All terms Flashcards
What is a Tender Offer?
An investor proposes buying shares from every shareholder of a publicly traded company for a certain price–typically above current market price–at a certain time (can be partial or full)
What is a Debenture the same as?
Unsecured creditor
Bankers’ Acceptance
Facilitates foreign trade
Revenue Bonds are paid through what?
Revenues from the project they support
What is the order of Liquidation Proceedings? (Preferred stockholders, Administrative Expense Claims, Subordinated Creditors (Debentures), Common Stockholders, General Creditors, Secured Creditors)
- Secured Creditors
- Administrative Expense Claims
- General Creditors
- Subordinated Creditors (Debentures)
- Preferred Stockholders
- Common Stockholders
How long does it take Money Market Funds to mature?
1 year or less
What is a Pass-Through Certificate? High or low yield compared to Treasury securities?
Debt instruments backed by various types of tangible assets. High yield.
What is the only federal agency to issue bonds?
GNMA (Government National Mortgage Association)
What are Agency Securities?
Debt instruments issued and/or guaranteed by federal agencies
Describe a T-STRIP
Stripped of interest and principal by BDs, so they trade as Zero-Coupon bonds in the secondary market. Offered at a discount and mature at par value
What is a General Obligation (GO) Bond? How are they taxed? What is their source of payment?
Debt instrument issued by states, countries, cities, or territories to finance general purposes of the issue
Taxed at the state and local level, not federal
Paid for by taxes
What are the Mortgage-Backed Securities?
GNMA/Ginnie Mae
FNMA/Fannie Mae
FHLMC/Freddie Mac
How are Agency Securities quoted? On what basis do they accrue interest?
/32
30 day month and 360 day year
What is the yield for Nominal Yield?
Coupon/interest rate
How do you calculate Current Yield?
Current Yield = Annual interest / Current Market Price
What is the Ex-Dividend Date? What falls on the same date?
Date stock begins to sell without its dividend (at a reduced price)
Record Date
What does a Basis Point represent?
.01%
What are 2 other ways to say YTM?
Basis ; Yield
As rates increase, price ____?
As rates decrease, price _____?
decrease
increase
What is Cost Basis?
Total amount paid for a security
What are Capital Gains? What are the 2 kinds and how are they taxed?
Redemption of an asset if the proceeds exceed cost basis
Long term and Short term
Short term: taxed at income rate
Long term: taxed at fed. max rate of 20%
What are the Yield relationships at Par?
All equal
What are the Yield relationships at a Discount?
YTM>CY>NY>PAR
What are the Yield relationships at a Premium?
YTM<CY<NY<PAR
What is the Declaration Date?
Date company announces dividend (cash or stock), but NOT distributed
What is the Payment Date?
Date on which the dividend (cash or stock) is distributed
What is the Record Date?
Date on which a person must own the stock to receive dividend (i.e., for buyer to receive the dividend, trade must settle on, or before, Record Date)
How are cash dividends taxed?
Ordinary income rate (unless you hold the stock for long enough, 60 days for common stock ; 90 days for preferred stock)
If you meet the 60 or 90 day requirements, taxed at fed. max rate of 20%
How are stock dividends taxed? What does it change?
Not taxed as income
Cost basis must be changed
How long does a mutual fund have to deliver your sale?
7 calendar days
What is a TIPS? Why do people buy them? If interest is paid, how often?
Treasury Inflation-Protected Securities
Serve as a hedge against inflation, as principal is adjusted for inflation/deflation (rate is fixed)
Interest paid semiannually
What is a Broker? How are they paid?
A person who matches buyers and sellers for an account that isn’t their own
Receives a commission
What is a Dealer?
A person who makes trades for firm’s own account
What is the Net Asset Value (NAV)? When is it calculated?
Accounting value of a mutual fund’s positions
Calculated everyday at market close, 4:00pm ET
What is Forward Pricing?
Investors redeem their shares of a mutual fund at the next computed NAV
What are the 2 type of Management Companies?
Open End (Mutual Funds)
Close End
What is synonymous with Fund Family?
Complex
What is Public Offering Price (POP)? How is it calculated?
Price investors pay for shares of mutual fund shares
POP = NAV + Sales Charges (if any)
Is NAV the same as BID or ASK?
BID
Is POP the same as BID or ASK?
ASK
How to calculate Sales Charge %?
Sales Charge % = (POP - NAV) / POP
What is Sales Charge? Who does it go to? What is the maximum?
Amount deducted from an investor’s purchase; benefits selling brokers
8.5%
Front-End Loads
Sales Charge paid upfront
Back-End Loads
Sales Charge paid when investor sells
Do Front-End Loads or Back-End Loads have higher 12b-1 Fees?
Back-End Loads
What happens the longer you hold Back-End Loads?
Sales Charge percentage decreases, potentially to 0%
What are 12b-1 Fees? What are they used for?
Annual fee levied against the mutual fund’s assets
Used to finance promotion, advertising, sales commissions
What are Trailers?
Fees a mutual fund manager pays to a salesperson who sells the fund to investors
Define No Load.
What are the fees?
No Sales Charge
Only 12b-1 fees (up to 1/4 of 1% [25 BP])
What is a Breakpoint?
When investing an amount at or above the breakpoint, the investor qualifies for the lower Sales Charge on the entire purchase
What are the 2 types of Annuities?
Fixed & Variable
What are Rights of Accumulation (ROA)?
Add up all purchases made from the same Family Fund to lower Sales Charge
What is a Letter of Intent (LOI)? What is the time period? What is the special exception?
A signed agreement (non-binding) in which investor agrees to purchase more mutual fund shares in the future to qualify for breakpoints
13 months
Back track up to 90 days
What type of Load do Class A, Class B, and Class C shares have?
Class A: Front-End Load
Class B: Back-End Load (Contingent Deferred Sales Charge)
Class C: Level Load
What is a Level Load? What might be included?
Ongoing fee, typically 1%, for as long as shares are held.
Back-End Load
What are Back-End Loads also known as?
Contingent Deferred Sales Charges (CDSC)
What is the structure of a Mutual Fund?
- Fund Family (Complex)
- XYZ Fund (includes Board of Directors, Investment Advisor, Transfer agent, Custodian Banks)
- Underwriter/Distributor/Sponsor
- Dealer
What are the ABCs for an Investment Advisor?
A: Advice
B: Business
C: Compensation
What are (Preemptive) Rights? Short term or Long term?
Allows shareholders to buy new issues at a discount before it’s offered to the public
Short term
What is a Warrant? Short term or Long term?
Attached to new issues and trades at a premium, but allow holders to purchase a specific number of company’s common shares at a set price (Exercise Price)
Long Term
What are Qualified Plan contributions?
Deductible (pre-tax) ; typically offered by tax-free organizations (public schools)
What are Non-Qualified Plan contributions?
Non-Deductible (after-tax) ; available to everyone
What are Exchange-Traded Notes (ETNs)
Structured products that are issued as unsecured debt. They trade on exchanges, have low fees, and provide access to challenging areas of the market
What is a Real Estate Investment Trust (REIT)?
A company that manages a portfolio of real estate investments in order to earn profits for its shareholders
What is a QIB and what are requirements?
Qualified Institutional Buyers
$100 million in securities
*Can’t be a natural person
What are Accredited Investors?
Institutional investors as well as individuals have a Net Worth of $1,000,000 excluding their primary residence
OR
Annual income of $200,000 in each of the last 2 years ($300,000 married)
What does an underwriter do?
Facilitates distribution of shares, helps firms during IPO and Follow On, helps restructure firms, assumes varied liability
What is Firm Commitment?
Underwriter buys all issues and keeps whatever isn’t sold
What is Best Efforts?
Underwriter does NOT buy shares, but will give their best effort to sell them. Whatever issues not sold are returned to issuer
What is the Primary Market?
Where new securities are issued and sold by issuers to raise capital
What is the Secondary Market?
Where securities are transferred between investors
What is the Third Market?
OTC trading (Pink Market)
What is the Fourth Market?
Direct institution-to-institution trading
What is the ECN (Electronic Communications Network)?
Electronically matches buyers and sellers
What is a Dark Pool?
Allow institutional investors to interact through block trades that aren’t shown to retail investors
Who are Registered Representatives?
A securities licensed individual
Who is a Principal?
Oversees RRs; typically have additional licensing
Name 3 SROs
FINRA, MSRB, Exchanges
Who oversees all financial regulation of member firms?
The SEC
Who enforces SEC rules?
SROs
What does the Securities Act of 1933 regulate and do?
-Provides full and fair disclosure in the primary market
-Registration of new issues
-Prospectus delivery
What does the Securities Exchange Act of 1934 regulate and do?
-Established trading markets
-Requires registration of firms and personnel
-Oversees Margin/Insider Trading/On-going reporting for issuers
Investment Company Act of 1940
-Created definition of investment companies (100 investors or more must register with SEC)
Investment Advisers Act of 1940
Established the ABCs for Investment Advisers
A: Advice
B: Business
C: Compensation
Securities Investors Protection Act (SIPA)
-Created the Securities Investors Protection Corporation (SIPC)
-Protects Separate Customers (not accounts) if BD goes bankrupt
-Covers $500,000 of which $250,000 may be cash
What does the Financial Industry Regulatory Authority (FINRA) do?
-Governs interaction between customers and firms
-Standardizes the procedures for doing business in financial markets
-Established the process used to discipline any person who violates FINRA rules
-Provides method for resolving dispute between members including those that involve public customers
What is FINRA’s Conduct Rules
Governs the interaction between customers and firms
What is FINRA’s Uniform Practice Code (UPC)
Standardizes the procedures for doing business in financial markets
What is FINRA’s Code of Procedure (COP)?
Establishes the process used to discipline any person who violates FINRA rules
What is FINRA’s Code of Arbitration?
Provides the method for resolving disputes between member firms
What SRO formulates and interprets rules for FINRA?
MSRB
What 2 securities do corporations use to raise capital?
Bonds (debt)
Stocks (equity)
What are the 2 main types of stock?
Common (junior)
Preferred (senior)
If a corporation issues stock and then repurchases some of its outstanding shares, these shares become ______ stock
Treasury
Authorized Shares
Number of shares that can be sold during a corporations lifetime
Issued Shares
Shares in public hands, typically through primary market
Treasury Shares
Issues that have been offered to the public but have been repurchased by the company
Outstanding Shares
Shares owned by the public (not company)
What is Statutory Voting?
One vote, per share, per issue
Beneficial for large shareholders
What is Cumulative Voting
Allows shareholders to multiply the number of shares owned by the number of voting shares (can allocate votes however they want)
Beneficial for small shareholders
What is Rule 144?
Permits sale of restricted and control stock
What is Restricted Stock? How long is holding period?
Unregistered stock that’s acquired through a private placement or as compensation for senior executives of an issuer
6 months
How long does an investor have to sell restricted or control securities after notifying the SEC, according to Rule 144?
90 days
What is Control (Affiliated) Stock? How long is holding period?
Registered stock that’s purchased in the open market by officers, directors, or principals (owns more than 10% of companies voting shares)
No holding period
If Restricted or Control Stock is going to be sold, what does the seller have to do?
File 144 with SEC when the order is placed
What is the maximum sale allowed for control persons? The greater of ____ and ______
1% of outstanding shares
The average trading volume over the course of the last 4 weeks
Filing Form 144 is NOT required is selling no more than ____ AND _____
5,000 shares
$50,000 of securities
What are American Depository Receipts (ADRs)?
Foreign stocks available in US dollars
What are sponsored ADRs?
-Issued in cooperation with foreign company
-Can trade on US exchanges
What are unsponsored ADRs?
-Issued without involvement of foreign company
-Trade in OTC market (Pink Market)
What is Non-Cumulative Preferred Stock?
Investor is only entitled to current dividend
What is Cumulative Preferred Stock?
Investor is entitled to unpaid dividends before common stock dividends may be paid AND current dividend
What is Callable Preferred Stock? What is advantage for investors?
Company can repurchase (call) the stock
Higher dividend rate, called on a premium
What is Participating Preferred Stock?
Investor may receive additional dividends based on company performance
What is Convertible Preferred Stock? Why is this beneficial to the investor?
Investor may convert preferred shares into a predetermined number of common shares
Common stock doesn’t have interest rate risk like preferred stock
Par value of a stock?
$100
Par value of a bond?
$1,000
What is a Due Date?
