Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SEC Phase 1 > SEC Phase 1 > Flashcards

SEC Phase 1 Flashcards

1
Q
  1. What must a corporation do in order to retire its treasury shares?

A.Erase corporate deficits
B.Amend its Articles of Incorporation
C.Amend its bylaws
D.Gather 2/3 shareholder approval
Developed by

A

A.Erase corporate deficits

Power to acquire own shares
-AKA treasury shares
-Allowed as long as there is unrestricted retained earnings
Developed by

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q
  1. What can not be amended in the Articles of Incorporation?

A.Name of Corporation
B.Name of Incorporators
C.Address of the corporation
D.Purpose of the corporation

A

B.Name of Incorporators

Corporator vs Incorporator – Sec. 5
-Corporator – Shareholders
-Incorporator – original corporators mentioned in the articles of incorporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q
  1. Which of the following is a violation of the trust fund doctrine?

A.Issuance of watered shares
B.Directors dealing with the company
C.Issuance of participating preferred shares
D.Issuance of no par value shares

A

A.Issuance of watered shares

Trust fund doctrine is a principle of judicial invention which says that corporate assets are held as a trust fund for the benefit of shareholders and creditors and that the corporate officers have a fiduciary duty to deal with them properly.

Issuance for less than consideration
- Called watered shares
- Violation of trust fund doctrine

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q
  1. In which of the following scenarios can non voting shares vote?

A.Holding company investing in another company
B.Amendment of by-laws
C.Mortgage of property for a real estate company
D.Incurrence of indebtedness

A

B.Amendment of by-laws

1.Dissolution
2.Amendment of the articles of incorporation
3.Adoption and amendment of by-laws
4.Incurring, creating or increasing bonded indebtedness
5.Increase or decrease of capital stock
6.Investment of corporate funds in another corporation or business in accordance with this Code
7.Merger or consolidation of the corporation with another corporation or other corporations
8.Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q
  1. Who elects the board of directors of a corporation?

A.Common stockholder
B.Preferred stockholder
C.Bond holders
D.Management

A

A.Common stockholder

1.Ordinary
a.Par value
b.No Par Value
Has to have stated value
Cannot be issued for less than PHP5.00 per share
Authorized capital is now called authorized number of shares
Non assessable and deemed fully paid upon issuance
Entitled to voting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q
  1. Which of the following represents the maximum amount of capital a corporation can issue?

A.Authorized Capital
B.Paid in capital
C.Issued capital
D.Shareholders’ equity

A

A.Authorized Capital

Authorized Capital – max no. of shares * par value
-Issued Capital – Issued shares *par value
-Outstanding Capital – Issued AND outstanding
-Treasury shares – issued BUT NOT outstanding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q
  1. Which of the following statements is false?

A.Treasury shares are still considered issued capital
B.Treasury shares are not entitled to dividends
C.Treasury shares are outstanding
D.Treasury shares are not entitled to vote

A

C.Treasury shares are outstanding

Treasury shares
a.Issued but not outstanding shares
b.No voting rights
c.No rights to dividends
d.Can be disposed of for a reasonable price
e.Reduces capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q
  1. Which of the following statements is true?

A.Under the old corporation code, minimum authorized capital is P80,000
B.Under the old corporation code, a corporation with P1,000,000 authorized capital must have at least P62,500 of its capital stock subscribed
C.Under the old corporation code, minimum paid up capital must be P10,000
D.Under the new corporation code of 2019, 50% of authorized capital

A

A.Under the old corporation code, minimum authorized capital is P80,000

The 25-25 rule (gone in new)
P5,000 Min. paid up capital (gone in new)
5,000/.25 = 20,000 (minimum subscribed capital)
20,000/.25 = 80,000 (minimum authorized capital)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q
  1. Which of the following statements is false?

A.Ordinary shares can be issued at no par value
B.A corporation can have both par and no par value shares
C.No par value shares can be issued as payment for pre-incorporation expenses
D.Preferred shares can be issued without par value

A

D.Preferred shares can be issued without par value

1.Preferred
a.Preference as to:
Asset – in case of liquidation
Dividends – in case of profit distribution
b.Can never be no par value
c.Only class that can be deprived of voting rights

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q
  1. Which is false about watered shares?

A.No par value ordinary shares can never be watered shares
B.Watered shares are shares issued for less than full consideration
C.Shares issued for less than their par value are considered watered shares
D.Watered shares are a violation of the trust fund doctrine

A

A.No par value ordinary shares can never be watered shares

No Par Value ordinary shares
Has to have stated value
Cannot be issued for less than PHP5.00 per share
Authorized capital is now called authorized number of shares
Non assessable and deemed fully paid upon issuance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q
  1. An intravires act is an act that is:

A.Within the confines of the powers of a corporation
B.Can only be exercised by the board of directors
C.Outside the scope of authority given to a corporation
D.Amended by a majority of the board of directors and ratified by 2/3 of shareholders

A

A.Within the confines of the powers of a corporation

Ultra Vires vs Intra Vires – Sec. 45
- Ultra Vires - beyond authority
- Intra Vires – within authority

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q
  1. These corporate documents provide for the internal operations of the corporation and how the board of directors must act and run the corporation.

A.Articles of incorporation
B.By Laws
C.SEC Certificate of Registration
D.Certificate of Stock

A

B.By Laws

By-laws - internal government and operations of a corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q
  1. In which of the following circumstances are non voting shares still not allowed to vote?

A.Corporate dissolution
B.Retirement of treasury shares
C.Amendment of by-laws
D.Increase in capital stock

A

B.Retirement of treasury shares

1.Dissolution
2.Amendment of the articles of incorporation
3.Adoption and amendment of by-laws
4.Incurring, creating or increasing bonded indebtedness
5.Increase or decrease of capital stock
6.Investment of corporate funds in another corporation or business in accordance with this Code
7.Merger or consolidation of the corporation with another corporation or other corporations
8.Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q
  1. Articles of incorporation:

A.Is a condition antecedent the formation of the corporation
B.Contain the name of the original corporators
C.State the purpose of existence of the corporation
D.All of the above

A

D.All of the above

Articles of incorporation is a requirement needed before the formation of a corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q
  1. When does a corporation attain juridical personality?

