FINC 425 Exam with 100% Correct
Answers
Primary market - ANSWER-Who: Firms, investment banks, investors What: new
securities are issued When: When firms raise new capital Why: To finance growth or
operations
Secondary market - ANSWER-Who: Investors/traders What: Trading of existing
securities When: After initial issuance Why: Provides liquidity
Public firm - ANSWER-Who: Shareholders, regulators What: Company with publicly
traded shares When: After IPO Why: Access to large capital markets
Private firm - ANSWER-Who: Owners, private investorsWhat: Not publicly traded When:
Before IPO or never goes publicWhy: Less regulation, more control
IPO - ANSWER-Who: Private firms, underwriters What: First public stock offering When:
When going public Why: Raise capital
Private placement - ANSWER-Who: Firms, institutional investors What: Direct sale of
securities When: Capital raising without public offering Why: Faster, less regulation
Liquidity - ANSWER-Who: InvestorsWhat: Ease of buying/selling without price
impactWhen: In active marketsWhy: Reduces trading cost
Direct search market - ANSWER-Who: Buyers/sellersWhat: Find each other
directlyWhen: Small/illiquid marketsWhy: No intermediaries
Brokered market - ANSWER-Who: Brokers, investors What: Broker matches
buyers/sellers When: Large or unique trades Why: Facilitates transactions
Dealer market - ANSWER-Dealer Market
Who: Dealers, investors What: Dealers hold inventory and quote prices When: OTC
markets Why: Provide liquidity
Auction Market - ANSWER-Auction Market
Who: Many traders What: Orders matched publicly When: Exchanges like NYSE Why:
Competitive price discovery
Bid Price - ANSWER-Bid Price
Who: Buyers What: Price willing to pay When: Trading Why: Shows demand
, Ask Price - ANSWER-Ask Price
Who: Sellers What: Price willing to accept When: Trading Why: Shows supply
Bid-Ask Spread - ANSWER-Bid-Ask Spread
Who: Traders, dealers What: Ask − Bid When: Dealer/auction markets Why:
Transaction cost & liquidity signal
Market Order - ANSWER-Market Order
Who: Traders What: Immediate trade at best price When: Urgent trades Why:
Guarantees execution
Limit Order - ANSWER-Limit Order
Who: Traders What: Trade only at set price When: Price-sensitive trades Why: Controls
price
Stop Order - ANSWER-Stop Order
Who: Investors What: Triggers trade at set price When: Risk management Why: Limit
losses
Limit Order Book - ANSWER-Limit Order Book
Who: Exchange participants What: Record of outstanding limit orders When: Electronic
trading Why: Transparency
Inside spread - ANSWER-Inside Spread
Who: Traders What: Highest bid & lowest ask When: Active markets Why: Best
available prices
Brokers call loan - ANSWER-Broker's Call Loan
Who: Brokers What: Short-term loan to finance margin When: Margin trading Why:
Funds leveraged positions
Margin - ANSWER-Margin
Who: Investors What: Borrowing to buy securities When: Leveraged investing Why:
Increase potential return
Maintenance Margin - ANSWER-Maintenance Margin
Who: Margin investors What: Minimum equity required When: After purchase Why:
Protect lenders
Margin Call - ANSWER-Margin Call
Who: Broker & investor What: Demand for more funds When: Equity falls below
maintenance Why: Reduce default risk
Short Sale - ANSWER-Short Sale
Answers
Primary market - ANSWER-Who: Firms, investment banks, investors What: new
securities are issued When: When firms raise new capital Why: To finance growth or
operations
Secondary market - ANSWER-Who: Investors/traders What: Trading of existing
securities When: After initial issuance Why: Provides liquidity
Public firm - ANSWER-Who: Shareholders, regulators What: Company with publicly
traded shares When: After IPO Why: Access to large capital markets
Private firm - ANSWER-Who: Owners, private investorsWhat: Not publicly traded When:
Before IPO or never goes publicWhy: Less regulation, more control
IPO - ANSWER-Who: Private firms, underwriters What: First public stock offering When:
When going public Why: Raise capital
Private placement - ANSWER-Who: Firms, institutional investors What: Direct sale of
securities When: Capital raising without public offering Why: Faster, less regulation
Liquidity - ANSWER-Who: InvestorsWhat: Ease of buying/selling without price
impactWhen: In active marketsWhy: Reduces trading cost
Direct search market - ANSWER-Who: Buyers/sellersWhat: Find each other
directlyWhen: Small/illiquid marketsWhy: No intermediaries
Brokered market - ANSWER-Who: Brokers, investors What: Broker matches
buyers/sellers When: Large or unique trades Why: Facilitates transactions
Dealer market - ANSWER-Dealer Market
Who: Dealers, investors What: Dealers hold inventory and quote prices When: OTC
markets Why: Provide liquidity
Auction Market - ANSWER-Auction Market
Who: Many traders What: Orders matched publicly When: Exchanges like NYSE Why:
Competitive price discovery
Bid Price - ANSWER-Bid Price
Who: Buyers What: Price willing to pay When: Trading Why: Shows demand
, Ask Price - ANSWER-Ask Price
Who: Sellers What: Price willing to accept When: Trading Why: Shows supply
Bid-Ask Spread - ANSWER-Bid-Ask Spread
Who: Traders, dealers What: Ask − Bid When: Dealer/auction markets Why:
Transaction cost & liquidity signal
Market Order - ANSWER-Market Order
Who: Traders What: Immediate trade at best price When: Urgent trades Why:
Guarantees execution
Limit Order - ANSWER-Limit Order
Who: Traders What: Trade only at set price When: Price-sensitive trades Why: Controls
price
Stop Order - ANSWER-Stop Order
Who: Investors What: Triggers trade at set price When: Risk management Why: Limit
losses
Limit Order Book - ANSWER-Limit Order Book
Who: Exchange participants What: Record of outstanding limit orders When: Electronic
trading Why: Transparency
Inside spread - ANSWER-Inside Spread
Who: Traders What: Highest bid & lowest ask When: Active markets Why: Best
available prices
Brokers call loan - ANSWER-Broker's Call Loan
Who: Brokers What: Short-term loan to finance margin When: Margin trading Why:
Funds leveraged positions
Margin - ANSWER-Margin
Who: Investors What: Borrowing to buy securities When: Leveraged investing Why:
Increase potential return
Maintenance Margin - ANSWER-Maintenance Margin
Who: Margin investors What: Minimum equity required When: After purchase Why:
Protect lenders
Margin Call - ANSWER-Margin Call
Who: Broker & investor What: Demand for more funds When: Equity falls below
maintenance Why: Reduce default risk
Short Sale - ANSWER-Short Sale