The maturity, or due date, of a bond. Principal is returned and last interest payment is made on this date
When is interest (coupon) for a bond stated? Paid?
Stated annually, paid semiannually
Describe a Zero-Coupon Bond. When is profit realized?
Trades at a discount, but no interest payments.
Returns profit at maturity
Are Zero-Coupon Bonds ideal for long or short term investors
Long term
A bond price of 90 is selling at a ___ equal to ____% of its par value, or $____
Discount
90%
$900
Corporate and municipal bonds trade in increments of ___ of a point, or $____
1/8
$1.25
When will an issuer call its bonds?
When interest rates are falling
What can a bond quoted at 93 5/8 be converted to as a percentage and dollar value?
93.625%
$936.25
Which TWO of the following statements are TRUE?
I. Bonds priced at a discount pay a higher coupon rate than the current market interest rate
II. Bonds priced at a premium pay a higher coupon rate than the current market interest rate
III. Bonds priced at a discount pay a lower coupon rate than the current market interest rate
IV. Bonds priced at a premium pay a lower coupon rate than the current market interest rate
II & III
What is a Put Provision? When is it exercised?
Allows investors to sell bond back to issuer prior to maturity
When interest rates are rising
What are T-Bills?
Treasury Bills priced on a discount yield basis
Price willing to buy (BID) is higher than price willing to sell (ASK)
Which TWO of the following statements are TRUE?
I. A call provision protects a bond issuer when interest rates fall
II. A put provision protects bondholders when interest rates rise
III. A call provision protects bondholders when interest rates rise
IV. A put provision protects bondholders when interest rate fall
I & II
What are the maturities of T-Bills? What is the maximum maturity?
4 weeks, 8 weeks, 13 weeks, 17 weeks, 26 weeks, 52 weeks
52 weeks (1 year)
What are the maturities of T-Notes?
2-10 years
What are the maturities of T-Bills?
10+ years
How are T-Bills, T-Notes, and T-Bonds taxed on a federal, state, and local basis?
Taxed federally ; exempt from state & local
What increments of a point do T-Notes, T-Bonds, and Agency Securities trade in?
1/32 of a point
What are General Obligation (GO) Bonds? How are they funded?
Bonds issued by municipalities that are issued for general purposes
Funded through taxes
What are Revenue Bonds? What are typical projects and what is their source of payment?
Bonds issued to fund a specific project
Building bridges, roads, stadiums, etc.
Revenue generated from project
List 5 Money Market Instruments
-T-Bills
-Bankers’ Acceptances (BAs)
-Commercial Paper
-Negotiable Certificates of Deposit (CDs)
-Repurchase Agreements (Repos)
Which of the following are considered money-market instruments
I. Treasury Bills
II. Treasury Notes
III. Commercial Paper
IV. American Depositary Receipts (ADRs)
V. Bankers’ Acceptance
I, III, V
Which of the following is the LAST creditor to be paid in a liquidation proceeding
a. Common stockholder
b. Preferred stockholder
c. Secured creditor
d. Debenture holder
Debenture holder (question asks what CREDITOR)
What is Yield-to-Maturity (YTM)?
Investor’s total overall yield that includes semiannual interest payments, compounding interest, any gain/loss on the difference between the current value and par value
What are Unit Investment Trusts (UITs)
An investment company that offers a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period. It is designed to provide capital appreciation and/or dividend income.
What is a spinoff?
A separation of a division or subsidiary from its parent to create a new corporate entity (does not merge 2 companies)
What multiple must shares be in when physically delivered?
Multiples of 100
As an alternative to a customer’s signature, what (if anything) may be used as proper endorsement of a certificate?
A stock or bond power
The combination of two companies into one company is accomplished by all of the following, EXCEPT:
- A merger
- A spinoff
- A takeover
- An acquisition
Spinoff (A merger, takeover, or acquisition is the combination of two companies into one. A merger is generally between companies of similar size. In an acquisition or takeover, a larger firm typically purchases a smaller firm. A spinoff is the separation of a division or subsidiary from its parent to create a new corporate entity.)
If a brokerage customer is a non-objecting beneficial owner (NOBO) and owns stock of XYZ Company, information from XYZ Company would be:
* Held at the issuer
* Sent to the BD
* Sent to the customer
* Sent to the custodian
Sent to the customer (A NOBO gives his broker-dealer the right to release his name and address to the issuer. Therefore, any information from the issuer would be sent to the customer directly from the issuer.)
Which of the following statements is NOT TRUE regarding discretionary accounts?
* All discretionary orders must t be marked “discretionary”
* A written power of attorney must be on file
* Order must be approved verbally by the customer prior to execution
* Orders must not be excessive in terms of size or frequency
Order must be approved verbally by the customer prior to execution (When transacting business for a discretionary account, the registered representative must have written power of attorney authorizing her to act for the customer. Each order in which the registered representative exercises discretion must be marked “discretionary.” The registered representative should not enter orders that are excessive in size or frequency (to do so is considered churning and done to generate commissions). The registered representative makes the investment decisions and doesn’t need to receive the customer’s approval for each order being executed)
Which of the following statements is TRUE about a Joint Tenancy in Common (JTIC) account?
* This type of account can only be established by legally married couples
* If one account owner dies, the proceeds automatically go to the remaining account owner(s)
* In this type of account, ownership may be unequal
* The account carries the Social Security numbers from al tenants for tax reporting purposes
- In this type of account, ownership may be unequal (The Joint Tenancy in Common (JTIC) account will pass funds directly to the decedent’s estate based on that person’s ownership in the account. Unlike a Joint Tenancy with Rights of Survivorship (JTWROS) account where all tenants fully own the account, a JTIC allows different percentages of ownership. Although the tax ID information must only be obtained from one designated tenant, background information is required from all tenants.)
Where do JTIC (Joint Tenancy in Common) funds pass?
To the descendant’s estate
In a traditional IRA, what’s the age at which mandatory distributions must begin from the account?
73
An individual has expressed interest in having a broker-dealer maintain his account, but wants his name removed from the account. Is this permissible?
* Under no circumstances
* Yes, without approval
* Yes, with prior approval it may be kept as a numbered account
* Only with FINRA approval
Yes, with prior approval it may be kept as a numbered account
A customer’s first transaction in a margin account is a purchase of $1,500 worth of securities. The customer’s required deposit is:
* 750
* 1500
* 2000
* No deposit required
1500 (When the initial transaction in a margin account is a purchase of securities that are valued at $4,000 or less, the required deposit is the lesser of the market value of the securities or $2,000. In this case, since the $1,500 purchase price is less than $2,000, the required deposit is $1,500. However, if the initial purchase exceeds $4,000, the required deposit is 50% of the market value.)
What is deposit requirement in a margin account if first purchase is $4,000 or less? Over $4,000?
$2,000 or the lesser of the market value
50% of market value
How is the breakeven point determined for a call? For put?
Strike Price + Premium
Strike Price - Premium
Which of the following statements is TRUE regarding contributions to a 401(k) plan?
A: Contributions are in after-tax dollars.
B :Employee participants should be aware of the risk of investing too much in their employer’s stock.
C: The employer determines the investments into which the contributions are allocated.
D: Contributions of an unlimited amount can be made by employees.
Employee participants should be aware of the risk of investing too much in their employer’s stock.
A husband and wife have a joint account with right of survivorship. If one of the parties places an order, the RR:
- Should contact the other party prior to placing the order
- May accept the order only if the other party has granted trading authorization
- May accept the order
- Must have the order approved by a principal prior to execution
May accept the order (Joint accounts have more than one owner of record. In most cases, any joint owner may initiate activity in the account (e.g., enter orders to buy or sell securities). There’s no requirement to contact the other party prior to placing an order. Trading authorization is required if a person who’s not an owner of the account wants to enter orders.)
Upon the death of a trust beneficiary, where are the assets directed?
The beneficiary’s estate
Premature withdrawals of earnings from an IRA that qualify for an exception are subject to:
* Neither a 10% tax penalty on the amount withdrawn nor ordinary income taxes on that same amount
* Ordinary income taxes on the amount withdrawn, but not a 10% tax penalty on that same amount
* CA 10% tax penalty on the amount withdrawn, but not ordinary income taxes on that same amount
* DA 10% tax penalty plus ordinary income taxes on the amount withdrawn
Ordinary income taxes on the amount withdrawn, but not a 10% tax penalty on that same amount
When opening a margin account, a customer is NOT required to sign which of the following?
* Loan consent agreement
* Credit agreement
* Hypothecation agreement
* All documents must be signed.
Loan consent agreement (To open a margin account, customers are required to sign a credit agreement and a hypothecation agreement. The signing of the loan consent agreement is optional (NOT required). If the loan consent agreement is signed, it permits the broker-dealer to lend the customer’s securities to others who want to execute short sales.)
Which type of account allows a broker-dealer to lend money?
Margin Account
Does ERISA apply to private or government plans?
Private plans
What is the purpose of ERISA?
ERISA’s purpose is to protect the interests of hourly employees and to establish guidelines for receiving favorable tax treatment on retirement benefits.
Do profit sharing plans require a contribution each year?
No
To open a margin account, a hypothecation agreement is required. What’s the purpose of this agreement?
To stipulate that the client’s securities will be used as collateral
If an individual purchases 100 shares of stock that are priced at $80 per share in a margin account, he’s required to deposit:
$4,000
A customer’s first transaction in a margin account is the short sale of $1,500 worth of securities. The customer’s required deposit is:
$2000 (When the initial transaction in a margin account is the short sale of securities, the minimum required deposit is $2,000 or 50% of the market value, whichever is greater. Since $2,000 is greater than $750 ($1,500 x 50%), $2,000 is the required deposit.)
A mother opens a UTMA account for her child. She asks her brother to be the custodian for the account and he agrees. Who’s the owner of the account?
The child
Are contributions to traditional IRAs tax deductible?
No
A corporate charter is required to open which of the following corporate accounts?
Margin and Options accounts
What are Syndicate Members?
BDs assisting in selling and sharing liability
If a customer indicates the specific security, whether to buy or sell, and the dollar amount or the number of units, is the registered representative required to obtain approval as to when to execute the order?
No approval required
In a Roth IRA, contributions are made with ____-tax dollars
After
Which of the following may be purchased on margin?
* Shares of IPOs
* Mutual fund shares
* OTC stocks
* Listed corporate bonds
Listed corporate bonds (Listed corporate bonds and listed stocks may be purchased on margin. However, shares of IPOs, mutual fund shares, and OTC stocks are non-marginable securities.)
What does Regulation D concern?
Private Placement
Which type of discretionary authority allows the registered representative to place orders for an account and also make withdrawals?
Full Trading Authorization
What age do you have to be to make contributions to a Cordell ESA (Education Savings Account)?
Any
What Act regulates Banks?
Bank Secrecy Act
Which trust can be changed at any time after it’s signed?
Revocable Trust
Which type of discretionary authority allows a registered representative to place orders for an account, but not make withdrawals?
Limited Trading Authorization
An individual has made $20,000 of after-tax contributions to a retirement plan. With employer contributions, the value at retirement is $100,000. What’s the tax implication if the person withdraws the entire amount?
$20,000 is a return of capital and $80,000 is taxed as ordinary income.
Are pre-tax or after-tax earnings subject to ordinary income tax?
Both
What does a BD do when they act as a Broker? What do they charge?
Match clients’ trades up with buyers/sellers and charge a commission
What does a BD do when they act as a Dealer? What do they charge?
Trading on behalf of their firm
Charge Markups/Markdowns
Buy Limit Order: buy at present price or ____
lower
Sell Limit Order: sell at present price or _______
higher
If an investor is Short on a stock (bearish) they can place a ____ _____ order _____ the current market value
Buy Stop
Above
If an investor is Long on a stock (bullish) they can place a ____ _____ order _____ the current market value
Sell Stop
Below
An individual has made $20,000 of after-tax contributions to a retirement plan. With employer contributions, the value at retirement is $100,000. What’s the tax implication if the person withdraws the entire amount?
-The entire amount is taxed as ordinary income.
-The entire amount is taxed as a capital gain.
-$20,000 is a return of capital and $80,000 is taxed as a capital gain.
-$20,000 is a return of capital and $80,000 is taxed as ordinary income.
-$20,000 is a return of capital and $80,000 is taxed as ordinary income.
After the opening of an options account has been approved, the customer must sign and return the Options Account Agreement:
-At approval
-10 days after opening
-15 days after opening
-20 days after opening
Within 15 days of opening
What’s the primary concern in discretionary accounts?
-Trading without authorization
-churning
-receiving customer approval for a trade
-infrequent trading
Churning
What is Churning?
A BD executing many orders to generate commissions (excessive trading)
Employees of a public school would MOST LIKELY use which of the following plans as their retirement vehicle?
403(b)
Each of the following statements are TRUE of Uniform Transfers to Minors Act accounts, EXCEPT:
-There may be only one custodian and one minor per account.
-Gifts are limited to $18,000 per year.
-Investment discretion can be given to a third party.
-Margin accounts are not permitted.
Gifts are limited to $18,000 per year (can exceed 18,000, but any amount over is taxable)
Do customers settle trades?
No, firms do
Which of the following employer-sponsored retirement plans provides employees with guaranteed payouts at retirement?
Defined Benefit Plans
What is a Seller’s Option
Delayed Settlement. Negotiated settlement; not earlier than 2 business days after the trade
What is When Issued?
A transaction that is made conditionally because a security has been authorized but not yet issued.
Which of the following is a fundamental concern for clients who are considering a fee-based account?
The commissions they will be charged for each transaction
The advice they will receive
The types of securities that can be purchased in their account
The turnover of investments in the account
The turnover of investments in the account
What happens if an investor is unable to pay their BD by the Regulation T Payment Date?
Account frozen for 90 days
Regulation T payment must be obtained for purchases that are made in either cash or margin accounts within _____ days
(S+2) or (T+3)
What is a Tender Offer?
A Tender Offer indicates the intent to buy shares from the owner at a fixed price
The offer may be made by the issuer or a 3rd party
The offer is typically made to acquire a company or a controlling position and seat on the board of directors
The offer may be for all of the shares or a specific percentage
Does a stock split result in more shares or less shares for an investor? What happens to cost basis?
More shares
decreases
What is the time range for a Right?
4-6 weeks
Does a reverse stock split result in more shares or less shares for an investor? What happens to cost basis?
Less shares
increases
To avoid an IRA rollover from being taxable, it must be completed within:
10 days
20 days
40 days
60 days
60 days
What is the deposit requirement for margin accounts according to Regulation T?
50% (1/2 deposited, 1/2 borrowed from BD)
Does a Joint Tenancy in Common Account (JTCA) have to be split equally?
No
What is included in a Credit Agreement for a Margin Account?
Terms of the loan; discloses interest amount, how it’s computed, and when it’s charged
Stock in a Margin Account must be held in who’s name?
Street Name
What is a Hypothecation Agreement for a Margin Account?
Customer acknowledges that their securities can be used by BDs as collateral
An investor is long 100 shares of ABC stock that was purchased at $20/share. If the stock splits 2-for-1, which of the following statements is TRUE?
a. The investor is now long 100 shares with a cost basis of $10/share
b. The investor is now long 200 shares with a cost basis of $10/share
c. The investor is now long 50 shares with a cost basis of $40/share
B) The investor is now long 200 shares with a cost basis of $10/share
If a company announces a reverse split, what happens?
a. Its shareholders will own fewer shares with a higher cost basis per share
b. Its shareholders will own more share with a higher cost basis per share
c. Its shareholders will own the same number of shares with a higher cost basis per share
A) Its shareholders will own fewer shares with a higher cost basis per share
Does information in the Options Account Agreement have to be verified?
No
When opening an Options Account, what must a BD send to an investor?
An Options Account Agreement
For any person who’s considering whether to contribute to a 529 college savings plan, each of the following statements are TRUE, EXCEPT:
Withdrawals that are used for qualified educational purposes are not subject to federal taxation.
There are no income limits placed on contributors, but contributions may subject them to gift tax.
The beneficiary must be a relative (by blood) of the donor.
A married couple may make a lump-sum contribution of up to $180,000 without incurring federal gift tax.
The beneficiary must be a relative (by blood) of the donor.
What is a Discretionary Account?
An account where a client authorized another person to make investment decisions in their account or deposit/withdraw funds
What must a client sign in order to open a Discretionary Account?
Power of Attorney
What does Limited Trading Authorization allow for in a Discretionary Account?
Executing Trades
What is a Fee-Based Account? What is an example of one?
Advisory and custodial fees, along with transaction costs, are wrapped into one comprehensive annual fee
Wrap Account
What does a Full Trading Authorization allow for in a Discretionary Account?
Executing Trades and Withdrawing/Depositing securities/funds
What is a Not Held Order in a Discretionary Account? What must the customer specify? (3 things)
Authorization for trade execution
Three A’s (Action, Amount, Asset)
Is a Fee-Based (wrap) Account suitable for active or inactive traders?
Active traders
What is an Individual Account?
Account opened by and for one person (unless 3rd party authorization is granted)
Does an Individual Account have to be in client’s name?
No, can be a numbered or nominee account
Does the Customer Identification Program (CIP) require firms to maintain records of the beneficial owners for Individual Accounts?
Yes
What information is required by FINRA for customer’s opening Cash Accounts? 5 things
Name of customer
Address
Whether of Legal Age (18)
RR(s) of Record
Signature of Supervising Principal
How often must account forms be sent to owner’s of Cash Accounts?
Every 36 months
Any changes to a customer’s profile must be updated in ____ days
30
Whose signature is required for Joint Accounts?
All owners
Joint Tenants in Common (JTIC) has equal or unequal ownership? Where do assets go if one owner dies?
Unequal
Transferred to estate
Who can initiate trades/activity in Joint Accounts?
Any owner
Joint Tenants with Rights of Survivorship (JTWROS) has equal or unequal ownership? Where do assets go if one owner dies?
Equal
Assets stay in account
What are the 2 Accounts for Minors?
UGMA and UTMA
Who is the legal owner of a Custodial Account?
The minor
Who is the custodian for a Custodial Account?
Any adult
What is the cost-basis for a 401(k)?
Zero
Early withdrawals from Traditional and Roth accounts are subject to what penalty?
10% of taxable amount
Are their limits on gifts to Custodial Accounts? What is the tax implication?
No
Any amount gifted by an individual that exceeds $18,000 is taxable
What is the cost basis for pre-tax contributions to retirement accounts
Zero (taxable at withdrawal)
What is the cost basis for after-tax contributions to retirement accounts?
Contributions
How do earnings in retirement accounts grow from a tax standpoint?
Tax-deferred
Which of the following statements is NOT TRUE regarding discretionary accounts?
All discretionary orders must be marked “discretionary.”
A written power of attorney must be on file.
Orders must be approved verbally by the customer prior to execution.
Orders must not be excessive in terms of size or frequency.
Orders must be approved verbally by the customer prior to execution.
What is and what are the rules of Correspondence?
Written or electronic communication that a member firm distributes or makes available to 25 or fewer retail investors (prospective or existing) within any 30-calendar-day period
Upon the death of a trust beneficiary, where are the assets directed?
To the fiduciary
To the beneficiary’s estate
They remain in trust
To the state
To the beneficiary’s estate
A customer’s first transaction in a margin account is the short sale of $1,500 worth of securities. The customer’s required deposit is:
$2,000
When opening a margin account, a customer is NOT required to sign which of the following?
Loan consent agreement
Credit agreement
Hypothecation agreement
All documents must be signed.
Loan consent agreement
Which type of account allows BDs to lend money?
Margin Accounts
The husband of a customer calls to place an order in his spouse’s account. He informs the registered representative that his wife is traveling, but she gave him the authority to place the order. The registered representative should:
Accept the order from the husband
Not accept the order unless specific instructions are received from the wife
Accept and place the order, but make a note that it was placed by the husband
Not accept the order unless it’s been approved by a principal
Not accept the order unless specific instructions are received from the wife
Which of the following statements is TRUE regarding contributions to a 401(k) plan?
Contributions are in after-tax dollars.
Employee participants should be aware of the risk of investing too much in their employer’s stock.
The employer determines the investments into which the contributions are allocated.
Distributions of an unlimited amount can be made by employees.
Employee participants should be aware of the risk of investing too much in their employer’s stock.
An individual has expressed interest in having a broker-dealer maintain his account, but wants his name removed from the account. Is this permissible?
Under no circumstances.
Yes, without approval.
Yes, with prior approval it may be kept as a numbered account.
Only with FINRA approval.
Yes, with prior approval it may be kept as a numbered account.
All of the following statements are TRUE of ERISA guidelines, EXCEPT:
They apply to both private and government retirement plans.
They were enacted to protect hourly workers and to ensure that they’re treated fairly.
All qualified plans must follow these guidelines to maintain favorable tax treatment.
They establish guidelines for when an employee is entitled to receive retirement benefits.
They apply to both private and government retirement plans. (only private)
Premature withdrawals of earnings from an IRA that qualify for an exception are subject to:
Neither a 10% tax penalty on the amount withdrawn nor ordinary income taxes on that same amount
Ordinary income taxes on the amount withdrawn, but not a 10% tax penalty on that same amount
A 10% tax penalty on the amount withdrawn, but not ordinary income taxes on that same amount
A 10% tax penalty plus ordinary income taxes on the amount withdrawn
Ordinary income taxes on the amount withdrawn, but not a 10% tax penalty on that same amount
If an individual purchases 100 shares of stock that are priced at $80 per share in a margin account, he’s required to deposit:
$2,000
$4,000
$8,000
No deposit is required
$4,000
A husband and wife have a joint account with right of survivorship. If one of the parties places an order, the RR:
Should contact the other party prior to placing the order
May accept the order only if the other party has granted trading authorization
May accept the order
Must have the order approved by a principal prior to execution
May accept the order
A mother opens a UTMA account for her child. She asks her brother to be the custodian for the account and he agrees. Who’s the owner of the account?
The mother
The brother
The child
The mother, brother, and child
The Child
What does the Telephone Consumer Protection Act (TCPA) prohibit?
Cold calling outside 8:00am-9:00pm ET based on residency
What are the three FINRA Suitability Rules?
Reasonable Basis
Customer-Specific
The Quantitative Obligation
Firms may not disclose client information unless they receive _______ permission from the owner of the account
Written
How often must clients be provided a “privacy notice” according to Regulation SP?
When account is opened
Annually thereafter
What are the 3 stages of money laundering?
Placement
Layering
Integration
What is Regulation SP?
Regulation Safety and Privacy. Created rules for protecting the privacy and safety of a clients’ confidential information
Under the ______ _______ ______ (___), certain reports are sent to the _____ ______ _______ ______ (____), which is a bureau of the US Department of Treasury
Bank Secrecy Act (BSA)
Federal Crimes Enforcement Network (FinCEN)
What do BSA, BCTR, and CTR all refer to?
Bank Secrecy Act
What must be filed and reported according to the Bank Secrecy Act Currency Transaction Report (BCTR/CTR)
Transactions executed by a single person that exceed $10,000 in a single day
When is a Suspicious Activity Report (SAR) filed?
When a transaction exceeds $5,000 and the firm is suspicious
How many days does a firm have to file a BCTR/CTR?
15 calendar days
How long does a firm have to file a Suspicious Activity Report (SAR)?
30 calendar days
What are the potential consequences of money laundering?
20 years in prison
Greater of $500,000 fine per person involved or 2x the value laundered
How long do Blotters, legers, new account forms, account statement, and powers of attorney, municipal complaints be maintained by firms? One is different from the others. Which is it and how long must records be maintained?
6 years
Municipal complaints ; 4 years
What is Form U5
Filed when a RR leaves a firm
These records must be maintained by a firm for its entire lifetime
Corporate and Partnership documents
Order tickets, confirmations, Forms U4 and U5, employee records, all forms of communication, and trial balances must be maintained by firms for how many years?
3 years
What is the prohibited trading practice of Churning?
Excessive trading in a client’s account for the purpose of generating additional fees and commissions
What is the prohibited trading practice of market rumors?
Spreading false or misleading information to influence the price of stocks and/or bonds
What is the prohibited trading practice of Front-Running?
RRs executing trades for proprietary accounts (or those for which they have discretion) ahead of a customer’s block order (large, market, moving order)
What is the prohibited trading practice of Interpositioning? What is the exception?
Refers to the insertion of a 3rd party between a customer and the best market price (exception if it is advantageous to client)
What is the prohibited trading practice of Insider Trading?
Involves the purchase or sale of securities using material, non-public information about an issuer to make a profit or loss
What is the prohibited trading practice of Trading Ahead of Customer Orders?
Occurs when, after accepting and while holding a customer order, a dealer executes an order for the same security on the same side of the market for its own account (customer order must be placed first)
What is a Tipper? Tippee? Which is subject to persecution?
Tipper relays insider information
Tippee receives insider information and tells other people to buy the security
Both
What are the Civil Penalties of Insider Trading?
The SEC may demand disgorgement of profits and the payment of treble damages (3x the damage)
Which of the following is NOT a violation of the New Issue Rule
A BD that’s a part of the underwriting syndicate buys shares of an IPO before it makes a bona fide public offering
A BD that’s NOT a part of the underwriting syndicate buys shares of an IPO before it makes a bona fide public offering
A member firm employee buys shares of an IPO for an immediate family member
A portfolio manager buys shares of an IPO for the fund that she manages
A portfolio manager buys shares of an IPO for the fund that she manages
What are Bounties?
SEC will provide a whistleblower with a bounty aware between 10% and 30% of sanctions collected
What are the Criminal Penalties of Insider Trading?
An individual may be subject to a maximum fine of $5 million and/or up to 20 years in prison
What is the purpose of the New Issue Rule?
FINRA prohibits member firms from selling equity IPOs to any account in which restricted persons have beneficial interest
Can a BD purchase a New Issue after making a bona fide public offering?
Yes
Who are Restricted Persons?
Member firms and any member firm employee and their immediate family members
How often must verification of account be re-verified according to the New Issue Rule?
Every 12 months
Can account that includes restricted persons with less than 10% of combined ownership purchase a New Issue?
Yes (can’t exceed 10%)
A customer’s first transaction in a margin account is a purchase of $1,500 worth of securities. The customer’s required deposit is:
$750
$1500
$2,000
$4,000
$1500 (first transaction must be 100% matched by deposit)
A broker-dealer has become apprehensive about $9,900 deposits that a client makes each on Monday and Tuesday. Which of the following reports is it appropriate for the broker-dealer to file?
A Currency and Monetary Instrument Report (CMIR)
A Suspicious Activity Report (SAR)
A Bank Currency Transaction Report (BCTR)
A Bank Secrecy Crime Report
A Suspicious Activity Report (SAR) [below $10,000, otherwise it is BCTR]
Which of the following statements is NOT TRUE regarding profit-sharing plans?
Contributions are allocated based on a pre-determined formula.
The board of directors determines the amount of contributions.
Contributions are required to be made each year.
Contributions are in pre-tax dollars.
Contributions are required to be made each year
If a financial institution receives more than $10,000 in cash from one customer during one business day, what action is required?
Issue a cash transfer receipt to the customer
Place a five-day hold on the customer’s account for the funds received
File a Currency Transaction Report (CTR)
File a Suspicious Activity Report (SAR) with the SEC
File a Currency Transaction Report (CTR)
What is Selling Away?
Offering or obtaining financial products for a client that are not approved by a brokerage
What is the financial limit of the Gift Rule?
$100 per person, per year
What does Rule G-37 concern?
Political contributions made by Municipal Finance Professionals (MFPs) are limited to $250 per candidate, per election cycle. MFP must be able to vote for the candidate to make a donation
Which of the following is part of a financial institution’s AML program?
Maintaining a record of all transactions
Maintaining a record of checks in excess of $3,000
Maintaining a record of cash deposits and withdrawals that are not in excess of $3,000
Maintaining a record of wire transfers in excess of $3,000
Maintaining a record of wire transfers in excess of $3,000 (A financial institution’s AML program must contain policies, procedures, and internal controls that are designed to comply with the Bank Secrecy Act (BSA). One of the requirements is that broker-dealers must retain records for transmittals (e.g., wires) and transfers of funds in excess of $3,000. If the person making the request is not a customer, the broker-dealer must also verify the person’s identity.)
Upon written request, how long can a broker-dealer hold the mail of a client who’s engaged in extensive travel?
One month
Two months
Three months
Six months
Three months
Which of the following statements regarding telephone solicitations is TRUE?
RRs cannot make telephone solicitations between 9:00 a.m. and 8:00 p.m. local time.
If an RR calls a potential client and the prospect asks to be placed on the do-not-call list, his number must remain on the list for two years.
Time-of-day restrictions on telephone calls by RRs do not apply to calls to an existing customer for the purposes of servicing the account.
Each RR must set up and maintain a separate do-not-call list.
Time-of-day restrictions on telephone calls by RRs do not apply to calls to an existing customer for the purposes of servicing the account.
What does the Federal Open Market Committee (FOMC) do?
Buys and sells U.S. Treasuries through “primary government dealers”
What is the only rate that is controlled by the Fed?
Discount Rate
What is the purpose of Regulation T?
Regulate how firms and BDs extent credit to investors
What securities does Systematic Risk affect? Can it be avoided through diversification?
All securities
No
What securities does Unsystematic Risk affect? Can it be avoided through diversification?
Specific securities
Yes
What is the Discount Rate?
Rate that the FRB charges when a member bank borrows from it
What is the Prime Rate?
Rate that commercial banks charge their best corporate customers
What is the Call Money Rate?
The rate charged by commercial banks on collateralized loans to BDs
What is the Fed Funds Rate?
Rate that banks charge each other for loans, usually overnight
What is the Reserve Requirement?
Amount of money that a bank must maintain based on a percentage of deposits
What is Keynesian Theory? Who is it set by?
Fiscal Policy (taxes and expenditures)
Set by President and Congress
What is Monetarist Theory? Who sets it?
Money Supply
Federal Reserve Board
Cyclical Stocks (give one example)
Stocks whose performance tends to run parallel to changes in the economy
Transportation/Automotive
Defensive Stocks (give one example)
These stocks have smaller reactions to changes in the economy
Utility
Value Stocks
Stocks that trade at lower prices relative to the issuing company’s fundamentals
Growth Stocks
Stocks of companies whose sales and earnings are growing at a faster rate than the economy
What is Deflation? What happens to interest rates?
A general decline in prices, often caused by a reduction in the supply of money or credit
Fall
What is a Leading Economic Indicator?
Changes that will impact the economy in the future (Building permits, private housing)
Lagging Economic Indicator
Lagging indicators change after the economy as a whole. (e.g., average prime rate charged by banks, average duration unemployment)
Coincident Economic Indicator
Coincident indicators change with the economy as a whole (Index of Industrial Production)
What is the Consumer Price Index (CPI)? What does it measure?
Measures the change in prices of goods and services purchased by a typical consumer
Inflation
What is Gross Domestic Product (GDP)?
Measurement of the output of goods and services produced within the U.S. (disregards origin of producer)
What is a Customer Complaint? How long are they retained?
A grievance that’s delivered in any written form
4 years
Which of the following is a violation of the Gift Rule
a. A BD gives an employee another member firm a gift basket with a value of $75
b. A BD gives an employee of another member firm two tickets to a Broadway show that are valued at $125 per ticket
c. A BD takes an employee of another member firm to a business luncheon
A BD gives an employee of another member firm two tickets to a Broadway show that are valued at $125 per ticke
Which of the following is NOT a violation of the MSRB’s Political Contribution Rule?
a. An MFP contributes $250 to a political candidate for whom he may vote
b. An MFP contributes $300 to a political candidate for whom he may note vote
c. An MFL contributes $100 to a political candidate for whom he may not vote
An MFP contributes $250 to a political candidate for whom he may vote
What are Private Securities Transactions? What must a RR provide their firm, regardless of whether they were compensated?
Securities transactions that are executed by an associated person outside of her association with a member firm, including both public and private offerings
Written Notice
What are Outside Business Activities (OBAs)? What do they require?
A registered person serving on a company’s board of directors, writing articles for a financial publication on a part-time basis, or bartending on the weekends
Require written notice
What is BrokerCheck?
This system allows investors to check the background and disciplinary history of their existing or prospective firm or RR
What method is used to solve conflict in member firms?
Arbitration
Which SRO deals with Blue Sky Laws?
North American Securities Administrators Administration (NASAA)
What is Statutory Disqualification? What causes this status?
Banned from being a RR
Conviction of any felony in the last 10 years or securities-related misdemeanor
What are Financial Exploitation Rules meant to do? Who do they protect?
Protect individuals likely to be exploited
Persons 65 and older
Persons 18 or older with mental/physical impairments that impact their judgement
What Act established the Customer Identification Program (CIP)?
USA PATRIOT Act
What is a Selling Group?
BDs that accept no liability and assist in selling issues only. They are agents
Buy 1 XYZ February 75 call at 2
Long
What is the breakeven price?
$77 (call up)
Sell 1 ABC March 50 put at 1.25
Short
$48.75 (put down)
When is the deadline for Equity Options?
3rd Friday of every month
Sell 1 MNO September 40 call at 4
Short
What is the breakeven price?
$44 (call up)
When must a buyer submit exercise notice to their BD?
No later than 5:30pm ET
Buy 1 DEF June 35 put at 3.5
Long
What is the breakpoint price?
$31.5 (put down)
When do options stop trading?
4pm ET
How to calculate a premium?
Intrinsic Value + Time Value
What time do options contracts expire?
11:59pm ET
How to calculate breakeven price (point) for a call?
Strike price + Premium
How to calculate breakeven price (point) for a put?
Strike Price - Premium
What is the buyer’s right for a call?
To purchase the stock
What is the seller’s obligation for a call?
To sell stock
What is the buyer’s right for a put?
To sell the stock
What is the seller’s obligation for a put?
To buy stock
True or False: REITs trade on the secondary market
True
List 2 benefits of a Limited Liability Partnership
Flow-through of income (no double taxation) and expenses
Limited Liability
What interest must a General Partner have?
At least 1%
What liability does a General Partner have?
Unlimited
What are Hedge Funds? Are they registered?
Pools of wealthy investors
No
What are Exchange-Traded Notes (ETNs)? What are they issued as?
Structured products (dependent on performance of market index/benchmark) and are issued as unsecured debt.
Are ETNs traded on an exchange? Can they be traded on margin, sold short?
Yes
Yes
Do Exchange-Traded Funds (ETFs) trade on the secondary market? Can they be leveraged?
Yes
Yes
True or False: Commission is paid on trade for ETFs
True
True or False: an index fund can be sold short
False
True or False: Index funds are Forward Priced
True
True or False: a mutual fund is a type of close-end management company
False
How often is a mutual fund’s NAV calculated?
Daily
Who are Qualified Annuities offered to? Are contributions pre or after tax?
Tax-exempt organizations or public schools
Pre-tax
What is a Straight Life Annuity?
Annuitant receives payments for life, but if they die, payments stop
What is a Life Annuity with Period Certain?
Payments are made to annuitant for life or to beneficiary (in case of annuitant’s death) for specified minimum number of years
What is a Joint and Last Survivor Annuity?
Payments are made for life so long as one annuitant is living
True or False: Close-End means Mutual Fund
False
Publicly traded
What is a Unit Refund Life Annuity? What happens at death of annuitant?
Annuitant receives an amount at least equal to his original investment
Any remaining amount is paid to a beneficiary
True or False: Open-End means Mutual Fund
True
True or False: Close-End can trade at a premium or discount to NAV with commission or mark-up added
True
What are Open-Ends sold at?
NAV + Sales Charge (if any)
Class A shares have what kind of Sales Charges?
Front End Load
Class B shares have what kind of Sales Charge?
Contingent deferred sales charge (CDSC) aka Back Load
Class C shares have what kind of Sales Charge? What other sales charge can be assessed if redeemed early?
Level Load (ongoing fee of 1%)
Back End Load
True or False: Class A shares have higher 12b-1 fees than Class B shares
False
Class A have low or no 12b-1 charges
Class B does
True or False: Class B shares can be converted to Class A shares
True (but after 6-8 years)
Which of the following are considered money-market instruments
I. Treasury Bills
II. Treasury Notes
III. Commercial Paper
IV. American Depositary Receipts (ADRs)
V. Bankers’ Acceptance
I (Treasury Bills), III (Commercial Paper), V (Bankers’ Acceptance)
What is Commercial Paper? What is their maximum maturity date after issue?
Money Market instruments that are unsecured corporate debt
270 Days
What is a Repurchase Agreement (REPOs)
Money Market instrument where a dealer selling securities to another dealer with the agreement to repurchase
Which TWO of the following statements are TRUE?
