Question 1

The basic distinction between a primary and a secondary market is
A) proceeds from sales in the primary market go to the current owner of a security; proceeds in the secondary market go to the original owner.
B) primary markets involve direct dealings within regional exchanges.
C) only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market.
D) primary markets deal exclusively in bonds; secondary markets deal primarily in common stock.
E) None of the above.

Accepted Answer

The best choice is C as it accurately describes the difference between primary and secondary markets. Primary markets are where new securities are issued and sold for the first time, whereas secondary markets involve trading of already existing securities. Therefore, only new securities are sold in the primary market, while only outstanding securities are bought and sold in the secondary market. The other choices are incorrect as they do not accurately represent the difference between primary and secondary markets.

Question 2

Non taxable bonds are sold using the following method;
A) competitive bid.
B) negotiated sale.
C) private placement.
D) All of the above
E) None of the above

Accepted Answer

Non-taxable bonds can be sold through a competitive bid process, a negotiated sale with a single underwriter, or a private placement to a limited number of investors. Therefore, option D, "All of the above," is the correct answer.

Question 3

Refer to the last two questions. If the maintenance margin is 25 per cent, to what price can Jackson Industries fall before Kathy receives a margin call?
A) €21.75
B) €23.00
C) €10.67
D) €15.93
E) None of the above

Accepted Answer

In order to calculate the price to which Jackson Industries can fall before Kathy receives a margin call, we need to use the formula:
(Market Value - Loan)/Market Value * 100 = Maintenance Margin %
We can rearrange this formula to solve for the market value:
Market Value = Loan / (100 - Maintenance Margin %) * 100
Substituting the given values, we get:
Market Value = €1,750 / (100 - 25) * 100 = €2,333.33
Now we can calculate the price per share:
Price per share = Market Value / Number of shares = €2,333.33 / 220 = €10.61
Therefore, the price to which Jackson Industries can fall before Kathy receives a margin call is €10.61, which is closest to option C (€10.67).

Question 4

Kathy has a margin account with a balance of €60 000. Initial margin requirements are 80 per cent, and Jackson Industries is currently selling at €40 per share. How many shares of Jackson can Kathy buy?
A) 1875
B) 1500
C) 1750
D) 1200
E) None of the above

Accepted Answer

Kathy can buy 1875 shares of Jackson. Initial margin = 80% of €60,000 = €48,000Number of shares = €48,000 / €40 = 1875 shares

Question 5

Which of the following is not a secondary equity market?
A) Treasury market
B) National exchanges
C) Regional exchanges
D) Over-the-counter market
E) All of the above are secondary equity markets.

Accepted Answer

The Treasury market involves trading of government debt securities, such as U.S. Treasury bonds, and is not a secondary equity market. The other options, national exchanges, regional exchanges, and over-the-counter market, are all secondary equity markets where stocks are traded.

Question 6

Which of the following is not a function of the specialist?
A) Assists the Federal Reserve in controlling the money supply
B) Acts as a broker who handles the limit orders or special orders placed with member brokers
C) Buys and sells securities in order to stabilize the market
D) Acts as a dealer in assigned stocks to maintain a fair and orderly market
E) All of the above are functions of a specialist.

Accepted Answer

The answer of Which of the following is not a...

Question 7

Refer to the previous question. What is Kathy's profit if Jackson's price rises to €50?
A) €18 750
B) €15 750
C) €55 000
D) €37 750
E) €28 570

Accepted Answer

Kathy's profit is calculated based on the increase in Jackson's price to €50. The correct profit amount is €18,750.

Question 8

When a market is internally efficient, it means that
A) the market has price continuity.
B) the market has minimal transactions costs.
C) the market has good depth.
D) the market has more buyers than sellers.
E) the market has more sellers than buyers.

Accepted Answer

When a market is internally efficient, it means that there are minimal transactions costs, which implies that resources are allocated efficiently within the market. Price continuity ensures that there are no sudden fluctuations in price, but it is not a sufficient condition for internal efficiency. Depth refers to the ability of the market to absorb large transactions without significant changes in price, but it is not directly related to internal efficiency. The number of buyers and sellers in the market does not determine its internal efficiency.

Question 9

Refer to the previous question. What is Yvonne's profit/loss if Turtle's price after one year is €40?
A) €50 000
B) −€50 000
C) €100 000
D) −$100 000
E) None of the above

Accepted Answer

If Turtle's price after one year is €40, Yvonne will have to purchase the stock for €30 and sell it for €40, resulting in a profit of €10 per share. Since Yvonne bought 5,000 shares, her total profit would be €50,000. However, since Yvonne paid a fee of €25,000 to the investment bank, her net profit would be €25,000. Therefore, Yvonne would incur a loss if Turtle's price drops to €20 and a profit of €25,000 if the price is €40. Option B is the only choice that reflects a possible loss if the price of Turtle drops to €20.