A.Issuance of SEC Cert
B.30 days after issuance of SEC Cert
C.Upon filing of articles of incorporation
D.Upon filing of the by laws

A

A.Issuance of SEC Cert

Sec. 18 - corporate existence starts upon issuance of the SEC Certificate of incorporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q
  1. It is the doctrine that stated that the corporation is a different entity from the shareholders; Disregarded when the law is used to defeat public convenience, justify wrong or cover fraud

A.Doctrine of Corporate Veil of Identity
B.Trust fund doctrine
C.Doctrine of Corporate Opportunity
D.None of the above

A

A.Doctrine of Corporate Veil of Identity

Doctrine of corporate veil; piercing the veil of corporate fiction
n Disregarded when the law is used to defeat public convenience, justify wrong or cover fraud

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q
  1. Which of the following is not provided by in the articles of incorporation:

A.Purpose of existence of the corporation
B.Names of incorporators
C.Registered name
D.Manner of voting of officers

A

D.Manner of voting of officers

Sec. 47
- By-laws – provide for the internal government and operations of a corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q
  1. It is the document that serves as proof of ownership of a share of stock

A.Voting trust agreement
B.Stock Certificate
C.Statement of Account
D.Articles of incorporation

A

B.Stock Certificate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q
  1. Which of the following is false regarding corporate term under the old corporation code:

A.A corporation can extend its corporate term within 5 years from the date of its expiration
B.Corporate term can only be at 50 years at a time
C.A corporation can shorten its corporate term
D.A corporation can extend its life for more than 50 years per instance

A

D.A corporation can extend its life for more than 50 years per instance

Sec. 11
- Corporate term is for a period of max 50 years from date of incorporation.
- Extendible by another 50 years.
- Extension cannot be made 5 years before expiration.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q
  1. Which of the following defines a De Jure Corporation

A.A corporation that has formed within the express powers of the law B.Corporation by estoppel C.A corporation whose veil can be pierced D.A corporation that exists as far as its shareholders and directors are concerned but does not have juridical identity

A

A.A corporation that has formed within the express powers of the law

De Jure – corporation within the proper confines of the law
-Corporation by law

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q
  1. It is now January 2020 and a corporation is nearing the end of its corporate term by September 2025, what course of action can the corporation take:

A.Under the old corp code, immediately apply for an extension of more than 50 years
B.Nothing, under the old corporation code, they cannot apply for extension yet
C.Let the corporation involuntarily dissolve
D.the corporation would have achieved their main purpose of existence before then and would voluntarily dissolve

A

B.Nothing, under the old corporation code, they cannot apply for extension yet

Old corp code:
Sec. 11
-Corporate term is for a period of max 50 years from date of incorporation.
-Extendible by another 50 years.
-Extension cannot be made 5 years before expiration.

New Corp code: perpetual unless AOI provides otherwise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q
  1. All of the following are included in the powers given to a corporation except:

A.Establish a pension, retirement or other plans
B.Adopt bylaws
C.To sue or be sued in its corporate name
D.To sell substantially all of its assets

A

D.To sell substantially all of its assets

Approval of majority of board of directors and 2/3 of shareholders are needed for a corporation to sell substantially all of its assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q
  1. A corporation has sustained a deficit since inception but would like to purchase its own excess shares of stock in the market, which of the following should be their course of action:

A.Buy shares from the market and keep them as treasury shares
B.Eliminate the deficit
C.Split their shares up
D.Issue stock dividends

A

B.Eliminate the deficit

Power to acquire own shares
- AKA treasury shares
-Allowed as long as there is unrestricted retained earnings

Corporation has sustained a deficit in the scenario given

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q
  1. Which of the following reasons are acceptable as exception to the maximum amount allowable as retained earnings:

A.Reserves for corporate expansion
B.Reserve for contingencies
C.Loan covenants
D.All of the above

A

D.All of the above

Sec. 43
-Exceptions to the 100% of capital stock/ share capital:
a.Corporate expansion
b.Loan covenants
c.Reserve for contingencies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q
  1. Which of the following is not found in the by-laws of a corporation:

A.Time, place and manner of calling or conducting meetings
B.Qualifications of directors
C.Purpose of the corporation
D.Manner of issuing stock certificates

A

C.Purpose of the corporation

Purpose of the corporation is stated in the articles of incorporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q
  1. Which of the following combination of roles is a violation of the corporate code:

A.Treasury and Secretary
B.President and Secretary
C.Treasurer and President
D.B and C

A

D. B and C

Sec.25 - President (CEO) can never be the same as the treasurer or secretary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q
  1. Which of the following is a violation of the corporate code with regard its officers:

A.A non resident treasurer
B.A non citizen president
C.A Swiss secretary
D.Treasurer being the secretary at the same time

A

C. A Swiss secretary

Sec. 25 – Corporate Secretary must be RESIDENT CITIZEN OF PH

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q
  1. It is an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used:

A.By laws
B.Proxy
C.Voting trust agreement
D.Certificate of stock

A

C.Voting trust agreement

Voting trust agreements are agreements between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q
  1. Which of the following cannot be the consideration for issuance of shares of stock in a corporation:

A.Future Service
B.Issuance of bonds
C.Promissory notes
D.All of the above

A

D.All of the above

Sec. 62
Can never become the consideration for stocks:
1.Future service
2.Promissory notes
3.Issuance of bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q
  1. What is the right sequence?

A.Declaration Date, ex date, Record date, payment
B.Declaration date, record date, ex date, payment
C.Record date, declaration date, ex date, payment
D.Exdate, declaration date, record date, payment

A

A.Declaration Date, ex date, Record date, payment

1.Declaration date
n Announcement of record date and payment date
2.Ex date - first business day on which a share will trade without its dividend
-If holder before ex date – will receive dividends
- If holder after ex date – will not receive dividends
3.Holder of record - business day on which a shareholder that is listed in the company’s records is deemed to have ownership of the company’s shares for the purpose of deciding who can and who cannot receive a dividend when paid
4.Payment date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q
  1. It is a legal arrangement wherein another person is authorized to act on behalf of another party or a format that allows a shareholder to vote without being physically present at the meeting.

