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SIE Exam Prep > Knowledge of Capital Markets > Flashcards

Knowledge of Capital Markets Flashcards

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SIE Exam flashcards
1
Q

During the preparation of a prospectus for a new security issuance, which step involves ensuring the accuracy if information regarding the company, its financials, and associated risks?

A. Conducting market analysis

B. Performing due diligence

C. Undertaking a risk assessment

D. Executing compliance review

A

B. Performing due diligence involves thoroughly investing and verifying the accuracy of information regarding the company, its financials, and associate risk before issuing a prospectus.

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2
Q

Which of the following is NOT a role of investment banks?

A. Helo companies raise capital via underwriting commitment.

B. Provide depository accounts, loans and mortgages

C. Evaluate company assets while following SEC regulations

D. Act as a broker or intermediary between securities issuers and investors

A

B

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3
Q

Which of the following best describes the primary role and responsibilities or an Investment Advisor?

A. Offering investment advice and earning a commission on executed trades.

B. Issuing securities to raise capital for their own organization

C. Providing investment advice for compensation and adhering to regulatory requirements

D. Executing Securities transactions for clients and managing securities inventory.

A

C

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4
Q

Which of the following terms best describes professionals or firms that engage in buying and selling securities on behalf of their clients?

A. Market Makers

B. Investment Advisors

C. Broker-Dealers

D. Portfolio Managers

A

C

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5
Q

Which of the following allows a corporation to register shares and make them available for issuance when market conditions are favorable, minimizing the costs associated with multiple filings?

A. SEC filing

B. Shell Registration

C. Broker-Dealer Registration

D. Market Registration

A

B

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6
Q

In which of the following scenarios is a private placement the most suitable method for a company to raise capital?

A. When the company desires to attract a broad spectrum of investors.

B. When the company seeks to bypass SEC registration requirements.

C. When the company aims to generate capital via a public auction.

D. When the company intends to issue bonds to the general public.

A

B

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7
Q

What is the primary reason investment banks form underwriting syndicates when working on an issuance of equity or debt?

A. To establish a monopoly in the capital market.

B. To distribute the risks and responsibilities associated with the issuance.

C. To engage in competition for the highest validation.

D. To minimize their exposure to a single client or industry.

A

B

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8
Q

A registration statement does NOT include what information?

A. Information on a company’s Board of Directors.

B. Financial information and company history.

C. A background on each the company’s employees.

D. Information on any pending litigation.

A

C

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9
Q

What does the underwriting commitment ensure?

A. A new issue will be accurately priced.

B. That all securities being offered will be purchased.

C. The par value of the offering will be $1 per share.

D. A syndicate will be formed.

A

B

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10
Q

What is the main objective of state-level Blue Sky laws in regulating the securities industry?

A. To enforce federal securities regulations.

B. To establish mandatory registration requirements for brokerage firms.

C. To safeguard investors from securities fraud at the state level.

D. To implement a standardized set of rules for all investment professionals.

A

C

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11
Q

Which of the following is the primary tool used by the Federal Reserve to influence economic growth by managing the money supply?

A. Monetary policy

B. Fiscal policy

C. Open-market operations

D. Federal funds rate

A

C

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12
Q

What responsibility do transfer agents have towards their shareholders?

A. Running shareholder meetings on their behalf.

B. Maintaining records of their accounts.

C. Setting the price of new stock issuances.

D. Raising capital from them.

A

B

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13
Q

Why are clearing corporations important to the market?

A. They insure investments against loss.

B. They increase the reliability of transactions.

C. They mitigate financial fraud risk.

D. They issue out new securities.

A

B

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14
Q

In a securities trade, which of the following describes the function of a market maker?

A. Acting as an intermediary between those who want to buy and those who want to sell securities.

B. Ensuring that all securities offered for sale are purchased.

C. Issuing securities on behalf of corporations.

D. Regulating the securities industry at the state level.

A

A

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15
Q

In a scenario where a company faces liquidation, common stock investors are exposed to which primary risk?

A. Limited Liability

B. Loss of voting rights

C. Claim to the residual value of the company

D. No claim on assets in the event of a dissolution.

A

D

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16
Q

In which year was the Securities and Exchange Commission (SEC) formed, and who was the US President at the time?

A. 1933, Herbert Hoover

B. 1934, Franklin D. Roosevelt

C. 1932, Herbert Hoover

D. 1935, Franklin D. Roosevelt

A

B

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17
Q

Which of the following describes the primary role of the US Department of the Treasury within the federal government?

