Knowledge of Capital Markets (Brown Cards)

Question 1

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

A) Help companies raise capital via underwriting

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

Answer 1

B:

Investment banks do not provide depository accounts (checking or savings accounts), nor do they offer loans or home mortgages as a traditional bank does. Their main purpose is to help raise capital, evaluate assets, and act as brokers or intermediaries between securities issuers and investors.

Question 2

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 gcwernment expenditures

C) Open market operations

D) Implementing fiscal policy

Answer 2

C:

The Federal Reserve uses open market operations to affect the money supply and economic growth. By buying or selling United States Treasury securities, the Federal Reserve can adjust the money supply in the market, thus impacting economic growth. Choices A and B are related to fiscal policy, which is not under the purview of the Federal Reserve, while Choice D refers to government policies more broadly.

Question 3

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

A) The FDIC

B) The Federal Reserve

C) The CIS Treasury

D) The SIPC

Answer 3

D:

The SIPC provides services in the case of a broker failing. Financial assistance maybe provided by the US Treasury if SIPC funds are not adequate. They organize the distribution of cash and securities when this occurs. The FDIC insures bank deposits, The Federal Reserve institutes monetary policy and provides some bank oversight and regulation.

Question 4

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 of the company’s employees

D) Information on any pending litigation

Answer 4

C:

There is information about the company’s management and board of directors, but not about each employee at the company. All the other answers are legally required parts of a registration statement.

Question 5

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) Bookers focus on Forex trading; dealers focus on behalf of themselves.

Answer 5

D:

Choice D is Correct because brokers act as intermediaries on their client’s behalf, while dealers (also called principles) trade on their own account, and this is the primary
distinction between the two. Choices A, B, and C all discuss activities that can be done by both brokers and dealers; both of them can handle stocks and options, work with both retail and institutional investors, and deal in both Forex and
commodities trading.

Question 6

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

Answer 6

B:

Choice B, college savings plans, may be either college savings plans or prepaid tuition plans. Choices A, C, and D are not related to 529 plans.

Question 7

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

Answer 7

C:

Choice C, adjusting the rate the Fed charges for overnight loans, is setting the federal funds rate. Choices A, B, and D are not actions of the Federal Reserve.

Question 8

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

Answer 8

A:

Choice A is correct because investment advisers are generally hired to offer investment advice to their clients; they do not make meaningful financial decisions on behalf of the client. Choices B, C, and D are all within the realm
of typical duty for an investment adviser.

Question 9

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

Answer 9

A:

Choice A is an indirect method for the Federal Reserve to manage monetary policy. Choice B refers to adjusting the federal funds rate or the discount rate. Choice C does
not refer to activities performed by the Federal Reserve. Choice D refers to releasing statements to the public that are intended to influence investors’ activities without the Federal Reserve having to take action.

Question 10

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

Answer 10

D:

The correct order of the four key phases of the business cycle is expansion, peak, contraction, and trough. Expansion starts with strong economic indicators and moves to the
peak, which is the high point of the expansion phase. Next, is the contraction which is usually a recession or even a depression. The trough phase is last. This is when downtrends begin to level off which allows for the cycle to begin again with expansion.

Question 11

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

A) Financial Planning Association (FPA)

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

C) American Council of Life Insurers (ACLI)

D) American Institute of Certified Public Accounts (AICPA)

Answer 11

B.

Choice B, the Chicago Board Options Exchange, Inc. (CBOE), is in the securities industry. Choices A, C, and D are not in the securities industry.

Question 12

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)

Answer 12

D:

Choice D refers to offering the public some shares held by early shareholders. Choice A refers to newly-issued shares offered to the public by the company, Choice B refers to a benefit that shareholders of a company may receive if a specific situation arises, such as a reorganization or an
acquisition by a second company, Choice C, also known as a non-public offering, refers to securities sold to a few chosen investors, such as acquaintances, relatives, accredited investors, and large institutions that invest in several companies.

Question 13

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.

Answer 13

C:

Congress stimulates the economy by authorizing more expenditures than what is collected through taxes. Choice A
is not directly determined by Congress, as the balance of payments is the net inflow or outflow of funds from imports and exports. Choice B reflects action by the Federal Reserve.
Choice D is incorrect; Congress is responsive to constituencies and their political preferences, so they take action with broad goals.

