Question 1

Exchange traded funds are

Accepted Answer

Exchange traded funds, or ETFs, are baskets of securities that trade like a single stock on a stock exchange, such as the NYSE or NASDAQ. They are similar to mutual funds in that they provide investors with a diversified portfolio of investments, but they differ in that they can be bought and sold throughout the trading day like an individual stock. Additionally, ETFs often have lower fees and expenses compared to mutual funds.

Question 2

The major options exchanges such as the Chicago Board Options Exchange deal

Accepted Answer

The major options exchanges such as the Chicago Board Options Exchange deal exclusively in options based on listed securities.

Question 3

Which of the following are associated with bull markets?
I. investor pessimism
II. government stimulus
III. economic recovery
IV. low inflation

Accepted Answer

The answer of Which of the following are associated with...

Question 4

Which of the following are true concerning the NYSE Amex:
I. Many exchange traded funds are listed there.
II. Its listing requirements are stricter than the New York Stock Exchange.
III. It is a major market for exchange traded funds.
IV. It is a broker rather than a dealer exchange.

Accepted Answer

I. Many exchange traded funds (ETFs) are listed on NYSE Amex.
III. NYSE Amex is considered a major market for ETFs.
IV. NYSE Amex is a broker exchange, meaning that it matches buyers and sellers through intermediaries, rather than being a dealer exchange where the exchange itself buys and sells securities.

Question 5

The purpose of the Intermarket Trading System is to link major exchanges and dealer markets to

Accepted Answer

The purpose of the Intermarket Trading System is to allow brokers and dealers to make transactions at the best price by linking major exchanges and dealer markets. It does not eliminate competition between brokers and dealers, allow individuals to compare prices, or allow direct trading between individual investors.

Question 6

The over-the-counter (OTC) market is a

Accepted Answer

The OTC market is not a traditional, physical auction market like the New York Stock Exchange (NYSE). Instead, it is a telecommunications network connecting dealers across the country. This means it is geographically dispersed and not centrally located in one physical location. The OTC market is also not solely for institutional traders, as retail investors can also participate in buying and selling OTC securities.

Question 7

The automated system for trading highly active OTC securities is the

Accepted Answer

The NASDAQ is an automated system for trading highly active OTC securities. The Big Board (A) refers to the New York Stock Exchange, which primarily trades listed stocks, not OTC securities. The Kansas City Board (B) and Chicago Board of Trade (C) are both exchanges for trading futures contracts, not OTC securities.

Question 8

The NYSE has listing requirements that include a minimum
I. number of outstanding shares.
II. amount of pre-tax earnings.
III. market value of publicly held shares.
IV. number of shareholders owning 100 shares or more.

Accepted Answer

The NYSE has comprehensive listing requirements that include a minimum number of outstanding shares, a minimum amount of pre-tax earnings, a minimum market value of publicly held shares, and a minimum number of shareholders owning 100 shares or more.

Question 9

Participation in foreign stock markets is complicated and expensive for American investors.

Accepted Answer

American investors can easily participate in foreign stock markets through various means such as American Depositary Receipts (ADRs), mutual funds, exchange-traded funds (ETFs), and direct investments on platforms that offer international trading, often without significant complications or expenses.

Question 10

The U.S. stock markets tend to produce the highest rate of return each year.

Accepted Answer

The U.S. stock markets have been known to produce high returns, but there is no guarantee that they will always be the highest each year. Other factors such as economic performance, global events, and market volatility can affect returns.

Question 11

The dominant options exchange is the

Accepted Answer

The Chicago Board Options Exchange (CBOE) is the largest and most well-known options exchange in the United States. It was founded in 1973 and offers trading in a wide range of options contracts, including those for stocks, indexes, and ETFs. The CBOE is also known for its volatility index (VIX), which measures the market's expectation of 30-day volatility.

Question 12

The financial markets are becoming more globally integrated.

Accepted Answer

This is true as advancements in technology and communication have allowed for easier access and movement of financial assets across borders, leading to increased global integration of financial markets.

Question 13

The price an individual investor will pay to purchase a stock in the OTC market is the

Accepted Answer

The ask price is the price at which a seller is willing to sell their shares in the OTC market. The spread refers to the difference between the bid and ask price, the bid price is the price at which a buyer is willing to buy shares, and there is no such thing as a broker price. Therefore, the best choice is B.

Question 14

There are many differences between broker markets and dealer markets. These differences include such things as membership, location, regulation, and several other characteristics. Discuss at least five key differences between these two markets.

Accepted Answer

The answer of There are many differences between broker markets...

Question 15

The primary market for futures is the

Accepted Answer

The primary market for futures is the Chicago Board of Trade. While futures are traded on other exchanges such as the New York Mercantile Exchange and the Kansas City Board of Trade, the Chicago Board of Trade is the largest and most well-known futures exchange in the world. The Chicago Board Options Exchange deals primarily in options, not futures.

Question 16

Which of the following are associated with bear markets?
I. investor pessimism
II. rising profits
III. economic slowdown
IV. rising security prices

Accepted Answer

Bear markets are characterized by investor pessimism and an economic slowdown. Rising profits and rising security prices are associated with bull markets, not bear markets.

Question 17

ECNs are

Accepted Answer

ECNs (Electronic Communication Networks) are privately owned networks that facilitate trades between institutional investors. They serve as an alternative to traditional exchanges and allow for faster execution of trades. ECNs are not publicly owned auction markets for listed stocks, nor are they used by market makers for trading unlisted securities. The third market refers to the trading of listed securities between individual investors and is not directly related to ECNs.

Question 18

Large technology companies such as IBM and Microsoft trade

Accepted Answer

Large technology companies such as IBM and Microsoft can choose to trade on either the NASDAQ or the NYSE. Both exchanges have listed technology companies, and the choice may depend on factors such as historical relationship or perceived benefits of each exchange. Therefore, the best choice is C, on either the NASDAQ or the NYSE. Option D is incorrect as alternative trading systems are typically used for specific types of securities trading, such as dark pools or high-frequency trading.

Question 19

Diversification is the inclusion of a number of different investments in a portfolio with the goal of increasing returns or reducing risk.

Accepted Answer

Diversification involves spreading investments across different assets, industries, and geographic locations to minimize the impact of any one market or economic event on the overall portfolio, thereby reducing risk and potentially increasing returns.

Question 20

A market where securities are are bought from or sold to a market maker is known as a

Accepted Answer

In a dealer market, securities are bought and sold directly between investors and dealers, who act as market makers by providing liquidity to the market. The other options are not accurate descriptions of this type of market.

Quiz 2: Securities Markets and Transactions