Term
| The primary market is a market in which securities are traded among investors. |
|
Definition
|
|
Term
| The issuer has almost no price risk in a firm commitment offering once the offer price is set. |
|
Definition
|
|
Term
| All public offerings are regulated by the Securities and Exchange Commission (SEC). |
|
Definition
|
|
Term
| Under a best-effort agreement, investment bankers try to sell the securities of the issuing corporation, but they assume no risk for a possible failure of the flotation. |
|
Definition
|
|
Term
| Shelf registration allows firms to register only debt issues with the SEC, and have them available to sell for two years. |
|
Definition
|
|
Term
| All firms can use shelf registration which saves issuers both time and money. |
|
Definition
|
|
Term
| Private placement can avoid SEC registration and all SEC regulations. |
|
Definition
|
|
Term
| Rights offerings among public corporations became infrequent in the United States during the 1980s and 1990s. |
|
Definition
|
|
Term
| The flotation costs of an initial public offering are comprised solely of direct costs and the spread. |
|
Definition
|
|
Term
| IPO underpricing occurs only in the United States. |
|
Definition
|
|
Term
| Firm commitment flotation costs are typically lower than those of best efforts. |
|
Definition
|
|
Term
| An important function of the Securities and Exchange Commission is to pass judgment on the investment merit of a security. |
|
Definition
|
|
Term
| A dealer is a person who assists in the trading process by buying or selling securities in the market for an investor. |
|
Definition
|
|
Term
| The Glass-Steagall Act of 1933 ended the ability of commercial banks to act as underwriters of newly issued securities. |
|
Definition
|
|
Term
| The secondary markets provide pricing information and liquidity to investors. |
|
Definition
|
|
Term
| Floor brokers act as agents to execute customers’ orders for securities purchases and sales. |
|
Definition
|
|
Term
| Designated Market Makers are dealers who have the responsibility of making a market in an assigned security. |
|
Definition
|
|
Term
| All securities must be listed before they may be traded on the New York Stock Exchange. |
|
Definition
|
|
Term
| A limit order is an order to sell stock at the market price when the price of the stock falls to a specified level. |
|
Definition
|
|
Term
| The maintenance margin is the minimum margin to which an investment may fall before a margin call is placed. |
|
Definition
|
|
Term
| The fourth market is a market for large blocks of listed stocks that operate outside the confines of the organized exchanges. |
|
Definition
|
|
Term
| American depository receipts are receipts which represent foreign shares to U.S. investors. |
|
Definition
|
|
Term
| Insider trading regulation is provided for under the Securities Exchange Act of 1934. |
|
Definition
|
|
Term
| A global depository receipt is traded on the American Stock Exchange. |
|
Definition
|
|
Term
| The Dow-Jones Industrial Average is made up of 30 large blue-chip stocks. |
|
Definition
|
|
Term
| Commissions on stock trades are set by the stock exchanges. |
|
Definition
|
|
Term
| Existing securities are traded in the primary market. |
|
Definition
|
|
Term
| The prospectus is a contract outlining the duties, responsibilities and fees between the issuing firm and its underwriter. |
|
Definition
|
|
Term
| Underpricing represents the difference between the aftermarket price and the offering price. |
|
Definition
|
|
Term
| If there were no secondary markets for trading between investors, there would be no primary market for the initial sale of securities. |
|
Definition
|
|
Term
| The term “Big Board” is another name for the NASDAQ market. |
|
Definition
|
|
Term
| A market order is an order for immediate purchase or sale at the best possible price. |
|
Definition
|
|
Term
| An odd lot is a trade involving 100 shares or multiples of 100 shares. |
|
Definition
|
|
Term
| Over the counter markets are organized exchanges for trading securities such as the New York Stock Exchange. |
|
Definition
|
|
Term
| ADRs are created and traded in dollars on U.S. exchanges. They represent a given number of shares of a foreign firm’s stock . |
|
Definition
|
|
Term
| Churning happens when a broker constantly buys and sells securities from a client’s portfolio in an effort to generate commissions. |
|
Definition
|
|
Term