Question 10

Yvonne has a margin account with a balance of €150,000. The initial margin deposit is 60 per cent and Turtle Industries is currently selling at €50 per share. How many shares of Turtle can Yvonne purchase?
A) 5000
B) 3000
C) 1800
D) 1200
E) None of the above

Accepted Answer

The initial margin deposit is 60 per cent, so Yvonne can borrow 40 per cent of the purchase price. The purchase price of one share is €50, so Yvonne can borrow 40 per cent of €50, which is €20. Therefore, Yvonne can purchase 150,000 / 20 = 7500 shares. However, the question asks how many shares of Turtle Yvonne can purchase, so the answer is 7500 - 1500 = 6000 shares.

Question 11

When an investor borrows part of the investment cost it is known as
A) a short sale.
B) a fill or kill order.
C) a margin transaction.
D) a limit order.
E) going long.

Accepted Answer

Borrowing part of the investment cost is known as a margin transaction, where the investor puts down a percentage of the investment cost and borrows the rest from the broker. This increases the potential return on investment, but also creates the risk of losing more than the initial investment if the investment does poorly. The other options (short sale, fill or kill order, limit order, going long) do not involve borrowing part of the investment cost.

Question 12

Which of the following is not a major category of membership in stock exchanges?
A) specialist
B) commission broker
C) floor broker
D) financial analyst
E) registered trader

Accepted Answer

The major categories of membership in stock exchanges include specialists, commission brokers, floor brokers, registered traders, but financial analysts are not considered a category of membership in stock exchanges, as they provide analysis and advice to investors rather than participating directly in trading activities.

Question 13

A pure auction market is one in which
A) dealers provide liquidity by buying and selling shares of stock for themselves.
B) dealers compete against each other to provide the highest bid and lowest asking prices.
C) buyers submit bid prices to sellers.
D) sellers submit ask prices to buyers.
E) buyers and sellers submit bid and ask prices to a central location to be matched.

Accepted Answer

A pure auction market is where buyers and sellers submit their bid and ask prices to a central location to be matched. Dealers do not provide liquidity or compete against each other. Option A and B are describing dealer markets, while option C and D do not involve a centralized matching process.

Question 14

A block trade is one which involves a minimum of
A) 1000 shares.
B) 5000 shares.
C) 10 000 shares.
D) 100 000 shares.
E) 1 000 000 shares.

Accepted Answer

A block trade typically involves a large quantity of shares, often greater than the standard trading volume for a particular security. While there may not be a specific minimum number of shares required for a trade to be considered a block trade, the generally accepted threshold is around 10,000 shares or more. Therefore, option C) 10,000 shares is the best choice.

Question 15

Which of the following statements about a market is true?
A) It is not necessary for the market to have a physical location.
B) The market does not necessarily own the goods or services involved.
C) A market can deal in any variety of goods and services.
D) All of the above
E) None of the above

Accepted Answer

All three statements are true. Markets can exist both physically (such as a farmer's market) or virtually (such as an online marketplace). The market does not necessarily own the goods or services being traded, but serves as a platform for buyers and sellers to interact. And a market can deal in any variety of goods and services, as long as there is demand and supply for those goods or services.

Quiz 3: Securities Markets: Organization and Operation

The basic distinction between a primary and a secondary market is

Non taxable bonds are sold using the following method;

Refer to the last two questions. If the maintenance margin is 25 per cent, to what price can Jackson Industries fall before Kathy receives a margin call?

Kathy has a margin account with a balance of €60 000. Initial margin requirements are 80 per cent, and Jackson Industries is currently selling at €40 per share. How many shares of Jackson can Kathy buy?

Which of the following is not a secondary equity market?

Which of the following is not a function of the specialist?

Refer to the previous question. What is Kathy's profit if Jackson's price rises to €50?

When a market is internally efficient, it means that

Refer to the previous question. What is Yvonne's profit/loss if Turtle's price after one year is €40?

Yvonne has a margin account with a balance of €150,000. The initial margin deposit is 60 per cent and Turtle Industries is currently selling at €50 per share. How many shares of Turtle can Yvonne purchase?

When an investor borrows part of the investment cost it is known as

Which of the following is not a major category of membership in stock exchanges?

A pure auction market is one in which

A block trade is one which involves a minimum of

Which of the following statements about a market is true?