Module 6 Honors Quiz :Honors Assignments (Financial Markets) Answers 2025

Question 1

The ______ price is what a dealer wants you to pay, whereas the ______ price is what a dealer is willing to pay you.

✅ Ask; Bid
❌ Bid; Ask
❌ Selling; Bid
❌ Ask; Receiving

Explanation:

• Ask price = price at which the dealer sells to you

• Bid price = price at which the dealer buys from you

Question 2

What does “familiarity bias” mean when choosing a stock exchange to list on?

❌ Preference for a specific class of securities
❌ Chasing past performance
❌ No behavioral biases are involved
✅ Preference for familiar (domestic/geographically close) investments despite diversification benefits

Explanation:
Familiarity bias leads investors to favor local or well-known markets, even if global diversification could reduce risk.

Question 3

You want to sell if the share price falls to $25. What order should you place?

✅ A stop loss order for 100 shares at $25.
❌ A sell limit order for 100 shares at $50
❌ A sell limit order for 100 shares at $25
❌ A sell market order for 100 shares

Explanation:
A stop-loss order triggers a sale once the price falls to the specified level, protecting against further losses.

Question 4

What does a Collective Action Clause (CAC) allow? (check all that apply)

❌ Priority treatment in future bankruptcy
❌ Full recovery for all creditors
✅ A supermajority of bondholders to approve a restructuring binding on all holders
✅ To solve the holdout problem among creditors

Explanation:
CACs prevent a small group of creditors from blocking a restructuring supported by the majority.

Question 5

Who in the U.S. is affected by the balanced budget rule?

❌ The federal government
❌ Municipalities after Chapter 9 bankruptcy
❌ Corporations
✅ States must balance their operating budgets (but can borrow via capital budgets)

Explanation:
Most U.S. states must balance operating budgets, but they may still issue debt for capital projects.

Question 6

Which insurance coverage would likely cause more moral hazard problems?

❌ Payment of $10,000 for each eye lost
❌ Payment of $10 if your car gets stolen
✅ Payment of $100 for each day spent in a nursing home
❌ All create the same moral hazard problems

Explanation:
Daily payments for nursing home stays may incentivize longer stays, increasing moral hazard.

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