| In a financial context, due diligence refers to the detailed study of a corporation. |
|
Definition
|
|
Term
| An underwriting agreement is a contract in which the investment banker agrees to buy securities at a predetermined price and then resell them to investors. |
|
Definition
|
|
Term
| An underwriting agreement is a contract in which the investment banker agrees to do its best to sell securities to investors at the highest price it can; the investment banker assumes no risk for the possibility that it may fail to issue all authorized shares . |
|
Definition
|
|
Term
| A pre-emptive right refers to the right of existing shareholders to sue management in order to head off potential actions by management that would adversely affect the price of the stock. |
|
Definition
|
|
Term
| A Dutch auction is an offering process in which investors bid on the price and quantity of securities they wish to purchase. |
|
Definition
|
|
Term
| A syndicate is a group of several investment banking firms that participate in underwriting and distributing a security issue. |
|
Definition
|
|
Term
| The aftermarket is a period of time after an IPO. |
|
Definition
|
|
Term
| Federal regulation of investment banking is administered primarily under the provisions of the Investment Banking Monitoring and Control Act of 1999. |
|
Definition
|
|
Term
| Organized securities exchanges include the New York Stock Exchange, the American Stock Exchange, and NASDAQ. |
|
Definition
|
|
Term
| New York Stock Exchange is an example of a primary market. |
|
Definition
|
|
Term
1. Newly created securities are sold in the:
a. primary market
b. secondary market
c. third market
d. fourth market |
|
Definition
|
|
Term
2. The document which details the issuer’s finances and must be provided to each buyer of the security is called the:
a. indenture
b. prospectus
c. tombstone
d. all the above |
|
Definition
|
|
Term
3. ___________________ is a highly regulated document which details the issuers operations and finances and must be provided to each buyer of a newly issued security.
a. A prospectus
b. An underwriting agreement
c. A best efforts agreement
d. none of the above |
|
Definition
|
|
Term
4. Trades between large institutional investors that take place without the benefits of brokers or dealers occur in the:
a. primary market
b. secondary market
c. third market
d. fourth market |
|
Definition
|
|
Term
5. A market whereby large institutional investors arrange purchases and sales of securities among themselves without the benefit of a broker or dealer is referred to as the:
a. primary market
b. secondary market
c. third market
d. fourth market |
|
Definition
|
|
Term
6. The market for large blocks of listed stocks that operates outside the confines of the organized exchanges is called the:
a. primary market
b. secondary market
c. third market
d. fourth market |
|
Definition
|
|
Term
7. Sales of securities that the seller does not own is called a:
a. stop-loss order
b. short sale
c. limit order
d. maintenance margin |
|
Definition
|
|
Term
8. The maximum buying price or the minimum selling price specified by the investor is called a:
a. stop-loss order order to sell stock at market price when price of the stock falls to specified level
b. market order order for immediate purchase or sale at the best price possible
c. short sale sale of securities that the seller does not own
d. limit order maximum buying price or minimum selling price specified by the investor |
|
Definition
| d. limit order maximum buying price or minimum selling price specified by the investor |
|
|
Term
9. ___________________ is the maximum purchase price or minimum selling price specified by an investor.
a. A short sale
b. A stop-loss order
c. A limit order
d. Buying on margin |
|
Definition
|
|
Term
10. Brokerage firms that not only assist in trades but also have research staffs that analyze firms and make recommendations about which stocks to buy or sell are called:
a. discount brokerage firms
b. full service brokerage firms
c. investment banking firms
d. stock advisory brokers |
|
Definition
| b. full service brokerage firms |
|
|
Term
11. A limit order, if not executed, will expire at the end of
a. the day.
b. the week.
c. the month.
d. all of the above are possibilities as the trader will decide the expiration date. |
|
Definition
| d. all of the above are possibilities as the trader will decide the expiration date. |