A. Implementing tax laws

B. Establishing regulations for the securities industry

C. Collecting taxes and managing borrowing for the federal government through Treasury securities auctions

D. Regulating Self-Regulatory Organizations (SROs) such as FINRA and Cboe Options Exchange

A

C

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18
Q

Which Organization is responsible for calculating the Cboe Volatility Index (VIX) and sharing its findings with the appropriate parties?

A. FINRA

B. MSRB

C. Cboe Global Markets

D. SEC

A

C

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19
Q

Which of the following terms refers to the difference between the highest price a buyer is willing to pay for a security and the lowest price a seller is willing to accept?

A. Bid-ask spread

B. Yield curve

C. Market capitalization

D. Price-earnings ratio

A

A

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20
Q

What are the basic activities of an investment bank?

A. Trading cryptocurrencies, investing in private equity and launching mutual bonds

B. Proprietary trading of the firm’s own capital, underwriting IPOs, and launching new financial products

C. Creating derivatives, securitization, and managing mergers and acquisitions

D. Creating high-yield debt, engaging in hedge fund activities, and proprietary trading

A

B

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21
Q

Which Self-Regulatory Organization (SRO) is responsible for developing and implementing rules and regulations for brokerage firms and their employees, and is also accountable to the Securities and Exchange Commission (SEC)?

A. Cboe Global Markets

B. Financial Industry Regulatory Authority (FINRA)

C. Municipal Securities Rulemaking Board (MSRB)

D. Options Clearing Corporations (OCC)

A

B

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22
Q

What does an inverted yield curve generally signify about the market’s expectations for future interest rate and economic growth?

A. Higher interest rates and strong economic growth

B. Lower interest rates and strong economic growth

C. Higher interest rates and an economic slowdown

D. Lower interest rates and an economic slowdown

A

D

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23
Q

Which divisions of the Securities and Exchange Commission (SEC) focuses on the examination of regulated entities to ensure compliance with federal securities regulations?

A. Division of Corporate Finance

B. Division of Trading & Markets

C. Division of Investment Management

D. Office of Compliance Inspections and Examinations (OCIE)

A

D

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24
Q

A prospectus for an initial public offering (IPO) does NOT typically contain which of the following information?

A. Details about the company’s management team

B. Financial statements and historical financial performance

C. The company’s dividend policy and future growth plan

D. The personal investment strategies of the company’s executives

A

D

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25
Q

What is currency revaluation?

A. When a government allows its currency value to float

B. When a government pegs its currency at a value lower than what the open market dictates

C. When a government prints more currency

D. When a government artificially pegs its currency as a higher value than what the market dictates

A

D

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26
Q

What is the correct order of the four key phases of the business cycle?

A. Peak, expansion, trough, contraction

B. Contraction, expansion, trough, peak

C. Expansion, trough, contraction, peak

D. Expansion, peak, contraction, trough

A

D

27
Q

Which of the following is NOT a rule of an auction market?

A. All transactions are secret.

B. The first bid has priority.

C. Bids and offers must be audible.

D. New bids are entered when all bids at a certain price have been exhausted.

A

A

28
Q

What are Blue Sky Laws?

A. State securities laws

B. SEC regulations that apply to foreign investments

C. Laws governing American Depository Receipts and their custodians.

D. Credits that investors may receive for supporting clean energy projects, such as wind and solar

A

A

29
Q

What agency protects clients of brokers in the event of financial failure or bankruptcy?

A. The FDIC

B. The Federal Reserve

C. The US Treasury

D. The SIPC

A

D

30
Q

What is the MAIN benefit of allowing for the shelf registration or securities?

A. It does not require registration with the SEC.

B. Less company disclosures is required.

C. The debt can be more easily converted to equity.

D. There is better flexibility when issuing debt and equity.

A

D

31
Q

Which of the following is true of the yield curve?

A. The yield curve is a predictor of expansion.

B. The yield curve is part of the index of leading indicators.

C. The yield curve peaks to indicate recession.

D. The yield curve typically has a downward slope.

A

B

32
Q

Which of the following is true of Keynesian Economic Theory?

A. It calls for the government to regulate the money supply.

B. It calls for the government to spend tax money on projects to stimulate the economy.

C. It calls for the government to stay out of the market.

D. It calls for the government to decrease demand for products.

A

B

33
Q

What is an indication of interest?

