Risk and Recommendations Flashcards
Can you avoid systemic risk
no
Types of sys risk
market
interest rate
reinvestment
inflation
currency
call
What is interest rate risk
rising rates lowers bond values and vice versa
What is reinvestment risk
if an investment ends, not being able to reinvest the money for the same rate of return
What investments are more subjcet to reinvestment risk
pension plans
callable bonds
What is currency risk
an investment denominated in a foreign currency
the exchange rate between the foreign curr and the dollar falls
What are the types of nonsys risk
default/capital risk
business risk
prepayment risk
liquidity risk
regulatory risk / legislative risk
political risk
sovereign default risk
What is default/capital risk also known as
financial / credit risk
What is business risk and give ex
making bad bus decisions that affect the stock price like failing to compete with a competitors new product
What is prepayment risk
same as call risk but more like refinances hitting a mortgage back security
Whats a factor of liquidity risk that isnt obvious
being able to sell without greatly affecting the price even if it has liquidity
What is a common sec used to mitigate sys risk
derivatives
What is Beta
volutility of an asset vs the assets market with the assets market having a beta of 1.00
Who is resp for verifying KYC info
RR
the FINRA definition of customer excludes what
other brokers
potential investor that are not yet clients and no compensation was gained to anyone
What are some questoins a RR should ask to understand a clients risk tol and inves goals
What kind of risks can you afford to take
how liquid must your investments be
how important are tax considerations
investment time horizon
investment experience
types of investments you currently hold
general steps RRs take when evaluating how to help a client
clients primary objective
risk tolerance
other circumstances that may affect goals like time frame
What invs would fall under preservation of capital/safety
Money market mut funds
CDs
Gov bonds
Invs grade corp bonds
fixed annuities
What invs would fall under balanced moderate growth
com sto
com sto mut funds
blue chip sto
defensive sto
What invs would fall under aggressive growth
tech sto
sector funds
What invs would fall under tax free income
munis
roth IRAs
What invs would fall under high yield income
below invest grade corp bonds
corp bond funds
What invs would fall under income from stock portfolio
pref sto
untility sto
blue chips
What are some other income gen invs that I dont know where they fall
REITs
CMOs
What invs have high liquidity
exchange listed secs
unlisted NASDAQ
mut funds
publicly traded REITs
What invs fall under speculation
options
DPPs
high yield bonds
unlisted NON-nasdaq secs
sector funds
precious metals
commodities
futures
What are the obligations a RR needs to comply with for Best Interest Reg
Disclosure obligation
Care
conflict of interest
compliance
What is the disclosure oblig
must provide the following in writing prior or at a recommedation:
the scope and terms of our relationship
fees/costs for anything
the scope of my services to be provided for that rec
limitations for the sec or any invs strats they can use
any conflicts of interset
What is the care oblig
the RR needs to:
understand the risks/reward and costs of a rec and believe its still in the best interest
cant use a blanket “this rec is in the best interest of everyone approach” essentially not place the interests of the BD above
make sure the rec is still good outside of isolation
What is the conflict of interest oblig
applies to the BD
mitigate potential conflicts of interest
Does Reg BI apply to institutional investors
noi
What does the Dow Jones Industrial Average measure
30 large well known companies
What does the Wilshire 5000 track
all industries and sizes
What does the Russell 2000 track
2000 small businesses
What index tracks the overall bond market
Bloomberg Barclays US Aggregate Bond Index (the Agg)
What is the most used index for foreign equities
MSCI EAFE
