Question 1

Which of the following statements regarding an efficient capital market is correct?
A) All securities that investors would like to invest in are listed.
B) All transactions are closed out and settled within two days.
C) Current prices reflect all current information.
D) The lowest interest rates are offered.

Accepted Answer

An efficient capital market is one where current prices reflect all current information, meaning that investors cannot earn abnormal returns by using any public information. Therefore, statement C is correct. A, B, and D are not necessarily true for an efficient capital market.

Question 2

If a share price falls on four consecutive days of trading,share prices:
A) cannot be following a random walk
B) can still be following a random walk
C) are almost certain to decrease the next day
D) are almost certain to increase the next day

Accepted Answer

A random walk is a mathematical model commonly used to simulate share prices because it assumes that share prices are unpredictable and follow a random path. Therefore, a share price can fall on consecutive days and still follow a random walk. The previous days' price movements have no impact on the future direction of the share price in a random walk model.

Question 3

For technical analysts,the pattern formed by a series of price fluctuations characterised by rising bottoms and horizontal tops is a/an:
A) ascending triangle.
B) symmetrical triangle.
C) descending triangle.
D) a pennant.

Accepted Answer

The pattern described is an ascending triangle, characterized by a series of higher lows (rising bottoms) and a horizontal resistance level (tops). This pattern is typically considered a bullish continuation pattern, as it suggests that buyers are becoming more aggressive and willing to buy at higher prices, leading to a breakout to the upside.

Question 4

Strategies based on technical analysis are most likely to be profitable in a market that is regarded as:
A) following a random walk.
B) semi-strong efficient.
C) not strong-form efficient.
D) not weak-form efficient.

Accepted Answer

Technical analysis strategies are most effective in markets that are not weak-form efficient. In a weak-form efficient market, all past trading information is already reflected in stock prices, making it difficult for technical analysis, which relies on historical price and volume data, to provide an edge. Therefore, if a market is not weak-form efficient, it implies that not all historical trading information is reflected in stock prices, potentially allowing technical analysis to identify patterns that can be exploited for profit.

Question 5

For technical analysts,the pattern formed by a series of price fluctuations composed with each top and bottom smaller than its predecessor and with transaction volumes usually diminishing is a/an:
A) ascending triangle.
B) symmetrical triangle.
C) descending triangle.
D) pole.

Accepted Answer

A symmetrical triangle pattern in technical analysis is characterized by a series of price movements where each successive peak is lower than the previous one and each trough is higher than the one before, typically with decreasing volume. This pattern indicates a period of consolidation before the price breaks out.

Question 6

In relation to share trading,buy and sell orders automatically triggered by rules entered into a computer program are called:
A) high frequency trading.
B) intraday trading.
C) program trading.
D) flash trading.

Accepted Answer

Buy and sell orders automatically triggered by rules entered into a computer program are commonly known as program trading. High frequency trading refers to a particular type of program trading that relies on extremely fast computer algorithms to trade stocks in fractions of a second. Intraday trading refers to buying and selling stocks within the same trading day, while flash trading involves the use of sophisticated algorithms to gain an advantage in the market by accessing market data before it becomes publicly available.

Question 7

In technical analysis,a price level below which the market price is temporarily unlikely to rise is a:
A) trend channel.
B) resistance line.
C) support line.
D) trend line.

Accepted Answer

The answer of In technical analysis,a price level below which...

Question 8

A support/resistance pattern plotted by chartists in the stock markets is the rectangle,which consists of sideways price fluctuations contained within horizontal support and resistance levels.Which of the following statements in relation to indicators given by support and resistance rectangles is incorrect?
A) Rectangles tend to be characterised by increasing volumes, except for a few days before the breakout when there are strong decreases in volumes of trade in the share(s).
B) If the last bottom does not touch the support level (beginning the formation of an ascending triangle) and if prices then rise rapidly on increasing volume, it is likely that there will be a topside breakout.
C) If the tops fail to reach resistance levels, beginning the formation of a descending triangle, a downside breakout is likely.
D) When a break occurs from a rectangle, the extent of the breakout is likely to equal the height of the price rectangle.

