Risks

Question 1

Non-systematic risk

Answer 1

Specific to one company and can be diversified away by diversifying a portfolio

Question 2

Credit risk

Answer 2

Associated with bonds; risk that issuer cannot repay its interest and/or principal

Question 3

Liquidity Risk

Answer 3

Inability to sell an asset easily

Question 4

Political risk

Answer 4

Associated with politicians making decisions that will impact investments

Question 5

Exchange rate risk

Answer 5

Investors suffering loss due to foreign currency losing value against the US dollar

Question 6

Interest rate risk

Answer 6

When interest rates rise and bond prices fall

Question 7

Repayment risk

Answer 7

Issuers defaulting on principal payment of bond

Question 8

Regulatory risk

Answer 8

Possibility that changes in regulations can have adverse impact in value of investments

Limited partnerships especially vulnerable

Question 9

Capital Risk

Answer 9

Losing all or part of an investment

Question 10

Reinvestment risk

Answer 10

The result of not being able to reinvest at the same rate after a bond matures or is called

Question 11

Market risk

Answer 11

Equities - that value of stocks will drop due to sell off in market

Bonds - risk that interest rates will cause market prices to drop

Portfolio management - inherent risk that cannot be diversified away

Question 12

Rights of Accumulation

Answer 12

Reduction in sales charge on a mutual fund purchase when the value of an investors shares when it reaches a breakpoint

Question 13

Prepayment risk

Answer 13

Risk that homeowners repay mortgage earlier than expected

When interest rates are falling

Question 14

Extension risk

Answer 14

Prepayment rates fall and life of certificate lasts longer than expected

Question 15

“Spread”

Answer 15

Difference between the Bid and Offer prices

Question 16

Complaints

Answer 16

Sent to FINRA on a quarterly basis

Question 17

Shelf registration

Answer 17

New shares issued under same registration for a period up to three years

Question 18

Banker’s Acceptance

Answer 18

Used to facilitate foreign trade. It is a time draft that has been guaranteed by a bank

Question 19

Brokerage employees outside accounts

Answer 19

Required to obtain written consent before opening an outside account.

Does not apply to mutual funds, UITs, variable contracts, or 529s

Question 20

ERISA

Answer 20

Covers pension plans and protect from corporate misconduct

Does not cover government retirement plans

Question 21

Regulation SHO

Answer 21

Prohibits naked short selling, requires exchanges to maintain threshold list of hard to borrow securities

Question 22

CBOE hours

Answer 22

8:30 - 4 CT

Question 23

Permitted call times

Answer 23

8am - 9pm local time zone

Question 24

Keynesian theory

Answer 24

Focuses on government taxation and spending policies