Q&A Hero

Q: The Dow Jones Industrial Average is not the most accurate market measure, because of its blue-chip stock composition, and its bias toward high-priced stocks.

Q: Trading through an online broker is generally cheaper than trading through a discount broker.

Q: Long-term capital gains are taxed as ordinary income.

Q: A limit order can ensure that you will not pay above a given price in purchasing a stock or sell below a given price in selling a stock.

Q: If you short a stock and the price goes up, your net equity value will go up.

Q: You are said to be long in a security if you purchase the security.

Q: When you short a security you are actually selling a security that no one owns.

Q: Securities must be kept in the street name of the brokerage if a margin account is used.

Q: Stocks may be used to satisfy margin requirements, rather than cash.

Q: The NYSE sets margin requirements.

Q: Korean stock prices are measured by the Nikkei 225 average.

Q: The Russell 2000 measures performance of the 2000 largest stocks, based on market value.

Q: The Wilshire 5000 index includes all stocks on the New York and American Stock Exchanges, and most active NASDAQ issues.

Q: The Value Line Average is an equal-weighted index.

Q: The Standard & Poor's Indexes are price-weighted indexes.

Q: The Standard & Poor's Midcap Index is composed of 500 middle-sized firms.

Q: A change in a high-priced stock's value has a greater impact on the Dow Jones Industrial Average than a change in a low-priced stock.

Q: The Dow Jones Industrial Average is a value-weighted index.

Q: The divisor in the Dow Jones Industrial Average equals 30.

Q: The Dow Jones Composite index combines the Dow Jones Industrial, Transportation, and Utility averages into an index of 65 stocks.

Q: The base period for the Standard & Poor's Stock Indexes is 1957-58.

Q: The Dow Jones Industrial Average is not adjusted for stock splits.

Q: The S&P Indexes are often used by professionals because they are weighted by total market value of the companies in the index.

Q: The Value Line Average reflects changes in stock prices, rather than value of shares outstanding.

Q: The Value Line Average contains stocks from several exchanges or markets.

Q: Good till canceled (GTC) orders expire automatically after a set period of time.

Q: The indexes of The New York Stock Exchange, American Exchange, and NASDAQ are all price-weighted.

Q: A value-weighted index tends to give more importance to large companies than small companies.

Q: The Standard & Poor's 500 Stock Index is widely followed by professional money managers as a measure of broad stock market activity.

Q: Large, established companies make up the Dow Jones Industrial Average.

Q: What are ECNs?

Q: Why was the Sarbanes-Oxley Act enacted?

Q: Initial and annual listing fees are highest for _______________ -listed stocks.A.Chicago Mercantile ExchangeB.ECNC.NASDAQ Stock marketD.New York Stock ExchangeE.American Stock Exchange

Q: The _______________ has/have the most restrictive listing requirements. A.Regional exchanges B.ECNs C.NASDAQ Stock market D.New York Stock Exchange E.American Stock Exchange

Q: The Sarbanes-Oxley Act: A.has reduced the number of foreign companies willing to list their shares on U.S. exchanges. B.was enacted under the Securities Exchange Act of 1934. C.reduces the reporting requirements for publicly traded firms. D.has made it possible for small firms to list their shares in the public markets. E.was the loophole that enabled corporate executives to misrepresent their financial statements during the late 1990s and early 2000s.

Q: The accounting frauds and scandals that took place during the stock market boom of the late 1990s resulted in what significant Act? A.Sarbanes-Oxley Act B.Gramm-Leach Bliley Act C.Glass-Steagall Act D.Honesty in Financial Reporting Act E.Securities Exchange Act

Q: The first exchange to become a publicly traded company was the: A.New York Stock Exchange. B.Chicago Board of Trade. C.NASDAQ Stock Market. D.American Stock Exchange. E.Chicago Mercantile Exchange.

Q: The Gramm-Leach-Bliley Act was passed in 1999 by the U.S. Congress to allow: A.financial institutions to offer full financial services, such as insurance and investment banking, as well as traditional commercial banking. B.financial institutions to be sued by stockholders for off-balance sheet accounting errors. C.savings and loans to compete with commercial banks in both the commercial banking arena and mortgage loans. D.European banks to acquire U.S. financial institutions.