A.By laws
B.Proxy
C.Voting trust agreement
D.Certificate of stock

A

B.Proxy

Proxies are legal arrangements wherein another person is authorized to act on behalf of another party or a format that allows a shareholder to vote without being physically present at the meeting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q
  1. This describes the principle that sale of a corporation’s shares must first be offered to existing shareholders before the same can be sold to third parties:

A.Right of first refusal
B.Doctrine of corporate interest
C.Pre-emptive right
D.Trust fund doctrine

A

A.Right of first refusal

Right of first refusal pertains to the sale of the shares to third parties. Must be explicitly provided in the articles and the stock certificate. It must first be offered to existing stockholders before selling to third parties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q
  1. This pertains to the right of stockholders to maintain their percentage ownership in the corporation. It is done by subscribing to any issuance or disposition of shares from the capital stock in proportion to their holdings :

A.Right of first refusal
B.Doctrine of corporate interest
C.Pre-emptive right
D.Trust fund doctrine

A

C.Pre-emptive right

Pre-emptive right is the right of stockholders to maintain their percentage ownership to the corporation. It is done by subscribing to any issuance or disposition of shares from the capital stock in proportion to their holding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q
  1. Which of the following actions does not necessitate the voting of non voting shares:

A.Dissolution
B.Amendment of by-laws
C.Extension/ shortening of corporate term
D.Merger or consolidation

A

C.Extension/ shortening of corporate term

1.Dissolution
2.Amendment of the articles of incorporation
3.Adoption and amendment of by-laws
4.Incurring, creating or increasing bonded indebtedness
5.Increase or decrease of capital stock
6.Investment of corporate funds in another corporation or business in accordance with this Code
7.Merger or consolidation of the corporation with another corporation or other corporations
8.Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q
  1. How can a corporation raise new capital?

A.Declare dividends out of unrestricted retained earnings
B.Issue debt securities
C.Issue capital
D.All of the above

A

C. Issue capital

Though long term debt can be considered

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q
  1. Which of the following is true regarding preferred shares:

A.Can be with preference to assets or preference to profits
B.Cannot be deprived of voting rights
C.Can be issued without par value
D.Cannot participate in profits along with ordinary shares

A

A.Can be with preference to assets or preference to profits

1.Preferred
a.Preference as to:
Asset – in case of liquidation
Dividends – in case of profit distribution
b.Can never be no par value
c.Only class that can be deprived of voting rights

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q
  1. Which has senior claim in a corporate dissolution?

A.Common shares
B.Rights
C.Warrants
D.Options

A

A.Common shares

Rights refer to the privilege granted to existing shareholders to receive additional shares of common stock.
Warrants are securities that entitle the holder to buy the underlying stock.
Options can be employee benefits in the form of an option given or sold by a company to give the buyer the right to buy the common shares of a company.
Since these securities can only become common shares by virtue of an exercise, they have no right to corporate assets in case of a dissolution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q
  1. Which two of the following fixed income instruments are tax free?
    I.7 year LTNCD
    II.Bank LT2
    III.4 year Time deposit
    IV.3 year corporate bonds

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

A

C.I,II

Common Features of Tier 2 bank capital – tax free for individuals and minimum term of 5 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q
  1. You have invested PHP1,000,000 in a time deposit security for 3 months at 5% interest, how much gross interest will you earn by the end of the tenor?

A.PHP10,000.00
B.PHP12,500.00
C.PHP50,000.00
D.PHP25,000.00

A

B.PHP12,500.00

1,000,000* .05* 3/12 = 12,500

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q
  1. You have invested PHP1,000,000 in a time deposit security for 3 months at 5% interest, how much will you receive by the end of the tenor?

A.PHP1,010,000.00
B.PHP1,012,500.00
C.PHP10,000.00
D.PHP12,500.00

A

A.PHP1,010,000.00

TRICKY HAHHAAH SINCE NET,
X .20 FORDA TAX

Principal 1,000,000.00
Interest – net of taxes
(1,000,000.003/12.05)*(1-.20) 10,000.00
Total amt to be received 1,010,000.00

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q
  1. Which of the following best describes a normal yield curve?

A.3 mo. Rate= 3%, 6 mo. Rate= 3.2%, 12 mo. Rate = 3.5%, 24 mo. Rate =3.4%
B.3 mo. Rate= 3.3%, 6 mo. Rate= 3.2%, 12 mo. Rate = 3.5%, 24 mo. Rate =3.4%
C.3 mo. Rate= 3%, 6 mo. Rate= 3.2%, 12 mo. Rate = 3.125%, 24 mo. Rate =3.4%
D.3 mo. Rate= 3%, 6 mo. Rate= 3.2%, 12 mo. Rate = 3.5%, 24 mo. Rate =3.6%

A

D.3 mo. Rate= 3%, 6 mo. Rate= 3.2%, 12 mo. Rate = 3.5%, 24 mo. Rate =3.6%

Normal yield curve is wherein longer maturities have higher yields

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q
  1. You previously bought RTB 10-1 priced at 99 when interest rates were at 5%. Three months later interest rates when down to 4%, what would be the likely effect on bond prices?

A.increase
B.decrease
C.Stay the same
D.indeterminable

A

A.increase

Law of Fixed Income: Yields and prices are always inversely related

Bond prices increase when interest rates go down.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q
  1. You previously bought RTB 10-3 priced at 104 when interest rates were at 5%. Three months later interest rates when down to 4%, which of the following is true?

A.You bought the instrument at a discount
B.You bought the instrument at par
C.You bought the instrument at a premium
D.indeterminable

A

C.You bought the instrument at a premium

If the bond was bought at par, price should be 100. Anything less than 100 is a discount and anything more is a premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q
  1. Which of the following best describes the relationship between interest rates and bond prices?

A.Always inverse
B.Always direct
C.Sometimes inverse
D.Sometimes direct

A

A.Always inverse

Law of Fixed Income: Yields and prices are always inversely related

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q
  1. What is the best strategy for an investor with an outlook of declining interest rates?

