Chapter 2
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Toronto Metropolitan University *
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MISC
Subject
Finance
Date
Jan 9, 2024
Type
Pages
15
Uploaded by PresidentGalaxyCrocodile31
Exam
Name___________________________________
TRUE/FALSE.
Write 'T' if the statement is true and 'F' if the statement is false.
1) Stocks, bonds and exchange traded funds (ETFs) are bought and sold in the capital market.
1)
2) Capital markets deal exclusively in stock. Money markets deal exclusively in debt instruments.
2)
3) Primary markets deal in the stocks of larger, well
-
known companies; secondary markets deal in
the stocks of smaller, less well
-
known companies.
3)
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question.
4) Short
-
term securities are bought and sold in the
A) capital market.
B) stock market.
C) money market.
D) primary market.
4)
5) The US government agency that oversees the capital markets is the
A) Federal Reserve.
B) Fair Trade and Banking Agency.
C) Securities and Exchange Commission.
D) Federal Trade Commission.
5)
6) Stocks purchased in the secondary market are purchased
A) from small, little
-
known brokerages.
B) from other investors.
C) directly from the issuing corporation.
D) indirectly through financial institutions.
6)
7) Stocks and bonds are traded in
A) federal trade commissions.
B) money markets.
C) securities and exchange commissions.
D) capital markets.
7)
8) The primary market tends to be more active when
A) early in the calendar year.
B) the economy is slowing and stock prices are falling.
C) the economy is expanding and stock prices are rising.
D) interest rates are rising.
8)
9) The over
-
the
-
counter market describes transactions
A) that are not regulated by the industry standards.
B) that involve the purchase and sale of smaller, unlisted securities.
C) that are not reported.
D) that take place in a broker's office.
9)
TRUE/FALSE.
Write 'T' if the statement is true and 'F' if the statement is false.
10) Underwriters are responsible for promoting and facilitating the sale of securities.
10)
11) A red herring is a term referring to false or misleading statements in the prospectus.
11)
1
12) The purpose of the "quiet period" a company must observe from the time it files a registration
statement with the CSA until after an IPO is complete is to assure that all investors receive the
same information.
12)
13) IPOs are typically underpriced so the price rises during the first few days of trading.
13)
14) IPOs are relatively safe investments.
14)
15) The price of stock sold in an IPO is set by bids submitted in the month before trading begins.
15)
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question.
16) Which of the following statements concerning the primary market is correct?
A) A rights offering is a direct sale of stock to an institution that participates in the primary
market.
B) A transaction in the primary market is between two private stockholders.
C) The first public sale of a company's stock is called an IPO.
D) The first public sale of a company's stock in the primary market is called a seasoned new
issue.
16)
17) A rights offering is the
A) initial offering of securities to the public.
B) sale of securities directly to a select group of investors.
C) sale of newly issued shares of stock to the general public.
D) offering of new securities to current shareholders on a pro
-
rata basis.
17)
18) IPO activity tends to peak when stock prices
A) have fallen sharply.
B) Stock prices have relatively little influence on IPO activity.
C) have risen sharply.
D) are volatile and unstable.
18)
19) The document that describes the issuer of a security's management and financial position is
known as a
A) prospectus.
B) balance sheet.
C) red herring.
D) 10
-
K report.
19)
20) Which of these alternatives is NOT an option available to companies offering their stock to the
public for the first time?
A) rights offering
B) a public offering
C) prospectors
D) private placement
20)
21) When the offer price is lower than the market price on the first day of trading, the difference is
known as
A) underpricing.
B) overpricing.
C) the spread.
D) the underwriter's fee.
21)
22) Investment bankers who join together to share the financial risk associated with buying an entire
issue of new securities and reselling them to the public is called a(n)
A) tombstone group.
B) selling group.
C) primary market group.
D) underwriting syndicate.
22)
2
23) Relative to a traditional IPO process, a direct listing
A) is much more costly, so it is rarely used.
B) has a much longer road show.
C) can save the issuer millions of dollars in investment banking fees.
D) is illegal in Canada.
23)
24) Direct listings are more common among
A) small firms.
B) publicly
-
traded firms.
C) established firms with long track records.
D) large firms.
24)
ESSAY.
Write your answer in the space provided or on a separate sheet of paper.
25) Describe the initial public offering (IPO) process and explain the role of the underwriter, the Securities and
Exchange Commission (SEC), and the red herring.
26) Explain the role of investment bankers and brokerage firms in the issuance of new securities.
TRUE/FALSE.
Write 'T' if the statement is true and 'F' if the statement is false.
27) The NYSE and TSX are examples of broker
-
dealer markets.
27)
28) Firms that list their stock on an exchange can be delisted for failing to meet the requirements of
the exchange.
28)
29) The NYSE is part of the world's largest international trading network known as NYSE Euronext.
29)
30) Most commodity futures are traded on the NYSE Amex.
30)
31) Securities that trade in the over
-
the
-
counter market are called unlisted securities.
31)
32) A market maker brings together buyers and sellers in an auction market.
32)
33) The income paid to a market maker is referred to as the spread.
33)
34)
In general, investors experience higher (or positive) returns on common stock investments during a bull
market.
34)
35) In dealer markets, the market maker buys securities at the bid price and sells at the ask price.
35)
36) Stocks of many large foreign companies such as Toyota trade on the NYSE as well as on
exchanges in their own country.
36)
37) The majority of bonds trade in the OTC market.
37)
3
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question.
38) Market makers in dealer markets
A) buy securities at a bid price and hope to resell them at a higher offer price.
