Questions and Answers
What factors transform fundamental information into share prices?
If the risk-free rate of interest is 4% and a stock is priced to yield a 6% premium, what is the expected return on the stock?
Which of the following is true about a dealer in the financial market?
What is the purpose of marking to market?
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What is a dark pool in the context of financial trading?
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Which type of order is considered a 'liquidity-taker' in the market?
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What is the risk associated with limit orders?
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What is the advantage of using a limit order over a market order?
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What is a common special condition that can be attached to an order?
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What are some characteristics of a non-frictionless equity market?
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What is the effect of expectations being divergent?
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Who should understand the concepts discussed in the chapter, aside from business school students and other interested people?
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What is the definition of liquidity?
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What is the term used to describe the difference between the price at which one can buy shares and the price at which one can sell shares?
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What is the compensation investors receive for accepting risk?
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What is the compensation investors receive for buying shares that may be difficult to sell in the future?
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What are information shocks?
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What is the meaning of 'liquidity' in the context of liquidity shocks?
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What happens to a stock's price following a liquidity shock?
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What is price discovery in the context of a marketplace?
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Which of the following is an example of an explicit cost in trading?
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What is the minimum size of the bid-ask spread for stocks in the United States with discrete prices?
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When does a limit order buyer incur an opportunity cost?
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What is short selling?
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Which of the following factors transform fundamental information into share prices?
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What accounts for the premium in the stock's price?
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Which of the following is an example of an implicit cost in trading?
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What is the cost of a round trip for market order traders?
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What is the difference between the price of an actual trade and the price of a hypothetical trade based on a benchmark value called?
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What drives trading in the market?
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Which of the following is NOT a characteristic of a limit order?
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Which of the following is a special order type?
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What is the definition of algorithmic trading?
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What are the two categories of trading costs?
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What is the main factor that investors are compensated for when buying shares that may be difficult to sell in the future?
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What is the definition of liquidity?
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What is the cost associated with buying or selling shares with immediacy?
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What is the main challenge for institutional-sized orders in terms of trading shares?
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Which of the following best describes the role of a dealer in the financial market?
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What is the difference between sell-side traders and buy-side traders?
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What is the purpose of marking to market?
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Which of the following best describes the concept of price discovery in a marketplace?
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What is the main difference between information shocks and liquidity shocks?
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What is the role of brokers in the financial market?
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What is the purpose of dark pools in financial trading?
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What are the two basic types of orders in the financial market?
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What is the purpose of a limit order?
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What is the difference between homogeneous expectations and divergent expectations?
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