Final Prep

Question 1

FINRA rules that protect the integrity of securities markets can be broken down into the following four sections:

Answer 1

1. Conduct rules
2. Uniform Practice Code (UPC): covers the technical aspect of trading and payment for securities transactions.
3. Code of Procedure (COP): covers the enforcement of FINRA rules and details the punishment of members who incur rule violations.
4. Code of Arbitration (COA): FINRA-run dispute resolution process to settle monetary disputes.

Question 2

What is the NASAA?

Answer 2

North American Securities Administrators Association. Provides insight from their unique perspective to the SEC and SROs (self-regulatory organizations).

Question 3

Define SIPC.

Answer 3

The Securities Investor Protection Corporation. Created under the Securities Investor Protection Act of 1970. Nonprofit membership organization where members pay assessments into a general insurance fund that is used to meet customer claims in the event of a BD bankruptcy. ALL BD BANKS THAT REGISTER WITH THE SEC MUST BE SIPC MEMBERS, EXCEPT:

• banks that deal exclusively in municipal securities
• firms that deal exclusively in US government securities and
• firms that deal exclusively in redeemable investment company securities.

Question 4

How much is SIPC Coverage?

Answer 4

Basic coverage under SIPC is no more than $500K per separate customer. Of that, SIPC covers no more than $250K in cash.

Question 5

What is a carrying Firm?

Answer 5

Also know as “clearing” firm, these BDs “carry” customer accounts and accept fund and securities from customers. They have the capability to do trade executions, clear and settle transactions, take custody of customer funds and securities and handle related back office tasks. Carrying firms must segregate customer funds and securities held in their custody from the firm’s capital and securities.

Question 6

What is the DTC?

Answer 6

The Depository Trust Company

Question 7

Define Stagnation

Answer 7

Economic “stagnation” refers to prolonged periods of slow or little economic growth, unusually accompanied by high unemployment.

Question 8

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm?

Answer 8

Introducing/fully disclosed. A fully disclosed “introducing” broker-dealer is what the word implies—it introduces its customers to a clearing firm. Clearing firms (often referred to as carrying firms) hold their customer’s funds and securities as well as those of their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm’s back office. Because the risk associated with holding customer funds and securities is not present, net capital requirements are much lower for introducing firms than they are for self-clearing or carrying broker-dealers.

Question 9

What are the key purposes of the Securities Act of 1933?

Answer 9

The primary purpose of the Act of 33 is to require full and fair disclosure in connection with the sale of securities to the public. The Securities Act of 1933 protects investors who buy new issues regulating, among other things, registration of new issues, underwriting, full disclosure, and the potential for fraud in the issuance of securities.

1. Governs the new issuance (primary) market, which involves the money-raising activities of issuers.
2. Requires issuers to register their securities when selling to the public.

Offering non-exempt securities (those that must be registered with the SEC) such as common stock to the public requires the registration of the securities under the Securities Act of 1933. The offering must be made by prospectus.

The Securities Act of 1933, is also known as the Paper Act, Prospectus Act, or New Issues Act. This federal law requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.

Question 10

What are the key purposes of the Securities Act of 1934?

Answer 10

Governs trading markets for existing securities and registration requirements of BDs, BD employees, and exchanges.

Question 11

What is the main purpose of the Investment Company Act of 1940?

Answer 11

Governs the regulation of packaged products such as mutual funds, closed-end funds, and unit investment trusts.

Question 12

Define “custodian” and compare with “trustee.”

Answer 12

An institution or person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as a custodian. A trustee is an institution or a person responsible for making all investment, management and distribution decision in the best interests of another who has been legally appointed to do so.

Question 13

What is a transfer agent.

Answer 13

The transfer agent for a corporation is responsible for:
-ensuring that its securities are issued in the correct owner’s name.
-canceling old and issuing new securities
-maintaining records of ownership
handling problems related to lost, stolen or destroyed certificates.

*The transfer and registration of stock certificates are two distinct functions that by law cannot be performed by a single person or department operating within the same institution.

Question 14

What is a clearing agency?

Answer 14

A clearing agency is an intermediary between the buy and sell sides of a transaction. The clearing agency receives and delivers payments and securities on behalf of both parties. Two largest are the National Securities Clearing Corporation (NSCC) and Depository Trust & Clearing Corporation (DTCC). The DTCC is a member of the Federal Reserve System.

