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Investments Chp 2
Characteristics of stock market
| Question | Answer |
|---|---|
| The market in which new issues of securities are sold to investors is called the ____________. | Primary market involves IPOs, rights offerings, and private placement by a corporation. |
| Also known as the aftermarket, it is the market in which securities are traded after they have been issued. This market does not involve the corporation. This is the ____________. | Secondary market involves NYSE, AME, OTC exchanges, Regional stock exchanges. |
| What is the difference between a "bull" market condition and a "bear" market condition? | A bull market is normally associated with rising prices, investor optimism, economic recovery, and government stimulus. A bear market is normally associated with falling prices, investor pessimism, economic slowdown, and government restraint. |
| A transaction in which investors buy securities in the hope that they will increase in value and can be sold at a later date for profit is called a _____________. | Long purchase |
| The practice of selling borrowed securities is called ___________. | Short selling:two steps for a profit. 1:100 shares borrowed stock are sold at $50/share. From sale to investor= $5000 2:100 shares are purchased at $30/share and returned to broker from whom stock was borrowed:Cost to investor= $3000 Net profit= $2000 |
| What are street-name accounts? | Securities owned by other investors but left on account with a broker. These accounts can be used in the borrowing process of short selling. |
| Differentiate between each of the following pairs of terms: a.Money market/capital market b.Broker market/dealer market | Money market:short term debt securities are bought and sold. Capital market:long term securities are bought and sold, such as stocks and bonds. Broker market consists of national & regional securities exchanges. Dealer market is made up of Nasdaq/OTC |
| What are the advantages and disadvantages of short selling? | Advantages 1. The chance to profit from a price decline. 2.Making money in a down market. Disadvantages 1.No dividends or interest income. 2.Limited return opportunities along with high-risk exposure. |
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