A.Invest in long term fixed income assets
B.Wait further into the future for better investment outlets
C.Invest in short term fixed income assets
D.None of the above

A

A.Invest in long term fixed income assets

Since the outlook is for interest rates to go down, it is better to invest now in long term fixed income assets wherein rates are higher

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q
  1. Treasury bills are protected from what type of risk?

A.Market risk
B.Credit risk
C.Inflation risk
D.Liquidity risk

A

B.Credit risk

Treasury bills are issued by the government and are therefore free from credit risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q
  1. What happens to bond prices when inflation goes down?

A.decrease
B.increase
C.Stay the same
D.No relationship between the two

A

B.increase

Law of Fixed Income: yields and prices are always inversely related
Inflation causes interest rates to increase, a decrease in inflation would mean a decrease in interest rates.
Decrease in interest rates would mean an increase in bond prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q
  1. Jose got PHP75,000 over the past 3 years on his PHP500,000.00 RTB Bond. What is the coupon rate of the RTB?

A.6.25%
B.5%
C.2.5%
D.5.17%

A

A.6.25%

75,000/3 = 25,000 - interest received per year (net of taxes since RTB)

25,000/ (1-.2) = 31,250 - gross interest earned per year
31,250/500,000 = 6.25%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q
  1. What is not a feature that can be found in a bond?

A.callable
B.puttable
C.convertible
D.None of the above

A

D.None of the above

All can be features found in a bond

40
Q
  1. A bond purchased between interest payment dates is paid at what price?

A.Clean price
B.Bid price
C.Dirty price
D.None of the above

A

C.Dirty price

Dirty Price
- Price of a bond if it is bought with accrued interest

41
Q
  1. It is the return an investor would get if he were to invest in a fixed income instrument today:

A.Yield to maturity
B.Current yield
C.Interest rate
D.None of the above

A

A.Yield to maturity

Yield to maturity
- Return an investor would get if he were to invest in the bond today

42
Q
  1. Which of the following is not a secured fixed income security?

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

A

A.Debentures

Bond Security
1.Secured
A.First mortgage
B.Collateral trust bonds
C.Equipment trust certificates
2.Unsecured
A.Debentures
B.Subordinated debenture bonds
*Usually with conversion privilege

43
Q
  1. Which of the following ratings describes an investment grade fixed income asset?

A.BBB-
B.B
C.BB+
D.B+

A

A.BBB-

Lowest investment grade is BBB-
Speculative grade is BB+ and below

44
Q
  1. Which of the following does not hold true for long term negotiable certificates of deposit?

A.Non redeemable
B.Non taxable for all investors
C.Tradable at the secondary market
D.Cannot be used as collateral

A

B.Non taxable for all investors

LTNCDs are non taxable only for individual investors. Institutional investors are taxed accordingly

45
Q
  1. What must the government do to increase employment in a country?

A.Reduce interest rates
B.Increase interest rates
C.Pay off international debt
D.Spend more for infrastructure

A

D.Spend more for infrastructure

Fiscal Policies (C + I + G + X – M) – demand side
-Private Consumption (C)
-Investments (I)
-Government Spending (G)
-Exports (X)
-Imports (M)

To increase employment, the demand side for funds must go up, in which increasing one of C,I,G,X must happen. Spending for infrastructure falls within government spending (G).

46
Q
  1. In general, if expected inflation is 7% but the actual figure announced by government is 11%, what happens to stock prices?

A.Increase by 11%
B.Decrease by 11%
C.No change
D.Decrease

A

D.Decrease

Since actual inflation > expected inflation. Stock prices will decrease because generally higher prices but given the information, there is no way of knowing how much stock prices will decrease.

47
Q
  1. If the growth rate of an economy is 6% but inflation is 3%, and nominal interest rate is at 8%. What is the real growth rate of the economy

A.2%
B.4%
C.3%
D.Cannot be determined

A

C.3%

Real growth rate = nominal growth rate (6%) – inflation (3%) = 3%

48
Q
  1. What combination of BSP monetary tools would increase money supply:

A.Sell bonds, reduce overnight rate, reduce reserve requirement
B.Buy bonds, reduce overnight rate, reduce reserve requirement
C.Buy bonds, increase overnight rate, increase reserve requirement
D.Sell bonds, increase overnight rate, increase reserve requirement

A

B.Buy bonds, reduce overnight rate, reduce reserve requirement

Monetary Policies – Supply side
-Open Market Operations – buy and sell of government securities
-Policy Rates (RP, RRP)
-Reserve Requirements
-Moral Suasion

Buying bonds – BSP buys bonds and injects money into economy

Reduce overnight rate – less money is placed in the BSP and more into the economy

Reduce reserve requirement – less money in the reserves, more money into the economy

49
Q
  1. A company has a current ratio of 1.5. Cash is used to pay off some short term debt. What happens to the ratio?

A.Increases
B.Decreases
C.Stays the same
D.Cannot be determined

A

A.Increases

Example:

Current assets (including cash) = 1,200; current liabilities = 800; cash = 200; ratio: 1.5

Current assets (including cash) = 1,000; current liabilities = 600; cash = 0; ratio: 1.67

50
Q
  1. What is comprised of M2?
    I.Currency in circulation
    II.Checking accounts
    III.Savings deposits
    IV.Time deposits
    V.Promissory notes

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

A

C.I, II, III, IV

M2 = M1 + savings and time deposits
= currency in circulation + checking accounts + savings and time deposits

51
Q
  1. What is not included in M1?

A.Time deposits
B.Checking accounts
C.Coins
D.Currency

A

A.Time deposits

M1= currency in circulation + checking accounts

51
Q
  1. What makes a good market?

A.Liquid
B.Internally efficient
C.Externally efficient
D.All of the above

A

D.All of the above

A good market is characterized by liquidity and efficiency

52
Q
  1. If the government is concerned about the economy overheating, what should it do?

A.Raise interest rates
B.Sell bonds
C.Increase government spending
D.Nothing, its out of their control

A

A.Raise interest rates

An economy overheats when there is too much money and activity in the economy.

