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SEC PH 2 > SEC PH 2 > Flashcards

SEC PH 2 Flashcards

1
Q
  1. Which of the following securities is tax exempt from 20% final withholding tax?

A.USD ROP
B.Long term commercial paper
C.Time deposit
D.Ordinary share dividends

A

A.USD ROP

LTNCD is the security exempt from tax not LTCP
Time deposits and ordinary share dividends are subject to taxes

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2
Q
  1. It is defined as the ability of an issuer to pay its outstanding bonds in full before its maturity date

A.Convertibility
B.Bearer
C.Puttability
D.Callability

A

D.Callability

Callability is ability of an issuer to pay its outstanding bonds in full before its maturity date

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3
Q
  1. Which of the following securities is unsecured?

A.Collateral trust bonds
B.Mortgages
C.Debentures
D.Equipment trust certificates

A

C.Debentures

Debentures are unsecured bonds

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4
Q
  1. You were presented with a 5 year and 1 day LTNCD with a rate of 7% however due to the tenor of the offering you passed on it. Now, you are looking for similar security with a shorter tenor, assuming that the tax rate is 20%, at what interest rate level would you be comfortable?

A.8.75%
B.7%
C.7.5%
D.8.5%

A

A.8.75%

7/ (1 - .2) = 8.75%

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5
Q
  1. How much would be paid in principal and gross interest over the lifetime of a 20 year 4% bond with a par value of 1,000?

A.800
B.1,400
C.1,800
D.2,000

A

C.1,800

Gross interest = 1,000.0420 = 800
Principal 1,000
Total 1,800
Developed

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6
Q
  1. You bought PHP1.0MM of RTB with quarterly coupons at 7% gross. If RTB is for 3 years, how much will you receive upon maturity?

A.PHP 1,000,000
B.PHP 1,014,000
C.PHP 1,028,000
D.PHP 1,056,000

A

B.PHP 1,014,000

I= PRT
I = 1M X (7% x 0.20) X .25 or 3/12
= 14, 000

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6
Q
  1. You invested PHP 1,040,500 for PHP 1.0MM of RTB with 6.75% gross coupon. How much will you receive per quarter?

A.PHP 12,000
B.PHP 13,500
C.PHP 15,000
D.PHP 18,500

A

1,000,000.06753/12*(1-.20) = 13,500
1,000,000 is the face value
It is multiplied to net taxes because the question stated receive

0.20 ung TAX
either or ung 6.75%-.20 or minus 0.20 after nung prt computation

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7
Q
  1. How much is the face value of your investment if you earn 8% gross or PHP 20,000 every 6 months?

A.PHP 500M
B.PHP 600M
C.PHP 625M
D.PHP 700M

A

C.PHP 625M

I= PRT
20,000 = P *.08 (1 - .2) * 6/12
P=20,000/.032 = 625,000

diba A dapat since gross?

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8
Q
  1. You paid USD 116,250 for USD 100,000 that you bought 10 days after interest payment date. The coupon rate is 8.75%. What was the clean price/ offer price of the bond?

A.116.5
B.116.25
C.116
D.114.5

A

C.116

Accrued days = 10
Interest for 10 days = 100,00010/360.0875= 243.05
Clean price = dirty price – accrued interest
= 116,250 – 243.05
= 116,000 (approximate)/1,000 = 116

same w/ #9

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9
Q
  1. Which phase of the economic cycle is marked by decelerating inflation?

A.Peak
B.Trough
C.Expansion
D.Recession

A

D.Recession

Inflation is at the lowest during the trough of an economic cycle. Decreasing in a recession, increasing during expansion and high during peaks.

E P C/R T

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9
Q
  1. Which phase of the economic cycle is marked by the lowest level of unemployment?

A.Peak
B.Trough
C.Expansion
D.Recession

A

A.Peak

Unemployment is at the lowest during the peak of an economic cycle. Decreasing in an expansion, increasing during recession and high during troughs.

