Test Bank For An Introduction to Derivative Securities 1st Edition by Robert A. Jarrow

a.

an initial public offering

b.

an auction

c.

a private placement

d.

a subscription offering

e.

None of these answers are correct.

a.

A stockholder has fractional ownership over a company.

b.

A stockholder usually gets dividend payments from a company.

c.

A stockholder can lose more than her initial investment because the company is a “legal person” and must meet its debts and legal obligations.

d.

A stockholder can play a role in changing the top management of the company.

e.

A stockholder cannot be sued for misdeeds of a company.

a.

regulated by the CFTC

b.

regulated by the Congress

c.

regulated by the Federal Reserve Bank

d.

regulated by the EPA

e.

regulated by the SEC

a.

It makes the markets more honest.

b.

It helps demonstrate to the federal agencies that the industry is doing a good job policing itself and thus more regulatory oversight may not be necessary.

c.

It deals with problems before they get wide publicity.

d.

It builds the reputation of the marketplace and thus attracts high-quality customers and greater trade volume.

e.

Its net costs are far more than the benefits it provides.

a.

A dealer has inventory risk.

b.

A dealer matches a buyer and a seller and earns commissions for this service.

c.

A dealer posts bid and ask prices.

d.

A dealer must have adequate capital to maintain her portfolio of securities.

e.

A dealer trades on her own account.

a.

A spread may refer to the gap between bid and ask prices of a stock or other security.

b.

A spread may refer to the simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months.

c.

A spread may refer to the difference between the price at which an underwriter buys an issue from a firm and the price at which the underwriter sells it to the public.

d.

A spread may refer to the difference between the price that someone purchasing an item in an auction pays and the price that the seller receives.

e.

A spread may refer to the price an issuer pays above a benchmark fixed-income yield to borrow money.

a.

exchanges

b.

primary markets

c.

auction markets

d.

dark pools

e.

over-the-counter markets

a.

day traders

b.

market makers

c.

position traders

d.

scalpers

e.

specialists

a.

Lower the bid price and then lower the ask price.

b.

Lower the ask price and then lower the bid price.

c.

Raise the ask price and then raise the bid price.

d.

Raise the bid price and then raise the ask price.

e.

Do nothing—orders arrive randomly and they will self-adjust.

a.

stock market

b.

bond market

c.

money market

d.

options market

e.

swaps market

a.

Arbitrageurs seek price discrepancies among securities and attempt to extract riskless arbitrage profits.

b.

Hedgers try to reduce risk by trading securities and are often cited as the chief reason for the existence of derivative markets.

c.

Position traders (also called trend followers) maintain speculative trading positions for longer periods of time.

d.

Scalpers open their positions in the morning, try to profit from price movements over the day, and close their positions at the end of the trading day.

e.

Speculators often take calculated risks in their pursuit of profits.

a.

They involve trades of 5,000 shares or more.

b.

They involve trades of 10,000 shares or more.

c.

They are often negotiated away from the trading floor in the “upstairs market.”

d.

They may or may not involve the services of a broker.

e.

They are rarely handled by the specialists.

a.

FINRA is the successor to NASDAQ.

b.

FINRA was created as a regulator of the stock market during the 1930s.

c.

FINRA is the new name for NASD.

d.

NASD and the member regulation, enforcement, and arbitration functions of the New York Stock Exchange were consolidated to form FINRA.

e.

FINRA operates the NASDAQ Stock Market LLC.

a.

It is an alternate trading system that must be registered with the SEC as a broker-dealer.

b.

Its participants include institutional investors, broker-dealers, and market makers.

c.

It publicly displays the limit order book to subscribers.

d.

It is primarily a trading venue for stocks and currencies.

e.

It is a secretive trading network that does not send an order directly to an exchange or display it in a limit order book.

a.

$48

b.

$49

c.

$50

d.

$51

e.

None of these answers are correct.