I. Bonds priced at a discount pay a higher coupon rate than the current market interest rate
II. Bonds priced at a premium pay a higher coupon rate than the current market interest rate
III. Bonds priced at a discount pay a lower coupon rate than the current market interest rate
IV. Bonds priced at a premium pay a lower coupon rate than the current market interest rate
II, III
Which TWO of the following statements are TRUE?
I. A call provision protects a bond issuer when interest rates fall
II. A put provision protects bondholders when interest rates rise
III. A call provision protects bondholders when interest rates rise
IV. A put provision protects bondholders when interest rate fall
I, II
What is the lowest investment grade bond rating?
BBB (Baa)
At what rating do junk (speculative) bonds start?
B (Ba)
True or False: The Investment Company Act of 1940 created the definition of an Investment Advisor
False
Investment Advisor Act of 1940
An older investor has an brokerage account with a firm and her registered representative (RR) is concerned that a person is exploiting her financially. What step should be taken by the RR?
Obtain information on the fiduciary of the account.
Obtain information on a trusted contact person.
Refuse any incoming orders from the investor.
Take no action since exploitation is unlikely.
Obtain information on a trusted contact person.
True or False: Equity securities represent the issuer’s promise to pay
False
FINRA’s requirement for maintaining a written business continuity plan includes all of the following, EXCEPT:
The plan must be filed with FINRA.
The plan must cover regulatory reporting in an emergency.
A description of the plan must be available to customers.
The plan must cover backing up and restoring data in an emergency.
Plan must be filed with FINRA
A registered representative is permitted to contact a person whose name is on the national Do Not Call List:
Under no circumstances
If the person has provided prior written consent to be contacted
If the person has a brokerage account with another broker-dealer
If the person is an accredited investor
If the person has provided prior written consent to be contacted
According to SEC rules, which of the following records is NOT required to be maintained for each customer?
The customer’s telephone number
The customer’s educational background
The customer’s annual income and net worth
The customer’s date of birth
The customer’s telephone number
When implementing its anti-money laundering (AML) rules, a broker-dealer is required to:
Conduct a background check of all employees
Identify the employees who are responsible for Suspicious Activity Reports (SARs)
Designate an AML compliance officer
File the firm’s AML program with FINRA
Designate an AML compliance officer
When opening a new customer account, who’s required to sign the new account form?
The customer only
The registered representative only
The principal only
The customer, the registered representative, and the principal
The principal only
At least how often must a customer receive an account statement?
Quarterly, at a minimum
Which FINRA suitability obligation requires a broker-dealer that has control over a customer account to have a reasonable basis to believe that a series of recommended securities transactions are not excessive?
Quantitative suitability obligation
Firm-specific suitability obligation
Customer-specific suitability obligation
Reasonable-basis suitability obligation
Quantitative suitability obligation
According to FINRA rules, which of the following customer information is NOT required when opening an account?
Occupation, as well as the name and address of the customer’s employer
The customer’s name and address
Whether the customer is of legal age
The name of the registered representative who’s responsible for the account
Occupation, as well as the name and address of the customer’s employer
Under Regulation S-P, when is a firm required to provide a privacy notice to a consumer?
If the consumer is part of a call list or other record that’s maintained by the firm
If the firm intends to disclose information about the consumer
At the time the account is opened
Annually
If the firm intends to disclose information about the consumer
A customer has just moved and notified her firm of her new address. The firm must send a copy of the revised information to the customer within what period?
Immediately
Within 15 days
Within 30 days
There’s no need to send this to the client since the client provided the information.
Within 30 days
For how long must a broker-dealer maintain customer account records after an account is closed?
Two years
Three years
Six years
The life of the firm
Six years
As defined by FINRA, the term “correspondence” includes any written or electronic communication that’s distributed or made available to:
25 or fewer retail investors within any 30-calendar-day period
Institutional investors
Registered broker-dealers and registered representatives
An unlimited number of prospective retail customers
25 or fewer retail investors within any 30-calendar-day period
When making suitability decisions for a customer, each of the following elements apply, EXCEPT:
The client’s risk tolerance
The client’s investment experience
The client’s investment objective
The investments that generate the largest commissions
The investments that generate the largest commissions
Which of the following is NOT a factor in determining whether an investment is suitable for a customer?
The financial situation and needs of the customer
Whether the investment will be profitable
The investment time horizon
The customer’s risk tolerance
Whether the investment will be profitable
Each of the following statements are TRUE of customer confirmations, EXCEPT:
Confirmations must be sent by no later than the completion of a transaction.
Confirmations are not sent to customers who have discretionary accounts.
Confirmations identify the capacity in which the broker-dealer acted.
Confirmations include any commissions, markups or markdowns in the transaction.
Confirmations are not sent to customers who have discretionary accounts.
According to Regulation BI, which of the following is considered a retail customer?
A natural person
Which of the following must be approved by a principal?
Correspondence
Retail communications
Correspondence and retail communications
Institutional communications
Retail communications
Communication that’s sent to 15 retail customers and 15 institutions is considered:
Correspondence
Correspondence and institutional communication
A retail and institutional communication
Institutional communication
Correspondence (If communication is sent to other than institutional customers, the nature of the communication is based on the number of retail customers to which it’s sent. In this case, sending the communication to 15 retail customers makes it correspondence.)
Each of the following statements are TRUE of the Client Relationship Summary (Form CRS), EXCEPT:
New retail customers must receive a copy of Form CRS by no later than when they open a new account.
Form CRS describes the relationship between the financial professional and the customer.
Form CRS is required for both brokerage and investment advisory firms.
The length of Form CRS is based on the services that are offered by the firm.
The length of Form CRS is based on the services that are offered by the firm (length is the same for all CRS)
Which of the three FINRA suitability obligations apply to institutional customers?
The reasonable basis obligation only
The reasonable basis and customer-specific obligations
The reasonable basis and quantitative obligations only
The reasonable basis, customer-specific, and quantitative obligations
The reasonable basis and quantitative obligations only (The reasonable basis and quantitative obligations apply to institutional customers. Assuming the institutional customers can exercise independent judgment when evaluating recommendations, they’re exempt from the customer-specific obligation.)
What customer information is protected under SEC Regulation S-P?
Non-public personal information
Public personal information
All public and non-public personal information
Only customer information that can be found online
Non-Public personal information
If an e-mail describes a new product and is sent to 20 existing retail customers as well as 10 prospective customers, it’s considered:
Correspondence
Retail communication
Both correspondence and retail communication
Neither correspondence nor retail communication
Retail communication (prospectus counts as retail if total is above 25)
If requested, a broker-dealer must place a individual on its Do Not Call List:
Immediately
Within five days of the request
Within 15 days of the request
Within 30 days of the request
Within 30 days of the request
If a broker-dealer is acting as a trustee for a corporation, is it able to use shareholder information to prospect for customers?
If approved by FINRA
If approved by the SEC
If approved by the corporation
Without any approval
If approved by the corporation
If a broker-dealer sends a brochure that describes its services to 100 banks and insurance companies, the brochure is considered:
Institutional communication
An individual is considered to have an established business relationship if a transaction occurred no longer ago than:
Within the last six months
Within the last 12 months
Within the last 18 months
Within the last 24 months
Within the last 18 months
The Specially Designated Nationals and Blocked Persons List is:
Maintained by the Federal Reserve Board
A list of persons with whom brokerage firms can only engage in limited business
A list of persons with whom brokerage firms cannot engage in any type of business
A list of persons who are exempt from the Customer Identification Program
A list of persons with whom brokerage firms cannot engage in any type of business
According to the Customer Identification Program (CIP), when must a broker-dealer verify the identity of a customer?
Before an account is opened
Within five business days of an account being opened
Within 30 days of an account being opened
Within a reasonable period before or after an account is opened
Within a reasonable period before or after an account is opened
What’s the maximum penalty for a registered representative who’s found guilty of being involved in money laundering?
A prison term of 20 years and a fine of $100,000 per transaction or twice the amount of funds involved, whichever is greater
A prison term of 20 years and a fine of $250,000 per transaction or twice the amount of funds involved, whichever is greater
A prison term of 20 years and a fine of $500,000 per transaction or twice the amount of funds involved, whichever is greater
A prison term of 20 years and a fine of $1 million per transaction or twice the amount of funds involved, whichever is greater
A prison term of 20 years and a fine of $500,000 per transaction or twice the amount of funds involved, whichever is greater
How frequently must a broker-dealer compute the fully paid and excess margin securities in its possession?
Daily
Weekly
Bi-weekly
Monthly
Daily
What are the requirements if a registered representative intends to contribute to and share in the profits in an account with an unrelated client?
The representative must share in profits that are in proportion to his contributions, but the contributions are not required to be equal.
Representatives cannot contribute to or share in the profits in an account with an unrelated client.
The representative must share profits in proportion to his contributions and the contributions must be equal.
The representative must take profits that exceed his contributions and the contributions are not required to be equal.
The representative must share in profits that are in proportion to his contributions, but the contributions are not required to be equal.
Which of the following BEST describes insider trading?
Sharing material, non-public information with a client.
Trading on the basis of material, non-public information.
Trading on the basis of material, public information.
Trading on any information that has not been publicly disseminated.
Trading on the basis of material, non-public information.
A broker-dealer is quoting a security and, rather than filing a customer’s order, it decides to change its quote. The broker-dealer is:
Permitted to change the quote
Guilty of backing away
Engaging in competitive pricing
Guilty of marking-the-close
Guilty of backing away
A broker-dealer is preparing to issue a research report with several strong buy recommendations. If a trading desk begins to purchase shares in some of these companies prior to releasing the report to the public, the firm is:
Permitted to do so in order to build inventory for customer purchases
Permitted to do so to prevent the stock from moving to significantly higher prices
Not permitted if information barriers are in place
Not permitted
Not permitted (trading ahead)
What is Regulation M?
Focusses on the new issue market and the activities of underwriters during the underwriting period.
A trader at a brokerage firm has gradually increased her firm’s quote for a security at the end of the trading day. This is referred to as:
Pattern day trading
Marking-the-close
Matched trades
Churning
Marketing-the-close
What is Marketing-the-Close? Is it allowed?
When a trader is gradually increasing the firm’s quote for a security within minutes of the close to influence the security’s market price and is considered a violation.
A 70-year-old registered representative has recently retired and wants to continue receiving commissions on his accounts to supplement his retirement. Which of the following statements is TRUE regarding continuing commission payments?
They’re permitted only if the individual remains registered.
They’re permitted based on business generated in existing as well as new accounts.
They’re permitted, but limited to business from the existing accounts.
Continuing commissions are never permitted.
They’re permitted, but limited to business from the existing accounts.
A group of investors who spread positive rumors about a stock with the ultimate goal of selling the stock at an elevated price is involved in a:
Front-running scheme
Free-riding scheme
Churning scheme
Pump-and-dump scheme
Pump-and-dump scheme
A 90-day restriction is imposed under the Federal Reserve Board’s Regulation T requirement for which of the following client transactions?
The buying and selling of the same stock in different accounts in the same household
The opening and closing of a position in the same stock in a cash account without paying for the stock in full
The buying and selling of the same stock on the same day in a margin account
The opening and closing of a position in the same stock in different accounts on the same day
The opening and closing of a position in the same stock in a cash account without paying for the stock in full (freeriding)
What is the maximum price a stabilizing bid can be placed at by the managing underwriter?
IPO Price
An individual has been hired as an assistant at a brokerage firm. Prior to being hired, the individual had opened an account with another firm. What must the individual do regarding this account?
Nothing since it was opened prior to her hiring.
The account must be closed.
The account must be transferred to her new employer.
She must obtain her employing firm’s written permission to maintain the account.
She must obtain her employing firm’s written permission to maintain the account.
A new stock issue for XYZ Corporation is in its initial offering period and is selling very slowly. Due to fears that the price may fall below the initial offering price, what option is available to the managing underwriter?
Place a stabilizing bid above the public offering price.
Place a stabilizing bid at the public offering price.
Place a stabilizing bid when the issue is at a value of 50% or less than its initial offering price.
Placing a stabilizing bid is not allowed.
Place a stabilizing bid at the public offering price.
Which of the following statements is acceptable?
“The SEC has approved of the broker-dealer.”
“The SEC has approved of the registered representatives of the broker-dealer.”
“The SEC has registered the firm as a broker-dealer.”
“The SEC has approved of the activities of the broker-dealer.”
“The SEC has registered the firm as a broker-dealer.”
