchange. The owners of these seats, or members, have historically had the right to trade on the exchange floor. The NASDAQ was originally owned by the National Association of Securities Dealers (NASD), which is now known as the Financial Industry Regulatory Authority (FINRA). Additionally, NASDAQ operates as a for-profit organization, distinguishing it from some other exchange models.

Question 9

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

Accepted Answer

On exchanges, there is typically a designated market maker or specialist for each stock who is responsible for maintaining market liquidity. In contrast, the OTC market can have multiple dealers for a single stock, creating a competitive environment among them. This makes options A and B correct, leading to option D as the correct choice. Option C is incorrect because there is indeed competition among dealers in the OTC market.

Question 10

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

Accepted Answer

On June 5, 1997, the New York Stock Exchange (NYSE) voted to adopt a system of trading in decimals, moving away from the fractional system that had been in place. This change allowed stocks to be traded in increments of pennies rather than fractions of a dollar.

Question 11

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

Accepted Answer

Stocks are no longer traded with a spread of 1/16. This practice was common before the adoption of decimalization in 2001, which allowed stocks to be traded in increments of one cent.

Question 12

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

Accepted Answer

Firms list their shares on multiple exchanges to diversify their sources of capital, reduce the risk of domestic takeovers, enhance their global brand recognition, and potentially increase their sales revenues by broadening their investor base and market presence.

Question 13

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

Accepted Answer

A Global Depository Receipt (GDR) is used when a U.S. corporation's equities are traded in foreign markets outside the United States.

Question 14

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

Accepted Answer

The financial reform that took place in England in 1986 is known as "The Big Bang." This reform significantly deregulated the financial markets, leading to increased competition and the use of electronic trading systems.

Question 15

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

Accepted Answer

The Neuer Markt was a segment of the Frankfurt Stock Exchange aimed specifically at trading shares of smaller, high-growth companies. It was established in 1997 to provide a platform for these companies to access capital markets, but it was closed in 2003 due to a market downturn and decreased investor confidence.

Question 16

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

Accepted Answer

The Big Bang reforms aimed to liberalize the Japanese financial markets, making them more competitive globally. This involved creating a market environment that is free, fair, transparent, and less influenced by domestic political pressures, aligning with all the options provided.

Question 17

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

Accepted Answer

A Euroequity is a stock issue offered simultaneously in multiple countries by an international syndicate.

Question 18

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

Accepted Answer

Prior to February 2001, the Chinese stock market was divided into A shares and B shares. A shares were denominated in local currency and initially only available to local investors, while B shares were denominated in foreign currency (USD in Shanghai and HKD in Shenzhen) and were initially available to foreign investors.

Question 19

Most stock markets around the world use:

Accepted Answer

Most stock markets around the world use either some version of a competitive dealer system or an electronically assisted market maker system, making option D correct.

Question 20

On the Tokyo Stock Exchange, a satori:

Accepted Answer

A satori on the Tokyo Stock Exchange serves multiple roles, including acting as an intermediary between dealers and brokers, arranging transactions among dealers, and conducting auctions during the trading day. They are not restricted from buying or selling for their own accounts, which is not mentioned in the options, making all the provided options correct descriptions of their functions.

Quiz 13: Common Stock Market: I