Financial Market Quiz

A market’s efficiency is most likely to negatively affected by:

• a ban on short selling.

• coverage of the exchange listed companies

• a high amount of trading activity.

An increase in which of the following factors would most likely improve a market’s efficiency?

• Number of participants.

• Restrictions on short selling.

• Bid-ask spreads.

Which of the following is a difference between primary and secondary capital markets?

• Primary markets are where stocks trade while secondary markets are where bonds trade.

• Secondary capital markets relate to the sale of new issues of bonds, preferred, and common stock, while primary capital markets are where securities trade after their initial offering.

• Primary capital markets relate to the sale of new issues of bonds, preferred, and common stock, while secondary capital markets are where securities trade after their initial offering.

The main functions of the financial system least likely include:

• preventing investors from generating abnormal profits by trading on information.

• allocating financial resources to their most productive uses.

• bringing together savers and borrowers.

The idea that uninformed traders, when faced with unclear information, observe the actions of informed traders to make decisions, is referred to as:

• herding behavior.

• information cascades.

• narrow framing.

The main functions of the financial system most likely include:

• determining equilibrium interest rates and allocating capital to its most productive uses.

• determining the supply of money and determining equilibrium interest rates.

• allocating capital to its most productive uses and determining the supply of money.

Equity securities most likely include:

• preferred stock and certificates of deposit.

• common stock and warrants.

• commercial paper and repurchase agreements.

In contrast with a typical forward contract, futures contracts have:

• greater counterparty risk.

• less liquidity.

• standardized terms.

If an investor buys 100 shares of a $50 stock on margin when the initial margin requirement is 40%, how much money must she borrow from her broker?

• $2,000

• $4,000

• $3,000

If the efficient markets hypothesis is true, portfolio managers should do all of the following EXCEPT:

• Minimize transaction costs.

• Work more with clients to better quantify their risk preferences.

• Spend more time working on security selection.