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周教授CFA金融课程:2019年CFA一二三级系列课程

Portfolio Management and Wealth Planning【Session16 - Reading 39】

A market order has:
A)
both price uncertainty and execution uncertainty.
B)
execution uncertainty but not price uncertainty.
C)
price uncertainty but not execution uncertainty.



A market order is an order to execute the trade immediately at the best possible price. The emphasis in a market order is the speed of execution (the reduction of execution uncertainty). The disadvantage of a market order is that the price it will be executed at is not known ahead of time, it thus has price uncertainty.

Which of the following statements best characterizes a limit order? A limit order has:
A)
price uncertainty and execution uncertainty.
B)
reduced price uncertainty but retains execution uncertainty.
C)
price uncertainty but not execution uncertainty.



A limit order is an order to trade at the best possible price, subject to the price satisfying the limit price. A limit order emphasizes the price of execution (the reduction of price uncertainty). It however, may not be filled immediately and may even go unfilled or partially unfilled. A limit order thus has execution uncertainty.

TOP

A trader submits a buy order that specifies that the trade must be executed at $40 by the end of the day. The execution price is $39.88. What type of order has the trader executed?
A)
A market order.
B)
A principal order.
C)
A limit order.



A limit order is an order to trade at the best possible price, subject to the price satisfying the limit price. For buy orders, the execution price (here $39.88) must be lower or equal to the limit price (here $40). Limit orders also have an expiration date, beyond which they expire.

TOP

In which of the following markets would the calculation of market impact costs be inappropriate?
A)
Auction markets.
B)
Electronic limit-order markets.
C)
Electronic crossing networks.



In an electronic crossing network, orders are executed at the average of the bid and ask quotes. Prices do not adjust based on supply and demand.

TOP

Suppose a trader is quoted a market bid price of $40.40 and an ask of $40.49. The execution price of a buy order is $40.47. What is the effective spread?
A)
$0.025.
B)
$0.050.
C)
$0.090.



If a trader placed a buy order, a dealer may offer a better ask price than the previous ask to earn the trader’s business. The midquote of the quoted bid and ask prices is $40.445. The effective spread for this buy order would then be calculated as: 2 × ($40.47 - $40.445) = $0.05, which is 4 cents better than the quoted spread of $0.09 ($40.40 - $40.49).

TOP

Suppose a trader is quoted a market bid price of $30.00 and an ask of $30.07. The execution price of a buy order is $30.04. What is the effective spread?
A)
$0.01.
B)
$0.06.
C)
$0.02.



If a trader placed a buy order, a dealer may offer a better ask price than the previous ask to earn the trader’s business. The midquote of the quoted bid and ask prices is $30.035. The effective spread for this buy order would then be calculated as: 2 × ($30.04 - $30.035) = $0.01, which is 6 cents better than the quoted spread of $0.07 ($30.07 - $30.00).

TOP

Suppose a trader is quoted a market bid price of $16.00 and an ask of $16.10. The execution price of a sell order is $16.03. What is the effective spread?
A)
$0.02.
B)
$0.04.
C)
$0.03.



If a trader placed a sell order, a dealer may offer a better bid price than the previous bid to earn the trader’s business. The midquote of the quoted bid and ask prices is $16.05. The effective spread for this sell order would then be calculated as: 2 × ($16.05 - $16.03) = $0.04, which is 6 cents better than the quoted spread of $0.10 ($16.10 - $16.00).

TOP

Which of the following markets does NOT provide price discovery?
A)
Electronic limit-order markets.
B)
Electronic crossing networks.
C)
Auction markets.



In an electronic crossing network, there is no price discovery because trades are executed at the average of the bid and ask quotes. The trader usually does not know the identity of their counterparty or of their trade size. In an auction market and automated auctions (also known as electronic limit-order markets), orders compete for execution and provide price discovery.

TOP

In which of the following markets is an order most likely to go unfilled or partially filled?
A)
Auction markets.
B)
Electronic crossing networks.
C)
Electronic limit-order markets.



In an electronic crossing network, trades are executed at the average of the bid and ask quotes. They do not adjust based on supply and demand. As such, prices do not adjust to fill orders. In an auction market and automated auctions (also known as electronic limit-order markets), orders compete for execution and prices can adjust to fill orders.

TOP

Where would an illiquid security in a developing country most likely trade?
A)
Electronic crossing networks.
B)
Electronic limit-order markets.
C)
Broker markets.



In brokered markets, brokers find the counterparties to a trade. This service is valuable when the trader has a large block to sell, when they want to remain anonymous, and/or when the market for the security is small or illiquid. Brokered markets are important in countries where public capital markets are not well developed.

TOP

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