Accepted Answer

Rectangles tend to be characterised by decreasing volumes, not increasing volumes, except for a few days before the breakout, where there may be a spike in trading activity.

Question 9

In an efficient market:
A) security prices are seldom far above or below their justified level.
B) share prices react quickly to new information.
C) investors will not make superior returns consistently.
D) All of the given answers are correct.

Accepted Answer

An efficient market is one where securities are fairly priced, share prices react quickly to new information, and investors cannot consistently make superior returns. Therefore, all of the given statements are correct.

Question 10

In technical analysis,a price level below which the market price is temporarily unlikely to fall is a:
A) trend channel.
B) resistance line.
C) support line.
D) trend line.

Accepted Answer

A support line is a specific price level below which the market price is temporarily unlikely to fall. It is considered a level of support because the buying pressure of traders becomes strong enough to prevent the price from declining further. Trend channels, resistance lines, and trend lines are all different technical analysis tools used to identify market trends and potential levels of support and resistance, but they do not specifically indicate a price level below which the market price is unlikely to fall.

Question 11

The Elliot wave theory maintains that the bullish behaviour of the share market can be explained as:
A) a series of medium-term and long-term waves.
B) a series of long-term waves upwards, and short-term waves downwards.
C) a series of three major waves upwards, followed by two major waves downwards.
D) none of the given answers.

Accepted Answer

The Elliott Wave Theory posits that markets move in repetitive cycles, which are the result of investor reactions to external influences. According to this theory, a bull market is typically divided into five waves: three waves up (1, 3, 5) which are separated by two waves down (2, 4). This pattern reflects the dominant trend of the market moving upwards in a 5-wave pattern before a significant correction occurs.

Question 12

For technical analysts,the pattern formed by three successive rallies with the second rally being greater than the first or third,is called a:
A) symmetrical triangle.
B) head and shoulder pattern.
C) breakout.
D) triple top.

Accepted Answer

The head and shoulders pattern in technical analysis is characterized by three peaks, with the middle peak (the head) being higher than the two surrounding peaks (shoulders), which are of approximately equal height. This pattern is often interpreted as a reversal pattern.

Question 13

In relation to share trading,a dedicated system that operates within an exchange allowing some institutional investors to place large buy or sell orders without having to disclose the whole trade to the exchange are:
A) high frequency trading.
B) intraday trading.
C) program trading.
D) dark pools.

Accepted Answer

Dark pools are dedicated trading platforms where institutional investors can buy and sell large blocks of shares without being required to disclose the details of the trade to the broader market. These private exchanges are designed to provide anonymity and minimize the impact of large trades on the stock's price.

Question 14

The weak form of the efficient market hypothesis asserts that:
A) the change in future share prices cannot be predicted from past share prices.
B) share prices adjust rapidly to new information contained in past prices or past data.
C) technical analysts cannot be expected to outperform the market.
D) all of the given answers are correct.

Accepted Answer

The weak form of the efficient market hypothesis states that market prices adjust rapidly and completely to new public information, making it impossible to achieve abnormal returns on the basis of past prices, volume, and other historical data. This implies that future share price changes cannot be predicted from past data, technical analysis is not a reliable tool for outperforming the market, and investors cannot consistently earn excess profits by trading on publicly available information. Therefore, all of the given answers are correct.

Question 15

In relation to stock exchanges,the term 'flash trading' refers to:
A) applications of high-speed supercomputers that can place thousands of orders in seconds and then immediately cancel them.
B) some institutional investors being able to place large buy orders without having to disclose the whole trade to the exchange.
C) pennants and flags patterns in very fast moving markets.
D) the trades of certain institutional investors that receive information from a stock exchange of incoming orders before other traders.

Accepted Answer

Flash trading involves certain institutional investors receiving information about incoming orders from a stock exchange before other traders, allowing them to potentially exploit this information for profit.

Question 16

In relation to charting,an upward trend line connects the _______ points of a _______ price series,while a downward trend connects the _______ points of a _______ price series.
A) upper; rising; higher; falling
B) lower; rising; higher; falling
C) upper; falling; lower; rising
D) lower; falling; upper; rising

Accepted Answer

An upward trend line connects the lower points of a rising price series to show support levels, while a downward trend line connects the higher points of a falling price series to indicate resistance levels.