To increase her monthly commissions, a registered representative has created a list of suitable investments for some of her clients and has recommended that they make unnecessary changes to their accounts with a series of trades. This activity is considered:
Freeriding
Churning
Front-running
Insider trading
Churning
An institutional client of a registered representative (RR) has entered a large order, but it’s still pending. Prior to the order being executed, the RR executes an order for the same stock in her personal account. The RR has violated a rule that prohibits:
Front-running
Free-riding
Trading ahead of a research report
Insider trading
Front-Running
Which of the following BEST describes interpositioning?
When an agent buys and sells a security with the intent of driving up its price
When a professional acts as agent to both parties in a transaction
When a third-party is inserted between a broker-dealer and the best available market price
When an agent sells securities outside of his firm
When a third-party is inserted between a broker-dealer and the best available market price
Which of the following statements is TRUE regarding the SEC’s anti-manipulation rules?
The rules do not apply to U.S. government securities.
The rules do not apply to broker-dealers.
The rules do not apply to municipal securities.
The rules apply to all securities and broker-dealers.
The rules apply to all securities and broker-dealers.
A CPA has indicated his willingness to instruct some of his clients to open accounts with a registered representative of a broker-dealer in return for a portion of the commissions generated in these accounts. The registered representative:
Cannot share any commissions with the CPA
Is permitted to share commissions if a bona fide contract is in place
Is permitted to share commissions in proportion to the business generated in the accounts
Cannot share commissions, but can agree to a fee for the referrals
Cannot share any commissions with the CPA
The account of a specified adult has been placed on a temporary hold due to a concern of financial exploitation. For how long will the hold generally remain in effect?
Two business days
15 business days
90 business days
Indefinitely
15 business days
Which of the following actions is an acceptable practice?
Several market makers coordinating their pricing on specific stocks
Requesting that another market maker increase its quote
Engaging in trading with other market makers
Refusing to do business with a market maker that has reduced its quote
Engaging in trading with other market makers (all other choices violate Anti Intimidation/Coordination)
A registered representative of a broker-dealer is seeking to expand her business by adding clients who reside outside of the state in which she conducts her business. What must her firm do in order to take on clients who reside outside of the state?
Nothing as long as she’s properly registered in the state in which she currently operates.
Require her to take the appropriate state law exam in each state in which she intends to have clients.
Submit her registration in each state in which she intends to have clients.
Implement heightened supervision due to her additional business.
Submit her registration in each state in which she intends to have clients.
When executing customer orders, best execution rules require the broker-dealer to:
Obtain the lowest price available in the market at the time
Use reasonable diligence to obtain the best price possible
Obtain a price that balances the customer’s interests with the firm’s need to make a profit
Always use an automated execution system
Use reasonable diligence to obtain the best price possible
If a broker-dealer is considering hiring an individual who was previous registered with another broker-dealer, the firm:
Is not required to have the individual complete Form U4
Is not required to conduct a background check on the individual
Must review the person’s Form U5
Can hire the person without additional requirements
Must review the person’s Form U5
When considering hiring an individual as an associated person, a broker-dealer must conduct a background check:
Under no circumstances
Only if the individual is seeking registration as a registered representative
Only if the individual is seeking registration as a principal
On any individual regardless of whether she’s seeking registration as a registered representative or as a principal
On any individual regardless of whether she’s seeking registration as a registered representative or as a principal
Any person who supervises employees or manages a member firm’s investment activities must be a:
Registered representative
Registered principal
Registered associated person
Registered broker
Registered principal
Which of the following statements is NOT TRUE about a registered representative who has entered military service?
The individual is not required to satisfy continuing education requirements.
The individual must retake the registration exam after two years in the service.
The individual may continue receiving compensation based on existing client transactions.
The individual may not contact customers.
The individual must retake the registration exam after two years in the service.
An individual who’s new to the securities industry wants to qualify as a supervisor of a broker-dealer. To do so, she must successfully complete:
The SIE Exam only
The SIE Exam and a registered representative exam only
The SIE Exam, a registered representative exam, and a principal exam
Be identified as a principal by a broker-dealer
The SIE Exam, a registered representative exam, and a principal exam
When applying for a registered position at a broker-dealer, a person who was convicted of a felony and later pardoned:
Need not disclose that on Form U4
Only needs to disclose the felony if it involved securities
Only needs to disclose the felony on Form U4 if it occurred in the last 10 years
Must disclose it on Form U4
Must disclose it on Form U4
How often is Continued Education for RRs?
Annual
Which of the following is LEAST likely to result in statutory disqualification?
A person committed felony fraud within the last 10 years.
A person willfully violated an MSRB rule.
A person is under current SEC suspension.
FINRA is reviewing a case against a person.
FINRA is reviewing a case against a person.
After passing the SIE Exam, the first step in becoming a registered representative is to:
Complete U4
A registered representative left her office just before a client called to place an order. If the representative’s non-registered assistant takes the call, what is the assistant able to do with the customer’s order?
Take the order and submit it for execution since it’s unsolicited.
Take the order, submit it, and share in the commissions.
Record the details of the order and provide them to the registered representative when she returns.
Do nothing until the representative returns.
Do nothing until the representative returns.
Training which is based on a needs analysis that’s conducted by a broker-dealer and given to all registered representatives is referred to as:
Firm Element
Regulatory Element
Statutory training
SEC training
Firm Element
If a person fails a registered representative exam for a third time, he must wait how long before retaking the exam?
30 days
60 days
90 days
180 days
180 days
A non-registered assistant to a registered representative has been helping generate leads by calling potential customers and discussing the basic characteristics of some the investment products offered by the firm. Is this acceptable?
Yes, as long as no sales occur.
Yes, as long as the discussion focuses on the general characteristics of the products.
Yes, as long as the assistant discloses that he’s not registered.
No, not under any circumstances.
No, not under any circumstances.
After passing the SIE Exam, an individual is:
An associated person of a broker-dealer
Now able to contact potential customers and discuss the firm’s products and services
Able to begin receiving commissions
Able to become an associated person of a broker-dealer after passing a registered representative (qualification) examination
Able to become an associated person of a broker-dealer after passing a registered representative (qualification) examination
Which of the following individuals is NOT required to be fingerprinted?
QID: 5001439Mark For Review
A non-registered employee who maintains the records of a firm
A non-registered person who processes orders for a firm that sells only mutual fund shares
A back office employee who’s responsible for depositing customer funds and/or securities
The supervisor of the employees who are responsible for maintaining the records of a firm
A non-registered person who processes orders for a firm that sells only mutual fund shares
After taking a qualification exam, an individual may share the contents with:
Another individual who’s planning to take the exam
Another registered representative
A principal of his firm
No other person
No other person
A member firm wants to hire a person who’s subject to statutory disqualification. Which of the following statements is NOT TRUE?
The person cannot be hired in any registered capacity for 10 years.
The firm can file an appeal for permission to hire the person.
If hired, the person is subject to heightened supervision.
Any appeal to hire the person is filed with FINRA.
The person cannot be hired in any registered capacity for 10 years.
After four years in the industry, a person’s registration became inactive. This person may re-register with a member firm without having to requalify if he does so within:
One year of becoming inactive
Two years of becoming inactive
Three years of becoming inactive
Five years of becoming inactive
Two years of becoming inactive
After four years in the industry, a person’s registration has become inactive. If the person is enrolled in the Maintaining Qualifications Program (MQP), she may be re-registered with a member firm without having to requalify if she does so within:
One year of becoming inactive
Two years of becoming inactive
Three years of becoming inactive
Five years of becoming inactive
Five years of becoming inactive (A person whose registration has been inactive may re-register with another member firm without having to requalify be exam if he does so within two years of becoming inactive. However, if a person enrolls in the Maintaining Qualifications Program (MQP), he may re-register without examination within five years)
When applying for a registered position at a broker-dealer, a person who was convicted of a felony and later pardoned:
Need not disclose that on Form U4
Only needs to disclose the felony if it involved securities
Only needs to disclose the felony on Form U4 if it occurred in the last 10 years
Must disclose it on Form U4
Must disclose it on Form U4
Which of the following is considered a limited registered representative?
A securities trader
An Investment Banking Representative
An Investment Company and Variable Contracts/Products Representative
A General Securities Registered Representative
An Investment Company and Variable Contracts/Products Representative
To apply for securities registration, a previously unregistered individual must complete:
U4
Which of the following must be notified prior to an RR engaging in an outside business activity?
The SEC only
Both the SEC and FINRA
FINRA only
The firm that employs the RR
The firm that employs the RR
How frequently is a member firm required to notify its customers regarding the process of accessing BrokerCheck®?
Only at the time of the account being opened
Semiannually
Annually
Each time an account statement is sent
Annually
FINRA’s website address must be provided to each customer:
Quarterly
Initially upon opening the account and quarterly thereafter
Annually
With each confirmation
Annually
A registered representative (RR) owns real estate from which she receives rental income. If the income received by the RR is classified as passive income:
It’s not considered an outside business activity, but the RR is required to update her Form U4
It’s considered an outside business activity, but the RR is not required to update her Form U4
It’s not considered an outside business activity, and the RR is not required to update her Form U4
It’s considered an outside business activity and the RR is required to update her Form U4
It’s not considered an outside business activity, and the RR is not required to update her Form U4 (not required for passive income)
A broker-dealer intends to hire a salesperson who has never worked for a member firm. During the interview, the candidate discloses that he was arrested and charged with a misdemeanor for forgery. Which of the following statements is TRUE?
This is not required to be disclosed on the person’s Form U4.
This must be disclosed on the person’s Form U4.
This only needs to be disclosed on the person’s Form U4 if he’s convicted.
This only needs to be disclosed to the person’s firm; it’s not required to be disclosed on his Form U4.
This must be disclosed on the person’s Form U4.
A municipal finance professional (MFP) who resides in New Jersey is permitted to make which of the following political contributions?
A $350 contribution to a New Jersey gubernatorial candidate
A $200 contribution to a Philadelphia, PA mayoral fund raiser
A $250 contribution to the reelection committee for the mayor of her hometown
A MFP cannot make a political contribution
A $250 contribution to the reelection committee for the mayor of her hometown
Under FINRA’s Investor Education and Protection Rule, which of the following is NOT required to be provided to a customer?
Access to the Central Registration Depository (CRD)
The BrokerCheck® hotline number
FINRA’s website address
The availability of an investor brochure which describes BrokerCheck®
Access to the Central Registration Depository (CRD)
A registered representative (RR) of a broker-dealer just informed her branch office manager that she intends to begin part-time employment in her friend’s landscaping business. The RR explains that the work is seasonal and should not interfere with her full-time job. According to SRO regulations:
The RR must notify her employer at least one month before initiating any outside employment
Without the prior written notification to her employing broker-dealer, this activity is prohibited
The firm must record this activity on its books; however, if the business is unrelated to the securities industry, employer consent is NOT required
This type of activity is strictly prohibited
Without the prior written notification to her employing broker-dealer, this activity is prohibited
A registered person is leaving the country on a business trip for more than three months
A registered principal is volunteering at a homeless shelter
A registered principal wants to act as a consultant for a private placement of a security that’s not being offered by her broker-dealer
A registered principal intends to purchase corporate securities in a personal account that’s established at her employing broker-dealer
A registered principal wants to act as a consultant for a private placement of a security that’s not being offered by her broker-dealer
When is a firm required to file customer complaints with FINRA?
QID: 5001458Mark For Review
Annually
Weekly
Daily
Quarterly
Quarterly
A registered representative leaves her employing brokerage firm for a different job. Which form must the brokerage firm file to terminate its association with the representative?
Form U4
Form U5
Form ADV
Form 144
Form U5
During a meeting with a customer outside of the offices of the broker dealer, a customer hands a registered representative (RR) a handwritten note that objects to the price she received when she redeemed some of her mutual fund shares. The customer believes that she submitted her redemption request early enough to receive the NAV which was calculated on the same day. However, she instead received the NAV that was calculated on the next business day, which was lower. Which of the following statements is TRUE?
The RR should keep a record in his personal file, but the letter is about an action for which the mutual fund is responsible and should be forwarded directly to the fund.
The note is a complaint about a back office issue and it’s not required to be given to a principal, but must be forwarded directly to the broker-dealer’s clearing firm for review and resolution.
Since the note was received away from the broker-dealer’s office, it’s not considered official business and the RR may ignore the note.
The note is considered a complaint and the RR must forward it to his supervisor.
The note is considered a complaint and the RR must forward it to his supervisor.
