International Financial Management, 8e (Eun)
1) In a dealer market, the broker takes the trade through the dealer, who participates in trades as a
principal by buying and selling the security for his own account.
2) Public traders do not trade directly with one another in a dealer market.
3) The sale of new common stock by corporations to initial investors occurs in
A) the primary market.
B) the secondary market.
C) the OTC market.
D) the dealer market.
4) The sale of previously issued common stock traded between investors occurs in
A) the primary market.
B) the secondary market.
C) the on-the-run market.
D) the dealer market.
5) A “primary” stock market is
A) a big internationally-important market like the NYSE.
B) a market where corporations issue new shares to initial investors.
C) where brokers and market makers trade.
D) none of the options
6) During the 1980s, cross-border equity investment was largely confined to the equity markets of
A) developing countries.
B) developed countries.
C) both developing and developed countries.
D) none of the options
7) Investment in foreign equity markets became common practice in the
A) 1960s.
B) 1970s.
C) 1980s.
D) none of the options
8) Only in the ________ did world investors start to invest sizable amounts in the emerging equity
markets.
A) 1970s
B) 1980s
C) 1990s
D) none of the options
9) Investment in foreign equity markets became common practice in the 1980s as investors
became aware of the benefits of
A) international portfolio diversification.
B) debt forgiveness.
C) international portfolio diversification and debt forgiveness.
D) none of the options
10) Only in the 1990s did world investors start to invest sizable amounts in the emerging equity
markets, as
A) the economic growth and prospects of the developing countries improved.
B) the economic growth and prospects of the developing countries declined.
C) the economic growth and prospects of the developed countries improved.
D) none of the options
11) At year-end 2015, total market capitalization of 80 organized stock exchanges tracked by the
World Federation of Exchanges stood at
A) $67,125 billion.
B) $67,125 trillion.
C) $97,125 billion.
D) $97,125 trillion.
12) Total market capitalization for exchanges increased nearly ________ percent over 2011 to
2015.
A) 10
B) 20
C) 30
D) 40
13) Which investment is likely to be the most liquid?
A) A share of publicly traded company trading on the NYSE.
B) A bond issued by a Fortune 500 company.
C) A house in a nice part of town.
D) A share of publicly traded company trading on the NYSE and a bond issued by a Fortune 500
company are equally liquid.
14) Which investment is likely to be the least liquid?
A) A share of publicly traded company trading on the NYSE.
B) A bond issued by a Fortune 500 company.
C) A house in a nice part of town.
D) A share of publicly traded company trading on the NYSE and a bond issued by a Fortune 500
company are equally liquid.
15) A liquid stock market
A) is one in which prices reflect all relevant information quickly.
B) is one in which prices reflect all publicly available information quickly.
C) is one in which prices reflect price and volume information quickly.
D) is one in which investors can buy and sell stocks quickly at close to the current quoted prices.
16) A measure of liquidity for a stock market is the turnover ratio; defined as
A) the ratio of stock market transactions over a period of time divided by the size, or market
capitalization, of the stock market.
B) the ratio the size, or market capitalization, of the stock market divided by the value of the stock
market transactions over a period of time.
C) the ratio of aggregate company sales over a period of time divided by the size, or market
capitalization, of the stock market.
D) none of the options
17) Generally, the higher the turnover ratio,
A) the less liquid the secondary stock market, indicating ease in trading.
B) the more liquid the secondary stock market, indicating ease in trading.
C) the more liquid the primary stock market, indicating ease in trading.
D) the more efficient the stock market is.
18) The turnover velocity percentages for 75 of the stock exchanges beginning with 2011 were
measured. Over 40 percent of the exchanges, in most years, had in excess of
A) 15 percent turnover per month.
B) 25 percent turnover per month.
C) 30 percent turnover per month.
D) 75 percent turnover per month.
19) Relatively low turnover ratios
A) indicate poor liquidity.
B) indicate good liquidity.
C) indicate strong investment performance.
D) none of the options
20) A measure of “liquidity” for a stock market is
A) the times interest earned ratio.
B) the ratio of stock market transactions over a period of time divided by the size, or market
capitalization, of the stock market.
C) the LIBOR rate.
D) the times interest earned ratio, as well as the ratio of stock market transactions over a period of
time divided by the size, or market capitalization, of the stock market.
21) As a measure of liquidity,
A) generally, the lower the turnover, the greater the liquidity of a secondary stock market.
B) generally, the higher the turnover, the greater the liquidity of a secondary stock market.
C) the more a financial asset gurgles when shook the greater the liquidity.
