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SB CH3 - abc
Financial (fin3710)
Baruch College CUNY
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During a transaction in the secondary market, what percent of the sale price goes to the managers of the firm to use to grow the business?
100%
10%
50%
0%
The sale of newly issued securities on the primary market is often managed by
investment bankers
angel investors
venture capitalists
leveraged buyout firms
When you purchase of share of stock in the secondary markets this causes the total number of outstanding shares to
decrease.
increase or decrease, depending on the bid-ask spread.
not change.
increase
What is the SEC rule that allow companies to sell shares directly to a small number of investors, forgoing the extensive and costly registration statement required of a public company?
Rule 12b-
Rule 144A
Order 66
Subsection S
When a private firm comes up with its initial public offering, it sells its Input Field 1 of 1 securities
unavailable correct securities to the general public.
A Input Field 1 of 2 primary unavailable correct primary market is a market for new issues of
securities. A Input Field 2 of 2 secondary unavailable correct secondary market is a market for already existing securities.
Where are newly issued securities sold?
Secondary Market
Primary Market
Securities and Exchange Market
Issuance Market
Which of the following is NOT true about the responsibilities of an Underwriter?
An underwriter can only purchase securities from the issuing company for themselves.
The underwriters may receive shares of common stock or other securities of the issuing firm as their compensation.
Underwriters are investment bankers that market stocks and bonds.
The underwriters purchase the securities from the issuing company and then resell to the public.
True or false: By law, at least 10% of all proceeds from stock transactions in the secondary market go to the issuing company.
Input Field 1 of 1 Underwriter unavailable correct Underw riter is another name for an investment banker charged with the role of helping to manage public offering.
True or false: The "ask price" is the minimum price that a seller of security is ready to accept.
True False Rationale: The "ask price" is the minimum price that a seller of security is ready to accept.
Which of the following statements is NOT true about prospectus?
A Red Herring is the final prospectus approved by the SEC.
The prospectus has been approved by the SEC
Prospectus is a statement filed with the SEC in its final form.
Prospectus is a description of the firm and the security it is issuing.
A limit buy order _____.
involves the purchase of shares at the current market price
is another name for a short sale
the purchase of shares at or above the specified price.
involves the purchase of shares at or below a specified price
The SEC approved Rule 415. Which of the following statements is NOT true about this rule?
Securities can be sold in small amounts, but will have substantial flotation costs. Rationale: without incurring substantial costs
Securities can be sold on short notice,with little additional paperwork.
Rule 415 was introduced in 1982
The Securities are on the shelf ready to be issued.
True or false: An informal network of brokers and dealers who negotiate sales of securities is called an "over-the-counter (OTC) market.
True False Rationale: negotiate sales of securities.
Define the type of markets where trading is active and brokers find it profitable to offer search services to buyers and sellers.
Direct search markets
Dealer markets
Brokered markets
Auction markets
Which of the following markets began as a dealers market but evolved to a trading system?
LIBOR
AMEX
NASDAQ
NYSE
True or false: The "bid price" is the price that a dealer is willing to pay for the purchase of a security.
True False Rationale: willing to pay for the purchase
A limit sell order
True Rationale: makes a market in the shares of one or more firms.
False
Which of the following statements is NOT true about the NASDAQ?
Prior to the introduction of the NASDAQ, all of the over-the-counter quotations were recorded manually and published daily on so-called pink sheets.
NASDAQ was introduced in 1971 to link brokers and dealers in a computer network.
The NASDAQ was originally organized to be more of a price quotation system, than a trading system.
The NASDAQ requires direct negotiation for electronic execution of trades at quoted prices. Rationale: quoted prices without the need for direct negotiation
What did the NYSE acquire in 2006 that contributed to the changing of the effective spread in the market?
The American Exchange (AMEX)
NASDAQ
Archipelago Exchange
NASD
True or false: The time it takes to accept, process, and deliver a trading order is called latency.
True False Rationale: time,process and deliver an order
ECNs allows participants to post market and limit orders over computer networks. ECN stands for Input
Field 1 of 3 Electronic unavailable correct Electronic Input Field 2 of 3 Communication unavailable
correct Communication Input Field 3 of 3 Networks unavailable correct Netw orks .
