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SIE > Risk and Recommendations > Flashcards

Risk and Recommendations Flashcards

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SIE Exam flashcards
1
Q

Can you avoid systemic risk

A

no

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2
Q

Types of sys risk

A

market
interest rate
reinvestment
inflation
currency
call

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3
Q

What is interest rate risk

A

rising rates lowers bond values and vice versa

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4
Q

What is reinvestment risk

A

if an investment ends, not being able to reinvest the money for the same rate of return

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5
Q

What investments are more subjcet to reinvestment risk

A

pension plans
callable bonds

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6
Q

What is currency risk

A

an investment denominated in a foreign currency
the exchange rate between the foreign curr and the dollar falls

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7
Q

What are the types of nonsys risk

A

default/capital risk
business risk
prepayment risk
liquidity risk
regulatory risk / legislative risk
political risk
sovereign default risk

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8
Q

What is default/capital risk also known as

A

financial / credit risk

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9
Q

What is business risk and give ex

A

making bad bus decisions that affect the stock price like failing to compete with a competitors new product

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10
Q

What is prepayment risk

A

same as call risk but more like refinances hitting a mortgage back security

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11
Q

Whats a factor of liquidity risk that isnt obvious

A

being able to sell without greatly affecting the price even if it has liquidity

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12
Q

What is a common sec used to mitigate sys risk

A

derivatives

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13
Q

What is Beta

A

volutility of an asset vs the assets market with the assets market having a beta of 1.00

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14
Q

Who is resp for verifying KYC info

A

RR

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15
Q

the FINRA definition of customer excludes what

A

other brokers
potential investor that are not yet clients and no compensation was gained to anyone

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16
Q

What are some questoins a RR should ask to understand a clients risk tol and inves goals

A

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

17
Q

general steps RRs take when evaluating how to help a client

A

clients primary objective
risk tolerance
other circumstances that may affect goals like time frame

18
Q

What invs would fall under preservation of capital/safety

A

Money market mut funds
CDs
Gov bonds
Invs grade corp bonds
fixed annuities

19
Q

What invs would fall under balanced moderate growth

A

com sto
com sto mut funds
blue chip sto
defensive sto

20
Q

What invs would fall under aggressive growth

A

tech sto
sector funds

21
Q

What invs would fall under tax free income

A

munis
roth IRAs

22
Q

What invs would fall under high yield income

A

below invest grade corp bonds
corp bond funds

23
Q

What invs would fall under income from stock portfolio

A

pref sto
untility sto
blue chips

24
Q

What are some other income gen invs that I dont know where they fall

A

bonds
REITs
CMOs

25
Q

What invs would fall under liquidity

A

exchange listed secs
unlisted NASDAQ
mut funds
publicly traded REITs

26
Q

What invs fall under speculation

A

options
DPPs
high yield bonds
unlisted NON-nasdaq secs
sector funds
precious metals
commodities
futures

27
Q

What are the obligations a RR needs to comply with for Best Interest Reg

A

Disclosure obligation
Care
conflict of interest
compliance

28
Q

What is the disclosure oblig

A

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

29
Q

What is the care oblig

A

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

30
Q

What is the conflict of interest oblig

A

applies to the BD:
eliminate incentives for the rep to place BDs interest ahead of client
eliminating contests to sell specific secs, needs to be the entire set of mut funds the BD offers not just one mut fund

31
Q

Does Reg BI apply to institutional investors

A

noi

32
Q

What does the Dow Jones Industrial Average measure

A

30 large well known companies

33
Q

What does the Wilshire 5000 track

A

all industries and sizes

34
Q

What does the Russell 2000 track

A

2000 small businesses

35
Q

What index tracks the overall bond market

A

Bloomberg Barclays US Aggregate Bond Index (the Agg)

36
Q

What is the most used index for foreign equities

A

MSCI EAFE

37
Q
A

SIE (13 decks)

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