Lesson # 15

Question 1

The difference between dealers and brokers is:

a) Dealers make, on average, more profits than brokers.

b) Brokers are market makers and dealers are not.

c) Dealers do not serve as a principal in transactions and brokers do.

d) Brokers do not serve as a principal in transactions and dealers do.

Question 2

Stock exchanges did not flourish until the 19th century in the U.S. because:

a) The number of potentially listed companies was too small.

b) cost of creating such an exchange was perceived to be too high.

c) There was no demand for such a stock exchange.

d) Basic information technology was not yet available.

Question 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?

a) There will be a transaction of 50 shares at $20.05.

b) There will be a transaction of 100 shares at $20.05.

c) There will be a transaction of 50 shares at $20.

d) No transaction will occur.

Question 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:

a) Minimize the time to transmit orders to the exchange.

b) Receive price discounts on transactions from exchanges that come with co-location.

c) Benefit from the highest possible demand for trades.

d) Take advantage of the maintenance services provided by the exchanges if any of their servers fails.

Question 5

A payment for order flow is:

a) The compensation and benefit a brokerage receives by directing orders to different parties to be executed.

b) A transaction cost which is only associated with limit orders.

c) A transaction cost which is only associated with stop-loss orders.

d) Equal to the bid-ask spread.