1.1.3 Other Regulators and Agencies Flashcards
A brokerage firm goes bankrupt, and an investor is concerned about the securities purchased through that firm. Which organization should they contact to understand their coverage limits under such circumstances?
A. Federal Reserve
B. Securities Investor Protection Corporation (SIPC)
C. Federal Deposit Insurance Corporation (FDIC)
D. Department of the Treasury/IRS
B. Securities Investor Protection Corporation (SIPC)
Explanation: The SIPC protects the securities and cash in a customer’s brokerage account in the event of the bankruptcy of a member brokerage firm. It does not cover investment losses from market decline but ensures that customers can retrieve their assets up to $500,000, including a $250,000 limit for cash.
Which entity is primarily responsible for regulating the overall stability of the financial system in the United States, particularly through the management of monetary policy?
A. Federal Deposit Insurance Corporation (FDIC)
B. Department of the Treasury/IRS
C. The Federal Reserve
D. State regulators (e.g., NASAA)
C. The Federal Reserve
Explanation: The Federal Reserve regulates the U.S. financial system’s stability and conducts monetary policy to influence economic conditions, including interest rates and inflation.
An investor wants to ensure that the savings account opened with a new bank is insured in case of bank failure. Which organization provides this insurance?
A. Securities Investor Protection Corporation (SIPC)
B. The Federal Reserve
C. Federal Deposit Insurance Corporation (FDIC)
D. Department of the Treasury/IRS
C. Federal Deposit Insurance Corporation (FDIC)
Explanation: The FDIC insures deposits at member banks up to the legal limit, which is currently $250,000 per depositor, per insured bank, for each account ownership category.
A financial advisor suggests investing in municipal bonds. To verify the regulations and rules governing the sale of these securities, which organization should an investor consult?
A. Department of the Treasury/IRS
B. State regulators (e.g., NASAA)
C. The Federal Reserve
D. Federal Deposit Insurance Corporation (FDIC)
B. State regulators (e.g., NASAA)
**Explanation: **State regulators, such as those part of the North American Securities Administrators Association (NASAA), are primarily responsible for overseeing the securities industry at the state level, including the sale and regulation of municipal bonds.
A taxpayer receives a substantial dividend payment from investments and seeks clarification on the tax implications. Which agency should they consult?
A. Securities Investor Protection Corporation (SIPC)
B. The Federal Reserve
C. Federal Deposit Insurance Corporation (FDIC)
D. Department of the Treasury/IRS
D. Department of the Treasury/IRS
Explanation: The Internal Revenue Service (IRS), a bureau of the Department of the Treasury, is responsible for tax collection and tax law enforcement. This includes the taxation of dividends from investments.
A financial institution wants to adjust its reserve requirements. Which organization should it consult for guidance on the appropriate levels?
A. Federal Deposit Insurance Corporation (FDIC)
B. Securities Investor Protection Corporation (SIPC)
C. The Federal Reserve
D. Department of the Treasury/IRS
C. The Federal Reserve
Explanation: The Federal Reserve sets reserve requirements for banks in the United States to ensure that they maintain bank reserves at specified levels.
When a bank fails, which organization is typically responsible for providing insurance on individual checking accounts?
A. Securities Investor Protection Corporation (SIPC)
B. The Federal Reserve
C. Federal Deposit Insurance Corporation (FDIC)
D. Department of the Treasury/IRS
C. Federal Deposit Insurance Corporation (FDIC)
Explanation: The FDIC insures deposits, including checking accounts, at its member banks up to the legal limit to protect depositors in case of bank failures.
An investment advisor is found guilty of fraudulent activities. Which agency is primarily involved in the regulation and enforcement at the state level?
A. The Federal Reserve
B. Federal Deposit Insurance Corporation (FDIC)
C. Department of the Treasury/IRS
D. State regulators (e.g., NASAA)
D. State regulators (e.g., NASAA)
Explanation: State regulators, often coordinated through NASAA, are responsible for enforcing securities laws at the state level, including actions against fraudulent activities by investment advisors.
If a customer’s brokerage firm goes out of business, the recovery of securities such as stocks and bonds is primarily the responsibility of which entity?
A. Federal Deposit Insurance Corporation (FDIC)
B. Securities Investor Protection Corporation (SIPC)
C. The Federal Reserve
D. Department of the Treasury/IRS
B. Securities Investor Protection Corporation (SIPC)
**Explanation: **The SIPC helps protect and recover securities for customers if their brokerage firm fails, though it does not protect against market losses.
Who is responsible for the regulation of currency and the execution of fiscal policies, such as taxation and government spending?
A. Federal Reserve
B. Department of the Treasury/IRS
C. State regulators (e.g., NASAA)
D. Federal Deposit Insurance Corporation (FDIC)
B. Department of the Treasury/IRS
**Explanation: **The Department of the Treasury oversees currency regulation, fiscal policies, and taxation through the IRS.
Which agency provides backstop liquidity to financial institutions to ensure the stability of the financial system?
A. Federal Deposit Insurance Corporation (FDIC)
B. Securities Investor Protection Corporation (SIPC)
C. The Federal Reserve
D. Department of the Treasury/IRS
C. The Federal Reserve
Explanation: The Federal Reserve acts as a lender of last resort, providing liquidity to banks and other financial institutions to maintain stability in the financial system.
An investor’s bank has collapsed, and they need information about the insurance of their deposit. To whom should they turn?
A. Securities Investor Protection Corporation (SIPC)
B. The Federal Reserve
C. Federal Deposit Insurance Corporation (FDIC)
D. Department of the Treasury/IRS
C. Federal Deposit Insurance Corporation (FDIC)
Explanation: The FDIC insures deposits up to $250,000 per depositor, per insured bank, ensuring that depositors are protected in the event of a bank failure.
A broker-dealer wants to ensure compliance with federal securities laws. Which organization should they consult regarding compliance standards and regulations?
A. The Federal Reserve
B. Federal Deposit Insurance Corporation (FDIC)
C. Department of the Treasury/IRS
D. State regulators (e.g., NASAA)
D. State regulators (e.g., NASAA)
Explanation: While federal securities laws are overseen by organizations like the SEC, state regulators also play a significant role in ensuring compliance at the state level.
When seeking guidance on the impact of interest rates on loans and mortgages, which institution’s policies should a financial analyst review?
A. Federal Deposit Insurance Corporation (FDIC)
B. Securities Investor Protection Corporation (SIPC)
C. The Federal Reserve
D. Department of the Treasury/IRS
C. The Federal Reserve
Explanation: The Federal Reserve’s monetary policy decisions, including setting interest rates, significantly impact loans, mortgages, and overall economic activity.
To whom should a taxpayer report if they suspect someone of violating tax laws?
A. Securities Investor Protection Corporation (SIPC)
B. The Federal Reserve
C. Federal Deposit Insurance Corporation (FDIC)
D. Department of the Treasury/IRS
D. Department of the Treasury/IRS
Explanation: The IRS is responsible for enforcing federal tax laws and is the appropriate authority to handle reports of tax law violations.