Therefore decreasing money supply (supply side) or fiscal policies (demand side) would be needed. One way to decrease the money supply is to raise interest rates

52
Q
  1. At what point in the economic cycle is unemployment the lowest?

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

A

B.Peak

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

53
Q
  1. What should the government do if the economy concerned about unemployment?

A.Raise taxes
B.Increase government spending
C.Raise interest rates
D.Buy Bonds

A

B.Increase government spending

Fiscal Policies (C + I + G + X – M) – demand side
-Private Consumption (C)
-Investments (I)
-Government Spending (G)
-Exports (X)
-Imports (M)

To increase employment, the demand side for funds must go up, in which increasing one of C,I,G,X must happen. Spending for infrastructure falls within government spending (G).

53
Q
  1. Which government agency is in charge of controlling money supply?

A.BSP
B.PSE
C.SEC
D.PDEx

A

A.BSP

BSP is the government agency in charge of controlling money supply. Along with its mandate of Price Stability, Stable Banking System and Safe and reliable payments system

54
Q
  1. What phase of the economic cycle is marked by rising interest rates?

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

A

A.Expansion

Interest rates are rising in an expansionary stage of an economy. High during peaks, decreasing in a recession and low during a trough.

55
Q
  1. If a company has Accounts receivable turnover of 8 and industry turnover is 24, which is false?

A.Industry collection is longer than 45.6 days
B.Company takes too long to collect their receivables
C.Company takes an average of 45.6 days to collect receivables
D.Industry takes an average of 15.20 days to collect receivables

A

A.Industry collection is longer than 45.6 days

Collection days of company = 365/8 = 45.6
Industry avg collection days = 365/24 = 15.20
Therefore on average, the company can collect its receivables at around 45.6 days

56
Q
  1. Which type of index market index is biased towards high capitalization stocks?

A.Equally weighted
B.Price weighted
C.Market weighted
D.None of the above

A

C.Market weighted

Market weighted indices have natural bias towards high capitalization stocks.

Price weighted indices have natural bias towards high priced stocks.

Equally weighted indices have a bias towards small capitalization stocks.

57
Q
  1. A company has the following information:

Cash
300
Accounts Payable
500
Accounts Receivables
100
Mortgage Payable
600
Inventories
200
Bonds Payable
300
Prepaid Expenses
300
Common Equity
400
Office Supplies
100
Preferred Shares
100
Fixed Assets
1,000
Retained Earnings
100
Total Assets
2,000
Liabilities and Equity
2,000

How much is the current assets of the company?

A.900
B.600
C.1,000
D.400

A

C.1,000

Cash(300)+Accts Rec(100)+inv(200)+Prepaid Exp(300)+ Office supplies(100) = 1,000

58
Q
  1. A company has the following information:
    How much is the stockholder’s equity of the company?

A.500
B.600
C.1,000
D.400

A

B. 600

59
Q
  1. M1 is consisted of:
    I.Coins in circulation
    II.Savings accounts
    III.Checking accounts
    IV.Time deposits
    V.Bills in circulation

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

A

B.I, III, V

M1= currency in circulation + checking accounts

60
Q
  1. The person employed full time by a Broker Dealer whose responsibilities include internal control supervision of other employees, agents, salesmen, officers, directors of such Broker Dealer for compliance with the code and rules and regulations is known as:

A.Broker Dealer
B.Salesman
C.Trader
D.Associated Person

A

D.Associated Person

60
Q
  1. Under Corporate Governance Code, which 2 roles conflict with each other?

A.President and corporate secretary
B.President and treasurer
C.Chairman and CEO
D.All

A

C.Chairman and CEO

A and B are provided for under the Corporation Code
C is provided for in the Corporate Governance Code

61
Q
  1. What does SRO stand for?

A.Securities Regulation Organization
B.Securities Regulation Office
C.Self Regulating Organization
D.Securities Registration Office

A

C.Self Regulating Organization

62
Q
  1. Which of the following is not a practice followed in the markets?

A.Broker dealers should always prioritize the orders of the clients ahead of their own
B.Market participants can act on nonmaterial public information
C.Market participants should always exercise personal judgment in giving recommendations to clients
D.Insider trading is prohibited

A

C.Market participants should always exercise personal judgment in giving recommendations to clients

Under professionalism, independence and objectivity, market participants should always practice professional judgment

63
Q
  1. What it the capitalization requirement for a broker that deals only proprietary shares and has no custody of the same?

A.2.5MM
B.5.0MM
C.10.0MM
D.None of the above

A

Those acquiring the business of existing broker dealer firms and will be registered in a clearing agency. But if not registered in a clearing agency, Commission may allow for lower capitalization:
2.5MM – purely proprietary shares and not holding securities

64
Q
  1. It is defined as any person who engages on behalf of an issuer of securities, or itself as an issuer of securities, by: (i.) countersigning such securities upon issuance; (ii.) monitoring the issuance of such securities with a view toward preventing unauthorized issuance, a function commonly performed by a person called a registrar; (iii.) registering the transfer of such securities; (iv.) exchange or converting such securities; and/or (v.) transferring record ownership of securities by bookkeeping entry without physical issuance of securities certificates.

A.Transfer Agent
B.Custodian
C.Registry
D.Underwriter

A

A.Transfer Agent

64
Q
  1. Any person or company acting as intermediary in making deliveries upon payment to effect settlement in securities transactions.

