21
9) Which of the following can be encountered when investing in foreign markets?
I. foreign taxation of dividends
II. different accounting standards for financial disclosure
III. restrictions on types of investments
IV. illiquid markets
A) II and III only
B) II and IV only
C) I, II and IV only
D) I, II, III and IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
10) American Depositary Receipts represent
A) receipts for dollar deposits in foreign banks.
B) receipts from foreign broker-dealers establishing ownership of foreign stocks.
C) receipts for the stocks of foreign companies held by banks in the companies’ home country.
D) receipts for shares of foreign companies held by U.S. broker-dealers.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
11) Assume the foreign exchange rate for the euro was U.S. $1.00 = .91 euro last month. This
month, the exchange rate is U.S. $1.00 = .88 euro. This information indicates that over the past
month the
A) U.S. dollar remained unchanged relative to the euro.
B) U.S. dollar appreciated relative to all foreign currencies.
C) euro appreciated relative to the dollar.
D) euro depreciated relative to the dollar.
managers
AACSB: 3 Analytical thinking
Question Status: Revised
Learning Goal: Learning Goal 4
22
12) Assume the foreign exchange rate for the euro was U.S. $1.00 = .91 euro last month. This
month, the exchange rate is U.S. $1.00 = .88 euro. All things equal, the dollar value of
European stocks
A) decreased.
B) increased.
C) stayed the same.
D) would vary depending on the country.
managers
AACSB: 3 Analytical thinking
Question Status: Revised
Learning Goal: Learning Goal 4
13) American investors can participate in international stock markets by
A) purchasing shares in a mutual fund that invests in foreign companies.
B) purchasing shares of a U.S. based company such as Coca Cola or McDonald’s with
extensive international operations.
C) purchasing ADSs (American Depositary shares).
D) all of the above.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
14) The effects of fluctuating foreign exchange rates may
I. increase a U. S. investor’s rate of return.
II. decrease a U. S. investor’s rate of return.
III. can be avoided by investing in ADRs.
IV. can be avoided by investing in mutual funds that specialize in foreign stocks.
A) I and II only
B) I and III only
C) III and IV only
D) I, II, III and IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
23
15) Kayla invested $3,000 and purchased shares of a German corporation when the exchange
rate was $1.00 = .91 euro. After six months, she sold all of the shares for 3,180 euros, when the
exchange rate was $1.00 = .88 euro. No dividends were paid during the time Heidi owned the
shares of stock. What is the amount of Kayla’s gain or loss on this investment?
A) $613.64 loss
B) $613.64 gain
C) $497.60 loss
D) $497.60 gain
managers
AACSB: 3 Analytical thinking
Question Status: Revised
Learning Goal: Learning Goal 4
2.5 Learning Goal 5
1) After hours markets tend to be less volatile and more liquid than the regular trading sessions.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
2) SEC regulations strictly prohibit trading outside the normal hours of 9:30 A.m. to 4:00 P.M.
EST.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
3) The Securities Act of 1933 deals mostly with primary markets.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
24
4) Research indicates that investors are more likely to overreact to news when trading after
hours.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 5
5) Insider trading is the use of nonpublic information about a security to gain a profit.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
6) The Sarbanes-Oxley Act of 2002 strengthens accounting disclosure requirements and ethical
guidelines for financial officers.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
25
7) Which of the following characteristics apply to trading before and after regular hours?
I. Most after hours trades match a bid price to a corresponding offer price.
II. Most brokerage firms require individual investors to place only market orders for after-
hours trades.
III. Electronic Communications Networks (ECNs) play a key role in after hours trading.
IV. After-hours trading begins at 4:00 P.M. and ends at 9:30 A.M. eastern time.
A) II and IV only
B) I, II and III only
C) I and IV only
D) I, III and IV only
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Revised
Learning Goal: Learning Goal 5
8) The Sarbanes-Oxley Act of 2002 focuses on
A) insider trading.
B) IPOs.
C) accounting and other public disclosures of information.
D) regulation of the OTC markets.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
9) Which of the following acts abolished fixed commission schedules?
A) Investment Advisers Act of 1940
B) Investment Company Act of 1940
C) Securities Acts Amendments of 1975
D) Insider Trading and Fraud Act of 1988
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
26
10) An act explicitly defining and prohibiting insider trading was passed in
A) 1934.
B) 1975.
C) 1988.
D) 2002.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Revised
Learning Goal: Learning Goal 5
11) Which of the following are provisions of the Sarbanes-Oxley Act of 2002?
I. an oversight board to monitor the accounting industry
II. tougher penalties for executives who commit corporate fraud
III. stricter prohibitions against insider trading
IV. guidelines for analysts conflicts of interest
A) II and IV only
B) I, II and III only
C) I and IV only
D) I, II and IV only
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
12) The Consumer Financial Protection Agency was established by
A) Investment Company Act of 1940.
B) The Securities Acts Amendments of 1975.
C) The Sarbanes-Oxley Act of 2002.
D) The Dodd-Frank Act of 2010.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
27
13) Which of the following practices is prohibited by the Insider Trading and Fraud Act of
1988?
A) the use of nonpublic information to make profitable stock transactions
B) selling of stock by officers of the company
C) the granting of stock options to corporate executives in lieu of salaries
D) private sales of stock between executives of the company
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
14) Crossing markets are those that
A) trade foreign securities.
B) conduct transactions between institutional and individual traders.
C) fill only the orders which have opposing orders at identical prices.
D) conduct business at locations in varying time zones.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
15) The Securities Exchange Act of 1934
A) requires full disclosure of information on all new security issues.
B) authorized the SEC to regulate mutual funds.
C) established trade associations such as the NASD.
D) created the SEC as the regulator of the securities exchanges.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
28
2.6 Learning Goal 6
1) Margin trading requires the borrowing of securities.
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 6
2) Margin trading will magnify losses on a percentage basis.
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 6
3) Short selling requires the borrowing of securities.
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 6
4) Short selling involves the sale of depreciated stock at a price below the amount borrowed on
margin.
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 6
5) When a person sells a common stock short, she or he is betting that the price of the stock will
fall.
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 6
6) Losses on a stock purchase are limited to the price of the stock, but losses on a short sale are
potentially unlimited.
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 6