Wall Street Questions with Correct Answers 100% Pass

Wall Street Questions with Correct Answers 100% Pass For what purposes are stocks primarily used? (Hint: they're almost never used to raise capital for the corporation issuing the stock.) - Stock allows founders/owners to transfer ownership (and cash out). Stocks are speculative investments (investors hoping the price increases) and an income stream (dividends) (Week 1, Lecture 2: Starts around slide 10) Why is there a tradeoff between opportunism and restraint, and how do traders solve this problem? - Traders have to balance their own self-interest with having long-term success. If they become too self- interested in the short term, they will lose credibility and trust. They restrain from cheating too much for more profitability in the short term and sustained long-term success. Why did opportunism thrive in the bond market in the 1980s? - There were no face-to-face relationships as trades happened through computers or over the phone which created weak reputational networks. Traders were separated from customers by the sale force. The most opportunistic firms often provided the most profit so customers accepted some degree of opportunism. Many traders also believed that customers expected them to be opportunistic, but they were unable to predict which trades they will get cheated on. There was also a culture of opportunism that everyone bought into. If your co-workers are being blatantly opportunistic, you will be opportunistic as well. What does it mean to say that markets are socially constructed institutions? (This is a key unifying idea of the course.) - People ("actors") behave within networks and institutions that the people themselves continuously create (and recreate). Through interaction, people construct norms, scripts, and strategies that guide their future behavior. (Week 1, Lecture 2: Starts around slide 12) Page 2/14 Crafted for Academic Insight by KatelynWhitman. All rights reserved © 2025 How did real, material structures enable opportunism and hyperrationality in 1980s bond markets? - One example of this was the pit in the CBOT. Traders that had more experience and had more respect would stand on the upper tiers of the pit. New and inexperienced traders would sit at the lower levels of the pit until they moved up over time. Those at the bottom had little exposure and couldn't do as many trades as those at the top. How do futures markets act as cartels? - Futures markets act as cartels that police their boundaries and ensure that fair competition exists within those boundaries while eliminating competition from outside them. (Week 2, Lecture 2: Slide 14) Explain the formula that "to arrive" contracts + standardized grading ⇒ futures markets. (To do this, you should define both "to arrive" contracts and standardization.) - "To arrive" contracts eliminated uncertainty about wheat prices for farmers and shippers but opened the door to speculators willing to absorb the risk of price uncertainty → Selling short. Name at least three arguments that proponents of electronic trading made against open-outcry (pit) trading, and explain how pit traders responded. - Pit trading was too slow Not as efficient Didn't allow for everyone to be involved in the trades Greater liquidity with Electronic trading, because it brings more traders Pit traders primarily believed that the market needed to be a face-to-face interaction to avoid opportunism. Why did corporations shift towards large, diversified conglomerates in the 1960s and 1970s? - Manager pay was tied to size more than profit. Big companies were invulnerable to takeover and Page 3/14 Crafted for Academic Insight by KatelynWhitman. All rights reserved © 2025 rarely failed. New antitrust legislation made it more difficult to grow within your own industry, diversification became the only path to growth Contrast the moral rationales used by proponents of managerialism with those used by proponents of shareholder value. - Managerialism: Industrial corporations became the dominant players in American society, organizing people's lives both at and away from work. Under managerialism, corporate leaders saw themselves as responsible for the social welfare of their employees, their communities, and broader society. Corporations as providers of lifetime employment, pensions, health care, etc. This gave firms a moral justification for corporate behaviors. Shareholder Value: Managerialism: companies are social institutions who have a duty to look after their workers, customers, communities, and society more generally Shareholder value: companies maximize social welfare by maximizing share price How do arguments in favor of shareholder value depend on the efficient market hypothesis? - Suppose that companies maximize social welfare by maximizing profits. If share price provides the best estimate of future profits (according to EMH), then companies maximize