Global Financial Markets and Instruments Coursera Week 4

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Week- 4

PRACTICE QUIZ
Organization of financial markets

1. In this module we defined financial intermediaries as institutions that facilitate between suppliers and borrowers of capital. Which of the following is NOT a financial intermediary?

Insurance company
Investment company
Pension fund
Credit Unions
None of the above.

2. Which of the following is true?

Open-end funds will redeem shares for asset value at the request of the investor. Closed-end funds do not redeem shares and are traded like other securities.
Share price of a closed end fund can often deviate from its net asset value.
Hedge funds are subject to much less regulation than mutual funds.
Unlike mutual funds which can be traded only at the end of the day when net asset value is calculated, exchange-traded funds can be traded throughout the day like any other share of stock.
All of the above.

3. If you decide to sell your Facebook shares to another investor…

A. This is a transaction that takes places in the primary market.
B. This is a transaction that takes place in the secondary market.
C. This transaction will have an impact on the total number of outstanding shares of Facebook.
D. Both B and are C are correct.

4. Which of these statements are true?

A private placement is easier and less costly to a private firm compared to an IPO.
Private placements can be used by both private and public firms that wish to raise funds from a limited number of investors.
Privately placed shares are traded on exchanges.
Private placements often lead to seasoned equity offerings.

5. Which of the following is true about the IPO process?

A. The entire offering by the issuing company has to be purchased by the underwriter.
B. The underwriter can either purchase the entire offering from the issuing company or only facilitate the sale of shares to the public.
C. The return on an IPO is always guaranteed.
Both B and C are correct.

PRACTICE QUIZ
Trading mechanics

1. Which of the following statements is true about limit orders?

A. A limit order controls the price but does not guarantee that the order will be filled.
B. Limit orders are executed at the best price available.
C. A limit order is recorded in the limit order book until it can be executed.
Both A and C

2. You are concerned about the value of your holdings in company A shares. You instruct your broker to sell your shares when the price falls down to $30 per share. What type of order is this?

A market order
A stop-loss order
A stop-buy order

3. You would like to liquidate your shares in company B, but you only want to sell them if the price is at least $25 per share. What kind of order would you place with your broker?

A market order
A limit order
A stop-loss order
A stop buy order

4. Which of the following is true?

A maintenance margin is the minimum amount the margin account can decline to without an investor having to take any action.
A maintenance margin is the maximum amount the margin account can decline to without an investor having to take any action.
A maintenance margin is the amount that the margin account must be kept at all times.

5. Which of the following statements is true?

A margin call is a request to sell the securities that you have on your account
A margin call is a request to buy more of the securities you already have.
A margin call is a request to add more capital to your margin account indicating that the investor’s margin balance has fallen below the maintenance requirement.
A margin call is prank call by marginal investors.

6. Suppose the initial margin requirement is 5% and you want to purchase 100 shares of Beta stock currently trading at $20 a share. How much would you have to deposit in the margin account to meet this requirement?

Enter answer here

100

7. Consider your holdings in Beta stock in Question 6. Let’s suppose that the maintenance margin requirement is 4%. If you get a margin call stating that your margin has fallen down to 2.564%, what is the current price of Beta stock?

Enter answer here

19.5

8. Suppose that you expect that Bubblenet stock price is going to decline. So you decide to ask your broker to short sell 1000 shares. The current market price is $50. The proceeds from the short sale $50,000 is credited into your account. A few days later the market price of the stock declines to $30 per share. What is your profit from this transaction?

Enter answer here

20000

9. Suppose your broker has 50% margin requirements for short sales and you short 500 shares of GS-Biz Inc., currently trading at $50 per share. What is the amount that you need to deposit in the margin account to serve as margin on the short sale?

Enter answer here

12500

10. Suppose you happened to be wrong on the direction of GS-Biz in Question 9. Instead of falling in value, GS-Biz price starts climbing. If the broker has 30% maintenance margin requirement, how much can the price of GS-BIz rise before you get a margin call?

Round off to one decimal points. (i.e. “x.x”)

Enter answer here

57.7

Module 4: Organization of financial markets and securities trading

1. The difference between mutual funds and Exchange traded funds (ETFs) is…

ETFs shares are traded on exchanges all the time but mutual funds shares can be only traded at the end of the day when their net asset value is calculated.
There is more variety of shares in mutual funds than on ETF’s
None of the above.

2. Suppose that you expect SugarCane stock price to decline. So you decide to ask your broker to short sell 2000 shares. The current market price is $40. The proceeds from the short sale $80,000 is credited into your account. However, a few days later the market price of the stock jumps to $80 per share and your broker asks you close out your position immediately. What is your profit or loss from this transaction?

-60000
60000
-80000
80000

3. An investor has an initial margin requirement of 50% on his margin account and a maintenance margin requirement of 25%. The investor short sold 1,000 shares at $ 40 per share. What is the maximum price that the share can reach in the market before the investor receives a margin call?

Enter answer here

4. True or False.

An investment company is an institution that pools funds from investors with the purpose of investing on their behalf. There can be registered investment companies: mutual funds, unit investment trusts, and real estate investment trust.

True
False

5. True or False.

Private equity is one example of investment companies that are not registered with the SEC and make equity investment in companies that are not publicly traded.

True
False

6. The difference between mutual funds and hedge funds is…

There is no difference since there are both managed portfolios
Hedge funds are not registered with the SEC since accepts only qualified investors such as high net worth individuals and institutional investors.
None of the above.

7. A market order has

Price uncertainty but no execution uncertainty
Both price and execution uncertainty
Execution uncertainty but no price uncertainty

8. You are bullish about Bulls Eye stock. The current price is $25 per share and you have $5000 of your own to invest. You borrow an additional $5,000 from your broker at an interest rate of 8% per year and invest 10,000 in the stock. What will be your rate of return if the price of Bulls Eye stock goes up by 10% during the next year? Enter your answer as percentage. “Ex if the answer is 30% enter 30”

Enter answer here

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