Question 14

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

A) Peak

B) Expansion

C) Trough

D) Contraction

Answer 14

A:

Choice A refers to the highest point on the chart when the economy is the strongest. Choice B refers to the rising portion of the chart when economic activity is increasing, Choice C refers to the lowest part of the chart when the
economy is at its smallest magnitude. Choice D refers to the period when economic activity is decreasing.

Question 15

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 than the national debt.

C) Exchange rates are the differences between the GDP and the GNP

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

Answer 15

A:

Choice A reflects the addition of a country’s goods and services produced and exported to the GDP to calculate the GNP. Choice B isn’t always correct, depending on the
situation. Choice C, exchange rates, refers to the proportion of one nation’s money that can be exchanged for another nation’s money. Choice D is incorrect, as a country can become dependent upon foreign capital, which would not be in the country’s best interest.

Question 16

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.

Answer 16

C:

The broad stock market prefers lower interest rates. These spur economic growth and a broad stock market advance. Choice A occurs when interest rates increase during
economic growth. Choice B refers to stocks that follow the business cycle, which retreat during contraction when interest rates decline. Choice D refers to stocks of essential industries, such as food and utilities, which advance during the whole business cycle.

Question 17

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

Answer 17

C:

Cboe Global Markets created and maintains the VIX, so they are responsible for calculating and publishing it. Choice A is
a self-regulatory organization responsible for regulating/enforcing rules governing brokerage firms and stock markets. Choice B regulates the municipal securities market. Choice D is the primary regulatory body responsible for enforcing federal securities laws and regulating
the securities industry.

Question 18

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

Answer 18

A:

Bid-ask spread is the cost of trading a security and is the spread between the highest buyer-accepted price (bid price) and ‘he lowest seller-accepted price (ask price). Yield curve shows the relation between interest rates and debt security maturity, while market capitalization reflects the total value of a company’s outstanding shares. price-earnings ratio measures a company’s stock price relative to its earnings per share.

Question 19

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

Answer 19

D:

Central banks are responsible for implementing monetary policy, which includes setting interest rates and controlling
the money supply in the economy to achieve economic objectives. They also manage foreign exchange reserves. In addition, central banks play a regulatory role in the financial system by supervising/regulating financial institutions. Setting fiscal policy and government spending is not their responsibility.

Question 20

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

Answer 20

D:

A prospectus for an IPO provides detailed information about the company that is going public and the securities being offered, and does not contain the personal investments strategies of the company’s executives. It does, however, typically include information about the company’s business,
management team, historical financial performance,
risks associated with investment, and other information relevant to potentiaI investors.

Question 21

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 Corporation (OCC)

Answer 21

B:

FINRA is a non-governmental organization authorized to regulate the securities industry and is accountable to the SEC. It is responsible for developing and enforcing rules and regulations for brokerage firms and their employees.

Question 22

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

Answer 22

C:

Open-market operations are a primary tool used by the Federal Reserve to influence economic growth through the buying/ selling of government securities, which affects the money in circulation and interest rates. Choice A encompasses the Federal Reserve’s actions, but is not a specific tool. Choice B is a separate set of policies and is not used by the Federal Reserve. Choice D is not a primary tool
for managing the money supply.

Question 23

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

Answer 23

C:

Broker-Dealers buy and sell securities on behalf of their clients, acting as intermediaries between buyers and sellers in the market. Choice A actively quotes two-sided markets for securities. Choice B provides advice, analysis, and recommendations to clients on investment strategies and financial planning. Choice D is responsible for managing investment portfolios and making decisions on behalf of
clients or institutions.

Question 24

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

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 a securities inventory

Answer 24

C:

Investment Advisers primarily focus on offering personalized investment advice to clients for a fee, adhering to regulatory requirements to ensure they act in their client’s best interests. Choice A describes the role of a
stockbroker. Choice B describes the role of an issuer, which issues securities to raise capital for their organization. Choice D refers to the role of a broker-dealer.

Question 25

During the preparation of a prospectus for a new security
issuance, which step involves ensuring the accuracy of 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

Answer 25

B:

Performing due diligence involves thoroughly investigating and verifying the accuracy of information regarding the company, its financials, and associated risks before issuing a
prospectus for a new security. Choice A focuses on studying the market to gauge the demand for the security. Choice C deals with identifying and assessing potential risks. Choice D ensures that the prospectus complies with regulatory
requirements.