B) bring sellers and buyers together by matching offers.
C) earn commissions paid by the sellers of securities.
D) all of the above.
38)
39) In a broker market such as the TSX, the broker
A) will not be able to execute a trade if there are no matching buy and sell offers.
B) will first attempt to sell from his or her own inventory.
C) must attempt to match sellers and buyers at the mid
-
point of the bid/ask spread.
D) will act as either broker or dealer, depending on which will maximize his or her profit.
39)
40) The great majority of transactions on the NYSE are executed
A) by auction in trading areas known as pits.
B) automatically through electronic technology.
C) on the trading floor by brokers known as specialists.
D) by dealers known as market makers.
40)
41) Which of the following are correct statements concerning the NYSE?
I.
Each stock has a designated location, called a post, at which its shares are traded.
II.
The NYSE is a dealer market.
III.
Supply and demand determine the price of each security.
IV.
A designated market maker buys and sells to maintain a market for a particular security.
A) I and II only
B) I and III only
C) I, III and IV only
D) I, II, III and IV
41)
42) A market where securities are bought from, or sold to, a market maker is known as a
A) dealer market.
B) exchange floor.
C) broker market.
D) board of exchange.
42)
43) Large technology companies such as IBM and Microsoft trade
A) exclusively on the NASDAQ.
B) exclusively on the NYSE.
C) exclusively on alternative trading systems.
D) on either the NASDAQ or the NYSE.
43)
44) Which of the following is currently a requirement for a stock to be listed on the NYSE?
A) gross revenue of at least $15,000,000
B) three consecutive years of profitable operations
C) global market capitalization of at least $200 million
D) a price of at least $10 per share
44)
45) The dominant exchange for trading options contracts is the ________. The dominant player in the
trading of futures contracts is ________.
A) NYSE; Nasdaq BX
B) PHLX; CBOE
C) ISE; CBOT
D) CBOE; CME Group
45)
4
46) The dominant options exchange is the
A) American Stock Exchange.
B) Pacific Stock Exchange.
C) Chicago Board Options Exchange.
D) Philadelphia Options Exchange.
46)
47) The NYSE Euronext includes exchanges in all of the following cities EXCEPT
A) Brussels.
B) Amsterdam.
C) Tokyo.
D) Paris.
47)
48) Options contracts on stocks may
A) legally oblige the owner to buy the stock at a specified price over a specified period of time.
B) depending on the type of contract, grant the owner the right to either buy or sell the stock at
a specified price over a specified period of time.
C) grant the owner the right to sell the stock at a specified price over a specified period of time.
D) grant the owner the right to buy the stock at a specified price over a specified period of
time.
48)
49) The automated system for trading highly active regulated OTC securities is the
A) Chicago Board of Trade.
B) Big Board.
C) Kansas City Board.
D) OTC Bulletin Board.
49)
50) In recent years,
A) there has been a major consolidation of trading venues.
B) broker markets have grown at the expense of dealer markets.
C) dealer markets have grown at the expense of broker markets.
D) retail trading has come to be dominated by electronic communication networks while
traditional broker and dealer markets have lost ground.
50)
51) ECNs are
A) publicly owned auction markets for listed stocks.
B) part of the third market, which trades listed securities between individual investors.
C) facilities used by market makers for trading unlisted securities.
D) networks that transact trades between institutional investors.
51)
52) The price an individual investor will pay to purchase a stock in the OTC market is the
A) broker price.
B) bid price.
C) spread.
D) ask price.
52)
53) Which of the following are associated with bull markets?
I.
investor pessimism
II.
government stimulus
III.
economic recovery
IV.
low inflation
A) I and II only
B) II and III only
C) I, II and III only
D) II, III and IV only
53)
5
54) Which of the following are associated with bear markets?
I.
investor pessimism
II.
rising profits
III.
economic slowdown
IV.
rising security prices
A) I and III only
B) II and III only
C) I, II and III only
D) II, III and IV only
54)
55) The ask price is always ________ the bid price.
A) unrelated to
B) lower than
C) higher than
D) equal to
55)
56) At the market close on June 13, 2019, Alphabet Inc. (GOOG) common stock was trading at an ask
price of $1,099.99 and a bid price of $1,082.04. What is the bid/ask spread?
A) $14.32
B) $17.95
C) $21.32
D) $32.04
56)
57) At the market close on June 13, 2019, Apple Inc. (AAPL) common stock was trading at an ask price
of $191.10 and a bid price of $190.35. Apple's previous closing price was $194.19. What is the
bid/ask spread of Apple?
A)
-
$0.75
B) $0.75
C) $3.84
D) $3.09
57)
TRUE/FALSE.
Write 'T' if the statement is true and 'F' if the statement is false.
58) Diversification is the inclusion of a number of different investments in a portfolio with the goal of
reducing risk.
58)
59) The financial markets are becoming more globally integrated.
59)
60) Participation in foreign stock markets is complicated and expensive for Canadian investors.
60)
61) The North American stock markets tend to produce the highest rate of return each year.
61)
62) Adding foreign stocks that are riskier than the portfolio average will always increase the risk of
the portfolio.
62)
63)
A Canadian investor can purchase IDRs/GDRs or ADRs through any Canadian investment broker without
any additional tax and currency exposures.
63)
MULTIPLE CHOICE.
Choose the one alternative that best completes the statement or answers the question.
64) Including foreign investments in a portfolio
A) limits the diversification amongst industries.
B) increases the overall risk of the portfolio.
C) provides potential benefits from changes in currency values.
D) reduces the potential rate of return.
64)
6
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