Chapter 5

Question 1

Financing for new, often high-risk ventures

Answer 1

Venture Capital (VC)

Question 2

The market in which new securities are originally sold to investors

Answer 2

Primary Market

Question 3

The market in which previously issued securities trade among investors

Answer 3

Secondary Market

Question 4

Occurs when a company offers stock for sale to the public for the first time

Answer 4

Initial Public Offering (IPO)

Question 5

The sale of additional shares of stock by a company whose shares are already publicly traded

Answer 5

Seasoned Equity Offering (SEO)

Question 6

An issue of securities offered for sale to the general public on a cash basis

Answer 6

General Cash Offer

Question 7

A public issue of securities in which securities are first offered to existing shareholders

Answer 7

Rights Offer

Question 8

A firm specializing in arranging financing for companies

Answer 8

Investment Banking Firm

Question 9

To assume the risk of buying newly issued securities from a company and reselling them to investors

Answer 9

Underwrite

Question 10

Compensation to the underwriter, determined by the difference between the underwriter’s buying price and offering price

Answer 10

Underwriter Spread

Question 11

A group of underwriters formed to share the risk and to help sell an issue

Answer 11

Syndicate

Question 12

The type of underwriting in which the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares

Answer 12

Firm Commitment Underwriting

Question 13

The type of underwriting in which the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility

Answer 13

Best Efforts Underwriting

Question 14

The type of underwriting in which the offer price is set based on competitive bidding by investors

Answer 14

Dutch Auction Underwriting

Question 15

Federal regulatory agency charged with enforcing US securities laws and regulations

Answer 15

Securities and Exchange Commission (SEC)

Question 16

Document prepared as part of a security offering detailing a company’s financial position, its operations, and investment plans for the future

Answer 16

Prospectus

Question 17

A preliminary prospectus not yet approved by the SEC

Answer 17

Red Herring

Question 18

A trader who buys and sells securities from inventory

Answer 18

Dealer

Question 19

An intermediary who arranges security transactions among investors

Answer 19

Broker

Question 20

The price a dealer is willing to pay

Answer 20

Bid Price

Question 21

The price at which a dealer is willing to sell

Answer 21

Ask Price

Question 22

The difference between the bid and ask prices

Answer 22

Spread

Question 23

Before 2006, the NYSE exchange members were the owners of the exchange

Answer 23

NYSE Exchange Member

Question 24

Having a license entitles the holder to buy and sell securities on the floor of the exchange

Answer 24

NYSE License Holder

Question 25

Formerly, sole dealers in a small number of securities on the floor of the NYSE

Answer 25

Specialists

Question 26

A chronological record of all limit, stop, and short-sale orders that had been placed with a specialist; also contained an inventory of the specialist's holdings

Answer 26

Display Book

Question 27

A new class of market maker at the NYSE; replaced the role of specialists on the exchange floor

Answer 27

Designated Market Maker (DMM)

Question 28

A new class of market class of market maker at the NYSE; located off the floor of the exchange

Answer 28

Supplemental Liquidity Provider (SLP)

Question 29

Firms that execute customer orders to buy and sell stock transmitted to the exchange floor

Answer 29

Floor Brokers

Question 30

The new server-based electronic trading system at the NYSE

Answer 30

Super Display Book System (SDBK)

Question 31

The NYSE's well-known, now defunct, electronic traing system

Answer 31

SuperDOT System

Question 32

All-electronic securities exchange listing stocks, options, and ETFs

Answer 32

Arca

Question 33

Fixed place on the exchange floor where the DMM operates

Answer 33

DMM's post

Question 34

A customer order to buy or sell securities marked for immediate execution at the current market price

Answer 34

Market Order

Question 35

Customer order to buy or sell securities with a specified "limit" price

Answer 35

Limit Order

Question 36

Customer order to buy or sell securities when a preset "stop" price is reached

Answer 36

Stop Order

Question 37

All the methods used by stock exchanges during large sell-offs

Answer 37

Circuit Breakers

Question 38

Securities market in which trading is almost exclusively done through dealers who buy and sell for their own inventories

Answer 38

Over-the-Counter (OTC) Market

Question 39

A web site that allows investors to trade directly with each other

Answer 39

Electronic Communications Network (ECN)

Question 40

The highest bid quotes and the lowest ask quotes offered by dealers for a security

Answer 40

Inside Quotes

Question 41

Off-exchange market for securities listed on an organized exchange

Answer 41

Third Market

Question 42

Market for exchange-listed securities in which investors trade directly with other investors, usually through a computer network

Answer 42

Fourth Market

Question 43

Stock market index in which stocks are held in proportion to their share price

Answer 43

Price-Weighted Index

Question 44

Stock market index in which stocks are held in proportion to the aggregate market value of the companies in the index

Answer 44

Value-Weighted Index

Question 45

Condition that occurs when an index does not reflect all current price information because some of the stocks in the index have not traded recently

Answer 45

Index Staleness