Question

wers you may need to round your final answer I. Multiple choice questions (2 points each): Please circle the correct answer. 1. "Trying to maintain an orderly market is not part of a market maker's job in the equity t part of a market maker's job in the equity market The statement above is a) True b) False 2. Inflation risk is an example of which of the following risks? a) non-systematic risk b) firm-specific risk c) non-diversifiable d) none of the above 3. Which of the following is not a price-contingent order? a) Market Order b) Limit buy order c) Limit sell order d) Stop-loss order e) None of the above ralue?

Answer 1

1. The correct option is a) True
Market Maker in an equity market can basically be an individual or a member of the exchange. The primary role of the market maker who may also be the broker, it the buying or selling of securities and other financial instruments to generate and reap profits from the market.
The reason they are called market makers is the sheer volume of the trades which they execute.

2. The correct option is c) non-diversifiable

There are basically two types of risks i.e. Systematic risks which cannot be reduced through diversification/mitigation, and unsystematic risk, which can be diversified and hence mitigated.

Thus inflation is a risk which cannot be predicted and hence is unavoidable. It affects the economy as a whole and hence all industries and other aspects of the economy. Thus it is non-diversifiable.

3. The correct option is a) Market Order

Price contingent orders are similar to limit orders. In case of contingent orders, the transactions are placed with a specific criteria in mind and hence price would have to be defined. Thus buy and sell orders would have to be based on certain predefined price quotes which the trader believes he would like to have the position like.
Thus market order is not a price-contingent order as it may become divergent from the trader's expectation of price and hence the position would not be as per the trader's expectation.