Chapter 12 - Orders and Trading Strategies

Question 1

A buy or sell order that may not be executed.

Answer 1

A limit order

Question 2

An order that will only be executed at a specific price or lower.

Answer 2

A buy limit order

Question 3

A buy or sell order that will be immediately executed.

Answer 3

A market order

Question 4

An order that will only be executed at a specific price or higher.

Answer 4

A sell limit order

Question 5

An order that can be used to hedge a long position.

Answer 5

A sell stop order

Question 6

An order that once activated, it may not be executed.

Answer 6

A stop limit order

Question 7

An order that once activated, it will be immediately executed.

Answer 7

A stop order

Question 8

An order that can be used to hedge a short position.

Answer 8

A buy stop order

Question 9

If a broker-dealer expects a seller to deliver the securities by the settlement date, how may the order ticket be marked?

Answer 9

Long

Question 10

Sell limit orders are placed _____ the market.

Answer 10

above

Question 11

Factors that may be used when determining the markup of a security under the 5% Policy (3):

Answer 11

• Type of Security
• Price of Security
• Availability of the Security in the Market

Question 12

A markup is generally based on the _____ market, but no the _____ cost.

Answer 12

inside; dealer’s

Question 13

Stop orders become _____ orders once they are triggered/activated.

Answer 13

market

Question 14

Type of account where uncovered option positions are created.

Answer 14

Margin account

Question 15

Stop-limit orders become _____ orders once they are triggered/activated.

Answer 15

limit

Question 16

If a client consents to a trade before execution, the order ticket is marked:

Answer 16

discretion not exercised

Question 17

A _____ order indicates quantity, security, and whether to buy or sell, but only at a particular price or better.

Answer 17

limit

Question 18

If a trade is initiated by a customer, how is the order ticket marked?

Answer 18

Unsolicited

Question 19

Orders to sell all exchange-listed and over-the-counter equities must be marked _____ or _____.

Answer 19

long; short

Question 20

A client purchased 1,500 shares of stock from a broker-dealer, a registered market maker in this stock. The broker-dealer acted in a(n):

Answer 20

principal capacity and charged the client a markup.

Question 21

In judging the fairness of a firm’s markup, industry rules would NOT consider:
A) Whether the security was debt or equity
B) The availability of the security in the market
C) The pattern of markups
D) Whether the client was a retail or institutional customer

Answer 21

D) Whether the client was a retail or institutional customer

Question 22

If an investor wants to receive immediate execution, he should enter a:

Answer 22

market order

Question 23

A customer opens a new margin account and her initial transaction is a short sale of 100 shares of XYZ at $16. What is her minimum deposit requirement?

Answer 23

$2,000

For the first short sale in a new margin account, the minimum deposit requirement is $2,000.

Question 24

The 5% Markup Policy applies when a member is acting as a(n):
A) Investment banker
B) Sponsor of a mutual fund
C) Dealer when selling a security from inventory
D) Underwriter of a security

Answer 24

C) Dealer when selling a security from inventory