Question 17

In relation to technical analysis,what is the level above which the market finds it difficult to rise?
A) Trend channel
B) Resistance level
C) Support level
D) None of the given answers are correct

Accepted Answer

The level above which the market finds it difficult to rise is known as the resistance level. It is a key level in technical analysis as it indicates a point where traders may consider selling or shorting an asset. The resistance level is determined by looking at past price movements and identifying where the price has consistently struggled to go higher. Once the price reaches the resistance level, there may be an increase in selling pressure, which can cause the price to reverse and start moving downwards.

Question 18

One of the theories on the determination of,and change in the value of,shares and other securities is the random walk hypothesis.Which of the following statements in relation to the random walk hypothesis is correct?
A) The trend of new information into the market may be consistently good or consistently bad over time.
B) If the price of a share rose in one period, there is a higher probability that it will rise again in the next period.
C) Share price reflects the share's intrinsic value, based on the latest information set relevant to current and future prospects.
D) The history of previous price movements contains valuable information on likely future price movements.

Accepted Answer

The random walk hypothesis suggests that share prices reflect their intrinsic values, based on the latest available information set. This means that prices should follow a random pattern as new information enters the market about a company's future prospects. Therefore, choice C is the correct statement. Choices A, B, and D are incorrect because they suggest that there may be patterns or predictability in stock prices, which contradicts the assumptions of the random walk hypothesis.

Question 19

Program trading:
A) is the most likely reason there was a stock market crash in October 1987.
B) occurs only in over-the-counter markets.
C) refers to computer-generated orders to buy or sell many shares at the same time.
D) has been abolished by order of the ASX.

Accepted Answer

Program trading refers to computer-generated orders to buy or sell many shares at the same time. It can occur in both stock exchanges and over-the-counter markets. While program trading was a factor in the stock market crash of October 1987, it was not the only reason for the crash. Program trading has not been abolished by the ASX.

Question 20

If the weak form of the efficient market hypothesis holds:
A) share prices follow a random walk.
B) share prices reflect all information contained in past prices.
C) technical analysis is useless.
D) all of the given answers are correct.

Accepted Answer

The weak form of the efficient market hypothesis posits that all past trading information is already reflected in stock prices, implying that share prices follow a random walk and making technical analysis, which relies on historical price and volume data, ineffective.

Quiz 7: Forecasting Share Price Movements

Which of the following statements regarding an efficient capital market is correct?

If a share price falls on four consecutive days of trading,share prices:

For technical analysts,the pattern formed by a series of price fluctuations characterised by rising bottoms and horizontal tops is a/an:

Strategies based on technical analysis are most likely to be profitable in a market that is regarded as:

For technical analysts,the pattern formed by a series of price fluctuations composed with each top and bottom smaller than its predecessor and with transaction volumes usually diminishing is a/an:

In relation to share trading,buy and sell orders automatically triggered by rules entered into a computer program are called:

In technical analysis,a price level below which the market price is temporarily unlikely to rise is a:

In an efficient market:

In technical analysis,a price level below which the market price is temporarily unlikely to fall is a:

The Elliot wave theory maintains that the bullish behaviour of the share market can be explained as:

For technical analysts,the pattern formed by three successive rallies with the second rally being greater than the first or third,is called a:

In relation to share trading,a dedicated system that operates within an exchange allowing some institutional investors to place large buy or sell orders without having to disclose the whole trade to the exchange are:

The weak form of the efficient market hypothesis asserts that:

In relation to stock exchanges,the term 'flash trading' refers to:

In relation to charting,an upward trend line connects the ___ points of a _ price series,while a downward trend connects the _ points of a ___ price series.

In relation to technical analysis,what is the level above which the market finds it difficult to rise?

One of the theories on the determination of,and change in the value of,shares and other securities is the random walk hypothesis.Which of the following statements in relation to the random walk hypothesis is correct?

Program trading:

If the weak form of the efficient market hypothesis holds: