Test Bank For An Introduction to Derivative Securities 1st Edition by Robert A. Jarrow
CHAPTER 3: Stocks MULTIPLE CHOICE
1.The primary market for a stock is:
|
a. |
an initial public offering |
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b. |
an auction |
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c. |
a private placement |
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d. |
a subscription offering |
|
e. |
None of these answers are correct. |
ANS:ADIF:EasyREF:3.2
TOP: Primary and Secondary Markets, Exchanges, and Over-the-Counter Markets
MSC: Factual
2.Which of the following is NOT true about stockholders?
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a. |
A stockholder has fractional ownership over a company. |
|
b. |
A stockholder usually gets dividend payments from a company. |
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c. |
A stockholder can lose more than her initial investment because the company is a “legal person” and must meet its debts and legal obligations. |
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d. |
A stockholder can play a role in changing the top management of the company. |
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e. |
A stockholder cannot be sued for misdeeds of a company. |
ANS:CDIF:ModerateREF:3.2 | 3.3
TOP: Primary and Secondary Markets, Exchanges, and Over-the-Counter Markets | Brokers, Dealers, and Traders in Securities Markets MSC: Factual
3.US stock exchanges are:
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a. |
regulated by the CFTC |
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b. |
regulated by the Congress |
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c. |
regulated by the Federal Reserve Bank |
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d. |
regulated by the EPA |
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e. |
regulated by the SEC |
ANS:EDIF:EasyREF:3.2
TOP: Primary and Secondary Markets, Exchanges, and Over-the-Counter Markets
MSC: Factual
4.Which of the following statements about self-regulation of exchange-traded securities markets is INCORRECT?
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a. |
It makes the markets more honest. |
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b. |
It helps demonstrate to the federal agencies that the industry is doing a good job policing itself and thus more regulatory oversight may not be necessary. |
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c. |
It deals with problems before they get wide publicity. |
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d. |
It builds the reputation of the marketplace and thus attracts high-quality customers and greater trade volume. |
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e. |
Its net costs are far more than the benefits it provides. |
ANS:EDIF:EasyREF:3.3
TOP: Brokers, Dealers, and Traders in Securities Markets MSC: Factual
5.Which of the following is NOT true about a dealer?
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a. |
A dealer has inventory risk. |
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b. |
A dealer matches a buyer and a seller and earns commissions for this service. |
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c. |
A dealer posts bid and ask prices. |
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d. |
A dealer must have adequate capital to maintain her portfolio of securities. |
|
e. |
A dealer trades on her own account. |
ANS:BDIF:EasyREF:3.3
TOP: Brokers, Dealers, and Traders in Securities Markets MSC: Factual
6.Which of the following is NOT true about a spread in a financial market?
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a. |
A spread may refer to the gap between bid and ask prices of a stock or other security. |
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b. |
A spread may refer to the simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months. |
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c. |
A spread may refer to the difference between the price at which an underwriter buys an issue from a firm and the price at which the underwriter sells it to the public. |
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d. |
A spread may refer to the difference between the price that someone purchasing an item in an auction pays and the price that the seller receives. |
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e. |
A spread may refer to the price an issuer pays above a benchmark fixed-income yield to borrow money. |
ANS:DDIF:ModerateREF:3.3
TOP: Brokers, Dealers, and Traders in Securities Markets MSC: Factual
7.The foreign exchange market is one of the world’s largest:
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a. |
exchanges |
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b. |
primary markets |
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c. |
auction markets |
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d. |
dark pools |
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e. |
over-the-counter markets |
ANS:EDIF:EasyREF:3.2
TOP: Primary and Secondary Markets, Exchanges, and Over-the-Counter Markets
MSC: Factual
8.The following individuals do not trade in the derivative securities markets:
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a. |
day traders |
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b. |
market makers |
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c. |
position traders |
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d. |
scalpers |
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e. |
specialists |
ANS:EDIF:EasyREF:3.3 | 3.6
TOP: Brokers, Dealers, and Traders in Securities Markets | Buying and Selling Stocks
MSC: Factual
9.You are a dealer and post a price of $100.00 to $100.50 for a stock. There are more sell orders than buy orders and you find your inventory is growing. What is the correct way to adjust your quotes?
|
a. |
Lower the bid price and then lower the ask price. |
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b. |
Lower the ask price and then lower the bid price. |
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c. |
Raise the ask price and then raise the bid price. |
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d. |
Raise the bid price and then raise the ask price. |
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e. |
Do nothing—orders arrive randomly and they will self-adjust. |
ANS:ADIF:ModerateREF:3.3
TOP: Brokers, Dealers, and Traders in Securities Markets MSC: Applied
10.Traders with superior information are more likely to trade in the:
|
a. |
stock market |
|
b. |
bond market |
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c. |
money market |
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d. |
options market |
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e. |
swaps market |
ANS:DDIF:ModerateREF:3.3
TOP: Brokers, Dealers, and Traders in Securities Markets MSC: Conceptual
11.Which statement below is INCORRECT?
|
a. |
Arbitrageurs seek price discrepancies among securities and attempt to extract riskless arbitrage profits. |
|
b. |
Hedgers try to reduce risk by trading securities and are often cited as the chief reason for the existence of derivative markets. |
|
c. |
Position traders (also called trend followers) maintain speculative trading positions for longer periods of time. |
|
d. |
Scalpers open their positions in the morning, try to profit from price movements over the day, and close their positions at the end of the trading day. |
|
e. |
Speculators often take calculated risks in their pursuit of profits. |
ANS:DDIF:EasyREF:3.3
TOP: Brokers, Dealers, and Traders in Securities Markets MSC: Factual
12.Which statement below is INCORRECT about block trades?
|
a. |
They involve trades of 5,000 shares or more. |
|
b. |
They involve trades of 10,000 shares or more. |
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c. |
They are often negotiated away from the trading floor in the “upstairs market.” |
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d. |
They may or may not involve the services of a broker. |
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e. |
They are rarely handled by the specialists. |
ANS: A DIF: Easy REF: 3.6 TOP: Buying and Selling Stocks
MSC: Factual
13.Which statement below is correct about the Financial Industry Regulatory Authority (FINRA)?
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a. |
FINRA is the successor to NASDAQ. |
|
b. |
FINRA was created as a regulator of the stock market during the 1930s. |
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c. |
FINRA is the new name for NASD. |
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d. |
NASD and the member regulation, enforcement, and arbitration functions of the New York Stock Exchange were consolidated to form FINRA. |
|
e. |
FINRA operates the NASDAQ Stock Market LLC. |
ANS: D DIF: Easy REF: 3.6 TOP: Buying and Selling Stocks
MSC: Factual
14.Which of the following is NOT true about an electronic communications network (ECN)?
|
a. |
It is an alternate trading system that must be registered with the SEC as a broker-dealer. |
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b. |
Its participants include institutional investors, broker-dealers, and market makers. |
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c. |
It publicly displays the limit order book to subscribers. |
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d. |
It is primarily a trading venue for stocks and currencies. |
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e. |
It is a secretive trading network that does not send an order directly to an exchange or display it in a limit order book. |
ANS: E DIF: Easy REF: 3.6 TOP: Buying and Selling Stocks
MSC: Factual
15.A stock’s price cum-dividend is $50. If the market is free of riskless profit opportunities, then the ex-dividend price of the stock after the payment of a $1 dividend would be:
|
a. |
$48 |
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b. |
$49 |
|
c. |
$50 |
|
d. |
$51 |
|
e. |
None of these answers are correct. |
ANS:BDIF:EasyREF:3.7
TOP: Dollar Dividends and Dividend Yields MSC: Applied
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