A. When an investment bank shows interest in representing a company in an IPO.

B. When the SEC displays interest in having a company issue shares.

C. When a company indicates it will be issuing a dividend.

D. When an investor shows interest in a company’s stock before the company has received clearance from the SEC.

A

D

34
Q

According to the protocol set by the Federal Deposit Insurance Company (FDIC), what happens when a bank fails?

A. The Federal Reserve takes over the bank’s operations.

B. The FDIC steps in and protects customer’s from losing deposits.

C. The bank’s assets are divided proportionally among shareholders.

D. The U.S. Treasury bails out the bank’s outstanding loans.

A

B

35
Q

What is the difference between a broker and a dealer?

A. Brokers handle contracts; dealers handle stocks.

B. Brokers deal with retail investors; dealers deal with institutional investors.

C. Brokers focus on Forex trading; dealers focus on commodities trading.

D. Brokers trade on behalf of clients; dealers trade on behalf of themselves.

A

D

36
Q

A municipal 529 program is established for which of the following purposes?

A. Municipal tax calculations

B. College savings plans

C. Municipal bond interest estimates

D. Municipal securities registrations

A

B

37
Q

Which of the following is a characteristic of Keynesian theory?

A. A balanced federal budget, except in time of economic stability.

B. A focus on government adjusting money supply.

C. Deficit spending.

D. A focus on governments adjusting available credits.

A

C

38
Q

When a company issues additional new securities and/or securities to previous shareholders, this is referred to as which of the following?

A. Initial public offering (IPO)

B. Contingent value rights (CVR)

C. Private placement

D. Follow-on public offering (FPO)

A

D

39
Q

The Federal Reserve may adjust interest rates in which of the following ways?

A. Adjusting rates on credit cards

B. Adjusting rates on home mortgages

C. Adjusting the rate the Fed charges for overnight loans

D. Adjusting rates on corporate bonds

A

C

40
Q

Which sentence most accurately describes fractional reserve banking?

A. Banks loan money deposited by depositors in the proportion allowed by regulators.

B. Banks allow depositors to withdraw only a certain proportion of their account balance on a given day.

C. Banks are required to hold a certain fraction of their depositors’ funds in gold bullion.

D. Banks loan a depositor’s funds back to them up to a certain fraction of their account balance.

A

A

41
Q

Which of the following is a function of Congress?

A. Control the international balance of payments.

B. Control monetary policy by directly stimulating the economy through open market activities.

C. Control fiscal policy by directly stimulating the economy through deficit spending.

D. Make decisions primarily based on economic analysis.

A

C

42
Q

Which description of financial statements is correct?

A. Their purpose depends upon the audience for which they are prepared.

B. They name future expectations of management regarding profitability.

C. They recommend whether to buy or sell stock of the company issuing them.

D. They are not used for income tax purposes.

A

A

43
Q

Which includes securities administrators for the North American Securities Administration Association (NASAA)?

A. The 50 states, the District of Columbia, Canada, Mexico, and Greenland

B. The 50 states, the District of Columbia, Puerto Rico, Canada, and Mexico

C. The 50 states, the District of Columbia, the US Virgin Islands, Puerto Rio, Canada, and Mexico

D. The 50 states, the District of Columbia, the US Virgin Islands, Canada, and Mexico

A

C

44
Q

Which of the following statements does NOT describe a function of central banks?

A. Implementing monetary policy

B. Managing foreign exchange reserves

C. Regulating commercial banks and financial institutions

D. Setting fiscal policy and government spending

A

D

45
Q

Which of the following are shelf regulations for?

A. To allow a corporation to have shares registered and ready for issuance when market conditions become most favorable.

B. To limit the number of shares a corporation can issue.

C. To ensure that a corporation is compliant with SEC regulations.

D. To require corporations to file a report on a quarterly basis.

A

A

46
Q

Why did Section 4 of the Securities Exchange Act of 1934 establish the SEC?

A. To encourage investors to provide capital through education regarding securities and benefits.

B. To encourage investors to provide capital by enforcing laws and regulations that inform and protect.

C. To encourage investors to provide capital by restricting variation in the secondary market.

D. To encourage investors to provide capital by restricting securities maximum in the secondary market.

A

B

47
Q

The Securities Exchange Act of 1934 was primarily focused on investors being adequately informed to make reasonable decisions, not allowing market participants to unreasonably manipulate prices, and keeping fraud to a minimum in which market?

A. Primary market, involving initial issuance of securities by an issuing firm.

B. Secondary market

C. Third market issuing firm.

D. Fourth market (sometimes called Dark Pools”)

A

B

48
Q

Which of the following is generally considered a lagging indicator?