A.Transfer Agent
B.Salesman
C.Registry
D.Clearing agent

A

D.Clearing agent

65
Q
  1. A natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities

A.Transfer Agent
B.Salesman
C.Registry
D.Clearing agent

A

B.Salesman

66
Q
  1. Any person who has purchased from an issuer with a view to, or sells for an issuer in connection with, the distribution of any security or participates in any such undertaking, but such term shall not include a person whose interest is limited to a commission

A.Broker
B.Dealer
C.Underwriter
D.Clearing agent

A

C.Underwriter

67
Q
  1. If a client wishes to put an order with the intention of having his total order matched at the indicated price and withdrawn when the whole amount cannot be matched, he should put a/an:

A.Iceberg Order
B.Limit Order
C.Fill or Kill order
D.Fill and Kill order

A

C.Fill or Kill order

68
Q
  1. Which of the following information are included in the order ticket prepared by the Brokering participant?

A.Price at which order was executed
B.Whether solicited or unsolicited
C.Name of salesman
D.All of the above

A

D.All of the above

A.Info needed:
I.Name of customer
II.Name of salesman
III.Execution price
IV.Solicited or unsolicited
n Customer first mentions the security – unsolicited
n Recommended by salesman – solicited
B.Execution of orders in which they are received
C.Time stamping
D.If taken by telephone
I.Recorded line that is kept for a period min of 6 months

69
Q
  1. Which of the following is true?
    I.Qualified Individual Buyers have a maximum of P25MM annual gross income for at least 2 years prior to registration
    II.Qualified Institutional Buyers have a minimum of P100MM in income or at least P60MM in SEC registered securities
    III.AMLC required reporting of CTR and STR incidents within 5 days
    IV.Qualified Individual Buyers must have engaged in securities trading in either their personal capacity or through a fund manager for at least a year or held a position of responsibility in any professional or business entity that requires expertise in securities trading for at least 2 years
    V.QIB registration is valid for 3 years

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

A

D.III, IV

Qualified Individual Buyer (QIB)

1.Minimum annual gross income of P25MM for at least 2 years prior to registration or
2.SEC registered portfolio of at least P10MM or
3.Personal net worth of at least P30MM
AND
1.Engaged in securities trading either in personal capacity or through a fund manager for at least one year or
2.Held a position of responsibility in any professional or business entity that requires expertise in securities trading for at least 2 years
3.2 year validity

69
Q
  1. The following are Qualified Investor Participants except:

A.Insurance Company
B.Investment Company
C.Entity with assets of more than PHP1,000,000.00
D.Entity with assets of more than PHP1,200,000.00

A

C.Entity with assets of more than PHP1,000,000.00

Who are qualified investors:
Traditional
1.Bank;
2.Registered investment house;
3.Insurance company;
4.Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
5.Investment company; or
6.Any other entity with at least P1,200,000,000 in total assets
7.Such other person as the Commission may by rule determine as qualified buyers, on the basis of such factors as financial sophistication, networth, knowledge, and experience in financial and business matters, or amount of assets under management.

69
Q
  1. In the event a trading participant’s license to trade is suspended or revoked:

A.Outstanding contracts of the customers will be taken over by another trading participant
B.The SEC requires trading participants to put up margins against customer transactions
C.Owners of the trading participant will honor the obligations to its customers
D.All of the above

A

A.Outstanding contracts of the customers will be taken over by another trading participant

In the event a trading participant’s license to trade is suspended or revoked:
Exchange member – arrange for a member to take over the outstanding contracts
Non exchange member – Commission will require transfer of account to another broker dealer

70
Q
  1. How do you control the trading room? Choices are I, II, III, IV
    I.Restrict access to superstar traders
    II.Not all can be sold to client
    III.Don’t separate front, middle and back office
    IV.Risk model can’t be fully relied on

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

A

B.I, II, IV

Chinese walls must exists between front, middle and back office
Client suitability must take place before anything can be sold to a client
Risk models are just models and are assumptive

71
Q
  1. If a stockholder has 100 shares at PHP60 each, and receives a 10% stock dividend, which statement is true?

A.He receives 100 shares valued at 60
B.He now holds 110 shares valued at 54.50 each
C.His holdings are now worth P6,600.00
D.None of the above

A

B.He now holds 110 shares valued at 54.50 each

Cost per share: PHP 60; Shares held: 100;
Total Cost = (PHP 60*100)= PHP 6,000
Total cost per share BEFORE stock dividends = PHP 60

Shares held after stock dividends = (100*10%)+100 =110
Total cost = still at PHP 6,000 (for stock dividends the cost is the same, it will just be divided among larger number of shares)
Total cost per share = PHP 6,000/110 = PHP 54.50

72
Q
  1. B bought 100 shares at PHP 60 per share with PHP 500 in transaction costs, after a while he received a notice that he will receive a 20% stock dividend. Which of the following is true?

A.His overall holdings are now worth less
B.His average cost is now at PHP 65
C.He now owns 120 shares at PHP 54.16
D.He should sell the stock because its now losing money

A

C.He now owns 120 shares at PHP 54.16

Cost per share: PHP 60; Shares held: 100; transaction cost: PHP 500
Total Cost = (PHP 60100) + 500 = PHP 6,500
Total cost per share BEFORE stock dividends = PHP 65
Shares held after stock dividends = (10020%) + 100 = 120
Total cost = still at PHP 6,500 (for stock dividends the cost is the same, it will just be divided among larger number of shares)
Total cost per share = PHP 6,500/120 = PHP 54.16

72
Q
  1. C bought 100 shares at PHP 200 per share, in doing so he incurred a transaction cost of 500. Which of the following is true?

A.His average cost is PHP 200
B.He can make a profit as long as he sells more than PHP 200
C.His average cost is PHP 205
D.He makes a profit if he sells at PHP 205

A

C.His average cost is PHP 205

Cost per share: PHP 200; Shares bought: 100; Transaction Cost: PHP 500
Total Cost = (PHP 200*100) + 500 = PHP 20,500
Total cost PER share = PHP 20,500/100 = PHP 205

73
Q
  1. J received word that the company he invested in is going to close down. Which of the following is true assuming he bought ordinary shares?

A.Ordinary shares will be paid out first
B.Book value per share is a reliable measure of what he will get
C.He is last in priority in terms of payments
D.His shares are now worthless

A

C.He is last in priority in terms of payments

Sequence of payments

1.Secured creditors
2.Employees – Priority creditors
3.Suppliers
4.Government
5.Unsecured external creditors
6.Shareholders
Book value per share assumes assets can be disposed at market value. In a company that is closing down, assets are usually sold at a deep discount

73
Q
  1. C bought 100 shares at PHP 200 per share, after a while he received word that there will be a 3:1 stock split. Which of the following is true?

