Stock Jobs Stock Market Liquidity 5

Question 1

High-frequency trading firms are often credited with doing what to liquidity?

Accepted Answer

Adding liquidity through rapid two-sided quoting

Answer

Removing all market makers

Answer

Eliminating the order book

Answer

Setting company dividends

Question 2

The difference between 'displayed' liquidity and 'hidden' liquidity refers to what?

Accepted Answer

Orders visible in the book versus undisclosed orders

Answer

Stocks versus bonds

Answer

Domestic versus foreign shares

Answer

Dividends versus buybacks

Question 3

Which factor would most likely WIDEN the bid-ask spread on a stock?

Accepted Answer

Increased uncertainty and lower volume

Answer

A surge in trading volume

Answer

Tighter market-maker competition

Answer

Index inclusion

Question 4

Liquidity providers typically earn their profit from what?

Accepted Answer

Capturing the bid-ask spread

Answer

Charging income tax

Answer

Receiving company dividends

Answer

Underwriting IPOs only

Question 5

A company's 'free float' refers to what?

Accepted Answer

Shares available for public trading

Answer

Total cash on the balance sheet

Answer

Annual dividends paid

Answer

The number of employees

Question 6

Why can liquidity dry up suddenly even in normally liquid markets?

Accepted Answer

Traders simultaneously withdraw quotes during panic

Answer

Exchanges close permanently

Answer

Dividends are suspended

Answer

Stocks change their tickers

Question 7

Which best describes the relationship between liquidity and transaction costs?

Accepted Answer

Higher liquidity generally means lower transaction costs

Answer

Higher liquidity always raises commissions

Answer

Liquidity has no effect on costs

Answer

Lower liquidity reduces all costs