Fundamentals Practice Exam Flashcards
Insofar as employment and production are concerned, which two of the following industries are typically more affected by the recession?
- Capital goods.
- Consumer durable goods.
- Consumer nondurable goods.
- Services.
a) 1 and 3.
b) 1 and 2.
c) 2 and 3.
d) 3 and 4.
e) 2 and 4.
Answer: B
Capital goods and consumer durables are cyclical and fluctuate directly with the economy and GDP.
Which combination of the following statements concerning federal law is correct?
- The Securities Act of 1933 protects from misrepresentation, deceit, and other fraud in the sale of new securities.
- The Securities Investor Protection Act of 1970 is designed to protect individual investors from losses resulting from brokerage house failures.
- The Investment Advisers Act of 1940 requires that persons or firms advising others about securities investment register with the Securities and Exchange Commission.
- The Investment Advisers Act of 1940 assures the investor safety of investment in companies engaged primarily in investing, reinvesting, and trading in securities.
a) 1, 2, and 3.
b) 1 and 3.
c) 2 and 4.
d) 2 and 3.
e) 1, 2, 3, and 4.
Answer: A
Statements 1, 2, and 3 are factual. Statement 4 is false because the Investment Advisors Act of 1940 requires an investment advisor to register with the SEC. It does not address investor safety about trading in securities.
Which one of the following factors would be the strongest indication that interest rates might rise?
a) Selling of dollar-denominated assets by foreign investors.
b) Decreasing United States government deficits.
c) Decreasing rates of inflation.
d) Weak credit demand by the private sector of the United States economy.
Answer: A
Interest rates will rise anytime the money supply decreases. If dollar-denominated assets are being sold, US dollars are being sent overseas as the assets are being sold. This results in the money supply decreasing and interest rates increasing. Reducing deficits means the US government is demanding fewer dollars. Declining inflation will result in lower interest rates. Weak credit demand means that businesses require fewer dollars; therefore, the low demand for dollars. If demand for dollars is low, then interest rates will decrease.
Judy Green, a CFP® certificate, has proof that Mary Clark, another CFP® certificate in her office, has utilized clients’ funds under management to cover gambling debts. Mary returned the funds to the clients’ accounts and made them whole, including the earnings that would have accrued when the funds were withdrawn. Under the Code of Ethics and Professional Responsibility and Disciplinary Rules and Procedures, Judy is obligated to:
a) Report Mary’s action to the local Financial Planning organization for proper processing.
b) Report Mary’s action to CFP Board Council on Examinations because Mary has violated ethical standards.
c) Report Mary’s action to CFP Board because Judy is bound by the Code of Ethics and Professional Responsibility.
d) Not report Mary’s action to CFP Board because Judy would violate the Duty of Confidentiality.
e) Not report Mary’s action to CFP Board because Mary made full restitution, and Mary’s action did not harm the clients involved.
Answer: C
Even though the client was made whole, this is still a violation of the Code of Ethics and Standards of Conduct. Judy is obligated under the Code and professional responsibility to report the breach to CFP Board. CFP Board’s Council on Examinations is responsible for the CFP® Exam, not enforcing the Code of Ethics.
Johanna Olsen, CFP®, is duly registered under the Investment Advisers Act of 1940. For which one of the following activities would this planner violate the act?
a) She received, with the client’s knowledge, both a fee for advice given to the client and a commission from client transactions.
b) She included the cost of preparing the client’s income tax returns as part of the annual fee charged to the client.
c) She gave clients planning advice that was not achievable, given the current economic conditions.
d) She distributed to clients the written disclosure brochure two weeks after an investment advising contract was duly signed.
Answer: D
Submitting the disclosure brochure must be done no more than 48 hours before entering into the contract or at the time of entering the arrangement with a 5-day “look-see.”
You receive a phone call from an individual you have not spoken with previously. The caller is excited, just having heard that a new mutual fund is positioned to deliver significant gains in the coming year. The caller wishes to purchase shares of the fund through you. Keeping in mind the stages of the overall personal financial planning process, which of the following questions address the first two stages of the financial planning process should you ask the caller?
- What are your goals for this investment?
- What other investments do you have?
- What is your date of birth?
- Do you want your dividends reinvested?
a) 1 and 3.
b) 2 and 4.
c) 1,2, and 3.
d) 1, 2, and 4.
Answer: C
Items 1, 2, and 3 all pertain to the second step of the financial planning process, “gather client data and determine goals.” Statement 4 does not pertain to the first two steps of the financial planning process.
Jill and Brandon are married with one child named Cole. Jill’s parents contribute $2,000 to a Coverdell ESA
this year for Cole. Brandon’s parent’s also want to contribute to Cole’s education fund. Which of the following contributions can they make?
- 529 Savings Plan
- Coverdell ESA
- UGMA Account
- UTMA Account
a) 1 and 2
b) 3 and 4.
c) 1, 3, and 4
d) 1, 2, 3, and 4.
Answer: C
The maximum contribution to a Coverdell ESA is $2,000 per year per beneficiary. All other accounts are eligible for a gift.
