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FIN 201 Chapter 4

QuestionAnswer
What are market makers? Where securities are traded
What are securities traded on? Organized exchange, over-the-counter (OTC) market
What are securites bought through? Brokers, who buy and sell for their customers' accounts
Where do brokers obtain their securities from? Dealers
What do dealers do? Buy and sell securities for their own account, facilitate the orderly process by which buyers and sellers of securities are brought together
Who quotes prices for securities? Market makers
Round lot Normal unit of trading in a security
Odd lot Unit of trading that is less that is less than a round lot
Spread The difference between the bid and ask prices
What are bid and ask prices? Prices quoted by market makers at which they are willing to buy and sell securities
How are bid and ask prices different? The difference represents the dealer's markup or profit
Market Order Order to buy or sell security at the best current price
What is a limit order? An order to buy or sell a security at a specific price or better
Characteristics of confirmation statements for transactions Settlement date, securities are held (registered with) by the brokerage firm ("street name")
What is a margin? Securities are paid for with either cash or a combination of cash and borrowed funds
What does a margin do? Increases potential percentage return or loss, increases risk
Initial margin requirement Minimum percentage of total price
Long position Anticipates prices rising, purchase of securities
Short position Anticipates prices falling, sale of borrowed securities
What are some aggregate measures of the market and subsets? Dow Jones Industrial Average (DJIA), S&P 500, NYSE Composite, Nasdaq index, Value Line Composite, Wilshire 5000 Total Market
Where are foreign securities traded? Foreign OTC markets and foreign exchanges
What do American Depository Receipts (ADRs) do? Avoid the problem of language
Who are American Depository Receipts (ADRs) registered with? The SEC
What are American Depository Receipts (ADRs) expressed in? Dollars and not in the local currency
Eurobonds Bonds sold in a foreign country but denominated in the currency of the issuing firm
Efficient Market Hypothesis Theory that securities prices correctly measure the current value of a firm's future earnings and dividends, price changes occur quickly, curent price property values a stock
What happens under the Efficient Market Hypothesis to new information? It is disseminated quickly
What can you not expect from the Efficient Market Hypothesis? To consistently outperform
True or false: The major function of the New York Stock Exchange is to raise funds for corps. False
True or false: A broker makes a market in stocks traded on an organized exchange False
True or false: The Efficient Market Hypothesis suggests that investors should not expect to outperform the market True
True or false: The margin requirement for stocks is set by the Federal Reserve? True
The individual (or firm) who makes a market, guarantees to... buy at specified (bid) prices and sell specified (ask) prices
In an efficient market, security prices... Adjust rapidly to new information
Entering a sell order at $1850 when the bid is 18-19 is? A limit order
A market-maker quotes the bid-ask price for AMZN at 127.51-127.82. You purchase the stock. The following dy the quoted bid-ask for the same stock is 126.22-126.80. You decide to sell your shares. What is your profit on a per-share basis? -$1.60
Created by: lavenderdreamy
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