manchester88

A short seller:

A) often also places a stop loss sell order.

B) does not receive the dividends.

C) loses if the price of the stock sold short decreases.

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The short seller pays all dividends to the lender, loses if stock prices rise, and is required to post a margin account. A short seller often places a stop buy order to protect the short sale position from a rising market.

manchester88

Which of the following statements about selling a stock short is least likely accurate?

A) The seller must return the securities at the request of the lender.

B) The seller must inform their broker that the order is a short sale before completing the transaction.

C) The short seller may withdraw the proceeds of the short sale.

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Proceeds from the short sale must remain in the brokerage account along with the required margin deposit.

manchester88

An investor can profit from a stock price decline by:

A) placing a stop buy order.

B) selling short.

C) purchasing a call option.

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Short selling provides a way for an investor to profit from a stock price decline. In order to sell short, the broker borrows the security and then sells it for the short seller. Later, if the investor can replace the borrowed securities by repurchasing them at a lower price, then the investor will profit from the transaction.

manchester88

Regarding the technical points affecting the short sales of a stock, which of the following statements is most accurate?

A) The lender must deposit margin to guarantee the eventual return of the stock.

B) Stocks can only be shorted in a down market.

C) The short seller must pay all dividends due to the lender of the shorted stock.

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The short seller must pay any dividends on the stock to the owner of the borrowed shares. The short seller must also deposit margin money to guarantee the eventual repurchase of the security.

manchester88

Which of the following statements about financial intermediaries is most accurate?

A) Brokers seek out traders that are willing to take the opposite sides of their clients’ orders.

B) Arbitrageurs buy securities with the anticipation that they will be able to sell the securities in the future at higher prices.

C) Dealers buy a security in one market and simultaneously sell the same security in a different market.

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Brokers seek out traders that are willing to take the opposite side of their clients’ orders. Arbitrageurs buy an instrument in one market and simultaneously sell the same instrument in a different market at a higher price. Dealers buy securities from clients, with the expectation that they will be able to sell the securities to other clients in the future at higher prices.

manchester88

Financial intermediaries that issue securities which represent interests in a pool of similar financial assets are best characterized as:

A) block brokers.

B) arbitrageurs.

C) securitizers.

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Securitizers are financial intermediaries that assemble large pools of similar financial assets, such as mortgages or loans, and issue securities that represent interests in the pool. Block brokers assist their clients with large trades of securities. Arbitrageurs simultaneously buy and sell the same asset in different markets to take advantage of different prices for the same asset.

manchester88

In contrast with a typical forward contract, futures contracts have:

A) standardized terms.

B) greater counterparty risk.

C) less liquidity.

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Futures are forward contracts that trade on exchanges and have standardized terms, in contrast with forward contracts, which are customized instruments. A futures clearinghouse reduces counterparty risk by guaranteeing the performance of buyers and sellers. Futures contracts trade on organized exchanges and are more liquid than forward contracts.

manchester88

Equity securities most likely include:

A) preferred stock and certificates of deposit.

B) commercial paper and repurchase agreements.

C) common stock and warrants.

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Common stock, preferred stock, and warrants are equity securities. Certificates of deposit, commercial paper, and repurchase agreements are debt securities.

manchester88

Which of the following assets are best characterized as contracts?

A) Currency swaps.

B) Commercial paper.

C) Depository receipts.

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Contracts include forwards, futures, options, swaps, and insurance contracts. Commercial paper is a debt security. Depository receipts are shares in a pooled investment vehicle, such as a mutual fund or an exchange-traded fund.

manchester88

Jorman Inc. stock is cross-listed on exchanges in Tokyo and New York. Jorman stock is best described as a:

A) private security.

B) public security.

C) primary market security.

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Jorman stock is a public security because it is traded on public exchanges that are subject to regulatory oversight. A private security is a security that is not offered for sale on a public exchange and is not subject to regulation. Securities are issued in the primary market (i.e., initial public offerings) and subsequently trade in the secondary market (e.g., stock exchanges).