|
|
Term
12. An order to sell stock at the market price when the price of the stock falls to a specified level is called a:
a. limit order
b. market order
c. short sale
d. stop-loss order |
|
Definition
|
|
Term
13. If the value of the securities that you borrowed money from your broker to purchase falls, you may receive a:
a. maintenance margin call
b. margin call
c. limit order call
d. specialist call |
|
Definition
|
|
Term
14. The price for which the owner is willing to sell the security is called the:
a. bid price
b. spread
c. ask price
d. limit price |
|
Definition
|
|
Term
15. The advantage of buying on margin is:
a. larger potential profit
b. using more of your own money
c. deductible loss
d. non-taxable capital gain |
|
Definition
| a. larger potential profit |
|
|
Term
16. If an investor feels the price of a stock will decline in the future, which trade should the investor undertake?
a. market order
b. buy on margin
c. limit order
d. short sale |
|
Definition
|
|
Term
17. The brokers who handle the house broker’s overflow are called:
a. specialists
b. registered traders
c. independent brokers
d. all the above |
|
Definition
|
|
Term
18. The Federal Reserve System and the New York Stock Exchange regulations currently require the short seller to have an initial margin of at least _______ of the price of the stock:
a. 10%
b. 25%
c. 30%
d. 50% |
|
Definition
|
|
Term
19. An over-the-counter market trade occurs in the:
a. primary market
b. NYSE
c. third market
d. SEC |
|
Definition
|
|
Term
20. A trade in the multiple of 100 shares is called a (n):
a. round lot
b. odd lot
c. block trade
d. none of the above |
|
Definition
|
|
Term
21. Which of the following statements is most correct?
a. Because global depository receipts are listed on the London Stock Exchange, U.S. investors cannot buy GDRs through a broker in the United States.
b. Foreign stocks can be traded in the United States if they are registered with the Securities and Exchange Commission.
c. The fourth market is a market for large blocks of listed stocks that operates outside the confines of the organized exchanges.
d. All the above statements are correct. |
|
Definition
| b. Foreign stocks can be traded in the United States if they are registered with the Securities and Exchange Commission. |
|
|
Term
22. Existing securities are traded:
a. in the primary markets
b. in the secondary markets
c. only on organized exchanges
d. only over-the-counter |
|
Definition
| b. in the secondary markets |
|
|
Term
23. Which one of the following is not a primary market function of investment bankers?
a. originating
b. underwriting
c. selling
d. making loans |
|
Definition
|
|
Term
24. A market has ________ if it can absorb large orders without disrupting prices; it has ___________ if it has many trades.
a. depth, breadth
b. breadth, depth
c. liquidity, quick execution
d. quick execution, liquidity |
|
Definition
|
|
Term
25. Which of the following is not a characteristic of a good market?
a. central location
b. quick and accurate trade execution
c. low cost of trading
d. all of the above are characteristics of a good market |
|
Definition
|
|
Term
26. A market is liquid if
a. trades are executed quickly.
b. market prices don’t fluctuate sharply on successive trades
c. both a) and b) are correct.
d. if fees are low. |
|
Definition
a. trades are executed quickly.
b. market prices don’t fluctuate sharply on successive trades
Answer:c. both a) and b) are correct. |
|
|
Term
27. A firm may decide to list its shares on another exchange besides the NYSE because
a. costs are lower.
b. listing requirements are easier to satify.
c. investors can get faster trade execution in another exchange.
d. all of the above. |
|
Definition
a. costs are lower.
b. listing requirements are easier to satify.
c. investors can get faster trade execution in another exchange.
answer:d. all of the above. |
|
|
Term
28. If a market has “price pressure” this is a sign of
a. good liquidity in the market.
b. low liquidity in the market.
c. high listing fees.
d. high brokerage commissions |
|
Definition
| b. low liquidity in the market. |
|
|
Term
29. An agreement whereby an investment banker tries to sell securities of an issuing corporation, but assumes no risk if the flotation is unsuccessful is called a:
a. due diligence agreement
b. best-effort agreement
c. firm commitment price agreement
d. shelf registration agreement |
|
Definition
|
|
Term
30. Which one of the following is not a cost to the issuing firm of going public with an initial stock offering?
a. direct costs (legal fees, accounting fees, etc.)
b. underwriter’s spread
c. overpricing
d. underpricing |
|
Definition
|
|
Term
31. The regulation of new security sales by individual states is referred to as:
a. the registration process
b. a truth-in-securities requirement
c. the rating of security quality
d. Blue-sky laws |
|
Definition
|
|
Term
32. Commercial banks were for many years prohibited from full-fledged investment banking by the:
a. Glass-Steagall Act
b. Garn-St. Germain Depository Institutions Act
c. Securities Act of 1933
d. National Association of Securities Dealers |
|
Definition
|
|
Term
33. Which of the following is not a basic type of member of the New York Stock Exchange?
a. independent brokers
b. floor brokers
c. registered traders
d. specialists
e. security regulators |
|
Definition
|
|
Term
34. An order for immediate purchase or sale at the best possible price is called a:
a. market order
b. limit order
c. stop loss order
d. margin order |
|
Definition
|
|
Term
35. Which of the following securities issues do not require competitive bidding?
a. state government bond issues
b. public utility security issues governmental agency
c. Federal government bond issues
d. corporate bond issues |
|
Definition
|
|
Term
36. Which of the following is not an advantage of shelf registration?
a. saving time on issuing securities
b. allows issuer to determine which investment bank offers the best service
c. eliminates filing fees
d. all the above
e. none of the above |
|
Definition
| c. eliminates filing fees |
|
|
Term
37. Under a ______________, if any additional shares of common stock, or any security that may be converted into common stock, are to be issued, the securities must be offered for sale first to the existing common stockholders.
