Chapter 12
Market Microstructure and Strategies
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1. _________ only execute the transactions desired by customers without offering advice.
a. Full-service brokers
b. Discount brokers
c. Floor brokers
d. Specialists
2. ____________ are situated on the floor of stocks exchange and receive requests from brokerage firms to fulfill orders and execute those orders.
a. Specialists
b. Floor brokers
c. Market-makers
d. Discount brokers
3. The initial deposit in a margin account to satisfy the maintenance margin is the __________.
a. initial margin
b. actual margin
c. margin requirement
d. none of the above
4. A _______ order to buy or sell a stock means to execute the transaction at the best possible price.
a. limit
b. stop-loss
c. stop-buy
d. market
5. The ________ the short interest ratio, the _______ the level of short sales.
a. higher; higher
b. higher; lower
c. lower; higher
d. none of the above
6. An investor just purchased a stock with a price of $24, paying $12 and borrowing the remainder on margin. The brokerage firm charges an interest rate of 8 percent on the loan. The stock pays no dividends. If the investor sells the stock after one year for $30, what is his return?
a. 25.00%
b. 42.00%
c. 50.00%
d. none of the above
7. An investor just purchased a stock with a price of $24. The stock pays no dividends. If the investor sells the stock after one year for $30 and had not used any borrowed funds to purchase the stock, his return would be:
a. 25.00%.
b. 42.00%.
c. 50.00%.
d. none of the above
8. An investor who purchases a stock hopes that the stock will ______ in value, and a short seller hopes that the stock will ________ in value.
a. increase; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
9. Exchange-traded funds:
a. are funds designed to mimic particular stock indexes.
b. are traded on a stock exchange.
c. resemble some index mutual funds in several ways.
d. all of the above
10. _______ represent the NASDAQ 100 index.
a. Diamonds
b. Spiders
c. Cubes
d. WEBS
11. __________ is the simultaneous buying and selling of a portfolio of different stocks that are in the S&P 500 index and have an aggregate value of more than $1 million.
a. Short selling
b. Margin trading
c. Program trading
d. none of the above
12. When collars are imposed, program trading that reflects a buy order is allowed only when the last movement in the stock's price was:
a. zero.
b. an uptick.
c. a downtick.
d. program trading is always allowed when collars are imposed.
13. The SEC's Division of Market Regulation:
a. reviews the registration statement files when a firm goes public.
b. requires the orderly disclosure of securities trades by various organizations that facilitate the trading of securities.
c. assesses possible violations of the SEC's regulations and can take action against offenders.
d. none of the above
14. True or False? A direct access broker is a broker that facilitates trades for his or her customers.
a. True.
b. False.
15. True or False? Circuit breakers are restrictions on trading when stock prices or a stock index reaches a specified threshold level.
a. True.
b. False.
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