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Question 1 of 10
1. Question
Investors who retain large holdings of specific securities and are on standby to buy or sell those securities according to the current bid/ask prices:
I. play a vital role in providing liquidity for the financial markets by buying or selling the specific securities for which they are responsible when there is general supply or demand
II. promotes general efficiency on stock exchanges by promoting ease of trading via their market making tendencies.
III. can be brokers and broker-dealers market makers at the same time.
IV. prevents conflicts of interest instigated by a broker recommending securities based on the market the firm makes, and the broker-dealer.Correct
Market makers are brokers or broker-dealers who retain large holdings of specific securities and are on standby to buy or sell those securities according to the current bid/ask prices.
* Market makers play a vital role in providing liquidity for the financial markets by buying or selling the specific securities for which they are responsible when there is no general supply or demand, thus “making the market.Incorrect
Market makers are brokers or broker-dealers who retain large holdings of specific securities and are on standby to buy or sell those securities according to the current bid/ask prices.
* Market makers play a vital role in providing liquidity for the financial markets by buying or selling the specific securities for which they are responsible when there is no general supply or demand, thus “making the market. -
Question 2 of 10
2. Question
The major securities exchanges in the United States includes which of the following?
I. the Chicago Board of Options Exchange (CBOE)
II. the NASDAQ
III. the NYSE MKT LLC (formerly the NYSE Amex).
IV. the New York Stock Exchange Commission (NYSEC)Correct
The major securities exchanges in the United States are the New York Stock Exchange (NYSE), the Chicago Board of Options Exchange (CBOE), the NASDAQ, and the NYSE MKT LLC (formerly the NYSE Amex).
Incorrect
The major securities exchanges in the United States are the New York Stock Exchange (NYSE), the Chicago Board of Options Exchange (CBOE), the NASDAQ, and the NYSE MKT LLC (formerly the NYSE Amex).
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Question 3 of 10
3. Question
The following are true about Auction markets except:
I. Auction markets are arrangements where prospective buyers and prospective sellers negotiate with another to make bids and offers.
II. Auction markets are arrangements where prospective buyers and prospective sellers compete with another to make bids and offers.
III. The execution of orders in auction markets involves matching compatible bids and asks.
IV. The execution of orders in auction markets involves matching exceptional bids and asks.Correct
Auction markets are arrangements where prospective buyers and prospective sellers compete with another to make bids and offers.
*The execution of orders in auction markets involves matching compatible bids and asks.Incorrect
Auction markets are arrangements where prospective buyers and prospective sellers compete with another to make bids and offers.
*The execution of orders in auction markets involves matching compatible bids and asks. -
Question 4 of 10
4. Question
Which of the following statements is / are false?
I. The over-the-counter (OTC) market is also known as the secondary market
II. The over-the-counter (OTC) market encompasses all the various ways of trading stock besides new issues
III. It consists of a nationwide network of brokers and dealers connected by phone and computer who trade listed stocks from their offices.
IV. NASDAQ, Bulletin Board, and Pink Sheet stocks comprise the second market, with the most prominent distinction being between NASDAQ issues and non-NASDAQ issues.Correct
The over-the-counter (OTC) market is also known as the second market (not to be confused with the secondary market, which encompasses all the various ways of trading stock besides new issues).
*NASDAQ, Bulletin Board, and Pink Sheet stocks comprise the second market, with the most prominent distinction being between NASDAQ issues and non-NASDAQ issues.Incorrect
The over-the-counter (OTC) market is also known as the second market (not to be confused with the secondary market, which encompasses all the various ways of trading stock besides new issues).
*NASDAQ, Bulletin Board, and Pink Sheet stocks comprise the second market, with the most prominent distinction being between NASDAQ issues and non-NASDAQ issues. -
Question 5 of 10
5. Question
Regarding stock market, which of the following statements are true?
I. Most small investors do not have access to the secondary market and are aided in their purchases by the existence of a primary market.
II. Stock markets provide investors with access to shares in the ownership of publicly traded companies.
III. They provide those publicly traded companies a means by which they may have access to the capital that investors wish to make available.
IV. Initial issues of stocks, also called initial public offerings, or IPOs, are traded on the primary market.Correct
Most small investors do not have access to the primary market and are aided in their purchases by the existence of a secondary market.
Incorrect
Most small investors do not have access to the primary market and are aided in their purchases by the existence of a secondary market.
