Chapter 13

Question 1

The sale of new common stock by corporations to initial investors occurs in

Answer 1

Primary Market

Question 2

The sale of previously issued common stock traded between investors occurs in

Answer 2

Secondary Market

Question 3

A. is no longer considered a “backwater” in the field of Finance.
B. became common practice in the 1980s as investors diversified their portfolios.
C. during the 1980s was largely confined to the developed world.

Answer 3

Investment in foreign equity markets

Question 4

In mutual funds, investment in emerging foreign equity markets

Answer 4

represents less than one percent of investments in U.S.-based mutual funds.

Question 5

Which investment is likely to be the MOST liquid?

Answer 5

A share of publicly traded company trading on the NYSE

Question 6

Which investment is likely to be the LEAST liquid?

Answer 6

A house in a nice part of town.

Question 7

is one in which investors can buy and sell stocks quickly at close to the current quoted prices.

Answer 7

Liquid stock market

Question 8

the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market.

Answer 8

Turnover ratio

Question 9

Generally, the higher the turnover ratio,

Answer 9

B. the more liquid the secondary stock market

Question 10

Generally, the lower the turnover ratio,

Answer 10

the less liquid the secondary stock market,

Question 11

In general if an investment

Answer 11

A. has poor liquidity it should offer investors a liquidity premium.
B. can be sold fairly quickly at a fair price, it has good liquidity.
C. both a) and b)

Question 12

Many of the larger emerging equity markets (e.g. Korea, India

Answer 12

C. have high turnover ratios.

Question 13

C. have high turnover ratios.

Answer 13

A financial panic

Question 14

30. In 2002, 24 stock markets had concentration ratios of 40 percent or more, 16 had 50percent or more, and 6 had 60 percent or more. By comparison, in 2006, 27 stock markets had concentration ratios of 40 percent or more, 21 had 50 percent or more, and 11 had 60 percent or more. Thus, one must conclude

Answer 14

C. that the number of equity investment opportunities in emerging stock markets in
developing countries has not been improving in recent years.

Question 15

The more concentrated a national stock market is

Answer 15

B. the less opportunity a global investor has to include shares from that county in an
internationally diversified portfolio.

Question 16

The secondary equity markets of the world serve two major purposes. They provide

Answer 16

A. marketability and share valuation

Question 17

is an instruction from a customer to a broker to buy or sell at the best price available when the order is received (immediately).

Answer 17

Market Order

Question 18

To avoid buying a stock at a price higher than your intention, you need to place ________
rather than a market order.

Answer 18

Limit Order

Question 19

A stop order is an order to buy or sell a stock once the price of the stock reaches a
specified price, known as

Answer 19

Stop Proce

Question 20

features an agent of the exchange that accumulates a batch of orders that are periodically executed by written or verbal auction throughout the day.

Answer 20

Call Market

Question 21

Which type of trading system is desirable for actively traded issues?

Answer 21

A. Continuous trading systems

Question 22

The large exchange markets in the United States are

Answer 22

D. agency/auction markets.

Question 23

“Call market” and “crowd trading” take place on

Answer 23

A. a non-continuous exchange trading system.

Question 24

is calculated such that the proportion of the index a stock represents is determined by its proportion of the total market capitalization of all stocks in the index.

Answer 24

A market-value index