Question 15

What is the OCC?

Answer 15

Clearing Agency. Options Clearing Corporation. Clearing agent for listed options contracts (e.g. those listed on US options exchanges.

Question 16

What is the “Third Market”.

Answer 16

Nasdaq Intermarket, a trading market in which exchange listed securities are traded in the OTC market. BDs registered as OTC market makers in listed securities can do transactions in the third market.

Question 17

What is the “Fourth Market”.

Answer 17

The fourth market is a market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by BDs.

Question 18

Describe Keynesian economic theory.

Answer 18

Demand for goods ultimately controls employment and prices and, as a result, the government fiscal policies determine the country’s economic health.

Question 19

Describe Monetarist Theory.

Answer 19

Milton Friedman is considered the originator of the monetarist economic theory. Monetarists believe the quantity of money (i.e. the money supply) is the major determinant of price levels.

Question 20

Describe Supply-side economics.

Answer 20

Supply-side economics holds that governments should allow market forces to determine prices of all goods. Supply-side adherents judge that the federal government should decrease government spending and taxes. In this way, sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably.

Question 21

What is an APO?

Answer 21

The first time that a company issues shares to the public, it engages in an IPO (initial public offering). Later offerings are known as SPOs (subsequent primary offerings) or APOs (additional public offerings). The IPO and any SPO or APO are all issuer transactions and are, therefore, done in the primary market.

Question 22

Define LGIP.

Answer 22

Local Government Investment Pools. Established by states to provide other government entities within its borders such as cities, counties, school districts or other state agencies with a short-term investment vehicle to invest funds.

Question 23

REITS are organized as….

Answer 23

Real estate investment trusts, as their name tells us, are organized as trusts. Assets held in the trust and the distributions made can impact the tax consequences for the trust. As an investment vehicle, shares are sold to investors and these shares sometimes trade on exchanges. Whether traded or nontraded, the shares are considered to be equity (not debt) securities.

Question 24

What is Sovereign Risk?

Answer 24

The risk of default by a country on its debt instruments is specifically recognized as sovereign risk.

Question 25

How long is a self registration valid for?

Answer 25

Once filed, a shelf registration is good for 2 years and allows the issuer to sell portions of a registered shelf offering over a 2-year period without having to reregister the security. However, a supplemental prospectus must be filed with the SEC before each sale. For a Well Known Seasoned Issuer (WKSI) this extends to three years.

Question 26

If the U.S. balance of payments is currently running at a surplus, what's happening to flow of dollars, value of the dollar, exports vs imports and balance of trade?

Answer 26

When the U.S. balance of payments is running at a surplus, the balance of trade shows a credit; that is, exports are greater than imports, meaning more dollars are flowing into the U.S. economy than out. When the value of the U.S. dollar is down, foreign goods become more expensive to U.S. buyers, but U.S. goods become more attractive to those with foreign currency in hand. This also leads to more exports of U.S. goods.

Question 27

What is a preliminary prospectus?

Answer 27

The preliminary prospectus (red herring) is a prospecting tool used to gauge indications of interest. It is made available to those who request it between the registration date and the effective date (cooling-off period). Receiving it is not a commitment to purchase shares and making it available is not a commitment to sell shares to the recipient. No final price would be found on a preliminary prospectus.

Question 28

Regarding registration for the sale of securities, those registered under the Investment Company Act of 1940, such as mutual funds, would be considered...

Answer 28

federal covered securities and not required to register at the state level. Investment companies registered under the Investment Company Act of 1940 offer securities that are deemed to be federally covered. The effect of this designation is that states do not have jurisdiction over the registration requirements of these securities; no state registration can be required. Therefore federally covered securities are required to register at the federal level only.

Question 29

A company is already public with several major stockholders. Sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares. This is a....

Answer 29

a secondary offering and an additional public offering. Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an additional public offering (APO) rather than an IPO.

Question 30

The broker loan rate charged by banks is also known as the....

Answer 30

the call loan rate. The broker loan rate or call loan rate is the interest rate banks charge broker-dealers on money that broker-dealers borrow to lend to margin account customers.

Question 31

Which benchmark interest rate indicates the direction of the Federal Reserve Board's monetary policy?

Answer 31

The discount rate. The discount rate, being the rate the Federal Reserve Bank charges for short-term loans to its member banks, is generally considered a good indication of the FRBs policy to either tighten or loosen its hold on the amount of money available to banks for lending to consumers.

Question 32

Some institutions can function as a depository and intermediary for settling transactions between buyers and sellers of securities. All of the following are acceptable for this purpose EXCEPT

Answer 32

national banks. Being a bank alone does not allow for serving as a depository or clearing facility for securities transactions. The National Securities Clearing Corporation and the Depository Trust Company are set up specifically to perform these functions, and they may also be performed by broker-dealers known as carrying or clearing firms.

Question 33

What is deflation?

Answer 33

Deflation is a general decline in prices. Deflation usually occurs during severe recessions when unemployment is on the rise.

Question 34

Considered the most volatile of the benchmark interest rates in the economy would be...

Answer 34

the federal funds rate. The federal funds rate is the rate banks charge each other for overnight loans of $1 million or more. With overnight representing the shortest of loans and short-term interest rates being the most volatile, this rate is considered to be the most volatile of all the benchmark interest rates.

Question 35

Define the federal funds rate.

Answer 35

The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured loan. It is considered a barometer of the direction of short-term interest rates such as commercial paper and Treasury bills, which often move up or down roughly in parallel with the funds rate.

Question 36

Which category of securities is not-exempt from the Act of 33?

Answer 36

Limited partnership interests are not exempt securities. The exempt securities include U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational, and nonprofit association issues and more.

Question 37

Define "municipal advisor"

Answer 37

A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities.

Question 38

According to the U.S. Commerce Department, the economy is in a depression when a decline in real output of goods and services lasts...

Answer 38

The U.S. Commerce Department defines a depression as a decline in real output of goods and services lasting 18 months or more (6 quarters).

Question 39

Regarding the purchase of new equity issues by restricted persons..

Answer 39

- An investment club is permitted to buy a new equity issue at the offering price. - An investment club that has twelve members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. As long as an investment club has no restricted persons as members, it may purchase new equity issues at the public offering price. An Investment Club that has restricted persons as members may still participate in an IPO so long as the total ownership of the club’s assets by restricted persons does not exceed 10%. A registered representative is a restricted person under the rules regarding the purchase of new equity issues. In “III” the registered representative owns 12 ½ % (100%/8 = 12 ½) of club’s assets. In “IV” the registered representative owns 8 1/3% (100%/12 = 8 1/3), under the 10% maximum allowed.

Question 40

What is a Isolated nonissuer transaction?

Answer 40

Isolated nonissuer transactions are those occurring in the secondary market (nonissuer) that occur infrequently (very few transactions per agent/representative per year; the exact number varies by state). These transactions generally do not involve securities professionals. Example: An individual buying stock from another individual without using the services of a registered representative

Question 41

The requirement for a supplemental prospectus to be filed before each sale is applicable to...

Answer 41

shelf registration sales. Through a shelf offering, an issuer who is already a publically traded company can register new securities without selling any of the shares until later or waiting to sell a portion of the shares. For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale.

Question 42

Define stagflation.

Answer 42

Inflation is characterized by a rise in prices for goods and services. Stagnation is characterized by high unemployment and lack of growth and business activity. When these occur simultaneously, economists refer to these times as periods of stagflation.

Question 43

Under the Uniform Securities Act, registrations must be renewed how frequently?

Answer 43

Annually. State laws require that registrations must be renewed annually for broker-dealers with an office in the state, or those that direct calls into the state or receive calls from the state.

Question 44

The law that provides the legal framework for state registration of securities is the...

Answer 44

Uniform Securities Act. The Uniform Securities Act provides a legal framework for the state registration of securities, as well as the registration requirements applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives.

Question 45

For a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers within how many days after the effective date?

Answer 45

25. For a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers within how many days after the effective date?

Question 46

Are broker dealers that deal exclusively in US government securities required to be members of SPIC?

Answer 46

Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in U.S. government securities are exempt.

Question 47

A provision for filing securities at the state level used solely for securities that are considered to be federal covered securities is known as....

Answer 47

notice filing. When securities are deemed to be federally covered, the states have no jurisdiction over the registration requirements. However, the National Securities Markets Improvement Act did provide that states could require the filing of a notice (notice filing) to sell securities in that state, along with the payment of a filing fee.

Question 48

A strong U.S. dollar leads to more...

Answer 48

U.S. imports and a balance of payments deficit. When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit.

Question 49

What are the regulations that allow for registration exemption under Act of 33?

Answer 49

Securities offerings may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under Regulation A+, Regulation D, Rule 147 and Regulation S.

Question 50

What is the difference between an Introductory vs. clearing firm.

Answer 50

A firm that chooses to "introduce" its customers' business to another firm to clear and process transactions, as well as handle all back-office tasks such as sending trade confirmations and taking custody of customer funds and securities, is known as an "introducing" or "fully disclosed" firm. The firm receiving the business is known as the "carrying" or "clearing" firm.

Question 51

How much is SIPC coverage?

Answer 51

Coverage under SIPC may not exceed $500,000 in cash and securities, of which up to $250,000 may be cash.

Question 52

What is a secondary offering?

Answer 52

A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.

Question 53

Describe "access equals delivery rule" for a prospectus.

Answer 53

A prospectus will be deemed to precede or accompany a security for sale if the final prospectus has been filed with the SEC and can be viewed on the SEC website. The access equals delivery model applies to the final prospectus and aftermarket prospectus delivery obligations but not to the preliminary prospectus delivery obligations.

Question 54

Regarding registration for the sale of securities, those registered under the Investment Company Act of 1940, such as mutual funds, would be considered

Answer 54

Investment companies registered under the Investment Company Act of 1940 offer securities that are deemed to be federally covered. The effect of this designation is that states do not have jurisdiction over the registration requirements of these securities; no state registration can be required. Therefore federally covered securities are required to register at the federal level only.

Question 55

A company with previously issued shares outstanding wants to issue more shares to the public. These new shares are issued in what is known as

Answer 55

an APO. The first time that a company issues shares to the public, it engages in an IPO (initial public offering). Later offerings are known as SPOs (subsequent primary offerings) or APOs (additional public offerings). The IPO and any SPO or APO are all issuer transactions and are, therefore, done in the primary market.

Question 56

Which of the following are methods of registering securities within a state?

Answer 56

Registration by coordination Registration by qualification States have two ways to register (or blue sky) securities: coordination and qualification. Notice filing is used solely for those securities that are referred to as federal covered, such as those listed on the NYSE, NASDAQ, or any national securities exchange and investment companies registered under the Investment Company Act of 1940. In this case, the states do not have jurisdiction over the registration requirements of these securities. However, the Uniform Securities Act does provide for states requiring a filing of a notice along with a filing fee to sell securities in that state.

Question 57

Are limited partnerships exempt securities?

Answer 57

Limited partnership interests are not exempt securities. The exempt securities include U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational, and nonprofit association issues and more.

Question 58

All currency held by the public, including coins, checking accounts plus time deposits of less than $100,000, and money market mutual funds, is what economists define as

Answer 58

M2. M2 equals all of M1 (currency held by the public including coins and checking accounts) plus time deposits less than $100,000 and money market mutual funds.

Question 59

What is a syndicate?

Answer 59

A syndicate is two or more broker-dealers (investment bankers) which work with an issuer through, for example, the registration process in the case of corporate securities and bring the issuer's securities to the market by selling them to investors. There are syndicates that specialize in underwriting municipal bonds. The members of a syndicate are also known as the underwriters or collectively the underwriting group.

Question 60

Under the Uniform Securities Act, states have which of the following 2 ways to register securities to be sold?

Answer 60

Coordination Qualification Securities to be sold within a state require registration at the state level. States have 2 ways to register (or blue sky) securities: coordination and qualification.

Question 61

What is Sovereign Risk?

Answer 61

The risk of default by a country on its debt instruments is specifically recognized as sovereign risk.

Question 62

How long is a self registration valid for?

Answer 62

Once filed, a shelf registration is good for 2 years and allows the issuer to sell portions of a registered shelf offering over a 2-year period without having to reregister the security. However, a supplemental prospectus must be filed with the SEC before each sale. For a Well Known Seasoned Issuer (WKSI) this extends to three years.

Question 63

If the U.S. balance of payments is currently running at a surplus, what's happening to flow of dollars, value of the dollar, exports vs imports and balance of trade?

Answer 63

When the U.S. balance of payments is running at a surplus, the balance of trade shows a credit; that is, exports are greater than imports, meaning more dollars are flowing into the U.S. economy than out. When the value of the U.S. dollar is down, foreign goods become more expensive to U.S. buyers, but U.S. goods become more attractive to those with foreign currency in hand. This also leads to more exports of U.S. goods.

Question 64

Which of the following funds would most likely fall the most in a rising interest rate environment?

Answer 64

Interest rate risk is defined as a potential change in bond prices caused by change in market interest rates after an issuer offers its bonds. If interest rates rise post issuance, existing bonds (with a lower coupon) will be viewed as less attractive and will be priced in the market at a discount. Conversely, if rates fall, the existing bonds (with their higher coupons) will be viewed as desirable and will trade in the market at a premium. The prices of bonds with longer maturities will fluctuate more than bonds with shorter maturities as this interest rate differential is potentially longer-lived. In this question the T-Bond is the longest maturity security so it will have the greatest price fluctuation. Duration is a word that is often used to express a bond’s price sensitivity to interest rate swings. The T-bond fund has the longest duration of the choices offered.

Question 65

Does becoming an investor in a limited partnership require prior written notification by an associated person to the employing broker-dealer?

Answer 65

Passive investments, such as the purchase of a limited partnership interest, are not considered outside business activity. An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.

Question 66

A written customer complaint has been received by a broker-dealer, alleging that the customer’s signature was forged on a document. The broker-dealer must report this to FINRA

Answer 66

promptly but no later than 30 calendar days. Normally, customer complaints will be handled within the firm to the satisfaction of both the customer and the firm, going to arbitration or the courts only if this proves impossible. Complaints alleging theft, misappropriation of funds, or forgery, however, must be reported to FINRA promptly but no later than 30 calendar days from receipt of the complaint.

Question 67

Accusations of FINRA Conduct Rule violations will heard and handled under the...

Answer 67

Code of Procedure. The Code of Procedure (COP) describes how member violations of the Conduct Rules will be heard and handled.

Question 68

The regulatory element of training requires that all registered persons complete a computer-based training session how frequently?

Answer 68

Within 120 days of the person’s second registration anniversary and then every 3 years thereafter. The regulatory element of training requires that all registered persons complete a computer-based training session within 120 days of the person’s second registration anniversary and every 3 years thereafter (i.e., within 120 days of the person’s 2nd, 5th, 8th, 11th registration anniversary, and so on).

Question 69

What is the Uniform Practice Code?

Answer 69

The Uniform Practice Code (UPC) established uniform trade practices and other guidelines for broker-dealers to follow when they do business with other member firms, including transaction settlement, good delivery, ex-dates, trade confirmations, and don’t know (DK) procedures.

Question 70

A municipal finance professional (MFP) is....

Answer 70

an employee of a FINRA member engaged in municipal security representative activities such as underwriting and trading. As per the Municipal Securities Rulemaking Board (MSRB), a municipal finance professional (MFP) is an associated person of a member firm who is primarily engaged in municipal securities representative activities, including underwriting, sales and trading, or any other activity that involves communications with the public regarding municipals.

Question 71

Describe a private securities transaction and selling away.

Answer 71

A private securities transaction is any sale of securities outside an associated person’s regular business and his employing member. Private securities transactions are also known as selling away. If an associated person wishes to enter into a private securities transaction, that person must provide prior written notice to his employer, describe in detail the proposed transaction, describe in detail the RR’s proposed role in the transaction, and disclose whether they have or may receive compensation for the transaction.

Question 72

A municipal securities dealer has just made a contribution to the mayor’s reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city?

Answer 72

No waiting period. If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a 2-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not.

Question 73

When is the electronic filing of all information on customer complaints by broker-dealers with FINRA due?

Answer 73

Broker-dealer firms must electronically report information on all customer complaints to FINRA within 15 days of the end of each calendar quarter. Both these filings and the complaints must be retained by the firm for 4 years.

Question 74

An associated person of a FINRA member firm would not be considered a municipal finance professional (MFP) if....

Answer 74

Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP.

Question 75

One of the FINRA Conduct Rules is concerned with private securities transactions. Give an overview.

Answer 75

FINRA divides private securities transactions into two categories. If the associated person will receive compensation, the rules are more comprehensive requiring approval or disapproval. If approved, the firm must record the transaction on its books and records and supervise as if it were executed on behalf of the member firm. Trades with immediate family members are not included if there is no compensation. In other transactions where there is no compensation, written notice to the employer member is still required.

Question 76

What are the limit's FINRA places on RRs concerning gifts to others at other member firms.

Answer 76

FINRA member firms may not give business-related compensation to associated persons of other firms – compensation directly tied to sales or promises of sales – but may give an individual gifts whose value does not exceed $100 in a 12-month period. Tickets to a sporting event or dinner at an expensive restaurant may exceed the $100 limit if it is occasional, someone from the rewarding firm is present, and the employing firm has given its permission. Reminder advertising, items with the BD’s name and /or logo, may also exceed the $100 limit, within reason, because it has a business purpose.

Question 77

A registered representative has left a firm and joined another. The new firm must obtain a copy of the Form U-5 filled out by the old firm. Where might the new firm obtain a copy of the form?

Answer 77

Copies of a new employee’s Form U-5 may be obtained from the employee, or from FINRA’s Central Registration Depository (CRD). Whichever the source, the firm must obtain the copy within 60 days of filing the new Form U-4 for the new employee.

Question 78

What is the Investment Advisors Act of 1940.

Answer 78

Rules within the Investment Advisers Act of 1940 are designed to deter what is commonly called the practice of “pay to play” or “play for pay.” In other words, gaining political favor via contributions made to political parties, elected officials, or candidates. If a political contribution to certain elected officials or candidates is made, an adviser may not provide advisory services to any government the adviser represents for a fee, for a period of 2 years.

Question 79

What is systematic risk?

Answer 79

Systematic risk is the risk that changes in the overall economy will have an adverse effect on individual securities regardless of the company's circumstances. Common causes that can impact all securities or investments might be war, global security threats, and inflation.

Question 80

An affiliate holding unregistered shares can sell how often under Rule 144?

Answer 80

Rule 144 allows an affiliate to sell the greater of 1% of the outstanding shares or the average of the last 4 weeks' trading volume with each Form 144 filing. The filing is good for 90 days (3 months), which would allow for as many as 4 filings per year. Selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell.

Question 81

For hedge funds organized as private investment partnerships, which of the following is TRUE...

Answer 81

Hedge funds organized as private investment partnerships typically limit the number of investors and require large minimum initial investments. This would be the opposite of a regulated investment company, such as an open- or closed-end fund company.

Question 82

Compare Treasury STRIPS vs. Treasury Receipts

Answer 82

Brokerage firms can create and issue a type of bond known as a Treasury receipt from U.S. Treasury notes and bonds. Issued by financial institutions, they are not backed by the U.S. government. However, the Treasury Department has its own version of receipts known as Treasury STRIPS. Issued by the Treasury Department, they are direct debt obligations of the U.S. government.

Question 83

An investor asks for a copy of mutual funds Statement of Additional Information (SAI). The request must be satisfied within

Answer 83

3 business days, free of charge. Requests for an SAI must be complied with within 3 business days free of charge.

Question 84

What is the liquidation priority in corporate bankruptcies?

Answer 84

For corporate bankruptcies, the liquidation priority is as follows: wages, taxes, secured debtholders, unsecured debtholders (including general creditors), holders of subordinated debt instruments, preferred stockholders, and common stockholders.

Question 85

What is a FAC?

Answer 85

A face-amount certificate company offers the investor a certificate with a face amount on it. The investor buys it for a discount from the face amount, with the agreement being that the company will pay the investor the face amount on a specific date in the future.

Question 86

Which of the following investment companies terminates business on a predetermined date?

Answer 86

A fixed unit investment trust (UIT) typically has bonds in its portfolio that mature on a specific date. Before that date, the trust buys and redeems units of beneficial ownership in the portfolio. When the bonds mature and pay off, the trust distributes the remaining interest and principal to the current unit holders and dissolves.

Question 87

Which of the following are the most likely to make monthly or quarterly payments for the life the investor?

Answer 87

Both a fixed and variable annuity is an insurance contract designed to provide retirement income. The term annuity refers to a stream of payments guaranteed for a certain period including the life of the annuitant. In the case of a variable annuity, the actual amount to be paid out may or may not be guaranteed, but the stream of payments itself is. Because an annuity can provide an income for life, the contract has a mortality guarantee. Mutual funds and UITs have no such guarantee.