Question 26

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 compare seeks to bypass SEC registration
requirements

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

C) When the company intends to issue bonds to the general public

Answer 26

B:

A private placement is a method of raising capital by offering securities to a select group of accredited investors, bypassing the need for SEC registration. Choice A, Choice
C, and Choice D involve reaching a wider range of investors and would require the company to go through the SEC registration process, making them unsuitable scenarios for using private placement as a capital-raising method.

Question 27

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) Shelf Registration

C) Broker-Dealer registration

D) Market Registration

Answer 27

B:

Shelf Registration allows a corporation to register shares and make them available for Issuance when market conditions are favorable, minimizing costs associated with multiple filings. Choice A is a term for various filings required by the SEC. Choice C is the process of registering
a firm or individual as a broker-dealer. Choice D is not related to issuing shares and does not provide the same benefits as shelf registration.

Question 28

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 valuation

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

Answer 28

B:

The primary reason investment banks form underwriting syndicates when working on an issuance of equity or debt is to share the risks and responsibilities associated with the
issuance by pooling resources and expertise. Choices A and B are incorrect because these are not the primary objectives. Choice D is incorrect because, while forming a syndicate can help minimize exposure to a single client or industry, it is not the primary reason for doing so.

Question 29

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 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

Answer 29

C:

Blue Sky laws protect investors from securities fraud at the state level by ensuring transparency, full disclosure, and
regulatory oversight. Choice A is incorrect because Blue Sky laws are not for federal regulations. Choice B is incorrect because the main goal is investor protection, not just
registration. Choice D is incorrect because Blue Sky laws are state-specific and do not aim to create a standardized set of rules.

Question 30

Which division 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)

Answer 30

D:

The OCIE is responsible for conducting inspections and examinations of entities that are subject to SEC regulations, such as broker-dealers, investment advisors, and other
market participants. Choice A focuses on disclosure and reporting requirements for public companies; Choice B focuses on regulating securities trading and market infrastructure; and Choice C focuses on the regulation of investment companies and advisors.

Question 31

Which Of the following are shelf regulations for?

A) 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.

Answer 31

A:

Shelf registration is when a corporation registers a large block of securities with the SEC to have them “on the shelf” for issuance when market conditions are favorable, saving
costly registration fees. Shelf regulations do not limit the number of shares a corporation can issue or ensure that a corporation is compliant with SEC regulations. Also, quarterly reporting requirements are separate from shelf registration regulations.

Question 32

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

Answer 32

C:

The main function Of the Treasury is tax collection and borrowing on behalf of the federal government through auctioning Treasury securities. Choice A is incorrect because enacting tax laws is done by the US Congress. Choice B is incorrect because that is done by regulatory bodies such as the SEC. Choice D is incorrect because Self-Regulatory Organizations (SROs) like FINRA and the Cboe Options Exchange regulate themselves.

Question 33

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

Answer 33

B:

The Securities and Exchange Commission (SEC) was formed in 1934, during the presidency of Franklin D. Roosevelt. The SEC was created in response to the stock market crash of 1929 and the subsequent Great Depression, and was
designed to help restore investor confidence in the securities market.

Question 34

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 a company

D) No claim on assets in the event of dissolution

Answer 34

D:

Common stock investors have the risk of having no claim on assets in the event of dissolution, as they are last to receive sale proceeds. Choice A is incorrect because limited liability is a characteristic of owning stock, not a risk factor. Choice B is incorrect because loss of voting rights is not a risk with owning common stock. Choice C is incorrect because common stockholders are the last to receive any sale
proceeds.

Question 35

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.

Answer 35

B:

Clearing corporations exist to ensure transactions are properly completed, increasing reliability. Choice A is incorrect because clearing corporations don’t do investments. Choice C is incorrect because while clearing corporations mitigate counterparty risk, mitigating financial fraud risk is the jurisdiction of law enforcement agencies and regulatory bodies. Choice D is incorrect because companies issue securities themselves.

Question 36

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 governments adjusting money supply

C) Deficit spending

D) A focus on governments adjusting available credit

Answer 36

C:

Choice C reflects the economic theory of John Maynard Keynes, which recommends governments adjust taxation and spending to stimulate the economy through deficit spending. Choice A is the opposite of deficit spending.
Choices B and D are associated with monetary theory.

Question 37

What is a 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 at a higher value than what the market dictates

Answer 37

D:

Currency revaluation is when a government artificially increases the value of its currency. A floating currency has its value determined by supply and demand. A devaluation is an intentional lowering of a currency’s value.

