#1
Which of the following is a characteristic of a bull market?
High trading volume
ExplanationBull markets are characterized by increased buying activity and high trading volume.
#2
What is the primary role of a broker-dealer in financial markets?
To facilitate trading of securities
ExplanationBroker-dealers act as intermediaries, facilitating the buying and selling of securities.
#3
What is the primary goal of market makers in financial markets?
To facilitate efficient trading by providing liquidity
ExplanationMarket makers ensure smooth trading by offering to buy and sell securities, thereby providing liquidity.
#4
Which of the following is a characteristic of a bear market?
Economic recession
ExplanationBear markets are typically associated with economic downturns and declining asset prices.
#5
Which of the following is NOT typically considered a fixed-income security?
Corporate stocks
ExplanationFixed-income securities provide regular income streams and include bonds, not corporate stocks.
#6
In the context of financial markets, what does the term 'liquidity' refer to?
The ability to quickly convert an asset into cash without significantly affecting its price
ExplanationLiquidity measures how easily an asset can be converted into cash without causing a substantial price change.
#7
What does the term 'market liquidity' refer to?
The ability of a security to be converted into cash quickly without a significant price change
ExplanationMarket liquidity indicates how easily a security can be bought or sold without causing substantial price movements.
#8
What does the term 'bid-ask spread' refer to?
The difference between the price at which a market maker is willing to buy and sell a security
ExplanationIt's the gap between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
#9
Which regulatory body oversees broker-dealers in the United States?
Financial Industry Regulatory Authority (FINRA)
ExplanationFINRA is responsible for regulating and overseeing broker-dealers to ensure compliance with industry rules.
#10
What does the term 'short selling' refer to in financial markets?
Selling securities borrowed from a broker with the expectation that their price will decrease
ExplanationShort selling involves selling borrowed securities in anticipation of buying them back at a lower price.
#11
Which of the following is NOT a primary function of a broker-dealer?
Regulating financial markets
ExplanationBroker-dealers do not regulate financial markets; instead, they facilitate trades and provide financial services.
#12
What is the primary purpose of a margin account in broker-dealer operations?
To provide leverage for trading securities
ExplanationMargin accounts allow investors to borrow funds from brokers to amplify their trading positions.
#13
What is the function of the Securities Investor Protection Corporation (SIPC)?
To insure investors against losses in the event of broker-dealer bankruptcy
ExplanationSIPC provides insurance coverage to investors against losses resulting from broker-dealer insolvency.
#14
What is the primary responsibility of a broker-dealer's compliance department?
To ensure adherence to regulatory requirements and internal policies
ExplanationCompliance departments oversee regulatory compliance and internal policies to mitigate legal risks.
#15
What is the purpose of the 'know your customer' (KYC) rule in broker-dealer operations?
To prevent money laundering and terrorist financing
ExplanationKYC rules require firms to verify and understand their clients' identities to prevent illicit activities.
#16
What role do prime brokers typically play in broker-dealer operations?
Providing margin financing and securities lending services to hedge funds and institutional clients
ExplanationPrime brokers offer specialized services like margin financing and securities lending to institutional clients.