A.His average cost is PHP 200
B.He now owns a lot more shares but at PHP 66.67
C.His can make more money because he received free shares
D.He now owns less shares at PHP 606.06

A

B.He now owns a lot more shares but at PHP 66.67

Cost per share = PHP 200; shares held = 100
Total cost = PHP 200*100 = PHP 20,000
After stock split, 3 shares will be given for each share held; so 100 shares will become 300 shares
Total cost = still at PHP 20,000
Cost per share = PHP 20,000/300 = PHP 66.67

74
Q
  1. Which transactions is exempt from registering with the SEC?
    I.Evidence of indebtedness of a financial institution (duly licensed by the BSP)
    II.Evidence of indebtedness issued to the BSP under its Open Market Operations (OMO) and/or rediscounting operations
    III.Evidence of indebtedness issued to banks, their trust accts
    IV.Bills of exchange arising from a bona fide sale of goods and service which are distributed and/or traded by banks or investment houses duly licensed by SEC and BSP through an organized market

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

A

D.I, II, III, IV

1.Evidence of indebtedness of a financial institution (duly licensed by the BSP)
2.Evidence of indebtedness issued to the BSP under its Open Market Operations (OMO) and/or rediscounting operations
3.Evidence of indebtedness issued to banks, their trust accts
4.Bills of exchange arising from a bona fide sale of goods and service which are distributed and/or traded by banks or investment houses duly licensed by SEC and BSP through an organized market
5.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 P50MM

75
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 PHP 50MM

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 P50MM

76
Q
  1. Which of the following statements are true?

I.Brokering participants can only trade for clients
II.Dealing participants can only trade for the firm’s account
III.Deals for both brokering and dealing clients are be entered on the same terminal
IV.Dealing participants can trade both client and firm accounts

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

A

B.I, II

Dealing participants must only buy and sell securities for its own account.
Brokering participants must only buy and sell securities for the account of its customers
Dealing terminal – exclusively used for trades for its own account
Sales terminal – exclusively for trades for the account of its customers

77
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

78
Q
  1. You want to invest in RTB 10-3. You were given the following choices by the branch manager:
    RTB 10-3 101-101.25
    Which of the following is true?

A.You can buy RTB 10-3 at 101.25
B.You can buy RTB 10-3 at 101
C.Both are correct
D.None are correct

A

A.You can buy RTB 10-3 at 101.25

Price takers buy at the offer (101.25)

79
Q
  1. A client walks into the branch and buys a treasury bill priced at 95. However, because the client was rushing to go to the mall, he was not able to sign the buy confirmation. Luckily, the branch manager had the client’s mobile no., client did not want to go back to the branch later that day but just committed to go back the next day to sign the documents. Which of the following are true?

A.Transaction is in violation of SRC
B.Confirmations should be done during normal office hours on the day of the transaction
C.No violation was incurred as client will sign the documents the next day
D.A and B

A

D. A and B

Confirmation is normally during office hours and on day of transaction
n If confirmation is via facsimile or email – next business day 12noon

80
Q
  1. A prospective client walks into a branch and wants to open an NROSS account to trade treasury bills. The client is highly knowledgeable about the markets and worries that prices will move quickly. The branch manager then proceeded with the buy transaction and asked the client to sign the documents after the transaction was concluded. Which of the following is true?

A.No violation as the client is knowledgeable of the risks he took in the transaction
B.There is a violation since a written agreement should be provided before any service is rendered
C.No violation was incurred as client signed all the relevant documents
D.None of the above

A

B.There is a violation since a written agreement should be provided before any service is rendered

There must be a written agreement BEFORE entering into any service to be provided

81
Q
  1. Which of the following is true?

A.Dealers can only buy and sell for its own account
B.Brokers can only buy and sell for the account of its customers
C.Trades for dealers and brokers should be entered on different terminals
D.All of the above

A

D.All of the above

Dealing participants must only buy and sell securities for its own account.
Brokering participants must only buy and sell securities for the account of its customers
Dealing terminal – exclusively used for trades for its own account
Sales terminal – exclusively for trades for the account of its customers

82
Q
  1. Customer statements should be sent out:

A.Weekly
B.Daily
C.Monthly
D.Quarterly

A

C.Monthly

Monthly statements
-Securities positions
-Money balances
-Account activity

82
Q
  1. Which of the following is true?

A.A trader can execute trades for both the account of the trading participant and customers
B.The same officers must directly supervise both the actions of salesmen and traders
C.Salesmen can accept trade confirmations on the customers’ behalf if the client cannot do so immediately
D.None of the above

A

D.None of the above

Dealing participants must only buy and sell securities for its own account.
Brokering participants must only buy and sell securities for the account of its customers
Different officers that directly supervise and are accountable for the actions of the salesmen and traders
Employee or salesman ARE NOT authorized to accept confirmation for or on behalf of a customer

83
Q
  1. Which concept applies to performance presentation for clients:

A.Fair
B.Accurate
C.Complete
D.All of the above

A

D.All of the above

Performance presentation must be fair, accurate and complete

84
Q
  1. The following are true for registries except for:

A.BSP Accredited bank
B.Appointed by the investor
C.Appointed by the issuer
D.Monitors transfer of ownership

A

B.Appointed by the investor

Registries
-Other than the Bureau of Treasury
-BSP accredited bank
-Appointed by the issuer
-Maintains security registry book
-Monitors transfer of ownership
-Issues registry confirmation to buyers

85
Q
  1. Suitability is most concerned with the study of the customers’:

A.Situation
B.Needs
C.A & B
D.None of the above

A

C.A & B

Suitability: Reasonable grounds based on customer situation and needs

85
Q
  1. Which of the following applies to record keeping of client information?:

A.Records should be kept for a minimum of 5 years
B.Records should be kept in the Philippines
C.True and full identity of beneficial owners must be established
D.All of the above

A

D.All of the above

Record retention is for a minimum of 5 years

Records should be kept in the Philippines

Identity, address and contact details of person that stands to gain economic benefit/ bears economic risk, especially in discretionary accounts (establish beneficial interest)

