Market Organization and Structure

Question 1

People use the financial system for six main purposes:

Answer 1

1 to save money for the future;
2 to borrow money for current use;
3 to raise equity capital;
4 to manage risks;
5 to exchange assets for immediate and future deliveries; and
6 to trade on information

Question 2

The main functions of the financial system are to facilitate:

Answer 2

1 the achievement of the purposes for which people use the financial system;
2 the discovery of the rates of return that equate aggregate savings with aggregate
borrowings; and
3 the allocation of capital to the best uses.

Question 3

A _________ is an

organization that ensures that no trader is harmed if another trader fails to honor the contract.

Answer 3

clearinghouse

Question 4

An option to buy is a _____ option

Answer 4

call

Question 5

An option to sell is a _____ option

Answer 5

put

Question 6

If the holders can exercise

their contracts only when they mature, they are _________ contracts.

Answer 6

European- style

Question 7

If the holders can exercise

their contracts earlier, they are _________ contracts.

Answer 7

American- style contracts

Question 8

______ provide brokerage service to large traders.

Answer 8

Block brokers

Question 9

The interest rate that the buyers pay

for their margin loan is called the ________

Answer 9

call money rate

Question 10

In a __________, the corporation
makes all public disclosures that it would for a regular offering, but it does not sell the
shares in a single transaction.

Answer 10

shelf registration

Question 11

In a _____
market, trades can be arranged only when the market is called at a particular time
and place. In contrast in a ________, trades can be arranged and
executed anytime the market is open.

Answer 11

call, continuous trading market

Question 12

In _____markets, customers trade with dealers. In ______ markets, an order matching system run by an exchange, a broker, or an alternative trading system uses rules to arrange trades based on the orders that traders submit. Most exchanges and ECNs organize order- driven markets. In ____ markets, brokers arrange trades between their customers.

Answer 12

quote-driven, order-driven, brokered

Question 13

Continuous trading markets use the ________. Under this rule, the limit price of the order or quote that first arrived—the standing order—determines
the trade price.

Answer 13

discriminatory pricing rule

Question 14

________ are trading systems that match buyers and sellers who are willing to trade at prices obtained
from other markets.

Answer 14

Crossing networks