a. red herring
b. pre-emptive rights offering
c. seasoned offering
d. shelf registration |
|
Definition
| b. pre-emptive rights offering |
|
|
Term
38. The flotation costs of an IPO depend on
a. the size of the offering
b. the issuing firm’s earnings
c. the condition of the stock market
d. all of the above
e. none of the above |
|
Definition
a. the size of the offering
b. the issuing firm’s earnings
c. the condition of the stock market
answer:d. all of the above |
|
|
Term
39. Investment banks engage in all of the following activities EXCEPT:
a. underwrite corporate securities p 277
b. buy and sell commercial paper p 286
c. mergers and acquisitions p 287
d. all of the above
e. none of the above |
|
Definition
a. underwrite corporate securities p 277
b. buy and sell commercial paper p 286
c. mergers and acquisitions p 287
d. all of the above
answer:e. none of the above |
|
|
Term
40. Which of the following is not a reason to sell securities in a private placement?
a. to keep current shareholders from suspecting “sweetheart deals”
b. to forestall a hostile takeover
c. to fulfill a need for an emergency infusion of equity
d. to reduce dividend payouts to shareholders
e. none of the above |
|
Definition
| d. to reduce dividend payouts to shareholders |
|
|
Term
41. The purpose of pre-emptive rights is to allow shareholders to:
a. buy enough of a new securities offering to maintain their present proportional share of ownership
b. buy an unlimited amount of the new issue at a discount
c. pre-empt other stockholders from selling securities in a company
d. none of the above |
|
Definition
| a. buy enough of a new securities offering to maintain their present proportional share of ownership |
|
|
Term
42. A syndicate is:
a. a firm that assists in specialist transactions
b. an organization of market makers
c. the largest group of members on the NYSE
d. all the above
e. none of the above |
|
Definition
a. a firm that assists in specialist transactions
b. an organization of market makers
c. the largest group of members on the NYSE
d. all the above
answer:e. none of the above |
|
|
Term
43. Market stabilization is:
a. disallowed under the Securities Act of 1934
b. permitted for underwriters if the market price falls below the offering price
c. prohibited by the Securities Exchange Commission
d. none of the above |
|
Definition
| b. permitted for underwriters if the market price falls below the offering price |
|
|
Term
44. The process whereby an underwriting syndicate steps in to buy back securities to prevent a larger price drop than that which has already occurred is called.
a. market stabilization
b. price normalization
c. dollar cost averaging
d. all the above
e. none of the above |
|
Definition
|
|
Term
45. The lead investment banker:
a. is elected by members of the syndicate
b. is appointed by the SEC
c. originates and handles a flotation
d. none of the above |
|
Definition
| c. originates and handles a flotation |
|
|
Term
46. The syndicate dissolves:
a. when members elect to do so
b. 30 days after securities issue
c. when the lead investment banker decides
d. the syndicate never dissolves |
|
Definition
| c. when the lead investment banker decides |
|
|
Term
47. Which of the following activities is not the responsibility of registered traders?
a. buy and sell stocks for their own accounts
b. pay no commissions
c. match up buy and sell orders
d. all the above
e. none of the above |
|
Definition
| c. match up buy and sell orders |
|
|
Term
48. Floor brokers:
a. act as agents to execute customers’ orders for securities purchases and sales
b. assist specialists in executing orders
c. trade for their own accounts
d. all the above
e. none of the above |
|
Definition
| a. act as agents to execute customers’ orders for securities purchases and sales |
|
|
Term
49. A stop-loss order:
a. sets a price a broker may not violate
b. stops losses for one trading day
c. is executed at the market once the stop-price loss or a price below it is reached
d. stops losses for 30 days |
|
Definition
| c. is executed at the market once the stop-price loss or a price below it is reached |
|
|
Term
50. If you buy stock certificates and keep them at the brokerage firm rather than taking personal possession of them, your stock is in:
a. street name
b. a short sale
c. a limit order
d. none of the above |
|
Definition
|
|
Term
51. If the initial margin requirement is 50% and you have $5,000 in your brokerage account, you may purchase a total of __________ worth of securities on margin. (Pick the closest answer.)