86
Q
  1. Qualified individual buyers must have:

I.Experience in the securities trading for at least one year either in a personal or professional capacity
II.Personal net worth of at least PHP 20MM
III.SEC registered portfolio of at least PHP 30MM

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

A

A.I

Qualified Individual Buyer (QIB)

1.Minimum annual gross income of PHP 25MM for at least 2 years prior to registration or
2.SEC registered portfolio of at least PHP 10MM or
3.Personal net worth of at least PHP 30MM
AND
1.Engaged in securities trading either in personal capacity or through a fund manager for at least one year or
2.Held a position of responsibility in any professional or business entity that requires expertise in securities trading for at least 2 years
3.2 year validity

87
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.I, II, III, IV

A

D.I, II, III, IV

Client is invested in a fixed income security (market and liquidity) of another country (sovereign risk) in the currency of the foreign country (currency risk)

88
Q
  1. The return on long term corporate bonds is higher than the return on long term treasury bonds as a result of:

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

A

A.Credit risk

Since the term of the bonds are identical (both long term), there is no compensation for the difference in horizon, since there isn’t any.

Therefore the return premium the corporate bonds offer must be from the assumption of credit risk.

89
Q
  1. What should be considered in constructing a client’s portfolio?

A.Risk return profile
B.Liquidity needs
C.Time horizon
D.All of the above

A

D.All of the above

Things to consider for a client portfolio:
1.Risk return profile
2.Liquidity
3.Legal and regulatory circumstances
4.Time Horizon
5.Taxes
6.Unique Circumstances

90
Q
  1. A 70-year old client wants to buy a 25 year corporate bond. Which of the following constraints show a mismatch?

A.Risk return profile
B.Liquidity needs
C.Time horizon
D.All of the above

A

C.Time horizon

Client will be 105 years old by maturity of the bond. This would present a mismatch in time horizon as the client would probably not need an investment of such long term horizon.

91
Q
  1. It is defined as the risk that assets in a portfolio might be too focused on a specific asset class or security providing limited diversification of risk.

A.Concentration risk
B.Longevity risk
C.Market risk
D.All of the above

A

A.Concentration risk

Concentration risk is the risk that the assets in a portfolio might be too focused or concentrated in a specific asset class

92
Q

113.
I.In investing, all effort must be exhausted to eliminate risk
II.In investing, smart, calculated risks are taken to yield optimal return
III.In portfolio management, return objectives should define the portfolio composition

A.Statement I is true; statement II is true; statement III is true
B.Statement I is false; statement II is true; statement III is false
C.Statement I is false; statement II is false; statement III is false
D.Statement I is true; statement II is false; statement III is true

A

B.Statement I is false; statement II is true; statement III is false

In investing, taking good risk – reward opportunities are taken to get good return. In doing so, risks must be calculated to avoid large losses. Therefore, risk AND reward must be taken into account when defining portfolio composition.

93
Q
  1. There have been news speculation that a positive news will be released and will affect the stock price of ABC Corporation. Upon hearing this, a customer placed an order amounting to 50% of his life savings into buying the stock. Shortly thereafter, the stock price soared and the client was very happy. Which of the following is true?

A.Client was not investing
B.Client was gambling his funds in the stock market
C.Broker should have taken time to advise the client of the risks he’s taking
D.All of the above

A

D.All of the above

94
Q
  1. When should portfolio composition be revisited?

A.Change in the risk and reward profile of the client
B.Change in the constraints that were initially set
C.Annually
D.All of the above

A

D.All of the above

95
Q

116.
I.Client work
II.Preferred age of retirement

A.I is needed for the construction of a portfolio
B.I and II are needed for the construction of a portfolio
C.I and II are not needed for the construction of a portfolio
D.II is needed for the construction of a portfolio

A

B.I and II are needed for the construction of a portfolio

Both are needed information for the proper profiling of the client. It is prudent to not give the portfolio more exposure to the industry the client is working in.

96
Q
  1. How many days does a covered institution have to report its covered and suspicious transactions?

A.Covered transactions= 5 days; suspicious transactions = 10 days
B.Covered transactions= 3 days; suspicious transactions = 5 days
C.Covered transactions= 5 days; suspicious transactions = 5 days
D.Covered transactions= 1 day; suspicious transactions = 3 days

A

C.Covered transactions= 5 days; suspicious transactions = 5 days

Reporting for both CTR and STR is 5 days from occurrence

CTR= COVERED TRANSACTION REPORT

STR= SUSPICIOUS TRANSACTION REPORT

97
Q
  1. Which of the following transactions should merit a suspicious transaction report?

A.Transaction was to donate to the National Rice Authority
B.Client deposited a PHP10MM check, average amounts of the client’s check is PHP 8MM
C.Client deposits 1,000 checks worth PHP200,000 each
D.Client received an inheritance sum from his grandparents

A

C.Client deposits 1,000 checks worth PHP200,000 each

STR Criteria:
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

98
Q
  1. Which of the following describes a covered transaction?

A.A transaction of cash or other equivalent in excess of PHP 500,000.00
B.No underlying legal or trade obligation, purpose or economic justification
C.Transactions related to unlawful activity or offense
D.Amount is not commensurate with business or financial capacity

A

A.A transaction of cash or other equivalent in excess of PHP 500,000.00

CTR: transaction of cash or other equivalent money instrument in excess of PHP 500,000.00 a day

98
Q
  1. Which of the following is a covered institution?

A.Banks and all other entities, including their subsidiaries and affiliates, supervised and regulated by the BSP
B.Insurance companies and all other institutions supervised or regulated by the BSP
C.Securities dealers, pre-need companies, foreign exchange corporations and other entities supervised or regulated by the SEC
D.All of the above

A

D.All of the above

Covered Institutions
1.Banks and all other entities, including their subsidiaries and affiliates, supervised and regulated by the BSP
2.Insurance companies and all other institutions supervised or regulated by the BSP
3.Securities dealers, pre-need companies, foreign exchange corporations and other entities supervised or regulated by the SEC

SEC Phase 1 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions