UNIT 17 QBANK Flashcards

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1
Q

Subject to market liquidity, which of the following orders is most likely to be executed immediately?

A) All-or-none (AON) order
B) Market order
C) Limit order
D) Fill-or-kill order

A

B) Market order

Explanation
When a liquid market exists, buy or sell market orders are executed at the best available price immediately.

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2
Q

A customer is given a quote for ABC as: 17.00 – 17.25 6 × 12. This quote indicates the customer can

A) sell 1,200 shares at $17.25 per share.
B) purchase 1,800 shares at $17.25 per year.
C) sell 600 shares for $17 per share.
D) purchase 1,200 shares for $17 per share.

A

C) sell 600 shares for $17 per share.

Explanation
Customers can purchase at the offer (the lowest price someone else is willing to sell) and sell at the bid (the most someone else is willing to sell). With this in mind, the customer can buy up to 1,200 shares at $17.25 or sell up to 600 shares at $17.

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3
Q

What is the spread on a stock quote?

A) The broker-dealer’s commission charges for the transaction
B) The range of prices the stock has shown over the course of one trading day
C) The difference between the bid price and the ask price or offer
D) The profit margin for an individual trade

A

C) The difference between the bid price and the ask price or offer

Explanation
A quote consists of a bid and an ask price. Dealers post their bid price—the price they are willing to pay for a stock—and their ask price—the price at which they are willing to sell the stock. The spread is the difference between the two.

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4
Q

Which of the following best describes the size of a quote?

A) It tells the number of shares the broker-dealer has in inventory.
B) It tells the number of shares that were traded in the OTC market the prior day.
C) It tells the number of shares the broker-dealer is willing to buy or sell at that price.
D) It tells the number of shares that were traded on the NYSE that day.

A

C) It tells the number of shares the broker-dealer is willing to buy or sell at that price.

Explanation
The size of a quote is the number of shares a dealer has available to trade or is willing to buy at the quoted price.

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5
Q

WRJ stock is quoted as 21 bid, 21.15 offer. For a customer order, which of the following is true?

I. A purchase can be made at $21 per share if buying at the market.
II. A purchase can be made at $21.15 per share if buying at the market.
III. The spread is $0.15.
IV. A sale can be made at $21.15 per share if selling at the market.

A) III and IV
B) I and III
C) I and IV
D) II and III

A

D) II and III

II. A purchase can be made at $21.15 per share if buying at the market.
III. The spread is $0.15.

Explanation
A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price which in this quote is 0.15.

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6
Q

The bid price represents

I. the price the broker-dealer is willing to pay when buying a security.
II. the price the customer will pay when buying a security.
III. the price a customer will receive when selling a security.
IV. the price the broker-dealer will receive when buying a security.

A) I and III
B) II and IV
C) I and II
D) II and III

A

A) I and III

I. the price the broker-dealer is willing to pay when buying a security.
III. the price a customer will receive when selling a security.

Explanation
The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.

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7
Q

ABC currently has the following quotes:

Bid Ask Size

  1. 00 10.50 3 × 2
  2. 20 10.45 4 × 3
  3. 25 10.60 3 × 2

What is the inside quote of ABC?

A) 10.25 – 10.45 3 × 3
B) 10.25 – 10.50 3 × 2
C) 10.20 – 10.45 4 × 3
D) 10.00 – 10.60 3 × 2

A

A) 10.25 – 10.45 3 × 3

Explanation
The inside quote is the highest bid (the highest price someone is willing to buy) paired with the lowest offer, or ask (the lowest price someone is willing to sell). In this case, the most someone was willing to pay was 10.25, and the lowest someone was willing to sell was 10.45.

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8
Q

Unless otherwise specified, the size of a firm quote is

A) 10,000 shares.
B) 100 shares.
C) 500 shares.
D) 1,000 shares.

A

B) 100 shares.

Explanation
This is according to a FINRA rule.

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9
Q

ABC currently has the following quotes:

Market Maker Bid Ask Size
MM1 10.00 10.50 3 × 2
MM2 10.20 10.45 4 × 3
MM3 10.25 10.60 3 × 2

The inside bid good is for

A) 100 shares.
B) 300 shares.
C) 400 shares.
D) 200 shares.

A

B) 300 shares.

Explanation
The inside bid is the highest bid, or the most someone is willing to pay. In this situation, MM3 is willing to pay 10.25 for 300 shares.

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10
Q

The ask price represents

A) one of the prices set by the SEC.
B) one of the prices set by FINRA.
C) the price the broker-dealer is willing to buy for.
D) the price the broker-dealer is willing to sell for.

A

D) the price the broker-dealer is willing to sell for.

Explanation
FINRA and the SEC do not set prices; broker-dealers post their own prices. The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.

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11
Q

The spread a dealer makes is best described as

A) the ask minus the bid.
B) the total commission.
C) the ask plus the bid.
D) none of these.

A

A) the ask minus the bid.

Explanation
The spread is what a dealer makes as a markup when he sells from his inventory if he buys at the bid and sells at the ask. A commission is charged in an agency transaction.

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12
Q

ABC currently has the following quotes:

Bid Ask Size

  1. 00 10.50 3 × 2
  2. 20 10.45 4 × 3
  3. 25 10.60 3 × 2

What is the spread in ABC?

A) 0.30
B) 0.20
C) 0.25
D) 0.50

A

B) 0.20

Explanation
The spread is computed as the difference between the lowest ask and the highest bid. In this case, the lowest ask is 10.45 and the highest bid is 10.25. Therefore, 10.45 – 10.25 = 0.20.

