CFA CFA level 3 study NotéCFA level 3 CFA level 3 CFA level 3 CFA level 3 finquiz item set questions, study session 16, reading 31

EA has received an order to purchase 700 shares of Chloe Chemicals, a publically listed chemicals manufacturer, from Lestor Inc.. Details on execution prices and trading times at which t

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FinQuiz.com

CFA Level III Item-set - Question

Study Session 16

June 2018

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FinQuiz Item-set ID: 13345

Questions 1(13346) through 6(13351) relate to Reading 31

Louise Chung Case Scenario

Louise Chung is a senior broker working for Eroba Associates (EA), a brokerage firm EA has received an order to purchase 700 shares of Chloe Chemicals, a publically listed chemicals manufacturer, from Lestor Inc Details on execution prices and trading times at which the orders were executed are illustrated in the exhibit below

Exhibit 1 Bid-Ask Quotes for Chloe Chemicals on May 12, 2008 Time

Entered

Bid Price

Bid Size

Size

Execution Price

Shares Purchased

In addition to the purchase order received from Lestor Inc., Eroba Associates has received an order to purchase 6,000 shares of Chrome Chemicals at a limit price of $15.56 on May 17 from

$16.15 The next day (May 18) EA executes 45% of the order at the current market price of

$17.00 The remaining order is cancelled and the market closes on May 18 with the shares price rising to $17.34

EA maintains an ordering system which keeps a record of all unfulfilled trade orders currently in process Each order is assigned a symbol generated automatically by the system Details on three of these orders are illustrated in the exhibit below

Exhibit 2 EA’s Order Management System

(Shares)

Average Daily Volume

(%)

Urgency

Berome Inc is a pension fund manager utilizing EA’s brokerage services to conduct portfolio trades on behalf of its pension fund corporate clients Berome Inc has stated to EA, “Our

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portfolio clients’ risk aversion ranges from high to moderate We trust you, as our broker, to execute portfolio trades in a calculated manner delivering optimal portfolio results We do not ask for immediate execution but would prefer if you keep in mind our large trade orders and accordingly conduct trading on behalf of our clients.”

Jeromine Tait Manufacturers, on the other hand, has repeatedly expressed their desire to

minimize trading costs The manufacturing company has expressed a desire to keep their identity shielded from the market since they would like to execute large orders with minimal price

impact The manufacturing firm frequently invests in emerging market equity securities

possessing characteristics which differ considerably from developed market securities However, the firm would prefer to avoid engaging any intermediary when executing its trades

FinQuiz Question ID: 13346

to:

average effective and quoted bid-ask spreads associated with the Chloe Chemicals purchase order is:

C the market has a high level of liquidity

closest to:

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for the orders in process in EA’s ‘order management system’?

GHI should be executed using a VWAP strategy

executed using a broker, and GHI should be executed using a VWAP strategy

C a liquidity at any cost trading focus

a(n):

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