A firm reports a disciplinary action against one of its registered representatives (RRs) through which of the following?
CRD
Form U4
Form U5
BrokerCheck
Form U4
A broker-dealer just received notification that a registered representative of the firm is terminating his employment. As a result, the firm:
Must promptly notify the representative’s clients that his accounts will be handled by another registered representative of the firm who will be contacting them
Must notify FINRA within 10 days with the details of the representative’s employment termination
Must provide the representative with a copy of the termination notification (Form U5) that it files with FINRA
Should have the representative sign the Form U5 attesting to the accuracy of the details regarding his resignation from the firm, which will then be filed with FINRA
Must provide the representative with a copy of the termination notification (Form U5) that it files with FINRA
A close friend of an MFP is running for election as treasurer in the MFP’s city. If the MFP contributes $450 to his friend’s election campaign, for how long is the MFP’s broker-dealer restricted from engaging in negotiated underwritings with the city?
Two years
Three years
Five years
There’s no restriction
Two years
Which of the following statements is TRUE if a registered representative (RR) obtains a real estate license?
It’s not considered an outside business activity, but the RR is required to update his Form U4.
It’s considered an outside business activity, but the RR is not required to update his Form U4.
It’s considered an outside business activity and the RR is required to update his Form U4.
It’s not considered an outside business activity and the RR is required to notify the state securities Administrator of the state from which he obtained the license.
It’s considered an outside business activity and the RR is required to update his Form U4.
Selling away occurs when a registered representative:
Sells his firm’s client list to non-affiliates without his firm’s permission
Engages in private securities transactions outside of the regular scope of his employment without his firm’s permission
Engages in reverse churning of client accounts
Purchases speculative securities for his own account
Engages in private securities transactions outside of the regular scope of his employment without his firm’s permission
Under the Public Disclosure Program:
Member firms are required to notify their clients when any self-regulatory organization (SRO) imposes penalties against that member firm
Records of securities professionals, including certain criminal convictions and pending FINRA disciplinary actions, are available for the personal use of private investors
FINRA must be notified promptly at the time a customer complaint is received by the firm
FINRA must report all disciplinary actions involving member firms and their associated persons in most industry publications
Records of securities professionals, including certain criminal convictions and pending FINRA disciplinary actions, are available for the personal use of private investors
Which of the following expenditures is a violation under industry rules concerning gifts and gratuities?
QID: 5001490Mark For Review
A registered representative taking a client to a dinner that’s valued at $80 per person
A registered representative attending a concert with his client that’s valued at $105 per ticket
A registered representative giving a $300 wedding gift to his brother who’s employed at another member firm
A registered representative giving two tickets to his client to attend a basketball game that are valued at $65 per ticket
A registered representative giving two tickets to his client to attend a basketball game that are valued at $65 per ticket (over $100 per person)
Under FINRA rules, which of the following choices is NOT considered of material value if given by a mutual fund underwriter to a registered representative?
QID: 5001488Mark For Review
A gift of $100
A gift of $200
Overrides in excess of commissions as stated in the prospectus
A gift of $500
A gift of $100 (gift of $100 or less is not considered material value)
The disciplinary history of an individual:
Can be retrieved by contacting the SEC to review its disclosure files
Is available through the Central Registration Depository (CRD)
Is unavailable to the public until the disciplinary period has expired
Is available only if the discipline includes a felony conviction
Is available through the Central Registration Depository (CRD)
Which of the following outside business activities of a registered representative is NOT required to be reported to his employing broker-dealer?
Part-time employment as a bartender
Participation as a silent partner in a relative’s business
Acting as the manager of a sporting goods store on the weekends
Operating an Internet business from home as a sole proprietor
Participation as a silent partner in a relative’s business
After a registered person resigns or is terminated from a member firm, the firm is required to notify FINRA within:
30 days by filing an amended Form U4
180 days by filing an amended Form U4
30 days by filing a Form U5
180 days by filing a Form U5
30 days by filing a Form U5
A broker-dealer wants to give a gift to a registered representative of another member firm. Industry regulations consider the gift to be of material value if it exceeded a value of:
$100
Regulators, states, and/or other jurisdictions use which form to report disciplinary actions against registered representatives and/or firms?
QID: 5001477Mark For Review
Form U5
Form U4
Form U6
Form BD
Form U6
A municipal finance professional (MFP) who resides in New Jersey is permitted to make which of the following political contributions?
A $350 contribution to a New Jersey gubernatorial candidate
A $200 contribution to a Philadelphia, Pennsylvania mayoral fund-raiser
A $400 contribution to the mayor’s reelection committee in her hometown
A $600 payment to help repay a loan to a candidate who lost the election for governor of New Jersey
A $600 payment to help repay a loan to a candidate who lost the election for governor of New Jersey (can contribute more than $250 if candidate loses and is not in office)
When is Form BD filed?
Filed by brokerage firms to register with FINRA, the SEC, and states
If personal income is decreasing, which of the following companies will be MOST affected?
A household appliance company
A utility company
An oil company
A food retailer
A household appliance company
A registered representative decides to take an extended leave of absence to care for an elderly parent. Which of the following statements is TRUE?
The registered representative may freeze her status during the leave.
A notice of termination must be filed with the SEC.
The individual may return to the broker-dealer as a registered representative without being required to requalify by exam if done within a three-year period.
The individual must receive a copy of Form U5.
The individual must receive a copy of Form U5.
An investor is reading a newspaper and sees that Wednesday’s effective federal funds rate was 3.47%. On Tuesday, the rate was 3.41%. This information indicates that:
The average rate charged on overnight loans throughout the country increased
The Federal Reserve took measures to inject money into the banking system
The Federal Reserve increased the federal funds rate
Member banks needing to obtain overnight loans from the Federal Reserve paid more than the previous day
The average rate charged on overnight loans throughout the country increased
What entity enacts fiscal policy?
The Federal Reserve Board
The Comptroller of the Currency
The FDIC
Congress
Congress
Which of the following rates is the MOST volatile?
The prime rate
The discount rate
The call rate
The federal funds rate
The federal funds rate
Which of the following scenarios will have a negative impact on the U.S. balance of payments?
An increase in U.S. exports to foreign countries
Foreign purchases of U.S. securities
New U.S. investments abroad
New foreign investments in the U.S.
New U.S. investments abroad
Which of the following companies is LEAST affected by changes in the business cycle?
A construction company
A machine tool company
An automobile manufacturer
A pharmaceutical company
A pharmaceutical company
What rate will a member bank pay to borrow money from the Fed?
Prime rate
Federal funds
Discount rate
Call rate
Discount rate
The tool that’s most commonly used by the FRB to regulate the amount of money and credit in the banking system is:
Open market operations
The discount rate
Moral suasion
Reserve requirements
Open market operations
Which of the following industries is LEAST influenced by cyclical changes in the economy?
Leisure
Industrial equipment
Automotive
Brewery
Brewery (Defensive stock, like tobacco. Not heavily influenced by cyclical market movement)
Which of the following helps the U.S. balance of payments?
U.S. corporations building plants overseas
Lending money to foreigner investors at high interest rates
U.S. investment in foreign securities
Foreign investment in the U.S.
Foreign investment in the U.S.
What does M1 stand for?
Money Supply
An announcement on a financial news website states that the money supply (M1) has dropped for the week. This means that:
Demand deposits and currency in circulation in the banking system have declined
Savings deposits and currency in circulation in the banking system have declined
Stock transactions have declined
U.S. government bond sales have declined
Demand deposits and currency in circulation in the banking system have declined
A 1% increase in the federal funds rate will NOT have an effect on:
QID: 5001517Mark For Review
Short-term bond prices
Long-term bond prices
The discount rate
Treasury bill prices
The discount rate (The federal funds rate is the rate that one bank charges another bank when loaning excess reserves and is the most sensitive of all interest rates. The federal funds rate affects bond prices and other market interest rates. Unlike most interest rates, the discount rate is directly set by the Federal Reserve Board rather than in the lending markets. The discount rate only changes when the Fed’s Governors vote to change it.)
What rate does the Fed directly set?
Discount rate
Which of the following is NOT a leading economic indicator?
Building permits
The money supply
The prime rate
Stock prices
The prime rate (all others are leading indicators)
A decrease in Real GDP for ________ years indicates the economy is in a __________
2
Recession
What economic theory states that government intervention in the marketplace is necessary for controlling economic growth?
Supply-side economics
Monetary Theory
Keynesian Theory
The Dow Theory
Keynesian Theory (Keynesian economic theory states that government intervention (e.g., decreasing taxes, creating stimulus programs) is necessary for bringing an economy out of a recession. Supply-side economics states that the government should reduce marginal tax rates and the size of government in order to promote economic growth. Monetary theory argues that the money supply is the best way to influence the economy. The Dow Theory, which is followed by some technical analysts, states that a major reversal in the market has occurred when both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) break their trends)
Which of the following actions by the Federal Reserve Board results in a decrease in the money supply?
The purchase of securities in the open market
The sale of securities in the open market
A decrease in the discount rate
A decrease in the reserve requirements
Which of the following actions by the Federal Reserve Board results in a decrease in the money supply?
The purchase of securities in the open market
The sale of securities in the open market
A decrease in the discount rate
A decrease in the reserve requirements
The sale of securities in the open market (The sale of securities by the Federal Reserve Board results in the withdrawal of reserves from the banking system, thereby decreasing the money supply and increasing interest rates. All the other actions by the FRB result in an increase in the money supply and a decrease in interest rates)
Stock of which of the following companies is NOT considered defensive?
A construction company
A tobacco company
A food distributor
A clothing manufacturer
A construction company
Which of the following companies is MOST affected by a recession?
A health management organization
A utility
A brewery
A mobile home manufacturer
A mobile home manufacturer (A cyclical company is one whose sales move in line with the business cycle and, therefore, will be affected by a recession. Defensive stocks are associated with companies that are not as heavily affected by changes in the business cycle (e.g., health care, tobacco, utilities, and supermarkets). Real estate, mobile home manufacturers, household appliances, steel, and construction companies are examples of cyclical industries. )
A reverse repurchase agreement may also be referred to as a(n):
Repo
Arbitrage
Matched sale
Treasury sale
Matched sale
The FRB will most likely sell securities if it’s attempting to:
Ease credit
Increase the money supply
Stop an inflationary trend
Reduce interest rates
Stop an inflationary trend
Which of the following institutions does NOT issue securities?
The Federal Home Loan Bank
The Federal Farm Credit Bank
The Federal Reserve Board
The Federal National Mortgage Association
FRB (buys and sells but doesn’t issue)
Which of the following choices is NOT directly controlled by the Fed?
The fed funds rate
The reserve requirement
Regulation T
The discount rate
The fed funds rate
How is the market capitalization of a stock calculated?
Market price of the common stock divided by the earnings per share of a corporation
The dividends paid out by a company divided by the earnings per share
Market price of the stock multiplied by the number of common shares outstanding
Net income, less preferred dividends dividend by the number of commons shares outstanding
Market price of the stock multiplied by the number of common shares outstanding
If the Federal Open Market Committee (FOMC) enters into a repurchase agreement, what’s the immediate effect on the amount of money in the banking system?
It has no effect on the amount
It decreases the amount
It increases the amount
It may increase or decrease the amount
It increases the amount (repo agreement. FOMC will buy gov. securities, increasing the amount of $ in banking system immediately, even though they will sell them back shortly after)
If a bank holds funds that exceed the amount required by the Federal Reserve Board, this is referred to as:
The federal funds rate
Excess reserves
The repo rate
Excess margin
Excess reserves
If reserve requirements are lowered, banks are able to extend ____ credit, thereby ____ the money supply
More
Increasing
When a corporation seeks a bank loan, the bank will base its charge to the corporation on the:
Prime rate
Federal funds rate
Discount rate
Call rate
Prime rate (When borrowing from a bank, a corporation pays the prime rate if it’s among the bank’s best-credit-rated customers. Other corporations pay a higher rate, but those loans are still based on the prime rate)
During a deflationary period, interest rates:
Decrease, thereby causing bond prices to rise
Increase, thereby causing bond prices to fall
Remain the same
Are very unpredictable
Decrease, thereby causing bond prices to rise
Which of the following is a coincident economic indicator?
Expenditures for capital goods
The S&P 500 Index
Housing starts
The industrial production index
The industrial production index
When interest rates are trending upward, the economy will normally be in which phase of the business cycle?