Q: One of the functions of a specialist is: A.to manipulate price continuity. B.to change quotation spreads. C.to measure market depth as needed. D.to execute special orders for floor brokers.

Q: A house broker is one who: A.is registered to trade on the exchange but is not an employee of a member firm. B.is not associated with a member firm. C.represents a retail brokerage firm and transacts business on the floor for customers of that firm. D.transacts orders for individuals buying or selling less than 100 shares.

Q: The investment banker is responsible for everything except: A.underwriting an issue of securities. B.being the leader and a part of the syndicate of large issues, providing that one is formed. C.selling an agreed-upon number of bonds and stocks. D.the investment banker is responsible for all of the above.

Q: Secondary markets provide everything except: A.illiquidity. B.efficiency. C.continuity. D.competition.

Q: In general, markets are efficient when: A.prices respond quickly to new information. B.each successive trade is made at a price close to the preceding price. C.they can absorb large amounts of securities or assets without changing the price significantly. D.All of the above

Q: In order to be listed on an exchange, a firm must meet minimum standards pertaining to the following criteria: A.the number of common shares publicly held. B.the net income of the firm. C.the number of stockholders owning a minimum of 100 shares. D.All of the above are requirements

Q: The Securities Investor Protection Corporation (SIPC) was established to: A.oversee the liquidation of brokerage firms, and insure an investor's accounts to a maximum value of $500,000 in case of bankruptcy by the broker. B.protect investors from corporate insider trading, and insure their accounts for $500,000 in case corporate fraud caused a company to go bankrupt. C.cover the total market loss on an investor's brokerage account in case of the bankruptcy of the broker. D.create an insurance pool for brokerage firms, so that if one firm went bankrupt, all investor losses would be covered out of the insurance pool.

Q: Program trading A.means that when a given market indicator reaches a certain point, a large sale or purchase of securities may take place. B.has been argued to affect the market by accelerating price movements. C.relies on mathematical algorithms. D.All of the above

Q: The Securities and Exchange Commission was created by the: A.Securities Act of 1933. B.Securities Exchange Act of 1934. C.Investment Advisor Act of 1940. D.None of the above

Q: Full disclosure of all pertinent investment information in the sale of new securities is a provision of the: A.Securities Act of 1933. B.Securities Exchange Act of 1934. C.Securities Acts Amendments of 1975. D.Sarbanes-Oxley Act of 2002.

Q: Electronic communication systems: A.allow investors to communicate with others in investor chat rooms. B.allow markets to trade American Depository Receipts online in Europe and Asia. C.automatically match buy and sell orders at specified prices. D.are operated by the investment bankers to stabilize new issue markets.

Q: ECNs provide several advantages to investors. Which of the following is not an advantage? A.They lower the cost of trading compared to organized exchanges with floor trading B.They let everyone know who is making the trade and at what price C.They provide the ability to trade after hours when the exchanges are closed D.They provide more price transparency than organized exchanges

Q: Which of the following is true of over-the-counter markets? A.Trading takes place by telephone or electronic network B.It is regulated by the Securities and Exchange Commission and the National Association of Securities Dealers C.Government securities of the U.S. Treasury provide the largest dollar volume. D.All of the above are true

Q: The __________ is a futures market for common stock, while the ____________ is a futures market for commodities and financial instruments. A.Chicago Board Options Exchange; Chicago Mercantile Exchange B.Chicago Mercantile Exchange; Chicago Board Options Exchange C.Chicago Board of Trade; Chicago Board Options Exchange D.New York Stock Exchange; American Stock Exchange

Q: The major exchange for warrants, options, and commodity futures is the: A.American Stock Exchange. B.New York Stock Exchange. C.NASDAQ. D.None of the above

Q: ___________ has two major functions: to handle special orders, such as purchases with a price contingency, and to maintain continuous, liquid, orderly markets. A.A registered trader B.A specialist C.An odd-lot dealer D.A commission broker

Q: A person who is registered to trade on an exchange, who owns a seat but is not an employee of any member firm is a: A.commission broker. B.floor broker. C.registered trader. D.dealer. E.B and C

Q: An employee of an investment house who executes orders on the floor of the exchange for customers of the firm is called a: A.floor broker. B.registered trader. C.commission broker. D.specialist. E.dealer.

