Basics Beginner: Using Financial Services Wisely

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1.
What is the conflict of interest that you might encounter with a full-service broker who earns commissions?
Choose wisely. There is only one correct answer.
The broker may encourage frequent trading in order to get more commissions. While the other choices might still occur, only this one is a conflict of interest. Make sure your broker has your best interests at heart.
2.
Shorting stock involves _______.
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Borrowing shares of stock, selling them, and intending to buy them back at a lower price. With shorting, you can actually profit when a stock drops in price.
3.
Say you are relaxing at home a week after having bought some stock on margin, and the price of the stock has dropped immensely during those days. Suddenly your phone rings, and it is your broker. You know instinctively that this is _______.
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A margin call. If the stock price drops deeply, your broker may worry that you wont be able to pay back the loan, and he or she will give you a margin call asking you to add more cash to your account.
4.
A discount brokers commission is based on the total value of holdings in the customers account.
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False. Discount brokers earn commissions based on trades.
5.
Financial planners and advisors get paid in one of three possible ways. Which of the following is not one of those ways?
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None of the above. All of these are ways that planners and advisors get paid.
6.
If you place an order with your broker to buy a stock provided that the price does not exceed $40 per share, you have placed a _______.
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Limit order. A limit order limits the price at which the trade is being executed.