Expansion
Contraction
Trough
Peak
Expansion (Increasing interest rates, along with increased costs and lower unemployment, are frequently associated with an expanding economy in which there’s an increase in demand for goods. As demand overtakes supply, prices rise due to the scarcity of goods. This rise in prices is referred to as inflation. The Federal Reserve will decrease the money supply to raise interest rates in an attempt to slow growth and combat inflation.)
The Consumer Price Index:
Measures the average level of food and utility prices over a given period
Measures the average prices paid by U.S. consumers over a six-month period
Measures the average change in prices for specific goods and services purchased by consumers in certain cities
Measures the total amount of dollars paid by consumers in the U.S. for goods and services
Measures the average change in prices for specific goods and services purchased by consumers in certain cities (The Consumer Price Index (CPI) measures the average change in prices for selected goods and services purchased by consumers in certain cities in the United States. The CPI measures the change from a previous base period and is computed monthly)
What are the 5 parts of the business cycle in order?
Expansion, peak, contraction, trough, recovery
The trough is the ______ part of the business cycle
lowest
Which of the following is NOT included in an income statement?
The amount of goodwill
Selling and administrative expenses
Interest expense
The amount of income taxes paid
The amount of goodwill
Which of the following is NOT included in an income statement?
Operating expenses
Revenue
Interest expense
Long-term liabilities
Long-term liabilities
The market price of which of the following types of stock is most affected by fluctuating interest rates?
Software companies
Financial service companies
Clothing retailing companies
Soft drink companies
Financial service companies (have high outstanding debt)
Which of the following securities has the LEAST amount of credit risk?
Preferred stock that’s issued by an exchange-listed company
Mortgage bonds
Treasury notes
Revenue bonds
Treasury Notes
During periods of easy money when interest rates are declining, yield curves tend to:
Slope upward from the shorter to the longer maturities
Slope downward from the shorter to the longer maturities
Remain flat
Slope upward from the longer to the shorter maturities
Slope upward from the shorter to the longer maturities
Which of the following statements describes the greatest risk associated with mortgage-backed securities?
Borrowers may default on their mortgage payments.
The market for mortgage-backed securities is illiquid.
The market price of the bonds may fall due to a rating downgrade.
Falling interest rates may accelerate early repayment of principal.
Falling interest rates may accelerate early repayment of principal.
Which of the following statements is TRUE concerning exchange-traded funds (ETFs) and exchange-traded notes (ETNs)?
Only exchange-traded notes may be purchased on margin.
Only exchange-traded funds may be sold short.
Only exchange-traded notes have issuer credit risk.
Only exchange-traded funds have market risk.
Only exchange-traded notes have issuer credit risk (ETNs are a type of unsecured debt security. This type of debt security differs from other types of bonds and notes because ETN returns are linked to the performance of a commodity, currency, or index, minus applicable fees. Both ETFs and ETNs have market risk, are traded on an exchange (e.g., the NYSE), and may be purchased on margin or sold short. Only ETNs carry credit risk that’s tied to the creditworthiness of the financial institution backing the note. If the issuer’s financial condition deteriorates, it can impact the value of the ETN negatively regardless of how its underlying index performs.)
Which of the following securities has the LEAST amount of capital risk?
Options
Bonds
Warrants
Stocks
Bonds
Which of the following is considered a leading economic indicator?
New orders for consumer goods and materials
The index of industrial production
The average prime rate charged by banks
The average duration of unemployment
New orders for consumer goods and materials
What is capital risk?
Capital risk is the risk of an investor losing her entire investment
Stock that trade over-the-counter (OTC) and are not listed on a regulated stock exchange:
Have less interest-rate risk than other securities
Have less regulatory risk than regulated companies
Have more exchange-rate risk than foreign equities
Have more liquidity risk than listed stocks
Have more liquidity risk than listed stocks
Which of the following statements BEST defines the term duration?
It’s a measure of a fixed-income security’s relative interest-rate risk
It’s a measure of a fixed income portfolio’s average yield
It’s the period before a fixed-income security will be called
It’s the measure of volatility that compares an equity security to the S&P 500 Index
It’s a measure of a fixed-income security’s relative interest-rate risk
________ measures price sensitivity for fixed-income securities (e.g., bonds) given changes in interest rates (i.e., interest-rate risk).
Duration
Duration risk= _______ risk for (bonds or stocks)
Interest rate
Bonds
Which of the following risks is diversifiable?
Event risk
Interest-rate risk
Business risk
Market risk
Business risk
All of the following investment strategies are based on the Efficient Market Hypothesis, EXCEPT:
Indexing
Buy and hold
Systematic rebalancing
Sector rotation
Sector rotation (Sector rotation is an active management approach and is based on the belief that markets are inefficient. Indexing, buy and hold, and systematic rebalancing are all passive strategies based on the Efficient Market Hypothesis.)
Which of the following bonds has the MOST interest-rate risk?
A three-month Treasury bill
A 30-year Treasury STRIP
A 6% coupon, 30-year Treasury bond
A 3% coupon, five-year Treasury note
A 30-year Treasury STRIP (Bonds with longer maturities and the lowest coupons have the most interest-rate risk. A zero-coupon bond with the same maturity as a bond that pays interest will have more interest-rate risk. Treasury STRIP are a form of zero-coupon bond and a 30-year STRIP will have more interest-rate risk than a 30-year T-bond that has a coupon)
(T-STRIPS don’t offer interest payments to offset high interest rates)
After review, the U.S. Food and Drug Administration (FDA) recently rejected a new drug offered by a pharmaceutical company. Industry analysts are now predicting that the company’s earnings will fall in the next two financial quarters and the company’s share price has fallen dramatically. What type of risk has caused the stock’s price to fall?
Legislative risk
Event risk
Business risk
Regulatory risk
Regulatory risk
A U.S. company is exporting its goods to Japan and receives payment in Japanese yen. If the U.S. company is worried about losses caused by the yen falling against the U.S. dollar, what’s the MOST appropriate hedge?
Buy U.S. dollar options
Buy yen call options
Buy index puts
Buy yen put options
Buy yen put options
How can a business that’s based in the U.S. hedge against rising costs of imported goods from Europe?
Buy U.S. dollar options
Buy euro put options
Buy euro call options
There is no way to hedge against exchange rate risk
Buy euro call options
A customer wants to buy stock in a closely held corporation that has a small number of outstanding shares. The customer’s registered representative should advise him:
That the stock will outperform companies with more shares outstanding
That he will receive a greater percentage ownership and that this stock is a more suitable investment than the stock of a larger company
About the possibility of large price fluctuations and possible difficulties in selling the stock because of the small number of outstanding shares
About the profit possibilities in a rising market
About the possibility of large price fluctuations and possible difficulties in selling the stock because of the small number of outstanding shares
How are Alpha and Beta different?
Beta is risk/volatility relative to the market
Alpha determines whether an investment outperforms a benchmark
Sector rotation is a (passive/active) strategy
active
All of the following are risks of owning U.S. Treasury securities, EXCEPT:
Default
Purchasing power risk
Interest-rate risk
Reinvestment risk
Default
What is Credit Risk?
Risk that creditor will default
Systematic rebalancing is a (passive/active) strategy
passive
Which of the following risks is non-diversifiable?
Liquidity risk
Business risk
Interest-rate risk
Credit risk
Interest-rate risk (Interest-rate risk is a systematic risk and cannot be diversified. Investors that buy a large, diversified portfolio of bonds can mitigate risks of businesses, credit issues, and liquidity. )
When will investors lose money due to call risk?
When interest rates are rising
After a change in industry regulations
When interest rates are falling
During periods of high volatility in foreign currency markets
When interest rates are falling
Which of the following risks is considered unique to an investor who holds CMO (Collateralized Mortgage Risk)?
Prepayment risk
Credit risk
Interest-rate risk
Reinvestment risk
Prepayment risk
An investor is using sector rotation in his trading account. The market is currently in a recession, but expected to recover in the next calendar quarter. What should the investor do next in his trading account?
Buy index put options since the S&P 500 Index is likely to fall in value
Sell defensive companies and invest into companies that make durable consumer goods
Sell cyclical companies and invest into companies that perform well during a recession
Date a diversified portfolio of stocks that mirrors an index
Sell defensive companies and invest into companies that make durable consumer goods
What type of risk do all investments possess because of the day-to-day fluctuations in securities prices?
Market risk
Credit risk
Default risk
Capital risk
If interest rates are falling, what’s the impact on a long-term bond fund?
The invested principal of the fund will decline.
The owners of the fund will not be able liquidate their shares.
The invested principal of the fund will increase.
The owners of the fund will be required to liquidate their shares.
The invested principal of the fund will increase.
Opportunity risk is defined as:
The risk that an unexpected event causes a general decline in the prices of financial assets
The risk that an investment decision prevents an investor from buying an alternative investment with a higher return
The loss from general decline in the level of inflation
A type of systematic risk that cannot be diversified, but can be hedged using derivatives
The risk that an investment decision prevents an investor from buying an alternative investment with a higher return
What is Purchasing Power risk?
Risk that inflation will increase, causing the individual’s purchasing power to fall (Dollar has less value)
A customer asks a registered representative for assistance in investing a $150,000 inheritance. The customer wants to use the funds to start a new business within the next year. Which of the following risks is the MOST concerning for this customer?
Systematic risk
Interest-rate risk
Purchasing-power risk
Liquidity risk
Liquidity risk (short time horizon of customer = risk of banks, businesses being unable to meet short-term demands)
Does systematic risk impact short-term or long-term investments more?
Long term
What is Liquidity Risk?
Risk that banks/corporations won’t be able to meet short-term obligations
A stock with a high alpha:
Has more systematic risk than the overall market
Is underperforming relative to other companies in its industry
Has outperformed relative to its expected return
Has less systematic risk than the overall market
Has outperformed relative to its expected return
What risk are high yield bonds more exposed to than high rated bonds?
Default risk
Interest-rate risk
Inflation risk
Political risk
Default risk
Which of the following will increase most in price if interest rates decline?
Short-term bonds selling at a discount
Long-term bonds selling at a discount
Short-term bonds selling at a premium
Long-term bonds selling at a premium
Long-term bonds selling at a discount
A married couple are both in their 20s. They both have jobs that pay well and have begun to think about investing for retirement. Which of the following risks is the GREATEST concern for the married couple?
Market risk
Business risk
Liquidity risk
Opportunity risk
Market Risk (Market risk is a type of systematic risk that cannot be reduced by diversifying investments. Business risk and liquidity risk are forms of non-systematic risks that can be diversified and are less of a concern for investors who are saving for retirement. If the married couple creates a diversified portfolio of stocks or buys mutual fund shares, the risk of one individual company performing poorly (i.e., business risk) will be mitigated. Liquidity risk is typically only a concern for short-term investors, but buying exchange-traded stocks or regulated investment companies (e.g., mutual fund shares) can balance out assets that are hard to sell quickly (e.g., limited partnerships). Opportunity risk is the risk that the return on an investment will be lower than other investment alternatives.)
Which of the following statements is TRUE regarding inflation risk?
Bonds are more susceptible to inflation risk than equities.
Alpha measures the inflation risk for a portfolio of bonds.
Fixed annuities are not subject to inflation risk.
Equities always have more inflation risk than fixed-income securities.
Bonds are more susceptible to inflation risk than equities.
A pandemic caused by a new strain of a virus has caused recessions in economies across the world. As a result, stock prices have fallen across most financial markets. What type of risk has caused the stock values to decrease?
Event risk
Credit risk
Regulatory risk
Non-systematic risk
Event risk
What’s the difference between a stock’s expected return and its actual return?
Beta
Alpha
Inflation-adjusted return
Exchange rates
Alpha
A drill manufacturer in the U.S. has a contract with a French company to deliver equipment in the near future. If payment will be made in euros, the U.S. manufacturer can protect itself against an adverse change in the value of the euro by:
Buying euros
Buying euro puts
Buying euro calls
Selling euro puts
Buying euro puts
What type of risk does an American depositary receipt (ADR) have that other exchange-traded U.S. stocks do not?
Business risk
Regulatory risk
Market risk
Currency risk
Currency Risk
Which of the following investments has the most inflation risk?
Real estate investment trusts (REITs)
Fixed annuities
Bonds
Equity mutual fund
Bonds (Stocks, real estate, and fixed annuities typically perform better during periods of high inflation. Bonds and other fixed income investments (e.g., preferred stocks) generally have more inflation or purchasing power risk.)
