In what two ways do security markets provide liquid ity? First, they enable corporations to raise funds by selling new issues of securities rapidly and at fair competitive prices. Second, they allow the investor who purchases securities to sell them with relative ease and speed and thereby to turn a paper asset into cash 14-8 What is the difference between organized exchanges and over-the-counter markets? The organized exchanges have one central location and operate as auction markets. The over-the-counter markets have no central location: instead a network of dealers all over the country is linked by computer d isplay terminals telephones, and teletypes What is the difference between dealers on the over-the-counter(OTC) markets and brokers on the exchanges? The difference between dealers in the otc markets and brokers on exchanges is that dealers own the securities they trade while brokers act as agents for the buyers and sellers 14-10 How would you define efficient security markets? Markets are efficient when(1)prices adjust rapidly to new information;(2 there is a continuous market, in which each successive trade is made at a price close to the previous price; and (3)the market can absorb large dollar amounts of securities without destabilizing the price 14-11 The efficient market hypothesis is interpreted in a weak form, a semistrong form, and a strong form. How can we differentiate its various forms? The weak form of efficient markets simply states that past price information is unrelated to future prices and that since no trends are predictable, investors cannot take advantage of them. The semi-strong form states that prices reflect ll public information, while the strong form states that all information, both public and private, is reflected in the stock prices 14-12 What was the primary purpose of the Securities Act of 1933? The primary purpose of the Securities Act of 1933 was to provide full disclosure of all pertinent information whenever a corporation sold anew issue of securities CopyrightC 2005 by The McGray-Hill Companies, Inc. S-522Copyright © 2005 by The McGraw-Hill Companies, Inc. S-522 14-7. In what two ways do security markets provide liquidity? First, they enable corporations to raise funds by selling new issues of securities rapidly and at fair competitive prices. Second, they allow the investor who purchases securities to sell them with relative ease and speed and thereby to turn a paper asset into cash. 14-8. What is the difference between organized exchanges and over-the-counter markets? The organized exchanges have one central location and operate as auction markets. The over-the-counter markets have no central location; instead a network of dealers all over the country is linked by computer display terminals, telephones, and teletypes. 14-9. What is the difference between dealers on the over-the-counter (OTC) markets and brokers on the exchanges? The difference between dealers in the OTC markets and brokers on exchanges is that dealers own the securities they trade, while brokers act as agents for the buyers and sellers. 14-10. How would you define efficient security markets? Markets are efficient when (1) prices adjust rapidly to new information; (2) there is a continuous market, in which each successive trade is made at a price close to the previous price; and (3) the market can absorb large dollar amounts of securities without destabilizing the price. 14-11. The efficient market hypothesis is interpreted in a weak form, a semistrong form, and a strong form. How can we differentiate its various forms? The weak form of efficient markets simply states that past price information is unrelated to future prices and that since no trends are predictable, investors cannot take advantage of them. The semi-strong form states that prices reflect all public information, while the strong form states that all information, both public and private, is reflected in the stock prices. 14-12. What was the primary purpose of the Securities Act of 1933? The primary purpose of the Securities Act of 1933 was to provide full disclosure of all pertinent information whenever a corporation sold anew issue of securities