Risk and Recommendations

Question 1

Can you avoid systemic risk

Answer 1

no

Question 2

Types of sys risk

Answer 2

market
interest rate
reinvestment
inflation
currency
call

Question 3

What is interest rate risk

Answer 3

rising rates lowers bond values and vice versa

Question 4

What is reinvestment risk

Answer 4

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

Question 5

What investments are more subjcet to reinvestment risk

Answer 5

pension plans
callable bonds

Question 6

What is currency risk

Answer 6

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

Question 7

What are the types of nonsys risk

Answer 7

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

Question 8

What is default/capital risk also known as

Answer 8

financial / credit risk

Question 9

What is business risk and give ex

Answer 9

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

Question 10

What is prepayment risk

Answer 10

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

Question 11

Whats a factor of liquidity risk that isnt obvious

Answer 11

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

Question 12

What is a common sec used to mitigate sys risk

Answer 12

derivatives

Question 13

What is Beta

Answer 13

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

Question 14

Who is resp for verifying KYC info

Answer 14

RR

Question 15

the FINRA definition of customer excludes what

Answer 15

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

Question 16

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

Answer 16

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

Question 17

general steps RRs take when evaluating how to help a client

Answer 17

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

Question 18

What invs would fall under preservation of capital/safety

Answer 18

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

Question 19

What invs would fall under balanced moderate growth

Answer 19

com sto
com sto mut funds
blue chip sto
defensive sto

Question 20

What invs would fall under aggressive growth

Answer 20

tech sto
sector funds

Question 21

What invs would fall under tax free income

Answer 21

munis
roth IRAs

Question 22

What invs would fall under high yield income

Answer 22

below invest grade corp bonds
corp bond funds

Question 23

What invs would fall under income from stock portfolio

Answer 23

pref sto
untility sto
blue chips

Question 24

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

Answer 24

REITs
CMOs

Question 25

What invs have high liquidity

Answer 25

exchange listed secs
unlisted NASDAQ
mut funds
publicly traded REITs

Question 26

What invs fall under speculation

Answer 26

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

Question 27

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

Answer 27

Disclosure obligation
Care
conflict of interest
compliance

Question 28

What is the disclosure oblig

Answer 28

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

Question 29

What is the care oblig

Answer 29

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

Question 30

What is the conflict of interest oblig

Answer 30

applies to the BD
mitigate potential conflicts of interest

Question 31

Does Reg BI apply to institutional investors

Answer 31

noi

Question 32

What does the Dow Jones Industrial Average measure

Answer 32

30 large well known companies

Question 33

What does the Wilshire 5000 track

Answer 33

all industries and sizes

Question 34

What does the Russell 2000 track

Answer 34

2000 small businesses

Question 35

What index tracks the overall bond market

Answer 35

Bloomberg Barclays US Aggregate Bond Index (the Agg)

Question 36

What is the most used index for foreign equities

Answer 36

MSCI EAFE