E P C/R T

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10
Q
  1. Current return on investments is at 10%. Current inflation was reported at 4% while expected inflation will be at 6% and nominal interest rates are at 7%, what is the real rate of interest?

A.6%
B.3%
C.1%
D.2%

A

real rate of interest= NOMINAL IR - CURRENT INFLATION

= 7 - 4
= 3

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11
Q
  1. A client has invested in fixed income security other than his own local currency. Which of the following risks should he be concerned about:

I.Sovereign Risk
II.Market Risk
III.Currency Risk
IV.Liquidity risk

A.I, III
B.I, II
C.I, II, III
D.II, III, IV

A

D.II, III, IV

No sovereign risk if issued outside the domicile of the foreign currency, e.g., offshore

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12
Q
  1. You are invested in KSA bonds (Saudi Arabia) and news broke out that a war might happen between two neighboring countries, what type of risk should you be primarily concerned with?

A.Interest rate risk
B.Price risk
C.Geopolitical risk
D.Market risk

A

C.Geopolitical risk

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12
Q
  1. Inflation and unemployment are up, what should the government do to control both?

A.Increase interest rates, increase gov’t spending
B.Increase interest rates, decrease gov’t spending
C.Reduce interest rates, decrease gov’t spending
D.Reduce interest rates, increase gov’t spending

A

A.Increase interest rates, increase gov’t spending

Inflation is controlled primarily via interest rates, increasing interest rates would help in reducing/controlling inflation.
Unemployment can be lowered by giving people jobs via government spending

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13
Q
  1. This type of auction is a method wherein a uniform coupon rate of a treasury bond at the stop out level of arrayed amounts of bid with the corresponding yield rate tendered is known as?

A.Competitive bid
B.Noncompetitive bid
C.Dutch auction
D.English auction

A

C.Dutch auction

uniform coupon rate

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14
Q
  1. A 20 year old client wants to construct a portfolio for his needs but is worried that the returns of his investments will not be sufficient to fund his monthly needs, what constraint is most associated with his situation?

A.Time constraint
B.Liquidity constraint
C.Unique circumstance
D.Risk reward profile

A

B.Liquidity constraint

The inability of the portfolio to fund the needs of the client is an example of a liquidity constraint

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15
Q
  1. A religious foundation recently got a windfall donation from an anonymous donor. Since the sum is too large, they decided to set up a portfolio so that the returns of the portfolio will fund their needs. In doing so, they did not want to invest in companies that engaged in gaming, tobacco and ammunition. Which constraint best describes the situation?

A.Time constraint
B.Liquidity constraint
C.Unique circumstance
D.Risk reward profile

A

C.Unique circumstance

Unique circumstances in portfolio construction refer to situations that are cause an investor to avoid certain asset classes or asset types due to the nature of such classes and types.

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16
Q
  1. Inflation last year has just reached its record high and is expected for it to trend even higher, which of the following risks would affect an investor holding a lot of fixed income securities?

A.Liquidity risk
B.Credit risk
C.Price risk
D.Political risk

A

C.Price risk

Inflation affect interest rates in the market which in turn affects fixed income security prices. Price risk is uncertainty in prices or potential for the decline in the price of an asset or security relative to the rest of the market.

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17
Q
  1. It is a practice of market manipulation wherein a market participant buys and sell securities at the close of the market in an effort to alter the closing price of the security

A.Painting the tape
B.Insider trading
C.Marking the close
D.Off market trades

A

C.Marking the close

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18
Q
  1. You have received negative news that will greatly affect the stock price of a security held by a client. The client, however is on a 2 week vacation abroad and you have no means of communicating with him. Which of the following is the best course of action:

A.Sell the security in behalf of the client and inform the client and get their authorization to do so afterwards
B.Sell the security immediately so that the client can avoid huge losses
C.Take note of the news, do nothing, inform the client of what happened when he comes back from his vacation
D.None of the above

A

C.Take note of the news, do nothing, inform the client of what happened when he comes back from his vacation

