LOS e: Explain the criteria of market quality and evaluate the quality of a market when given a description of its characteristics.

Q1. Which of the following is NOT a relevant measure of market quality?

A)   Liquidity.

B)   Assurity of completion.

C)   Market prevalence.

Q2. Market A has average bid and ask sizes of 400 shares. Market B has average bid and ask sizes of 600 shares. Market C has average effective spreads of $0.034. Market D has average effective spreads of $0.039. Comparing A to B and C to D, which markets are of the highest quality?

A)   B and D.

B)   A and C.

C)   B and C.

Q3. Which of the following is NOT a characteristic of a liquid market?

A)   Integrity.

B)   An abundance of traders.

C)   Homogenous traders.

LOS e: Explain the criteria of market quality and evaluate the quality of a market when given a description of its characteristics. fficeffice" />

Q1. Which of the following is NOT a relevant measure of market quality?

A)   Liquidity.

B)   Assurity of completion.

C)   Market prevalence.

Correct answer is C)

A security market should be judged on the basis of its liquidity and assurity of completion.

Q2. Market A has average bid and ask sizes of 400 shares. Market B has average bid and ask sizes of 600 shares. Market C has average effective spreads of $0.034. Market D has average effective spreads of $0.039. Comparing A to B and C to D, which markets are of the highest quality?

A)   B and D.

B)   A and C.

C)   B and C.

Correct answer is C)

Lower quoted and effective spreads as well as higher bid and ask sizes indicate greater liquidity and greater market quality.

Q3. Which of the following is NOT a characteristic of a liquid market?

A)   Integrity.

B)   An abundance of traders.

C)   Homogenous traders.

Correct answer is C)

The factors contributing to liquidity are an abundance and diversity of traders, convenience, and integrity. Homogenous traders are not diverse.