File: ch05, Chapter 5: How Securities are Traded
Multiple Choice Questions
1. Merrill Lynch and UBS are examples of:
a. discount brokers
b. wholesale brokers
c. full-service brokers
d. blue-chip brokers
Ans: c
Difficulty: Easy
Ref: Brokerage Transactions
2. Which of the following statements is true regarding full-service brokers?
a. They typically seek clients with at least $10,000 in their accounts.
b. They derive only a small percentage of their revenues from commissions.
c. They compete primarily on price and services offered.
d. Less than 10 percent of U.S. households now use a full-service broker.
Ans: b
Difficulty: Moderate
Ref: Brokerage Transactions
3. Which of the following statements regarding commissions charged by full-service
brokers is not true?
a. Commissions vary by product.
b. The more complicated the transaction, the higher the commission.
c. The commission on many bonds is already built into the trade.
d. There is no commission on U.S. Treasury securities.
Ans: d
Difficulty: Moderate
Ref: Brokerage Transactions
4. Which of the following statements regarding discount brokers is true?
a. All discount brokers offer on-line trading.
b. Discount brokers only execute orders on stock transactions.
c. Discount brokers may offer little investment advice.
d. Discount brokers do not offer SIPC protection.
Ans: c
Chapter Five 53
How Securities Are Traded
,Difficulty: Moderate
Ref: Brokerage Transactions
5. Which of the following accounts often requires an annual fee?
a. a cash account
b. a wrap account
c. a margin account
d. All of the above require an annual fee.
Ans: b
Difficulty: Moderate
Ref: Brokerage Transactions
6. Which of the following requires a relatively large minimum investment, usually
$100,000 or higher?
a. a cash account
b. an asset management account
c. a margin account
d. a wrap account at a large brokerage firm
Ans: d
Difficulty: Moderate
Ref: Brokerage Transactions
7. A newer variation of the wrap account is the:
a. mutual fund wrap account
b. asset allocation wrap account
c. small-cap wrap account
d. index wrap account
Ans: a
Difficulty: Easy
Ref: Brokerage Transactions
8. Which of the following laws eliminated all fixed commissions?
a. Securities Exchange Act of 1934
b. Securities Acts Amendments of 1975
c. Investor Advisor Act of 1940
d. Securities Investor Protection Act of 1970
Ans: b
Difficulty: Moderate
Ref: Brokerage Transactions
Chapter Five 54
How Securities Are Traded
, 9. Direct stock purchase programs (DSPs) are an outgrowth of :
a. electronic trading
b. dividend reinvestment plans
c. increased NASDAQ trading
d. decreased regulation
Ans: b
Difficulty: Easy
Ref: Brokerage Transactions
10. Treasury bond buyers can purchase bonds transaction cost free through:
a. U.S. Federal Reserve Bank
b. Treasury Direct
c. DSPs
d. discount brokers
Ans: b
Difficulty: Easy
Ref: Brokerage Transactions
11. Algorithmic trading is:
a. technical analysis, also called charting
b. high frequency trading in ECNs
c. analysisarbitrage
d. involve the use of computer programs to initiate trade orders, including decision-
making on security, quantity, price, and timing
Ans: d
Difficulty: Moderate
Ref: How Orders Work
12. NYSE Specialists are required to
a. maintain a bid-ask spread no greater than 1 cent per share
b. maintain a fair and orderly market.
c. buy when most others are selling, or vice versa.
d. selling off inventory and maintaining strictly neutral positions
Ans: b
Difficulty: Difficult
Ref: How Orders Work
Chapter Five 55
How Securities Are Traded
Multiple Choice Questions
1. Merrill Lynch and UBS are examples of:
a. discount brokers
b. wholesale brokers
c. full-service brokers
d. blue-chip brokers
Ans: c
Difficulty: Easy
Ref: Brokerage Transactions
2. Which of the following statements is true regarding full-service brokers?
a. They typically seek clients with at least $10,000 in their accounts.
b. They derive only a small percentage of their revenues from commissions.
c. They compete primarily on price and services offered.
d. Less than 10 percent of U.S. households now use a full-service broker.
Ans: b
Difficulty: Moderate
Ref: Brokerage Transactions
3. Which of the following statements regarding commissions charged by full-service
brokers is not true?
a. Commissions vary by product.
b. The more complicated the transaction, the higher the commission.
c. The commission on many bonds is already built into the trade.
d. There is no commission on U.S. Treasury securities.
Ans: d
Difficulty: Moderate
Ref: Brokerage Transactions
4. Which of the following statements regarding discount brokers is true?
a. All discount brokers offer on-line trading.
b. Discount brokers only execute orders on stock transactions.
c. Discount brokers may offer little investment advice.
d. Discount brokers do not offer SIPC protection.
Ans: c
Chapter Five 53
How Securities Are Traded
,Difficulty: Moderate
Ref: Brokerage Transactions
5. Which of the following accounts often requires an annual fee?
a. a cash account
b. a wrap account
c. a margin account
d. All of the above require an annual fee.
Ans: b
Difficulty: Moderate
Ref: Brokerage Transactions
6. Which of the following requires a relatively large minimum investment, usually
$100,000 or higher?
a. a cash account
b. an asset management account
c. a margin account
d. a wrap account at a large brokerage firm
Ans: d
Difficulty: Moderate
Ref: Brokerage Transactions
7. A newer variation of the wrap account is the:
a. mutual fund wrap account
b. asset allocation wrap account
c. small-cap wrap account
d. index wrap account
Ans: a
Difficulty: Easy
Ref: Brokerage Transactions
8. Which of the following laws eliminated all fixed commissions?
a. Securities Exchange Act of 1934
b. Securities Acts Amendments of 1975
c. Investor Advisor Act of 1940
d. Securities Investor Protection Act of 1970
Ans: b
Difficulty: Moderate
Ref: Brokerage Transactions
Chapter Five 54
How Securities Are Traded
, 9. Direct stock purchase programs (DSPs) are an outgrowth of :
a. electronic trading
b. dividend reinvestment plans
c. increased NASDAQ trading
d. decreased regulation
Ans: b
Difficulty: Easy
Ref: Brokerage Transactions
10. Treasury bond buyers can purchase bonds transaction cost free through:
a. U.S. Federal Reserve Bank
b. Treasury Direct
c. DSPs
d. discount brokers
Ans: b
Difficulty: Easy
Ref: Brokerage Transactions
11. Algorithmic trading is:
a. technical analysis, also called charting
b. high frequency trading in ECNs
c. analysisarbitrage
d. involve the use of computer programs to initiate trade orders, including decision-
making on security, quantity, price, and timing
Ans: d
Difficulty: Moderate
Ref: How Orders Work
12. NYSE Specialists are required to
a. maintain a bid-ask spread no greater than 1 cent per share
b. maintain a fair and orderly market.
c. buy when most others are selling, or vice versa.
d. selling off inventory and maintaining strictly neutral positions
Ans: b
Difficulty: Difficult
Ref: How Orders Work
Chapter Five 55
How Securities Are Traded