D) none of the options
22) Generally, the lower the turnover ratio,
A) the less liquid the secondary stock market, indicating difficulty in trading.
B) the more liquid the secondary stock market, indicating difficulty in trading.
C) the more liquid the primary stock market, indicating difficulty in trading.
D) the more efficient the stock market is.
23) Many of the small foreign equity markets (e.g., Argentina, Sri Lanka)
A) have poor liquidity at present.
B) are very liquid stock markets, since the poor people living there are eager to sell their securities.
C) have fairly high turnover ratios indicating strong liquidity.
D) none of the options
24) In general, if an investment
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) has poor liquidity, it should offer investors a liquidity premium. Additionally, if it can be sold
fairly quickly at a fair price, it has good liquidity.
D) none of the options
25) Many of the larger emerging equity markets (e.g., China, India)
A) have poor liquidity at present.
B) are more liquid stock markets than the developed world, since the poor people living in the
developing world are eager to sell their securities.
C) have high turnover ratios.
D) none of the options
26) In which type of market can liquidity “dry up”?
A) A bull market
B) A bear market
C) A speculative bubble
D) A financial panic
27) In which type of policy actions by the Fed can liquidity “dry up”?
A) Easy money
B) Tight money
C) Decrease in the reserve requirement
D) Decrease in the discount rate
28) Fair prices for existing issues is established in the secondary market due to
A) competitive trading between buyers and sellers.
B) decreased trading activity between buyers and sellers.
C) destructive competition between buyers and sellers.
D) none of the options
29) A limit order is an order away from the market price that is held in a ________ until it can be
executed at the desired price.
A) continuous order book
B) limit order book
C) dealer book
D) none of the options
30) OTC stocks are generally
A) unlisted stocks.
B) listed stocks.
C) traded at a discount due to their high risk.
D) none of the options
31) The exchange markets in the U.S. are
A) agency markets.
B) auction markets.
C) agency/auction markets.
D) none of the options
32) The first automated national stock market was the
A) NASDAQ.
B) TMX.
C) AMEX.
D) none of the options
33) The secondary stock markets
A) are the markets for “pre-owned” or “used” shares of stock.
B) provide marketability to shares.
C) provide price discovery or share valuation.
D) all of the options
34) The secondary equity markets of the world serve two major purposes. They provide
A) marketability and share valuation.
B) liquidity and price support.
C) price discovery and arbitrage.
D) safety and stability.
35) Price discovery in the secondary stock markets
A) occurs due to the competitive trading between buyers and sellers, just like on eBay.
B) is set once a day at the close.
C) is set by the investment bankers at the IPO.
D) all of the options
36) An all-or-none order is a limit order either to buy or to sell a security in which the broker is
directed to attempt to fill the entire amount of the order or none of it. An all-or-none order differs
from a fill-or-kill (FOK) order in that
A) with an all-or-none order, immediate execution is not required.
B) with an all-or-none order, immediate execution is required.
C) with an all-or-none order, over subscription is allowed—filling the order for more shares.
D) none of the options
37) A market order
A) is an instruction from a customer to a broker to buy or sell at the best price available when the
order is received (immediately).
B) is an instruction from a customer to a broker to buy or sell in a particular market (e.g., NYSE).
C) is always and everywhere “fill-or-kill.”
D) is always and everywhere “good-till-cancelled.”
38) A limit order
A) is an instruction from a customer to a broker to buy or sell in at a particular price (or better).
B) can be a “day order”—that is the order is cancelled if not executed during that day’s trading.
C) can be “good-till-cancelled.”
D) all of the options
39) A stop-limit order is an order to buy or sell a stock that combines the features of a stop order
and a limit order. Once the stop price is touched in the market, the stop-limit order becomes a limit
order to buy or to sell at the limit price. Which of the following are true?
A) The benefit of a stop-limit order is that the investor can control the price at which the trade will
get executed.
B) A stop-limit order may never get filled if the stock’s price never reaches the specified limit
price. This may happen especially in fast-moving markets where prices fluctuate wildly.
C) The use of stop limit orders is much more frequent for stocks that trade on an exchange than in
the over-the-counter (OTC) market.
D) In addition, your broker-dealer may not allow you to place a stop limit order on some securities
or accept a stop limit order for OTC stocks.
E) all of the options
40) Which of the following are true?
A) Unless you give your broker specific instructions to the contrary, orders to buy or sell a stock
are day orders.
B) Orders that have been placed but not executed during regular trading hours will automatically
carry over into after-hours trading but not the next regular trading day.
C) Similarly, day orders placed during after-hours trading will automatically carry over into the
next regular trading day.