A. Unemployment rate

B. Average weekly hours worked in manufacturing

C. Level of new business start-ups

D. Consumer Price Index (CPI), intended to reflect the cost of living

A

D

49
Q

Which of the following is NOT among the typical duties of an investment adviser?

A. Trading stocks on behalf of their client

B. Giving advice about current market trends

C. Directly making a financial plan for a client

D. Making predictions about future market trends

A

A

50
Q

Which statement accurately describes the relationship between an issuer and an underwriter?

A. Underwriters lend money to issuers for investment purposes.

B. Issuers regulate the market activities of underwriters.

C. Issuers buy various securities from underwriters.

D. Underwriters help issuers in selling securities to investors.

A

D

51
Q

Which area on the business cycle chart refers to the strongest phase of the economy?

A. Peak

B. Expansion

C. Trough

D. Contraction

A

A

52
Q

The Securities Investors Protection Act of 1970 (SIPA) established the Securities Investors Protection Corporation (SIPC) in response to which situation?

A. Broker-dealers began selling options, as well as stocks and bonds.

B. The quantity of broker-dealers increased more than expected.

C. Broker-dealers generally declined to provide financial disclosures to customers.

D. Several broker-dealer’s declared bankruptcy.

A

D

53
Q

SEC Rule 415 provides for an issuer to issue securities that cannot be sold for up to two years later. What is this issue called?

A. Shelf registration

B. Deferred registration

C. Private registration

D. Immediate registration

A

A

54
Q

Which rule requires municipal bond sales to be fulfilled in the sequence determined by the municipality issuing the bonds if the municipality has NOT authorized sales in a different sequence?

A. MSRB Rule G-11 - Primary Offering Practices

B. MSRB G-12 - Disclosures in Connection with Primary Offerings

C. FINRA Rule 2266 - SIPC Information

D. MSRB Rule G-34 - New Issue, and Market Information Requirements

A

A

55
Q

Which self-regulatory organization (SRO) has jurisdiction over banks that handle securities?

A. FINRA

B. MSRB

C. FDIC

D. SEC

A

B

56
Q

Which term describes the selling and purchasing of securities by the Federal Reserve?

A. Open market activities

B. Direct action

C. Lobbying activities

D. Public comment

A

A

57
Q

Which act is Rule 144 part of?

A. Securities Act of 1933

B. Securities Exchange Act of 1934

C. Trust Indenture Act of 1939

D. Investment Company Act of 1940

A

B

58
Q

What is a benefit of trading in the over-the-counter (OTC) market?

A. Securities are obtained directly from the issuer with a “satisfaction/money back” guarantee.

B. Prices of over-the-counter transactions do not affect prices on national exchanges.

C. Broker-dealers are never involved.

D. Some aspects of the purchases and sales are private.

A

D

59
Q

Which of the following is an example of public comment by the Federal Reserve?

A. Buying government securities in a quantity expected to reduce the money supply.

B. Buying corporate bonds in a quantity expected to reduce the money supply.

C. Raising the discount rate to a level that is expected to slow down inflation.

D. Releasing a statement mentioning that the economy is expanding too fast.

A

D

60
Q

Which of the following is true of a prospectus for an issue of an SEC registered security?

A. It may be for hedge funds domiciled outside the US.

B. It doesn’t need to have information on the financial strength of the issuer.

C. It is not required to be provided until the time the security is purchased.

D. It doesn’t need to be filed with the SEC until the first sale of the issue is made.

A

C

61
Q

Which statement is true?

A. The gross national product (GNP) is greater than the gross domestic product (GDP).

B. The gross domestic product (GDP) is greater that the national debt.

C. Exchange rates are the difference between the GDP and GNP.

D. A trade surplus is certain to be healthy for a nation over a large period of time.

A

A

62
Q

What typically happens when interest rates decline?

A. Bond values decline

B. Cyclical stocks decline

C. There is a broad stock market advance

D. Defensive stocks decline

A

C

63
Q

Which self-regulatory organization (SRO) participates in the security industry?

A. Financial Planning Association (FPA)

B. Chicago Board Options Exchange, Inc. (CBOE)

C. American Council of Life Insurers (ACLI)

D. American Institue of Certified Public Accounts (AICPA)

A

B

64
Q

Which of the following is a tool the Federal Reserve uses to affect the money supply and economic growth?

A, Changing government taxation

B. Adjusting government expenditures

C. Open market operations

D. Implementing fiscal policy

A

C

SIE Exam Prep (4 decks)

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