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13
Q

A customer is given a quote for ABC as: 17.00 – 17.25 6 × 12. This quote indicates the customer can

A) sell 1,200 shares at $17.25 per share.
B) sell 600 shares for $17 per share.
C) purchase 1,800 shares at $17.25 per year.
D) purchase 1,200 shares for $17 per share.

A

B) sell 600 shares for $17 per share.

Explanation
Customers can purchase at the offer (the lowest price someone else is willing to sell) and sell at the bid (the most someone else is willing to sell). With this in mind, the customer can buy up to 1,200 shares at $17.25 or sell up to 600 shares at $17.

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14
Q

ABC currently has the following quotes:

Bid Ask Size

  1. 00 10.50 3 × 2
  2. 20 10.45 4 × 3
  3. 25 10.60 3 × 2

What is the inside quote of ABC?

A) 10.20 – 10.45 4 × 3
B) 10.00 – 10.60 3 × 2
C) 10.25 – 10.50 3 × 2
D) 10.25 – 10.45 3 × 3

A

D) 10.25 – 10.45 3 × 3

Explanation
The inside quote is the highest bid (the highest price someone is willing to buy) paired with the lowest offer, or ask (the lowest price someone is willing to sell). In this case, the most someone was willing to pay was 10.25, and the lowest someone was willing to sell was 10.45.

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15
Q

The ask price represents

A) the price the broker-dealer is willing to sell for.
B) the price the broker-dealer is willing to buy for.
C) one of the prices set by FINRA.
D) one of the prices set by the SEC.

A

A) the price the broker-dealer is willing to sell for.

Explanation
FINRA and the SEC do not set prices; broker-dealers post their own prices. The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.

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16
Q

ABC currently has the following quotes:

Market Maker	Bid		Ask		Size
MM1		10.00	10.50	3 × 2
MM2		10.20	10.45	4 × 3
MM3		10.25	10.60	3 × 2
The inside bid good is for

A) 300 shares.
B) 200 shares.
C) 100 shares.
D) 400 shares.

A

A) 300 shares.

Explanation
The inside bid is the highest bid, or the most someone is willing to pay. In this situation, MM3 is willing to pay 10.25 for 300 shares.

17
Q

ABC currently has the following quotes:

Bid Ask Size

  1. 00 10.50 3 × 2
  2. 20 10.45 4 × 3
  3. 25 10.60 3 × 2

What is the spread in ABC?

A) 0.20
B) 0.30
C) 0.50
D) 0.25

A

A) 0.20

Explanation
The spread is computed as the difference between the lowest ask and the highest bid. In this case, the lowest ask is 10.45 and the highest bid is 10.25. Therefore, 10.45 – 10.25 = 0.20.

18
Q

Which of the following best describes the size of a quote?

A) It tells the number of shares the broker-dealer is willing to buy or sell at that price.
B) It tells the number of shares the broker-dealer has in inventory.
C) It tells the number of shares that were traded in the OTC market the prior day.
D) It tells the number of shares that were traded on the NYSE that day.

A

A) It tells the number of shares the broker-dealer is willing to buy or sell at that price.

Explanation
The size of a quote is the number of shares a dealer has available to trade or is willing to buy at the quoted price.

19
Q

Subject to market liquidity, which of the following orders is most likely to be executed immediately?

A) Limit order
B) Fill-or-kill order
C) Market order
D) All-or-none (AON) order

A

C) Market order

Explanation
When a liquid market exists, buy or sell market orders are executed at the best available price immediately.

20
Q

What is the spread on a stock quote?

A) The range of prices the stock has shown over the course of one trading day
B) The difference between the bid price and the ask price or offer
C) The profit margin for an individual trade
D) The broker-dealer’s commission charges for the transaction

A

B) The difference between the bid price and the ask price or offer

Explanation
A quote consists of a bid and an ask price. Dealers post their bid price—the price they are willing to pay for a stock—and their ask price—the price at which they are willing to sell the stock. The spread is the difference between the two.

21
Q

The bid price represents

I. the price the broker-dealer is willing to pay when buying a security.
II. the price the customer will pay when buying a security.
III. the price a customer will receive when selling a security.
IV. the price the broker-dealer will receive when buying a security.

A) II and III
B) I and III
C) I and II
D) II and IV

A

B) I and III

I. the price the broker-dealer is willing to pay when buying a security.
III. the price a customer will receive when selling a security.

Explanation
The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.

22
Q

The spread a dealer makes is best described as

A) the total commission.
B) none of these.
C) the ask minus the bid.
D) the ask plus the bid.

A

C) the ask minus the bid.

Explanation
The spread is what a dealer makes as a markup when he sells from his inventory if he buys at the bid and sells at the ask. A commission is charged in an agency transaction.

23
Q

Unless otherwise specified, the size of a firm quote is

A) 100 shares.
B) 10,000 shares.
C) 1,000 shares.
D) 500 shares.

A

A) 100 shares.

Explanation
This is according to a FINRA rule.

24
Q

WRJ stock is quoted as 21 bid, 21.15 offer. For a customer order, which of the following is true?

I. A purchase can be made at $21 per share if buying at the market.
II. A purchase can be made at $21.15 per share if buying at the market.
III. The spread is $0.15.
IV. A sale can be made at $21.15 per share if selling at the market.

A) I and IV
B) III and IV
C) II and III
D) I and III

A

C) II and III

II. A purchase can be made at $21.15 per share if buying at the market.
III. The spread is $0.15.

Explanation
A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price which in this quote is 0.15.