Fitria Intan A.

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11. Who set the bid and asked price for a stock traded over the country? Would you expect the

spread to be higher in actively or inactively traded stocks?

Exchange membership (broker-dealer),

Because trade on OTC market is negotiated directly through dealers. Each dealer

maintains an inventory of selected securities. Dealers sell from their inventories at asked

price and buy for them at bid prices.

In OTC market, brokers must search the offers of dealer directly to find the best trading

activity. While bid and asked price can obtained from the Nasdaq computer network, the

actual trade still requires direct negotiation between the broker and the dealer in the

security.

Inactively traded,

When the bid and ask prices are far apart, the spread is a large spread. A large spread will

exist when a market is not being actively traded and has low volume (number of contracts

being traded). A large spread causes orders (especially market orders) to be filled at

unwanted prices, which the requires adverse adjustments to the trading system to

compensate (such as increasing a stop loss). Trading system that trades the spread are

collectively known as scalping trading system and the traders are known as scalpers,

because they only want a few ticks profit with each trade.

12. Consider the following data concerning the NYSE.

Year Average daily trading volume

(thousand per share)

Annual high price of an

exchange membership

1991 178,917 440,000

1992 202,266 600,000

1993 264,519 775,000

1994 291,351 830,000

1995 346,101 1,050,000

1996 411,953 1,450,000

What do you conclude about the short-run relationship between trading activity and the value of

seat ?

ADTV can have an effect on the price of the security. According to the data year by year

volume is higher, these shows that the security will tend to be add expensive because

people as willing o buy it.

Higher ADTV can be indicate the security is more competitive, has narrow spread and its

typically less volatile. Because much larger trade would have to be made to have an

effect on the price.

The value of seat means that broker-dealer is allowed to make trades on the floor of an

exchange. According the data, the price of seats is set by supply and demand and the

price tends to fluctuate with the state of economy. And I think the economy is booming

seats will sell for more.

Like my information explain before with look up from the data year by year, my conclusion :

An indication that a market is being actively traded and often associated with a large price

range, because the increased trading activity can keep the price moving in the same direction

for a significant amount of time. Amount of trading activity is like standard for exchange

membership to determine the price (the value of seat). Because the volume is often graphical

charts along with the price (shown per price bar), so the exchange membership can see and

analysis from the graphical.