19
Q
  1. It is a practice of market manipulation wherein a market participant engages in a series of transactions in securities that are reported publicly to give the impression of activity or price movement in a security

A.Painting the tape
B.Insider trading
C.Marking the close
D.Off market trades

A

A.Painting the tape

20
Q
  1. Which of the following accounts is allowed under SRC rules?

A.Numbered account
B.Anonymous account
C.Fictitious account
D.All of the above

A

A.Numbered account

Only numbered accounts are allowed under SRC rules
For numbered accounts, name and written statement by customer that he owns the account should be on file

21
Q
  1. What is the main factor to consider in constructing a client portfolio

A.Education
B.Wealth
C.Risk tolerance
D.Age

A

C.Risk tolerance

Main consideration for constructing a client portfolio is risk and reward profile.

22
Q
  1. It is a practice of market manipulation of engaging in transactions where both the buy and sell orders are entered at the same time with the same price and quantity by different but colluding parties.

A.Marking the close
B.Improper matched orders
C.Insider trading
D.Painting the tape

A

B.Improper matched orders

23
Q
  1. You have a material holding in a security that the client wants to buy, which of the following is needed to comply with the ethical standards?

A.Disclose the material holding to the client
B.Sell the holdings in the security
C.Recommend another security to the client
D.Do nothing, there is no violation incurred

A

A.Disclose the material holding to the client

Unlawful act:
Provide advice or recommendation in a security that is the subject of a primary or secondary distribution of which he is participating or financially interested unless disclosed to the client

24
Q
  1. Who should sign the statement of management responsibility for broker dealers?

A.Chairman
B.CEO
C.CFO
D.All of the above

A

D.All of the above

Chairman of the board, CEO and CFO must sign the Statement of management responsibility of a broker dealer

25
Q
  1. It is a practice of market manipulation of engaging in transactions in which there is no genuine change in actual ownership of a security

A.Improper matched orders
B.Pump and dump
C.Squeezing the float
D.Wash sales

A

D.Wash sales

26
Q
  1. How much is the penalty for violations of the SRC?

A.P10,000 to P200,000
B.P20,000 to P200,000
C.P200,000 to P1,000,000
D.P1,000,000 to P2,000,000

A

A.P10,000 to P200,000

27
Q
  1. Audited financial statements of broker dealers can be performed by external auditors that require:

A.No special accreditation
B.Accreditation as class A
C.Accreditation as class B
D.B and C

A

D.B and C

Financial statements of a broker dealer can be audited by external auditors provided the same are accredited as either class A or class B

28
Q
  1. It is a practice of market manipulation of taking advantage of a shortage of securities in the market by controlling the demand side and exploiting market congestion during such shortages in a way as to create artificial prices:

A.Wash sales
B.Insider trading
C.Squeezing the float
D.Pump and dump

A

C.Squeezing the float

29
Q
  1. Which securities can be traded in an OTC?

A.Securities registered under Sec. 8
B.Securities registered under Sec. 12
C.Those trading in an ATS
D.All of the above

A

D.All of the above

30
Q
  1. It is a practice of market manipulation of engaging in buying activity at increasingly higher prices and then selling securities in the market at the higher prices :

A.Pump and dump
B.Insider trading
C.Squeezing the float
D.Insider trading

A

A.Pump and dump

31
Q
  1. Which of the following statement is true?

A.Qualified investor can directly buy in the OTC markets
B.Qualified investor can deal with both dealers and non qualified investors
C.Qualified investor can only deal with dealers
D.Qualified investor can deal with both brokers and dealers

A

D.Qualified investor can deal with both brokers and dealers

Qualified vs. Unqualified
1.Qualified can directly buy or sell security in an OTC market
2.Unqualified can only transact through an authorized broker or a registered/chartered collective investment scheme
3.Qualified and unqualified cannot deal with each other, it has to be through a broker
4.Dealer has to determine with reasonable effort that the other dealer is authorized to participate in an OTC

