Stock Jobs Stock Institutions and Financial Markets 3 — Questions and Answers
Question 1: What is an Initial Public Offering (IPO)?
- The first sale of a company's shares to the public (Correct answer)
- A bond issued by the government
- A merger between two firms
- The buyback of shares by a company
Correct answer: The first sale of a company's shares to the public
An IPO is the process by which a private company offers its shares to the public for the first time.
Question 2: Which index tracks 500 large-cap U.S. companies?
- S&P 500 (Correct answer)
- Dow Jones Industrial Average
- NASDAQ Composite
- Russell 2000
Correct answer: S&P 500
The S&P 500 is a market index tracking 500 of the largest publicly traded U.S. companies.
Question 3: What is the role of an investment bank in financial markets?
- Underwriting and facilitating the issuance of new securities (Correct answer)
- Setting national interest rates
- Insuring bank deposits
- Regulating broker conduct
Correct answer: Underwriting and facilitating the issuance of new securities
Investment banks help companies raise capital by underwriting and distributing new stock and bond issues.
Question 4: What is a bid-ask spread?
- The difference between the highest buy price and lowest sell price (Correct answer)
- The dividend paid per share
- The tax on capital gains
- The commission charged by an exchange
Correct answer: The difference between the highest buy price and lowest sell price
The bid-ask spread is the gap between the highest price buyers will pay and the lowest price sellers will accept.
Question 5: What is a market maker?
- A firm that quotes both buy and sell prices to provide liquidity (Correct answer)
- A government agency that sets prices
- An investor who only buys long-term
- A company that issues IPOs
Correct answer: A firm that quotes both buy and sell prices to provide liquidity
Market makers stand ready to buy and sell securities, providing liquidity and continuous two-sided quotes.
Question 6: Which organization is the self-regulatory body overseeing U.S. brokers?
- FINRA (Correct answer)
- FDIC
- IRS
- FOMC
Correct answer: FINRA
FINRA (Financial Industry Regulatory Authority) is the self-regulatory organization that oversees broker-dealers.
Question 7: What does 'going long' on a stock mean?
- Buying shares expecting the price to rise (Correct answer)
- Selling borrowed shares
- Holding cash only
- Issuing new shares
Correct answer: Buying shares expecting the price to rise
Going long means purchasing a security with the expectation that its price will increase.
Stock Jobs Stock Institutions and Financial Markets 3
What is an Initial Public Offering (IPO)?