a. $2,000
b. $2,500
c. $10,000
d. $12,500 |
|
Definition
c. $10,000
$5,000 = (0.50)(TOTAL) → |
|
|
Term
52. Over-the-counter (OTC) trades must take place:
a. on the floor of the New York Stock Exchange
b. on the floor of the American Stock Exchange
c. on the floor of the NASDAQ Stock Exchange
d. none of the above |
|
Definition
a. on the floor of the New York Stock Exchange
b. on the floor of the American Stock Exchange
c. on the floor of the NASDAQ Stock Exchange
answer:d. none of the above |
|
|
Term
53. Index arbitrage refers to:
a. selling securities you don’t own short sale
b. buying and selling stocks with offsetting trades to lock in profits from price differences between different markets
c. buying IPO’s
d. all the above
e. none of the above |
|
Definition
| b. buying and selling stocks with offsetting trades to lock in profits from price differences between different markets |
|
|
Term
54. The aftermarket is:
a. the over-the-counter market
b. the foreign exchange market
c. the period after a new issue is initially sold to the public
d. none of the above |
|
Definition
| c. the period after a new issue is initially sold to the public |
|
|
Term
55. ___________________ is when an investor borrows money and invests t he borrowed funds along with his or her own funds in securities.
a. A short sale
b. A stop-loss order
c. A limit order
d. Buying on margin |
|
Definition
|
|
Term
56. ___________________ is an order to sell stock at the market price when the price of the stock falls to a specified level.
a. A short sale
b. A stop-loss order
c. A limit order
d. Buying on margin |
|
Definition
|
|
Term
57. __________________ is a technique for trading stocks as a group rather than individually, defined as a minimum of at least 15 different stocks with a maximum value of $1 million.
a. A short sale
b. A stop-loss order
c. Margin trading
d. Program trading |
|
Definition
|
|
Term
58. A receipt that represents foreign shares owned and traded by U.S. investors is called a (n):
a. global depository receipt
b. American depository receipt
c. representative depository receipt
d. none of the above |
|
Definition
| b. American depository receipt |
|
|
Term
59. ___________________ is an agreement by the investment banker to sell securities of the issuing corporation whereby the investment banker assumes no risk for the possible failure of the flotation.
a. A prospectus
b. An underwriting agreement
c. A best-effort agreement
d. none of the above |
|
Definition
| c. A best-effort agreement |
|
|
Term
60. ___________________ are comprised of direct costs, the spread, and underpricing.
a. Commission costs
b. Flotation costs
c. Brokerage commissions
d. none of the above |
|
Definition
|
|
Term
61. Federal regulation of investment banking is administered primarily under the provisions of the ___________________.
a. Investment Banking Act of 1977
b. The Garn-St. Germain Act of 1997
c. The Securities Act of 1933
d. none of the above |
|
Definition
| c. The Securities Act of 1933 |
|
|
Term
62. In reality, an option’s value will equal its intrinsic value only at expiration. At all other times, the option’s premium or price will exceed its intrinsic value. A major reason for this is/are _____________.
a. marketability
b. price
c. trade restrictions
d. time
e. none of the above |
|
Definition
|
|
Term
63. In reality, an option’s value will equal its intrinsic value only at expiration. At all other times, the option’s premium or price will exceed its intrinsic value. A major reason for this is/are _____________.
a. marketability
b. price
c. trade restrictions
d. brand
e. none of the above |
|
Definition
a. marketability
b. price
c. trade restrictions
d. brand
answer:e. none of the above |
|
|
Term
64. The ________________________, the greater the chance of the option becoming _____________________.
a. shorter the time to expiration, in-the-money
b. longer the time to expiration, in-the-money
c. less the volatility, in-the-money
d. two of the above are correct.
e. none of the above. |
|
Definition
| b. longer the time to expiration, in-the-money |
|
|
Term
65. The ________________________, the greater the chance of the option becoming _____________________.
a. shorter the time to expiration, in-the-money
b. longer the time to expiration, out-of-the-money
c. less the volatility, in-the-money
d. two of the above are correct.
