Chapter 2 Capital RQ Flashcards
Identify a characteristic of capital.
A. Economically insensitive.
B. Mobility.
C. Plentiful.
D. Stability.
B. Mobility.
Capital is mobile, scarce, and sensitive to its environment. It will move in and out of countries or investments in response to changing economic environment, government policy, regulations, etc.
Identify the transaction that takes place in the secondary market.
A. Distribution of new equity shares.
B. Government issue of new bonds.
C. Issue of federal treasury bills.
D. Resale of previously issued securities.
D. Resale of previously issued securities.
The secondary market involves the resale of previously issued securities between investors. It provides investors with a means of selling a security.
Identify a difference between auction and dealer markets.
A. Auction markets deal primarily with bonds and dealer markets primarily with stocks.
B. Dealer markets are also known as exchanges and auction markets are exclusively on computer networks.
C. Prices are publicly visible in the auction market but not in the dealer market.
D. Typically, commissions are earned in the dealer market and spreads in the auction market.
C. Prices are publicly visible in the auction market but not in the dealer market.
The prices of all transactions are publicly visible in auction markets. In dealer markets, market makers post bid and ask prices, but the transaction price might differ from the posted price.
Nicolae is considering selling his common shares of DEF Corp. Identify the price Nicolae would most likely receive if he were to enter an order to sell his shares.
A. Ask price.
B. Bid price.
C. Last price.
D. Market price.
B. Bid price.
Nicolae should focus on the current bid price. The bid represents the highest price that someone is ready to pay to purchase shares from a seller. The ask price represents the lowest price at which someone is willing to sell their shares. The last price (also known as the market price) represents the latest price at which a transaction occurred between a buyer and a seller, but does not necessarily indicate what the current bid and ask price is.
Select the exchange in Canada that deals exclusively with financial futures and options.
A. Canadian Securities Exchange (CSE).
B. The Bourse de Montreal (MX).
C. The Toronto Stock Exchange (TSX).
D. The TSX Venture Exchange (TSXV).
B. The Bourse de Montreal (MX).
The Bourse de Montreal (MX) is the only exchange in Canada that deals exclusively with financial futures and options.
Choose the system that the Ontario Securities Commission requires firms to use to report unlisted trades in Ontario.
A. Canadian Unlisted Board.
B. CBID/CBID Institutional.
C. Canadian Securities Exchange.
D. MarketAxess.
A. Canadian Unlisted Board.
In most of Canada, there is no requirement for firms to report unlisted trades. Ontario is the exception. The Ontario Securities Commission (OSC) requires trades of unlisted securities to be reported utilizing an automated system. The Canadian Unlisted Board Inc. (CUB) was launched as this automated system after the reorganization of the equity markets in Canada.
Identify the role that the Canadian Securities Exchange (CSE) plays in the Canadian marketplace.
A. Additional marketplace for TSX-listed senior securities.
B. Market for emerging companies.
C. Provide contracts to participants in North American energy markets.
D. Trading in Canadian debenture issues.
B. Market for emerging companies.
The intent of the CSE is to provide a market for emerging companies.
Identify the security that has its value based on an underlying instrument.
A. Bonds.
B. Derivatives.
C. Managed products.
D. Structured products.
B. Derivatives.
Derivatives are products based on or derived from an underlying instrument, such as a stock or an index. They include such products as options and futures.
Select the electronic fixed-income trading system that operates a retail and an institutional fixed-income marketplace.
A. CanDeal.
B. CanPx.
C. CBID/CBID Institutional.
D. MarketAxess.
C. CBID/CBID Institutional.
CBID, also a member of IIROC and an ATS, operates two distinct fixed-income marketplaces: retail and institutional. The retail fixed-income marketplace is accessible by registered dealers on behalf of retail clients. The institutional fixed-income marketplace is accessible by registered dealers, institutional investors, governments and pension funds.
Gareth asks his Investment Advisor to purchase $50,000 in new corporate bonds that are being issued to raise funds to build a new processing facility. Select the term that would refer to this type of capital investment.
A. Direct investment.
B. Guaranteed investment.
C. Indirect investment.
D. Secondary market.
C. Indirect investment.
Indirect investment occurs when the saver buys the securities issued by governments and corporations, who in turn use the funds for direct productive investment-equipment, supplies, etc. Such investment is normally made with the assistance of the retail or institutional sales department of the investment advisor’s firm.
Identify a characteristic of dealer markets.
A. Conducted primarily on Alternative Trading Systems.
B. Primary market for bonds and debentures.
C. Single central market for trades in securities.
D. Smaller dollar value volume of trading than equity markets.
B. Primary market for bonds and debentures.
Almost all bonds and debentures are sold through the dealer market. These dealer markets are less visible than the auction markets for equities; so many people are surprised to learn that the volume of trading on the dealer market for debt securities is several times larger than the equity market.
The current bid price for ABC Inc is $25.75 and the ask price is $25.87, with last trade at $25.77 Calculate the spread.
A. 0.02.
B. 0.06.
C. 0.10.
D. 0.12.
D. 0.12.
The spread is calculated as the difference between the bid and the ask price.
In this example, $25.87 - $25.75 = 0.12
Identify a characteristic of a liquid market.
A. Automated trade matching.
B. Listed securities.
C. Narrow price spreads in bid/ask prices.
D. Wide variety of securities.
C. Narrow price spreads in bid/ask prices.
A liquid market has the following characteristics: frequent trades; narrow price spread between bid and ask prices; and small price fluctuations from trade to trade.
XYZ is a producer of technologically advanced experimental electronic devices that has recently experienced rapid growth. Projections are that growth will continue but the market is uncertain at present. Determine the exchange XYZ’s investment dealer could recommend for listing of XYZ’s initial public offering.
A. CanDeal.
B. Canadian Securities Exchange (CSE).
C. Bourse de Montréal.
D. Toronto Stock Exchange (TSX).
B. Canadian Securities Exchange (CSE).
The Canadian Securities Exchange (CSE) lists equities of emerging companies. XYZ would be characterized as an emerging company.
Identify the alternative trading system where an investment dealer can locate real time bid and offer quotations from a range of dealers for Government of Canada bonds and treasury bills.
A. CanPx.
B. Canadian Unlisted Board.
C. MarketAxess.
D. ICE NGX Canada.
A. CanPx.
CanPx is a joint venture between several Canadian investment dealers and inter-dealer brokers. It combines digital feeds from participating dealers to provide a composite display of real time bid and offer quotations, in price and yield terms and volume information. The service covers Government of Canada bonds and treasury bills.