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Question 6 of 10
6. Question
The following are qualities of a future contract EXCEPT:
I. They have the obvious benefit in that they are more liquid.
II. They are privately negotiated contracts between buyer and seller.
III. Futures contracts are not standardized in terms of quality, quantity, delivery time, and location.
IV. Futures contracts are standardized in terms of quality, quantity, delivery time, and location.Correct
Forward contracts are not standardized. They are privately negotiated contracts between buyer and seller. Futures contracts are standardized in terms of quality, quantity, delivery time, and location.
Incorrect
Forward contracts are not standardized. They are privately negotiated contracts between buyer and seller. Futures contracts are standardized in terms of quality, quantity, delivery time, and location.
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Question 7 of 10
7. Question
Which of the following statements is / are true about “over the counter” securities?
I. These securities are usually traded over a dealer network rather than a centralized exchange.
II. There is not necessarily a large market for OTC stocks.
III. Investors in OTC stocks need not be bothered by the liquidity risks of stocks purchased over the counter.
IV. They require no specialists or market makers as with large stock exchanges.Correct
These securities are usually traded over a dealer network rather than a centralized exchange such as the New York Stock Exchange. Because there is not necessarily a large market for OTC stocks, and no specialists or market makers as with large stock exchanges, OTC stocks can be very illiquid, and investors in such stocks should consider the liquidity risks of stocks purchased over the counter.
Incorrect
These securities are usually traded over a dealer network rather than a centralized exchange such as the New York Stock Exchange. Because there is not necessarily a large market for OTC stocks, and no specialists or market makers as with large stock exchanges, OTC stocks can be very illiquid, and investors in such stocks should consider the liquidity risks of stocks purchased over the counter.
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Question 8 of 10
8. Question
According to Modern Portfolio Theory, which of the following are true?
I. If investors accept higher risk, their return should be commensurate.
II. If investors accept higher risk, their return should be incommensurate.
III. The return of a portfolio with high returns and a high degree of risk may be observed more accurately when it is risk adjusted.
IV. The return of a portfolio with low returns and a low degree of risk may be observed more accurately when it is risk adjusted.Correct
Theoretically, and according to modern portfolio theory, if investors accept higher risk, their return should be commensurate. The return of a portfolio with high returns and a high degree of risk may be observed more accurately when it is risk adjusted. The same can be said of low-risk portfolios with low returns.
Incorrect
Theoretically, and according to modern portfolio theory, if investors accept higher risk, their return should be commensurate. The return of a portfolio with high returns and a high degree of risk may be observed more accurately when it is risk adjusted. The same can be said of low-risk portfolios with low returns.
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Question 9 of 10
9. Question
The following are true about Benchmark portfolio EXCEPT:
I. Little to no additional cost associated with investment management is incurred.
II. They are less expensive for investors to participate therein.
III. Managers who actively manage benchmark portfolios often incur large expenses and pass them on to investors.
IV. They are expensive to manage.Correct
*Managers who actively manage portfolios often incur large expenses and pass them on to investors.
*Benchmarked portfolios are often less expensive to manage and less expensive for investors to participate therein.Incorrect
*Managers who actively manage portfolios often incur large expenses and pass them on to investors.
*Benchmarked portfolios are often less expensive to manage and less expensive for investors to participate therein. -
Question 10 of 10
10. Question
The Sharpe ratio of a given portfolio or security is found by:
I. Subtracting the risk-free rate on an investment in which there is high expectation of risk, divided by the standard deviation of the portfolio.
II. Subtracting the rate of return based on an investment in which there is little expectation of risk, divided by the standard deviation of the portfolio.
III. Subtracting the risk-free rate on an investment in which there is little expectation of risk, divided by the standard deviation of the portfolio.
IV. Subtracting the risk-free rate on an investment in which there is little expectation of risk, divided by the variance of the portfolio.Correct
The Sharpe ratio of a given portfolio or security is found by subtracting the risk-free rate, or the rate of return based on an investment in which there is little expectation of risk (usually Treasuries), and dividing that number by the standard deviation of the portfolio.
Incorrect
The Sharpe ratio of a given portfolio or security is found by subtracting the risk-free rate, or the rate of return based on an investment in which there is little expectation of risk (usually Treasuries), and dividing that number by the standard deviation of the portfolio.