e. none of the above. |
|
Definition
a. shorter the time to expiration, in-the-money
b. longer the time to expiration, out-of-the-money
c. less the volatility, in-the-money
d. two of the above are correct.
answer:e. none of the above. |
|
|
Term
66. If a Microsoft January 20 call option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $25.62, the price of the call option would have to be __________ or higher to eliminate arbitrage opportunities.
a. $31.24
b. $5.62
c. $15.62
d. $25.62
e. $14.38 |
|
Definition
b. $5.62
Call option is the right to buy the stock at the strike price of $20 →
to prevent arbitrage premium ≥ $25.62 - $20 = $5.62 |
|
|
Term
67. If a Microsoft January 20 call option with a strike price of $20 was selling for $2.00 and the market price of the underlying Microsoft stock was $25.62, the call option would be _______________.
a. in-the-money option with a positive intrinsic value (can profit by exercising the call)
b. out-of-the-money option with zero intrinsic value (can’t profit by exercising the call)
c. fairly priced
d. not enough information to tell |
|
Definition
a. in-the-money option with a positive intrinsic value (can profit by exercising the call)
Call option is the right to buy the stock at the strike price of $20 → strike price < $25.62
Use Call to buy the stock at $20 and sell it in the market for $25.62 |
|
|
Term
68. If a Microsoft January 20 call option had a strike price of $20 and the market price of the underlying Microsoft stock was $25.62, the call option would be _______________.
a. in-the-money option with a positive intrinsic value (can profit by exercising the call)
b. out-of-the-money option with zero intrinsic value (can’t profit by exercising the call)
c. fairly priced
d. not enough information to tell |
|
Definition
a. in-the-money option with a positive intrinsic value (can profit by exercising the call)
Call option is the right to buy the stock at the strike price of $20 → strike price < $25.62
Use Call to buy the stock at $20 and sell it in the market for $25.62 |
|
|
Term
69. If a Microsoft January 20 put option had a strike price of $20 and the market price of the underlying Microsoft stock was $15.00, the put option would be _______________.
a. in-the-money option with a positive intrinsic value (can profit by exercising the put)
b. out-of-the-money option with zero intrinsic value (can’t profit by exercising the put)
c. fairly priced
d. not enough information to tell |
|
Definition
a. in-the-money option with a positive intrinsic value (can profit by exercising the put)
Put option is the right to sell the stock at the strike price of $20 → strike price > $15.00
Buy the stock in the market at $15 and use the put to sell it at $20 |
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Term
70. If a Microsoft January 20 put option with a strike price of $20 was selling for $5.00 and the market price of the underlying Microsoft stock was $10.00, the put option would be _______________.
a. in-the-money option with a positive intrinsic value (can profit by exercising the put)
b. out-of-the-money option with zero intrinsic value (can’t profit by exercising the put)
c. fairly priced
d. not enough information to tell |
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Definition
a. in-the-money option with a positive intrinsic value (can profit by exercising the put)
Put option is the right to sell the stock at the strike price of $20 → strike price > $15.00
Buy the stock in the market at $10 and use the put to sell it at $20 |
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Term
71. If a Microsoft January 20 put option with a strike price of $20 was selling for $5.00 and the market price of the underlying Microsoft stock was $23.00, the price of the put option would be _______________.
a. in-the-money option with a positive intrinsic value (can profit by exercising the put)
b. out-of-the-money option with zero intrinsic value (can’t profit by exercising the put)
c. fairly priced
d. not enough information to tell |
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Definition
b. out-of-the-money option with zero intrinsic value (can’t profit by exercising the put)
Put option is the right to sell the stock at the strike price of $20 → strike price > $15.00
buying the stock at $23 and using put to sell it at $20 → doesn’t profit exercising put |
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Term
72. If a Microsoft January 20 put option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $15.00, the price of the put option would have to be __________ or higher to eliminate arbitrage opportunities.
a. $1.00
b. $2.00
c. $4.00
d. $6.00
e. $5.00 |
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Definition
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Term
73. The seller of an option contract is called a (n) ____________ and the price paid for the option itself is the called the ___________.
a. option broker, option price
b. sales agent, option premium
c. option writer, option premium
d. option writer, option price
e. none of the above. |
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Definition
| c. option writer, option premium |
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Term
74. The seller of an option contract is called a (n) ____________ and the price paid for the option itself is the called the ___________.
