Series 66: Chapter 6 Practice Questions

Chapter 6 Practice Questions

1. 1. Which type of investment offers the potential for limited gain and unlimited loss?
2. A. Long
3. B. Short
4. C. Short put
5. D. Long call
6. 2. On which exchange would you find a Designated Market Maker?
7. A. NASDAQ
8. B. OTC
9. C. NYSE
10. D. All choices listed
11. 3. An issuer makes money in what type of market?
12. A. Primary market
13. B. First market
14. C. Secondary market
15. D. Fourth market
16. 4. Which of the following statements are true regarding stop orders?
17. I. Stop orders become market orders to either buy or sell once a target price is reached.
18. II. If the stop order is triggered, the order is guaranteed to execute, but there is no guarantee on the execution price.
19. III. Sell stop orders are typically used to limit loss on a short position.
20. IV. Buy stop orders are typically used to limit loss on a long position.
21. A. I and II
22. B. III and IV
23. C. I and IV
24. D. II and III
25. 5. Your client is short 300 XOM @ 72 and wishes to limit his potential loss. What would his maximum loss be if he were to execute a buy stop for 300 shares @ 74, limit 76?
26. A. $200
27. B. $1,200
28. C. $600
29. D. Unlimited
30. 6. Which of the following is not true of a dealer?
31. A. Acts as a principal
32. B. May make a market in one or more securities
33. C. Charges a commission
34. D. Must disclose its role to its clients
35. 7. The third market refers to:
36. A. Institution to institution transactions
37. B. Foreign securities traded in the U.S.
38. C. Exchange-listed securities sold on the OTC
39. D. Direct purchase of securities, such as T-bills, from government auctions
40. 8. The maximum loss for an investor long 100 LMN @ $24 is:
41. A. Unlimited
42. B. $2,400
43. C. Breakeven to zero
44. D. $1,200
45. 9. Which of the fo