Q: Dual trading creates the following benefit: A.it improves liquidity of a security. B.it allows securities to be traded domestically and internationally. C.it reduces transaction costs. D.All of the above are benefits of dual trading

Q: The exchange with the largest dollar volume in major companies and which has the most restrictive listing requirements is: A.the New York Stock Exchange. B.the American Exchange. C.the NASDAQ Stock Market. D.the Securities Exchange.

Q: Which of the following is NOT a characteristic of an organized exchange? A.It functions as a primary market B.Securities are bought and sold in an auction market by brokers acting as agents for buyers and sellers in a central location C.It may be either national or regional D.It has a central location where all trading takes place E.It functions as a secondary market

Q: A syndicate is formed to: A.share the risk between investment bankers. B.distribute securities to a wide group of investors. C.improve the liquidity/marketability of an offering. D.All of the above

Q: From the investment banker's point of view, the major reason syndicates are formed in the distribution of large issues is for the purpose of: A.improving the liquidity of the issue. B.improving geographic distribution. C.reducing the underwriter's risk. D.improving brand recognition.

Q: Bringing private companies public for the first time is called: A.a private placement. B.an initial public offering (IPO). C.a secondary offering. D.a founders sale. E.a shelf registration.

Q: Only a limited number of corporate securities are distributed by this method: A.underwriting. B.best efforts. C.shelf registration. D.syndicated offering. E.direct by issuer.

Q: The process of selling a new issue of securities so that the price is guaranteed to the selling firm is referred to as: A.underwriting. B.best efforts. C.direct by issuer. D.shelf registration. E.All of the above involve a price guarantee

Q: Which of the following best describes the function of an investment banker selling an issue on a "best efforts" basis? A.Return unsold securities to the firm B.Guarantee a continuous liquid market C.Private placements to financial institutions D.More than one of the above

Q: In the __________ market, existing assets are exchanged between investors, while in the ___________ market, participants buy their assets directly from the source of the asset. A.primary; secondary B.secondary; primary C.tertiary; primary D.primary; OTC E.prime; subprime

Q: Creating prices for securities and allowing for liquidity are functions of: A.the real estate market. B.the secondary market. C.the third market. D.the fourth market.

Q: A means of exchanging assets, which may or may not include a specified location, and in which the seller may or may not own the assets being sold, is called: A.ETF. B.program trading. C.a market. D.None of the above

Q: Many large technology companies listed on NASDAQ could easily meet the NYSE listing standards.

Q: The cost of compliance with the Sarbanes-Oxley Act has had little effect on the willingness of foreign companies to list their shares on U.S. stock exchanges.

Q: Because of the 1987 market collapse, the SEC put circuit breakers into effect.

Q: If the DJIA declines by 10% in the time between 2:00-2:30 PM, a 30 minute halt to trading occurs.

Q: Circuit breakers will shut down the market for a period of time if a dramatic drop in stock prices occurs.

Q: There is concern by the SEC and Congress that dark pools create a two-tier market.

Q: One of the main reasons institutional investors like ECNs is that they allow anonymity in trading.

Q: The Gramm-Leach-Bliley Act essentially repealed many of the prohibitions of the Glass-Steagall Act, which restricted commercial banks from also being in the investment banking business.

Q: Electronic communication networks (ECNs) automatically match buy and sell orders at specified prices, and orders are not routed to the floor of an exchange before processing.

Q: Program trading simply means that trades are executed on computer programs written by the SEC.

Q: The largest segment of the Over-the-Counter (OTC) Market, in terms of dollar volume, is the U.S. government securities markets.

Q: In the NASDAQ market, it is now permitted to charge fees for data feeds and market information.