What percentage of the U. market is believed to be initiated by computer algorithms?
between 10-25%
less than 5%
nearly 100%
about 50%
Which of the following statements does NOT describe ECNs?
Trades are typically less than a penny per share.
Investors are offered considerable anonymity in their trades.
Direct crossing of trades without using a broker-dealer system eliminates the bid-ask spread that otherwise would be incurred.
Trades are not executed quickly. Rationale: Trade can be executed very quickly.
In a specialist market, the Input Field 1 of 2 highest unavailable correct highest outstanding bid
price and the Input Field 2 of 2 lowest unavailable correct low est outstanding ask price "win" the trade.
True or false: The effective spread (measured in dollars per share) fell dramatically as the minimum tick size fell. (Value-weighted average of NYSE - listed shares)
True False Rationale: spread fell dramatically
High-Frequency Trading
One advantage of ______ is the direct crossing of trades without using a broker-dealer system eliminates the bid-ask spread that otherwise would be incurred.
Direct Search Markets
Dealer Markets
Broker Markets
ECNs
What is a likely catalyst for the increased pressure for international alliances or mergers?
Systemic Risk
War
Increased tariffs
Electronic trading
High-frequency traders' profits rely on the
government subsidies
a large bid-ask spread
volume of trades
margin of each trade
Select the answer that best fits in the sentence below. Large transactions ____________ 10, shares of stock are bought or sold are called blocks.
in which at least
only equal to
in which no more than
True or false: Dark pools are trading systems in which participants can buy or sell large blocks of securities without showing their hand. Not only are buyers and sellers in the dark pools hidden from the public, but even trades may not be reported.
True False Rationale: participants can anonymously buy or sell
The Input Field 1 of 1 margin unavailable correct margin in a broker's call loan is the portion of the purchase price contributed by the investor.
Which of the following is not true regarding the globalization of stock markets?
Due to increased global demand, there are more limits on the securities that can be traded around the world.
Due to the impact of electronic trading, securities markets have come under increasing pressure to make international alliances or mergers.
It has become very important for exchanges to provide the cheapest and most efficient mechanism by which trades can be executed and cleared.
Companies need the ability to go beyond national borders when they wish to raise capital.
The sale of shares no owned by the investor but borrowed through a broker and later purchased to replace the loan is called a
buying on margin.
call option.
short sale.
tainted securities research and recommendations put out to the public
allocations of shares in initial public offerings
Which of the following statements is NOT true about a short sale?
The short-seller anticipates the stock price will go up, and the shares will be purchased later at a lower price than it initially sold for.
Short-sellers must not only replace the shares but also pay the lender of the security any dividends paid during the short sale.
With a short sale, the order is reversed. First, you sell and then you buy the shares. You begin and end with no shares.
A short sale allows investors to profit from a decline in a security's price.
Which of the following statements does NOT correctly describe the Securities Act of 1933?
Requires full disclosure of relevant information relating to the issue of new securities.
Requires registration of new securities and issuance of a prospectus that details the financial prospects of the firm.
Due to the nature of this act, it is often referred to as the "truth in securities" law.
State laws to outlaw fraud in security sales did not exist before the Securities Act of 1933
Nonpublic knowledge about a corporation possessed by corporate officers, major owners and other individuals with privileged access to information about the firm is called Input Field 1 of 1 inside
unavailable correct inside information
The most important overseer in the self-regulation of the securities market is the Input Field 1 of 4
Financial unavailable correct Financial Input Field 2 of 4 Industry unavailable correct Industry Input Field 3 of 4 Regulatory unavailable correct Regulatory Input Field 4 of 4
Agency unavailable incorrect Authority , which is the largest nongovernmental regulator of all securities firms in the United States.
In 2002 accounting malpractice among other things prompted Congress to pass the Input Field 1 of 2
Sarbanes unavailable correct Sarbanes -Input Field 2 of 2 Oxley unavailable correct Oxley Act.
True or false: Regulations prohibit insider trading. It is illegal for anyone to transact in securities to profit from inside information, that is, private information held by officers, directors, or major stockholders that has not yet been divulged to the public.
True False Rationale: sharing unreleased information is prohibited.
SB CH3 - abc
Course: Financial (fin3710)
University: Baruch College CUNY
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