32
Q
  1. Which of the following statements are true?

A.Unqualified investor can directly buy in the OTC markets
B.Unqualified investor can deal with both dealers and non qualified investors
C.Unqualified investor can only deal with brokers
D.Unqualified investor can deal with both brokers and dealers

A

C.Unqualified investor can only deal with brokers

Qualified vs. Unqualified
1.Qualified can directly buy or sell security in an OTC market
2.Unqualified can only transact through an authorized broker or a registered/chartered collective investment scheme
3.Qualified and unqualified cannot deal with each other, it has to be through a broker
4.Dealer has to determine with reasonable effort that the other dealer is authorized to participate in an OTC

33
Q
  1. While visiting a client, you overhear a comment from management that is not considered public information but is meaningless information in itself. However, you’ve been following their company for a while and combining this information with your own research, you decide buy their securities, is this a violation of material nonpublic information?

A.Not a violation
B.Not a violation if the securities were not bought
C.There is a violation because he used material nonpublic information
D.He should wait for management to make the information public before buying

A

A.Not a violation

The information cannot be considered material nonpublic information because it was stated that in itself, the information is meaningless. It may therefore be nonpublic information but it is not material, hence no violation has occurred.

mnpi dapat, material non-public information

34
Q
  1. Which of the following is/are a condition/s for the exemption from registration of indebtedness of private placements?

I.Issued to not more than 19 non institutional lenders
II.Issued to at least 19 non institutional lenders
III.Payable to a specific person
IV.Non-negotiable nor assignable
V.Not exceeding P50MM

A.I, III, IV, V
B.III, IV, V
C.II, III, IV, V
D.I, II, III, IV, V

A

A.I, III, IV, V

Evidence of indebtedness with the following conditions (private placements):

A.Issued to not more than 19 non institutional lenders
B.Payable to a specific person
C.Non-negotiable nor assignable
D.Not exceeding PHP 50MM
75

35
Q
  1. Which of the following describes Hybrid Tier 1 (HT1) Capital?

I.Fixed coupons but subject to suspension
II.Shareholders meeting required to redeem
III.Perpetual with option to redeem after 10 years
IV.Dilutive effect on shareholders

A.I, III,
B.I, III, IV,
C.II, III, IV
D.I, II, III

A

B.I, III, IV,

Hybrid Tier 1
Fixed coupon payments (subject to suspension)
No stockholder meeting required to redeem
10 years minimum up to perpetual
Non-dilutive

36
Q
  1. Which of the following is not a feature of bank lower tier 2 capital?

A.Tax free for individual investors
B.Maximum term of 5 years
C.Not insured by PDIC
D.Cannot be pre-terminated

A

B.Maximum term of 5 years

Bank lower tier 2 has a 5 year minimum maturity

37
Q
  1. You sold 3,000 units of your participation in a UITF at 90 NAVPU which you bought at 92 NAVPU. In doing so, you was charged a transactional fee of 0.25%. How much was your cash out?

A.PHP 270,000.00
B.PHP 276,000.00
C.PHP 275,310.00
D.PHP 269,325.00

A

D.PHP 269,325.00

3,00092(1-0.0025)= 269,325

3000 x 90 = 270,000 x 0.0025

.25%= 0.0025

38
Q
  1. Which of the following does not describe a suspicious transaction?

A.No underlying legal or trade obligation, purpose or economic justification
B.Client is properly identified
C.Amount is not commensurate with business or financial capacity
D.Taking into account all known circumstances, it may be perceived that the transaction was structured to avoid being reported under AML law

A

B.Client is properly identified

Suspicious Transactions (STR)
1.No underlying legal or trade obligation, purpose or economic justification
2.Client is not properly identified
3.Amount is not commensurate with business or financial capacity
4.Taking into account all known circumstances, it may be perceived that the transaction was structured to avoid being reported under AML law
5.Transaction that deviates from the profile of the client and /or past transactions
6.Transactions related to unlawful activity or offense

