Stock Jobs Stock Market Liquidity 2

Question 1

A stock that can be bought or sold quickly with minimal price impact is best described as having what characteristic?

Accepted Answer

High liquidity

Answer

High liquidity means assets can be traded fast without moving the price much.

Question 2

Which measure most directly reflects the cost of immediately trading a stock?

Accepted Answer

Bid-ask spread

Answer

A narrower bid-ask spread signals lower transaction cost and greater liquidity.

Question 3

A market maker on a stock exchange primarily improves liquidity by doing what?

Accepted Answer

Continuously quoting both buy and sell prices

Answer

Market makers stand ready to buy and sell, ensuring orders can always be filled.

Question 4

Which of the following stocks would typically be the LEAST liquid?

Accepted Answer

A thinly traded micro-cap stock

Answer

Micro-cap stocks with low trading volume have few buyers and sellers, reducing liquidity.

Question 5

Average daily trading volume is used as a proxy for what?

Accepted Answer

A stock's liquidity

Answer

Higher daily volume generally indicates it is easier to trade the stock without large price moves.

Stock Jobs Practice Test