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Lesson #15 Quiz >> Financial Markets

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.

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