a. option broker, option price
b. sales agent, call option
c. sales agent, option premium
d. option writer, option price
e. none of the above. |
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Definition
a. option broker, option price
b. sales agent, call option
c. sales agent, option premium
d. option writer, option price
answer:e. none of the above. |
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Term
75. Exchange-traded options are liquid because they are standardized in terms of:
a. expiration dates
b. exercise prices
c. quantity of the underlying asset
d. quality of the underlying asset
e. all of the above. |
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Definition
a. expiration dates
b. exercise prices
c. quantity of the underlying asset
d. quality of the underlying asset
answer:e. all of the above. |
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Term
76. Exchange-traded options are liquid because they are standardized in terms of:
a. announcement dates
b. future prices
c. timing of the underlying asset
d. location of the underlying asset
e. none of the above. |
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Definition
a. announcement dates
b. future prices
c. timing of the underlying asset
d. location of the underlying asset
answer:e. none of the above. |
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Term
77. While the Chicago Board Options Exchange remains the main market for exchange traded options, the ______________ exchange also deals in option contracts.
a. New York
b. American
c. Pacific
d. Philadelphia
e. all of the above. |
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Definition
a. New York
b. American
c. Pacific
d. Philadelphia
answer:e. all of the above. |
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Term
78. While the Chicago Board Options Exchange remains the main market for exchange traded options, the ______________ exchange also deals in option contracts.
a. Miami
b. Indianapolis
c. San Francisco
d. all of the above
e. none of the above. |
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Definition
a. Miami
b. Indianapolis
c. San Francisco
d. all of the above
answer:e. none of the above. |
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Term
79. Purchasers and sellers of futures are generally required to deposit an initial margin in the range of ___________ with the exchange’s clearinghouse to reduce credit risk.
a. 3 to 6 percent
b. 3 to 6 dollars
c. 10 to 15 percent
d. 10 to 15 dollars
e. none of the above. |
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Definition
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Term
80. Purchasers and sellers of futures are generally required to deposit an initial margin in the range of ___________ with the exchange’s clearinghouse to reduce credit risk.
a. 15 to 20 percent
b. 15 to 20 dollars
c. 10 to 15 percent
d. 10 to 15 dollars
e. none of the above. |
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Definition
a. 15 to 20 percent
b. 15 to 20 dollars
c. 10 to 15 percent
d. 10 to 15 dollars
answer:e. none of the above. |
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Term
81. The prudent use of derivatives to hedge, or reduce risk, is similar to the concept of ________________.
a. gambling
b. juggling
c. hiding
d. insurance
e. none of the above. |
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Definition
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Term
82. The prudent use of derivatives to hedge, or reduce risk, is similar to the concept of ________________.
a. gambling
b. juggling
c. hiding
d. religion
e. none of the above. |
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Definition
a. gambling
b. juggling
c. hiding
d. religion
answer:e. none of the above. |
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Term
83. _____________ is when a broker constantly buys and sells securities from a client’s portfolio in an effort to generate commissions. Rather than making decisions that are in the client’s best interest, frequent commission-generating trades may be made by brokers with selfish motives.
a. Blending
b. Flipping
c. Swapping
d. Churning
e. none of the above. |
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Definition
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Term
84. _____________ is when a broker constantly buys and sells securities from a client’s portfolio in an effort to generate commissions. Rather than making decisions that are in the client’s best interest, frequent commission-generating trades may be made by brokers with selfish motives.
a. Blending
b. Flipping
c. Swapping
d. Sale-resale
e. none of the above. |
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Definition
a. Blending
b. Flipping
c. Swapping
d. Sale-resale
answer:e. none of the above. |
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Term
85. Insider trading laws regulate the behavior of
a. corporate officers only
b. investment bankers only
c. anyone with nonpublic information about a firm
d. none of the above. |
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Definition
| c. anyone with nonpublic information about a firm |
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Term
86. A contract that gives the owner the option or choice of selling a particular good at a specified price on or before a specified date is called a (n):
a. call option
b. put option
c. futures contract
d. derivative option |
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Definition
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Term
87. A contract that gives the owner the option or choice of buying a particular good at a specified price on or before a specified date is called a (n):
a. call option
b. put option
c. futures contract
d. derivative option |
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Definition
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Term
88. A contract that obligates the owner to purchase or sell a particular underlying asset at a specified price on a specified day is called a (n):
a. call option contract for the purchase of securities
b. put option contract for the sale of securities
c. futures contract
d. derivative option |
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Definition
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