Lesson #15 Quiz >> Financial Markets
1. The difference between dealers and brokers is:
- Dealers make, on average, more profits than brokers.
- Brokers do not serve as a principal in transactions and dealers do.
- Dealers do not serve as a principal in transactions and brokers do.
- Brokers are market makers and dealers are not.
2. Stock exchanges did not flourish until the 19th century in the U.S. because:
- Basic information technology was not yet available.
- The number of potentially listed companies was too small.
- The cost of creating such an exchange was perceived to be too high.
- There was no demand for such a stock exchange.
3. Consider a hypothetical NASDAQ level II screen for the shares of a corporation. Suppose the displayed ask is $20.05 for 100 shares and the displayed bid is $20 for 150 shares. What happens if another dealer places a limit order to buy 50 shares for $20.02?
- There will be a transaction of 50 shares at $20.
- There will be a transaction of 50 shares at $20.05.
- There will be a transaction of 100 shares at $20.05.
- No transaction will occur.
4. Investment firms which specialize in high frequency trading try to locate their servers close to the exchanges where they execute their transactions because they want to:
- Take advantage of the maintenance services provided by the exchanges if any of their servers fails.
- Receive price discounts on transactions from exchanges that come with co-location.
- Minimize the time to transmit orders to the exchange.
- Benefit from the highest possible demand for trades.
5. A payment for order flow is:
- The compensation and benefit a brokerage receives by directing orders to different parties to be executed.
- A transaction cost which is only associated with stop-loss orders.
- Equal to the bid-ask spread.
- A transaction cost which is only associated with limit orders.