39
Q
  1. Which of the following client information is not needed for AMLA purposes?

A.Civil status
B.Source of income
C.Age
D.Nationality

A

A.Civil status

40
Q
  1. Which of the following is a benefit of a UITF?

A.Professional management
B.Access to superior products
C.Daily mark to market
D.All of the above

A

D.All of the above

Professional management, access to superior products and daily mark to marked are all benefits of a UITF

40
Q
  1. Assuming all things are equal, which of the following issues would offer the highest yield to an investor?

A.Treasury Bonds
B.Unsecured debt
C.Senior debts
D.Subordinated debt

A

D.Subordinated debt

Subordinated debt offers the highest risk and therefore offers the highest yield/return.

41
Q
  1. Which of the following is a violation of the fair dealing principle?

A.Fictitious accounts
B.Recommending purchases beyond customer capabiliity
C.Recommending relatively low priced securities
D.Excessive trading activity

A

C.Recommending relatively low priced securities

Common Violations of fair dealing:

A.Recommending speculative low price securities
B.Excessive trading activity
C.Trading in mutual fund shares
D.Fraudulent activity
I.Fictitious accounts
II.Discretionary accounts
III.Unauthorized transactions
IV.Misuses of customer funds or securities
E.Recommending purchases beyond customer capability

edi all of the above to???

42
Q
  1. You are a salesperson at a bank and have scheduled a call with a client in the afternoon, the client always asks for a recommendation on what security to buy. You read the research paper published by the research department that X company is a good buy. Later on in the day, you recommend the same to the client and subsequently the client enjoys a sizeable gain. What principle was violated?

A.suitability
B.Due diligence and reasonable basis
C.Material nonpublic information
D.No violation was made, client made a gain

A

A.suitability

43
Q
  1. You have placed an order to buy a certain security and have gone through all the processes of approval to proceed with this transaction. The approval process went for about 2 days and the price of the security have already moved. A few moments after placing your order, a client placed the same order at a volume that would push prices up that would render the security unattractive anymore. Which course of action should you take?

A.Leave the orders as is. There is no violation to be incurred even if you did not go through the process
B.Leave the orders as is. You have already gotten the clearance to do the transaction
C.Give priority to the transaction of the client then decide if you still want to pursue the transaction
D.Seek approval from your supervisor to put your order ahead of the client since your order has time priority over the client’s

A

C.Give priority to the transaction of the client then decide if you still want to pursue the transaction

44
Q
  1. You are working as a proprietary trader for a company, you want to establish a position in a thinly traded security by end of day so you bought in tranches throughout the day. You have made this decision based on your research of the company. By end of day, there was a noticeable increase in trading volume and since this is a thinly traded security, and price moved up about 4% from previous day. Which of the following is true?

A.This is an example of marking the close
B.There is a violation because he pushed the price of a thinly traded security
C.This is an example of market manipulation
D.none of the above

A

D.none of the above

This is not marking the close because the trader carefully bought in tranches so that prices will not be greatly affected by his large order.

44
Q
  1. In which instance can preservation of confidentiality be waived?

A.Client is engaged in growing and selling marijuana
B.Client has given expressed and written permission to do so
C.The transaction is required to be reported to authorities as provided by the law
D.All of the above

A

D.All of the above

Confidentiality must be preserved except in cases of:
Illegal activity
Required by law
Client permission

45
Q
  1. You have been in the financial sales industry for quite a while and have accumulated a vast scope of experience when it comes to customer service. Recently, a regulation was passed by the BSP that states that clients must sign their confirmations within the day. In practice however, clients were given until settlement date to give a signed trade confirmation. Having been in the industry for so long, you decide to follow the industry convention.

A.There is no violation because adherence to the new regulation would mean less business for him
B.This is an example of violation professionalism
C.No violation has been made since industry standards are different
D.All of the abov

A

B.This is an example of violation professionalism

Professionalism mandates knowledge and application of the stricter law. In this case, the regulation was outright ignored by the salesman in pursuing client transactions.

SEC PH 2 (1 decks)

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