Question

1: A stock market is a public market for trading a company’sequities

2: In a dealer market, some dealers hold a certain inventory of specific securities and create a liquid market by purchasing and selling their inventories. These dealers make a market and are thus called market makers. Agents in the market bring investors to the dealers through a network of terminals and electronic systems. Where do dealer profits come from in a dealer market?

3: Brent, a trader, wants to buy 1,000 shares of XYZ stock, while a second trader, Amara, is willing to sell 1,500 shares of the same stock. Unfortunately, Brent and Amara don’t know one another and must complete their transactions using the stock exchange’s market-making dealer. XYZ’s market maker is willing to sell her shares for $31.65 per share and purchase additional shares for $31.25 per share. Select the most appropriate values in the following table:

4: If the market maker is willing to purchase the entire block of 1,500 shares from Amara and, from that block, resell 1,000 shares to Brent, then the market maker’s net profit from Brent’s transaction—excluding any inventory effects—will be

Answer 1

1: A stock market is a public market for trading a company’sequities

2:

The bid-ask spread

3: 

Term	Value
Bid price	$31.25
Ask price	$31.65
Bid-ask spread	$0.40

4: $400.00