D) If your order is not executed during a trading session, you are not allowed to place a new order
in the next trading session.
E) all of the options
41) A stop order is an order to buy or sell a stock once the price of the stock reaches a specified
price, known as the stop price. When the specified price is reached, your stop order becomes
A) a market order.
B) a good-till-cancelled (GTC) order.
C) a day order.
D) none of the options
42) Unlike day orders, a good-till-cancelled (GTC) order is an order to buy or sell a security at a
specific or limit price that lasts until the order is completed or cancelled. Which of the following is
true?
A) A GTC order will not be executed until the limit price has been reached, regardless of how
many days or weeks it might take.
B) Investors often use GTC orders to set a limit price that is far away from the current market price.
C) Some brokerage firms may limit the time a GTC order can remain in effect and may charge
more for executing this type of order.
D) all of the options
43) To avoid buying a stock at a price higher than you intend, you need to place ________ rather
than a market order.
A) a stop-loss order
B) a day order
C) a good-till-cancelled order
D) a limit order
44) A stop order is an order to buy or sell a stock once the price of the stock reaches a specified
price, known as
A) the stop price.
B) the limit price.
C) the last price.
D) the sell price
45) The advantages of a market order include the fact that
A) you are pretty much guaranteed that your order will be executed.
B) a market order typically has lower commissions than a limit order.
C) market orders increase your liquidity.
D) you are pretty much guaranteed that your order will be executed, and a market order typically
has lower commissions than a limit order.
46) Dealers in an OTC market
A) stand ready to buy at the bid and sell at the ask price.
B) set their own bid and ask prices.
C) do not charge commissions.
D) all of the options
47) A stop order is an order to buy or sell a stock once the price of the stock reaches a specified
price, known as the stop price. When the specified price is reached, your stop order becomes a
market order. The advantage of a stop order is that
A) you don’t have to monitor how a stock is performing on a daily basis.
B) the stop price can be activated by a short-term fluctuation in a stock’s price.
C) once your stop price is reached, your stop order becomes a market order and the price you
receive may be much different from the stop price, especially in a fast-moving market where stock
prices can change rapidly.
D) all of the options
48) The OTC market
A) does not accept credit—the dealers “only take cash.”
B) is a dealer market.
C) includes the NASDAQ in the U.S.
D) is a dealer market and includes the NASDAQ in the U.S.
49) A “specialist”
A) makes a market by holding an inventory of a particular security, like IBM or Intel.
B) is a participant on the floor of the exchange, like the NYSE.
C) has a designated station on the floor of the exchange.
D) all of the options
50) A crowd of floor traders on the NYSE
A) may arrive at a more favorable price for their clients “inside” the specialist’s bid and ask quotes.
B) are obliged to execute their trades through a specialist.
C) are allowed to “front run” their own trades ahead of customer trades.
D) all of the options
51) A specialist on the NYSE
A) is obliged to fill limit orders if they are more favorable than the specialist’s posted bid and ask
quotes.
B) is obliged to fill limit orders at the specialist’s posted bid and ask quotes.
C) is actually a computer program, not a human.
D) is obliged to fill limit orders if they are more favorable than the specialist’s posted bid and ask
quotes, and is actually a computer program, not a human.
52) A “call market”
A) is OTC and over-the-phone.
B) features an agent of the exchange that accumulates a batch of orders that are periodically
executed by written or verbal auction throughout the day.
C) provides traders with execution at certain prices.
D) features an agent of the exchange that accumulates a batch of orders that are periodically
executed by written or verbal auction throughout the day, and provides traders with execution at
certain prices.
53) The Toronto Stock exchange
A) is a fully automated.
B) features electronic matching of public orders.
C) has continuous order flow.
D) all of the options
54) In an agency market, the broker takes the client’s order through the agent, who matches it with
another public order. The agent can be viewed as
A) a dealer.
B) a specialist.
C) a broker’s broker.
D) none of the options
55) In an agency market, the broker takes the client’s order through the agent, who matches it with
another public order. Names for the agent are
A) official broker.
B) central broker.
C) a broker’s broker.
D) all of the options
56) The Paris Bourse was traditionally a call market. In a call market, an agent of the exchange
accumulates, over a period of time, a batch of orders that are periodically executed by written or
verbal auction throughout the trading day. Both market and limit orders are handled in this way.
The major disadvantage of a call market is that
A) traders are not certain about the price at which their orders will transact because bid and ask
quotations are not available prior to the call.
B) traders are not certain about how many shares will be able to sell or buy at the price they quote
because order volume is not available prior to the call.
C) there is a lack of liquidity inter call.
D) none of the options