Question 38

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

D) Fourth market (sometimes called “Dark pools”)

Answer 38

B:

The secondary market involves the trading of securities on exchanges following their original issue. Choice A refers
to initial public offerings, which is the focus of the Securities Act of 1933. Choice C refers to securities listed on a national exchange when they are traded somewhere other than the
exchange. Choice D refers to companies trading in an over-the-counter market where trade occurs directly without an intermediary.

Question 39

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.

Answer 39

A:

The purpose of financial statements depends upon the audience, be it in determining compensation for employees, satisfying SEC reporting requirements, or reflecting their ability to pay claims. Choice B refers to historical statements. Choice C refers to comments that may be made by investment analysts or by a company in its financial statements, Choice D is incorrect because financial statements may be used for income taxes.

Question 40

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

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

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

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

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

Answer 40

C:

Choice C is correct because the North American Securities Administrators Association (NASAA) includes the 50 states, the District of Columbia, Puerto Rico, the US Virgin Islands, Mexico, and Canada. Choice A includes Greenland, which is not a member of the NASAA. Choice B is missing the US Virgin Islands, which are part of the NASAA, and Choice D is missing Puerto Rico.

Question 41

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

Answer 41

A:

Choice A enables the issuer to select a time to sell when the share price is higher than at registration time. Since this shelf registration is public knowledge, it may affect the share price. The company is required to file reports with the SEC while waiting to sell the issue. Choices B, C, and D are incorrect.

Question 42

The Securities Investor Protection Act of 1970 (SIPA) established the Securities Investor 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-dealers declared bankruptcy.

Answer 42

D:

Choice D is correct. Choice A was not the reason for establishing SIPC, even though options may involve more risk than stocks. Choice B was not the reason for establishing SIPC, since the increase in broker-dealers would not be a problem if they were solvent. Choice C was not the reason for establishing SIPC, though a broker-dealer’s refusal to provide financial disclosures would be suspect activity.

Question 43

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

Answer 43

D:

Public comment by the Federal Reserve may influence investors to adjust their behavior without the Federal Reserve taking action. Choice A shows open market activity by the Federal Reserve. Choice B describes activity the Federal Reserve doesn’t generally do, as the Federal Reserve buys/sells government securities through open market activity. Choice C shows adjusting interest rates, which is different from a public comment.

Question 44

What are Blue Sky Laws?

A) State securities laws

B) SEC regulations that apply to foreign investments

C) Laws governing American Depositary Receipts and their custodians

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

Answer 44

A:

Blue Sky Laws are state-specific securities laws that need to be followed by investors and firms operating in that State. Most of the securities laws discussed in this guide are federal laws that apply regardless of what State a firm
resides in or operates out of.

Question 45

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

Answer 45

B:

Rule 144 is under the Securities Exchange Act Of 1934. For fairness, some securities are restricted/controlled securities
with conditions where they may be sold to the public. Rule 144 sets those conditions. Choice A governs the initial issuance of securities. Choice C protects corporate bondholders by structuring how corporate bonds are issued and how the proceeds are used. Choice D established
investment companies.

Question 46

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

A) FINRA

B) MSRB

C) FDIC

D) SEC

Answer 46

B.

Choice B, the Municipal Securities Rulemaking Board (MSRB), has jurisdiction over banks that handle municipal securities. Choice A, FINRA, does not have jurisdiction over banks that handle municipal securities transactions. Choice C, FDIC, supervises banks and examines banks and savings associations for sound financial processes and solvency. Choice D, the SEC, is an agency established by law and is
not an SRO.

Question 47

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 interest in a company’s stock before the company has received clearance from the SEC

Answer 47

D:

This is when a potential investor shows interest before a company has issued its shares. Choices A and B have no formal term. Choice C could be considered a corporate action or corporate resolution.

Question 48

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.

Answer 48

D:

Choice D is correct because an underwriter assisting an issuer in bringing their securities to market and selling them to investors is the crux of their relationship. Choices A, B, and C are incorrect because underwriters do not lend money, nor do issuers regulate underwriter activities or buy from underwriters.

Question 49

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

A) It does not require registration with the SEC.

B) Less company disclosure is required.

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

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

Answer 49

D:

With shelf registration, companies can issue securities under the most favorable market conditions more easily. The shares still must be registered with the SEC. The company must still make all of the relevant disclosures that would
occur with the normal issuance of securities. Shelf registration has nothing to do with the capability to convert debt.