Chapter 3 How Securities Are Traded

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(选作: 1-6、8、9、11-28、31、37、38、40、42、46、48-53、56、58-61、63、64) Multiple Choice Questions

1.A purchase of a new issue of stock takes place
A)in the secondary market.
B)in the primary market.
C)usually with the assistance of an investment banker.
D)A and B.
E)B and C.

Answer: E Difficulty: Easy

Rationale: Funds from the sale of new issues flow to the issuing corporation, making this a primary market transaction. Investment bankers usually assist by pricing the issue and finding buyers.

2.The following statements regarding the specialist are true: A)Specialists maintain a book listing outstanding unexecuted limit orders. B)Specialists earn income from commissions and spreads in stock prices. C)Specialists stand ready to trade at quoted bid and ask prices. D)Specialists cannot trade in their own accounts.

E)A, B, and C are all true.

Answer: E Difficulty: Moderate

Rationale: The specialists' functions are all of the items listed in A, B, and C. In addition, specialists trade in their own accounts.

3.Investment bankers
A)act as intermediaries between issuers of stocks and investors. B)act as advisors to companies in helping them analyze their financial needs and find buyers for newly issued securities. C)accept deposits from savers and lend them out to companies. D)A and B.

E)A, B, and C.

Answer: D Difficulty: Moderate

Rationale: The role of the investment banker is to assist the firm in issuing new securities, both in advisory and marketing capacities. The investment banker does not have a role comparable to a commercial bank, as indicated in C.

4.In a "best-efforts" basis
A)the investment banker buys the stock from the company and resells the issue to the public. B)the investment banker agrees to help the firm sell the stock at a favorable price. C)the investment banker finds the best marketing arrangement for the investment banking firm. D)B and C.

E)A and B.

Answer: B Difficulty: Moderate

Rationale: Under the "best-efforts" agreement, the investment banker agrees to make the best effort to sell the issue at the best possible price, nothing more.

5.The secondary market consists of
A)transactions on the AMEX.
B)transactions in the OTC market.
C)transactions through the investment banker.
D)A and B.
E)A, B, and C.

Answer: D Difficulty: Moderate

Rationale: The secondary market consists of transactions on the organized exchanges and in the OTC market. The investment banker is involved in the placement of new issues in the primary market.

6.The use of the Internet to trade and underwrite securities A)is illegal under SEC regulations.
B)is regulated by the New York Stock Exchange.
C)is expected to grow quickly.
D)increases underwriting costs for a new security issue. E)is regulated by the National Association of Securities Dealers.

Answer: C Difficulty: Moderate

Rationale: The SEC permits trading and underwriting of securities over the Internet, but has required firms participating in this activity to take steps to safeguard investment funds. This form of underwriting is expected to grow quickly due to its lower cost. It is not regulated by either the NYSE or the NASD.

7.Initial margin requirements are determined by
A)the Securities and Exchange Commission.
B)the Federal Reserve System.
C)the New York Stock Exchange.
D)B and C.
E)A and B

Answer: B Difficulty: Moderate

Rationale: The Board of Governors of the Federal Reserve System determines initial margin requirements. The New York Stock Exchange determines maintenance margin requirements on NYSE-listed stocks; however, brokers usually set maintenance margin requirements above those established by the NYSE.

8.You purchased XYZ stock at $50 per...
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