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SIE Ch. 1 Flashcards

1
Q

What regulatory agency was created by the securities exchange act of 1934?

A

The securities exchange commission (SEC).

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2
Q

There are 5 punishments that the SEC can levy. Name them:

A
  1. Censure
  2. Limit activities, functions, operations
  3. Suspend registration
  4. Revoke registration
  5. Fine
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3
Q

What does SRO reference?

A

It means self regulatory organizations which include FINRA, MSRB, etc.

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4
Q

What does FINRA regulate?

A

Investment banking, OTC trading, NYSE trading, conduct of members and investment companies.

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5
Q

What is CBOE and what does it do?

A

Chicago board of options exchange which regulates options trading.

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6
Q

What is MSRB and what does it do?

A

Municipal securities rulemaking board. Regulates municipal and state securities.

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7
Q

Which of the previous DOES NOT have enforcement ability? How does it manage?

A

MSRB, it gets FINRA to enforce rules.

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8
Q

Who is NASAA and what do they do?

A

This is a voluntary association that provides investment advice advocates for investors.

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9
Q

Who is the FRB:

A

Consist of 12 regional banks and hundreds national and state banks. Determines monetary policy.

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10
Q

What are a few things the Fed can do?

A
  1. Act as agent of treasury.
  2. Regulate US money supply
  3. Set reserve requirements
  4. Supervise currency printing
  5. Clear fund transfers
  6. Ensure compliance with members.
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11
Q

What is the SIPC and what do they do?

A

Nonprofit corporation that pays assessments into general insurance funds in the event of bankruptcies.

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12
Q

What members of the SEC do NOT have to also be members of the SIPC?

A
  1. Banks that deal municipal securities
  2. Banks that deal government securities
  3. firms that deal only in redeemable investment company securities
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13
Q

How much does the SIPC cover for an individual client?

A

Up to 500,000 per person (NOT per account)

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14
Q

Who is the FDIC and what do they do?

A

Independent agency of the US government that insures banking deposits. Up to 250,000 per account.

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15
Q

Define retail investor?

A

Someone who buys securities in a personal account for personal gain.

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16
Q

Define institutional investor:

A

Entity that pools money to buy securities or assets.

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17
Q

What are some examples of institutional investors?

A

Banks, insurance companies, pensions, hedge funds, mutual funds.

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18
Q

What is an accredited investor?

A
  1. 1 million in net worth
  2. 200K annual (300K joint) last two years
  3. Officer/Director of issuer
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19
Q

What is a carrying firm?

A

A firm that accepts funds and securities from customers. Can execute trades, settle transactions, and maintain securities. (Schwab)

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20
Q

What is a introducing firm?

A

Firm that introduces clients to a clearing firm.

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21
Q

What prime firm?

A

A clearing firm holds the cash and securities while other executing firms place trades and keep regulations. (Something that is done for a hedge fund).

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22
Q

The federal regulatory body that governs the securities industry is the what?

A

Securities and exchange commission

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23
Q

A fully disclosed broker-dealer:

A. Self clears the transaction of their customers
B. Is known as a clearing agent
C. Is like the depository trust company in that it can take custody of funds and securities
D. Is an introducing firm clearing its transactions through a carrying firm

A

D

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24
Q

An intermediary between the buy and the sell sides of a transaction is known as what?

A

Clearing agent

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25
For the depository trust and clearing company DTCC all the following are true except: A. Its a member of the federal reserve B. It acts as a retail bank C. It provides custody of securities D. It is a worldwide clearing agent
B
26
Your broker dealer acts as a prime broker for an institutional account. What exactly do they do?
Clearing and transaction settlement services for executing brokers
27
An individual or institution willing to hold securities positions in its own proprietary account for the purpose of providing liquidity to the marketplace is a what?
Market maker
28
An entity such as a corporation wishing to offer securities for sale to the public for the purpose of raising capital is what?
An issuer
29
A nonprofit organization requiring members to pay assessments into a general insurance fund used to meet customer claims in the event of a broker dealer bankruptcy is who?
SIPC
30
The federal deposit insurance corporation FDIC provides insurance guaranteeing the safety of a depositors account in FDIC member banks for each deposit up to how much?
250,000
31
Determining monetary policy and taking actions to implement those policies is the responsibilities of who?
Federal reserve board
32
If a company wants to raise capital to build a new facility what market will it use?
Capital Market
33
When a security is sold to the public in a issuer transaction what market is used?
Primary
34
If you or a company buys stock directly from a bank bypassing the brokers and mediary what market is used?
Fourth
35
If two investors buy and sell stock from each other what market is used?
Second
36
What is generally sold in the capital market?
Stocks and bonds
37
What is sold in the third market?
Nasdaq securities
38
What is the difference between fiscal and monetary policy?
Fiscal is the policy enacted by the government like tax laws and budgets; monetary comes from the FRB and influences money supply
39
What are the three things the FRB can do to influence money supply?
1. Buy/Sell securities 2. Change rates 3. Reserve requirements
40
What happens when the Fed buys securities from Banks?
The banks have more money, they can now lower interest rates on loans and the bank itself can lend more money. THIS EXPANDS THE ECONOMY
41
What happens when the Fed sells securities to banks?
The banks have less money, so they can lend less, which means their rates go up and people can't get approved as much. THIS CONTRACTS THE ECONOMY
42
In the money supply M1 is what?
The most liquid stuff, checking accounts/actual cash
43
In the money supply M2 is what?
Includes M1 and is less liquid but is still not hard to convert, MM, savings accounts, CDS, ect
44
What is M3
1 and 2 but also the long term stuff and loans over 100k
45
What is interest?
The cost of money
46
Federal funds rate?
Loan to banks, overnight, 1 million or more MOST VOLATILE
47
Discount rate
Rate the fed lends short term money banks. Affects how easily consumers can get loans
48
Three things the fed does to stimulate the economy?
1. Buys securities 2. Lowers discount rate 3. Lowers reserve
49
Three things the fed does to slow economy?
1. Sells securities 2. Raise the discount rate 3. Raise the reserve
50
What would the fed slow the economy?
Slows inflation too
51
Prime rate?
Rate that the best customers get when lending
52
Broker loan rate?
Loan from bank to BD so they can issue margin
53
If a banks borrows from the fed what rate is used?
discount rate
54
If a bank borrows from another bank what rate is used/
Federal funds rate
55
What are the four stages of business cycle?
1. Expansion 2. Peak 3. Contraction 4. Trough
56
How long before a recession is declared?
6 months of downturn
57
How long before a depression is declared?
18 months of downturn and 15 percent unemployment
58
While stocks tend to move with the economy what is famously counter-cyclical?
Precious metals like gold
59
What is the general increase of prices?
Inflation
60
What kind of inflation is good, bad, and why?
Mild is good, high is bad because it reduces the dollars buying power.
61
What is high unemployment with low economic growth?
Stagflation
62
What are the four types of industries?
1. Defensive (not affected by cycles) 2. Cyclical (highly affected) 3. Growth (growing outpacing the economy) 4. Special Situation (patent pending, discoveries)
63
Assuming all other factors to remain the same, an increase in imports would likely cause the GDP to do what?
Decrease
64
Which state of the business cycle is characterized by rising interest rates and higher wages?
Expansion
65
An economic environment with little or no growth, but where inflation is present, is best described as what?
Stagflation
66
What are two tools used in fiscal policy?
Government spending, taxation
67
What are two actions that the FRB could cause interest rates to rise?
Raising the reserve requirements, raising the discount rate
68
When a government actively manipulates the economy through tax and spending policy, this is referred to as what?
Keynesian policy
69
What is a basic description of Keynesian?
Government must intervene to help the economy through taxing and spending, lots of policy.
70
What is Monetarist theory?
Money supply is what affects the economy. FRB has to control and monitor the amount of money for a healthy economy.
71
What is supply side theory?
Free market. The government should tax little and spend little and let the market set its own prices.
72
A nations annual economic output, all the good and services produced within the nation is what?
Gross domestic product
73
How does a strong/weak dollar affect import/export.
Dollar is weak exports increase, dollar is strong imports increase.
74
A group of broker dealers or investment bankers that work with an issuer to sell securities:
Underwriter
75
Proceeds of this offering go directly to the company issuing the stock:
Primary offering
76
Offering held for the public, tightly regulated, open to just about anyone:
Public offering
77
Offering open only to institutional investors or small groups, not regulated:
Private offering
78
First time a issuer distributes securities to the public:
IPO, initial public offering
79
Type of underwriting where the underwriter is acting as an agent, not principle, and it is the issuer who is at risk for unsold shares:
Best efforts underwriting
80
Type of best effort underwriting that mandates all the shares have to be sold or none at all:
All or none (AON)
81
Type of best effort underwriting that mandates a minimum amount of shares to be sold and a maximum:
Mini-Max
82
Widely used type of underwriting where the underwriter becomes primary and is responsible for unsold shares, no risk to issuing company:
Firm commitment underwriting
83
A major distinction of the secondary market is:
Proceeds of sales do not go to the issuer
84
How many primary offerings can a corporation issue?
Unlimited
85
What federal law regulates the initial sale of securities to the public?
The securities act of 1933
86
Name three things included in a tombstone advertisement:
1. Offering price 2. Name of issuer 3. Number of shares to be sold

Kaplan (3 decks)

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