sie chapter 5-8 Flashcards
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What is the regulatory status of Municipal Securities with respect to Federal Regulation?
a. Fully regulated
b. Partially regulated
c. Exempt from Federal Regulation
d. Subject to periodic reviews
c. Exempt from Federal Regulation
Municipal Securities are exempt from Federal Regulation, providing issuers with certain exemptions and regulatory flexibility. This exemption allows municipalities to tailor their financial instruments to meet specific local needs without being subject to the same regulations as other securities.
Who regulates broker-dealers and advisors dealing in municipal securities?
a. SEC (Securities and Exchange Commission)
b. FINRA (Financial Industry Regulatory Authority)
c. MSRB (Municipal Securities Rulemaking Board)
d. CFTC (Commodity Futures Trading Commission
c. MSRB (Municipal Securities Rulemaking Board)
The Municipal Securities Rulemaking Board regulates broker-dealers and advisors dealing in municipal securities. It establishes rules to ensure fair practices and transparency in the municipal securities market, promoting investor protection and market integrity.
In the absence of a prospectus, where can disclosures for exempt securities be found?
a. Annual report
b. Legal opinion
c. Official statement
d. Bond council report
c. Official statement
While exempt securities don’t require a prospectus, information about them can be found in the official statement. This document contains essential disclosures and details about the municipal securities, ensuring transparency for investors.
What does a bond council examine for validity, legality, and tax-exempt status of municipal securities?
a. Feasibility study
b. Official statement
c. Legal opinion
d. Disclosure document
c. Legal opinion
A bond council is retained to examine the issue for its validity, legality, and tax-exempt status. The legal opinion is crucial for investors as it verifies the municipality’s authority to issue the bonds and provides assurance regarding their legal standing.
What type of opinion is required from a bond council for municipal securities?
a. Qualified opinion
b. Unqualified opinion
c. Conditional opinion
d. Limited opinion
b. Unqualified opinion
An unqualified opinion from a bond council means that everything is in order regarding the validity, legality, and tax-exempt status of the municipal securities. This assurance is necessary for investors, signaling that the bonds meet all necessary legal criteria.
Under what conditions are interest payments on Municipal Bonds typically exempt from federal taxes?
a. Exempt for all bondholders
b. Depends on bondholder’s state of residence
c. Exempt only for residents of the issuing state
d. Subject to federal taxes regardless of residence
b. Depends on bondholder’s state of residence
The tax status of interest payments on Municipal Bonds depends on the bondholder’s state of residence. While they are typically exempt from federal taxes, the exemption from state and local taxes may vary based on the investor’s residence.
What is the term used for bonds issued by U.S. territories with interest exempt from federal, state, and local taxes?
a. Double-barrel bonds
b. GO bonds
c. Revenue bonds
d. Triple tax-exempt bonds
d. Triple tax-exempt bonds
Bonds issued by U.S. territories, such as Puerto Rico, are known as “Triple tax-exempt” bonds. This means that interest on these bonds is exempt from federal, state, and local taxes, regardless of the bondholder’s residence.
What backs General Obligation (G.O.) bonds?
a. User fees
b. Full faith, credit, and taxing power of the municipality
c. Private corporations
d. Federal government guarantee
b. Full faith, credit, and taxing power of the municipality
General Obligation (G.O.) bonds are backed by the full faith, credit, and taxing power of the municipality. This means that the municipality is legally obligated to use its taxing power to repay the bonds, providing a strong level of security for investors.
How can municipalities exceed statutory debt limits for General Obligation (G.O.) bonds?
a. Approval from bondholders
b. Public referendum vote
c. Executive order
d. Judicial review
b. Public referendum vote
To exceed statutory debt limits for General Obligation (G.O.) bonds, a public referendum vote is required. This democratic process allows the local community to decide whether to approve additional debt issuance beyond the statutory limits.
What is the primary source of repayment for Revenue Bonds?
a. Income and sales taxes
b. User fees from an income-generating project
c. Ad valorem taxes
d. Federal grants
b. User fees from an income-generating project
Revenue Bonds are backed by the revenues generated from specific projects, such as toll roads or sewer systems. Unlike G.O. Bonds, they are supported by user fees, and the risk is tied to the success of the income-generating project.
What type of bonds are backed by taxes other than ad valorem taxes and are sometimes referred to as “Sin taxes”?
a. Special Assessment Bonds
b. Revenue Bonds
c. Moral Obligation Bonds
d. Special Tax Bonds
D. Special Tax Bonds
Special Tax Bonds are backed by taxes other than ad valorem taxes and are often associated with “Sin taxes” like those on alcohol or tobacco. These bonds provide a unique source of revenue for specific purposes.
What is the purpose of Capital Appreciation Bonds?
a. To pay debt on property taxes
b. To finance essential services
c. To provide immediate cash flow
d. To fund capital projects without interest payments
a. To pay debt on property taxes
Capital Appreciation Bonds do not pay interest but can be used to pay debt on property taxes. They are a form of municipal zero-coupon bonds that accumulate interest until maturity.
What is the characteristic of a Double-Barrel Bond?
a. Backed by both user fees and general taxes
b. Pays higher yields than G.O. Bonds
c. Exclusively funded by ad valorem taxes
d. Rated lower than Revenue Bonds
a. Backed by both user fees and general taxes
Double-Barrel Bonds are backed by both user fees and general taxes, making them similar to General Obligation (G.O.) Bonds. This dual backing enhances the security of these bonds.
What type of bonds allow municipalities to issue debt for facilities like a university dorm and lease those facilities?
a. Lease Rental Bonds
b. Industrial Development Bonds
c. Certificates of Participation (COP)
d. Special Tax Bonds
c. Certificates of Participation (COP)
Certificates of Participation (COP) allow municipalities to issue bonds for facilities like a university dorm and lease these facilities. The lease payments depend on an annual appropriation from tax collections, distinguishing them from G.O. Bonds.
What is the purpose of Tax Anticipation Notes (TANs)?
a. To finance essential services
b. To fund capital projects
c. To pull forward funds for upcoming tax collections
d. To generate cash flow for short-term needs
c. To pull forward funds for upcoming tax collections
Tax Anticipation Notes (TANs) are issued by municipalities to pull forward funds that will be collected as taxes in later months. They provide a short-term financing solution for municipalities facing cash flow challenges between tax collection periods.
What type of risk is associated with Variable Rate Demand Notes (VRDN)?
a. Liquidity risk
b. Default risk
c. Interest rate risk
d. Market risk
c. Interest rate risk
Variable Rate Demand Notes (VRDN) carry interest rate risk because the interest rate is reset periodically based on a market index. This exposes investors to fluctuations in interest rates, affecting the returns on the investment.
In which market are Munis primarily traded?
a. Over-the-counter (OTC)
b. Stock exchange floor
c. Options market
d. Commodity market
a. Over-the-counter (OTC)
Municipal Securities are primarily traded over-the-counter (OTC), not on a stock exchange floor. This “thin” trading market for munis can result in liquidity risk for investors.
What is the tax status of interest received on Municipal Securities?
a. Fully taxable
b. Exempt from federal tax
c. Exempt from state tax
d. Subject to local tax
b. Exempt from federal tax
The tax status of interest received on Municipal Securities is exempt from federal tax. While it may be subject to state tax, the federal exemption is a key attraction for investors seeking tax advantages.
Which document must be provided to customers by a broker-dealer when selling municipal bonds?
a. Prospectus
b. Official statement
c. Legal opinion
d. Feasibility study
b. Official statement
The official statement is the disclosure document for new municipal issues, providing information about the bonds and the financial condition of the issuer. It serves a similar purpose to a prospectus but is required for municipal securities exempt from the Securities Act of 1933.
What is the purpose of Build America Bonds, and what can the proceeds be used for?
a. To fund infrastructure projects; cannot pre-fund outstanding issues
b. To pre-fund outstanding issues; cannot fund infrastructure projects
c. To support essential services; can pre-fund outstanding issues
d. To pay off existing debt; cannot fund infrastructure projects
a. To fund infrastructure projects; cannot pre-fund outstanding issues
Build America Bonds are issued to fund infrastructure projects and can’t be used to pre-fund outstanding issues. They provide municipalities with a financing tool to support essential public projects.
What does an investment company do to raise capital?
a. Actively manages portfolios
b. Issues securities
c. Trades on stock exchanges
d. Purchases shares of other companies
B. Issues securities
Investment companies raise capital by issuing securities, which can include stocks, bonds, or other financial instruments.
What is the primary regulation governing open-end management companies (mutual funds)?
a. Securities Act of 1933
b. Investment Company Act of 1940
c. Securities Exchange Act of 1934
d. Dodd-Frank Wall Street Reform and Consumer Protection Act
b. Investment Company Act of 1940
The primary regulation governing open-end management companies (mutual funds) is the Investment Company Act of 1940, which sets forth the regulatory framework for these investment vehicles.
How are closed-end funds different from open-end funds?
a. Closed-end funds continuously issue new shares
b. Open-end funds have a fixed number of shares
c. Closed-end funds can be redeemed at NAV
d. Open-end funds typically trade at a discount to NAV
a. Closed-end funds continuously issue new shares
Closed-end funds differ from open-end funds as they continuously issue a fixed number of shares through initial public offerings (IPOs) rather than through continuous offerings.
Which type of investment company issues stocks or bonds in an initial public offering (IPO)?
b. Open-End Management Company
c. Closed-End Management Company
d. Face Amount Certificates
c. Closed-End Management Company
Closed-End Management Companies issue stocks or bonds in an initial public offering (IPO) and have a fixed number of shares that trade on stock exchanges.
What is the key characteristic of Unit Investment Trusts (UITs)?
a. Actively managed portfolios
b. Continuous issuance of new shares
c. Fixed portfolios of unmanaged securities
d. Shares are traded on stock exchanges
c. Fixed portfolios of unmanaged securities
Unit Investment Trusts (UITs) have fixed portfolios of unmanaged securities, providing investors with a predetermined investment strategy.
In which fund type is the redemption of shares not required to be completed within 7 days of a request?
a. Open-End Management Company
b. Closed-End Management Company
c. Unit Investment Trust
d. Face Amount Certificates
b. Closed-End Management Company
Unlike open-end funds, closed-end funds do not require the redemption of shares within 7 days of a request, providing more flexibility in trading.
Which fund structure typically trades at a premium or discount to Net Asset Value (NAV)?
a. Closed-End Management Company
b. Open-End Management Company
c. Unit Investment Trust
d. Face Amount Certificates
a. Closed-End Management Company
Closed-End Management Companies typically trade at a premium or discount to Net Asset Value (NAV) based on market demand and supply.
What is the primary advantage of ETFs over traditional mutual funds?
a. Lower expense ratios
b. Continuous issuance of new shares
c. Redemption at NAV
d. Active management
a. Lower expense ratios
The primary advantage of Exchange-Traded Funds (ETFs) over traditional mutual funds is lower expense ratios, making them cost-effective for investors.
How is the pricing of mutual fund shares determined?
a. Based on market demand and supply
b. At the Net Asset Value (NAV)
c. Fixed price determined by the fund sponsor
d. At the closing price on the NYSE
b. At the Net Asset Value (NAV)
Mutual fund shares are priced at the Net Asset Value (NAV), representing the total value of the fund’s assets divided by the number of outstanding shares.
What type of fund is best suited for an investor seeking both dividend income and growth potential?
a. Growth Funds
b. Income Funds
c. Balanced Funds
d. Index Funds
c. Balanced Funds
Balanced Funds are designed for investors seeking both dividend income and growth potential by maintaining a mix of stocks and bonds.
What is the primary purpose of a 12b-1 fee in mutual funds?
a. To compensate the fund manager
b. To offset marketing and distribution expenses
c. To reduce sales charges for large purchases
d. To increase the fund’s Net Asset Value (NAV)
b. To offset marketing and distribution expenses
A 12b-1 fee in mutual funds is primarily intended to cover marketing and distribution expenses, allowing the fund to attract and retain investors.
Under what condition would an investment in an inverse ETF be profitable?
a. Bull market
b. Bear market
c. Stable market
d. Rising interest rates
C. Stable market
Inverse ETFs are designed to be profitable in a stable market when the underlying assets are expected to perform consistently.
How are ETFs traded on the market?
a. At a fixed price set by the fund manager
b. At a premium to Net Asset Value (NAV)
c. At the NAV
d. Like stocks throughout the trading day
d. Like stocks throughout the trading day
ETFs are traded on the market like stocks, allowing investors to buy and sell shares at market prices throughout the trading day.
What is a distinguishing feature of Exchange-Traded Notes (ETNs)?
a. Linked to a specific index
b. Have a set maturity date
c. Trade like stocks
d. Pay regular interest or dividends
d. Pay regular interest or dividends
Exchange-Traded Notes (ETNs) are known for paying regular interest or dividends, distinguishing them from other exchange-traded products.
Which regulatory requirement do Private REITs typically avoid?
a. SEC registration
b. Compliance with Subchapter M
c. Listing on stock exchanges
d. Annual disclosure filings
d. Annual disclosure filings
Private REITs typically avoid the regulatory requirement of annual disclosure filings, providing them with more privacy compared to publicly traded REITs.
What characterizes a Wildcat well in the oil and gas industry?
a. Drilled on an existing field
b. Drilled near proven reserves
c. Drilled where no one has drilled before
d. Focus on long-term production
c. Drilled where no one has drilled before
A Wildcat well in the oil and gas industry is drilled in an unexplored area, where no previous drilling has taken place.
In which market condition would an investment in an Inverse ETF be most beneficial?
a. Bull market
b. Stable market
c. Bear market
d. Bull and bear markets
c. Bear market
Inverse ETFs are most beneficial in a bear market when the underlying assets are expected to decline in value.
What does the term “Regulated Investment Company” refer to?
a. Company subject to strict regulations
b. Company distributing at least 90% of net investment income
c. Company listed on stock exchanges
d. Company actively managed by the SEC
b. Company distributing at least 90% of net investment income
A Regulated Investment Company (RIC) is required to distribute at least 90% of its net investment income to shareholders to maintain favorable tax treatment.
How are hedge funds typically structured in terms of taxation?
a. Taxed at the corporate level
b. Taxed at the fund level
c. Pass-through income to investors
d. Exempt from all taxes
c. Pass-through income to investors
Hedge funds are typically structured to provide pass-through income to investors, avoiding taxation at the fund level.
What is the primary purpose of a custodian bank in the context of mutual funds?
a. Marketing and advertising
b. Preparing proxies for shareholders
c. Safekeeping of the portfolio
d. Selecting the investment manager
C. Safekeeping of the portfolio
The primary purpose of a custodian bank in the context of mutual funds is to ensure the safekeeping of the fund’s portfolio assets.
Who establishes and manages a mutual fund?
a. Shareholders
b. Custodian bank
c. Fund sponsor
d. Securities and Exchange Commission (SEC)
C. Fund sponsor
A mutual fund is established and managed by a fund sponsor, which is responsible for overseeing the fund’s operations.
Which statement about management fees is correct?
a. Management fees are based on fund performance
b. Management fees cannot exceed 1% annually
c. Management fees are only paid by shareholders
d. Management fees are fixed and not subject to change
C. Management fees are only paid by shareholders
Management fees in mutual funds are typically paid by shareholders and are not based on fund performance.
What would NOT be an appropriate method for reducing mutual fund sales charges by qualifying for breakpoints?
a. Utilizing a letter of intent
b. Using a conversion/exchange privilege
c. Combining purchases across fund families
d. Opting for a Class A share with a front-end load
D. Opting for a Class A share with a front-end load
Utilizing a letter of intent, using a conversion/exchange privilege, and combining purchases across fund families are appropriate methods for reducing mutual fund sales charges.
Which of the following DOES NOT reduce the Net Asset Value (NAV) per share of a mutual fund?
a. Realizing a large loss on a portfolio position
b. Selling shares to meet redemption requests
c. Paying a distribution to shareholders
d. Incurring high management fees
A. Realizing a large loss on a portfolio position
Realizing a large loss on a portfolio position reduces the Net Asset Value (NAV) per share of a mutual fund.
What is a distinguishing feature of Real Estate Investment Trusts (REITs)?
a. Continuous issuance of shares
b. Exemption from SEC registration
c. Investment in controlling interests of existing companies
d. Pass-through income to shareholders
D. Pass-through income to shareholders
A distinguishing feature of Real Estate Investment Trusts (REITs) is their structure, which allows for pass-through income to shareholders, avoiding corporate-level taxation.
If a mutual fund has $200 million in total net assets and a growth investment income of $20 million, what is the fund’s gross return on assets?
a. 8%
b. 10%
c. 12%
d. 15%
B. 10%
Gross return on assets is calculated by dividing the growth investment income ($20 million) by the total net assets ($200 million) and multiplying by 100: (20/200) * 100 = 10%.
A mutual fund has collected $250 million in total net assets, with $25 million as net investment income. What is the fund’s net return on assets?
a. 8%
b. 10%
c. 12%
d. 15%
B. 10%
Net return on assets is calculated by dividing the net investment income ($25 million) by the total net assets ($250 million) and multiplying by 100: (25/250) * 100 = 10%.
If a mutual fund’s Public Offering Price (POP) is $10, and the Net Asset Value (NAV) is $9.15, what is the Sales Charge (SC)?
a. $0.75
b. $0.85
c. $1.00
d. $1.15
B. $0.85
The sales charge (SC) is calculated as the difference between the Public Offering Price (POP) and the Net Asset Value (NAV): $10.00 - $9.15 = $0.85.
A customer wants to buy a closed-end fund with a Net Asset Value (NAV) of $9.15 and a Public Offering Price (POP) of $10. If the commission is $0.50, how much will the customer pay for one share?
a. $10.50
b. $10.00
c. $9.65
d. $9.15
A. $10.50
The customer pays the Public Offering Price (POP), which includes the commission: $10.00 (POP) + $0.50 (commission) = $10.50.
If a mutual fund imposes an 8.50% sales charge, what would be the sales charge for a $15,000 purchase?
a. $1,275
b. $1,275.50
c. $1,275.75
d. $1,280.50
A. $1,275
The sales charge is calculated as a percentage of the purchase amount: (8.50/100) *$15,000= $1,275..
What characterizes the Primary Market?
a. Trading of issued securities among the public
b. New issues sold by the issuer
c. OTC market for unlisted stocks
d. Virtual exchange like NASDAQ
b. New issues sold by the issuer
The primary market involves the issuance of new securities directly by the issuer to the public. This is where companies raise capital by offering their securities for the first time.
In the Second Market, where is trading of stocks primarily conducted?
a. Auction market
b. OTC market
c. Virtual exchange
d. Primary market
b.OTC market
The Second Market, also known as the Over-the-Counter Market, involves the decentralized trading of financial instruments directly between two parties without a centralized exchange or broker.
What is the primary function of Dark Pools in the Fourth Market?
a. Trading of issued securities among the public
b. Direct trading between institutions
c. OTC trading of exchange-listed stocks
d. Negotiated market for unlisted stocks
c. OTC trading of exchange-listed stocks
In the Third Market, exchange-listed stocks are traded over-the-counter (OTC), allowing for more flexibility and direct trading between parties outside traditional exchanges.
What is the primary risk to a firm acting as an agent?
a. No risk
b. Market risk
c. Credit risk
d. Inventory risk
C. Credit risk
This risk emerges from the reliance on counterparties to fulfill financial obligations, and if the counterparty fails to do so, the firm faces potential financial loss.
Which market is typically associated with speculative stocks with minimal quotation standards?
a. OTCQX
b. OTCQB
c. Pink open market
d. NASDAQ
C. Pink Open Market
is known for hosting penny stocks and other speculative securities that may not meet the stringent listing requirements of major exchanges, providing a platform for trading these less-established investments.
What is the key difference between a short sale and a long sell position?
a. Short sale has unlimited risk; long sell does not
b. Long sell has unlimited risk; short sale does not
c. Both have limited risk
d. Both have unlimited risk
a. Long sell has unlimited risk, while short sale does not
In a short sale, the potential loss is theoretically unlimited as the stock price could rise indefinitely. In a long sell (or simply long), the investor’s risk is limited to the amount invested.
When is a Day Order valid until?
a. Until the broker cancels it
b. 90 days
c. End of the trading day
d. At the open or close
a. Until the broker cancels it
A Day Order is valid only for the duration of the trading day, and if it is not filled by the end of the day, it gets canceled automatically.
What does GTC stand for in the context of orders?
a. Good till closed
b. Good till canceled
c. Guaranteed time commitment
d. General trading conditions
b. Good till canceled
GTC stands for “Good till canceled.” This type of order remains active until the broker cancels it, providing flexibility for the order to be executed beyond the current trading day.
What is the purpose of a Fill or Kill (FOK) order?
a. Immediate execution
b. Execution throughout the day
c. Execution only when market rises
d. Partial execution allowed
a. Immediate execution
The purpose of a Fill or Kill (FOK) order is to ensure immediate and complete execution of the order or cancel it entirely. No partial execution is allowed, making it suitable for traders seeking immediate fulfillment.
In a Stop Order, what happens when the trigger price is reached?
a. It becomes a market order
b. It becomes a limit order
c. It cancels automatically
d. It remains inactive
a. It becomes a market order
In a Stop Order, when the trigger price is reached or surpassed, it becomes a market order. This ensures that the order is executed promptly at the next available price.
If a customer wants to buy 150 shares of XYZ at a price of $25 per share and the trader discovers that only 100 shares are available at that price, what happens?
a. The order is partially filled
b. The order is canceled
c. The price is adjusted
d. The order remains active
a. The order is partially filled
If only 100 shares are available out of the requested 150 at the specified price, the order is partially filled with the available shares.
Calculate the adjusted order size after a 3:1 stock split for an initial order to buy 200 shares.
a. 67 shares
b. 150 shares
c. 600 shares
d. 50 shares
c. 600 shares
After a 3:1 stock split, the initial order size is multiplied by the split ratio, resulting in 200 shares * 3 = 600 shares.
A customer enters an order to sell 50 shares of ABC at $40 Stop Limit. If the market price is $38, what happens?
a. The order is canceled
b. It becomes a limit order
c. It triggers a market order
d. The order remains inactive
b. It becomes a limit order
In a Stop Limit Order, when the market price is below the specified stop price ($40 in this case), it becomes a limit order. The order will only be executed at the limit price or better.
If a stock has a bid price of $50 and an ask price of $52, what is the bid-ask spread?
a. $1
b. $2
c. $50
d. $52
b. $2
The bid-ask spread is the difference between the bid price ($50) and the ask price ($52). Therefore, the spread is $52 - $50 = $2.
A customer wants to place a Fill or Kill (FOK) order to buy 500 shares of XYZ at $30 per share. If only 400 shares are available, what happens?
a. The order is partially filled
b. The order is canceled
c. The price is adjusted
d. The order remains active
b. The order is canceled
A Fill or Kill (FOK) order must be executed immediately and entirely. Since only 400 shares are available instead of the requested 500, the order is canceled entirely
A customer wants to purchase 120 shares of a stock at a limit price of $45 per share. The current market price is $42, and the stock has a 2:1 split. What is the adjusted order size after the split?
a. 60 shares
b. 120 shares
c. 240 shares
d. 180 shares
c. 240 shares
After the 2:1 split, the customer’s order size is adjusted by multiplying the original order size (120 shares) by the split ratio (2). So, 120 shares * 2 = 240 shares.
If an investor has a long position in 300 shares of a stock with an average cost of $55 per share and the stock pays a $2 dividend per share, what is the investor’s new average cost after receiving the dividend?
a. $53.00
b. $54.00
c. $55.00
d. $57.00
a. $53.00
The investor’s new average cost after receiving the $2 dividend is calculated by subtracting the dividend from the original average cost: $55.00 - $2.00 = $53.00 per share.
a trader buys 150 shares of a stock at $75 per share and later sells 100 shares at $80 per share. What is the average cost per share for the remaining 50 shares?
a. $65.00
b. $75.00
c. $77.50
d. $80.00
A. $65.00
100*$80=800
= $3250/50= $65
An investor wants to invest $10,000 in a mutual fund with a Net Asset Value (NAV) of $15. If the fund charges a front-end load of 5%, how many shares will the investor be able to purchase?
a. 625 shares
b. 666.67 shares
c. 588.24 shares
d. 634.92 shares
D. 634.92 shares
$15*.05= .75
$10,000/15.75
a customer has a short position of 200 shares in a stock with a current market price of $60 per share. If the customer wants to limit potential losses to $2,000, at what price should the customer place a buy-stop order?
a. $58.50
b. $59.00
c. $70.00
d. $61.50
c. $70.00
$2000/200=10
$60+10= 70
What information must be specified on an order ticket?
a. Customer’s social security number
b. Firm’s annual revenue
c. Security name, order size, duration, and execution price
d. Market trends for the day
c. Security name, order size, duration, and execution price
These are essential details required for an order ticket.
Which term is used when a customer sells borrowed shares?
a. Sell Long
b. Sell Short
c. Short Sale Subject to Sho
d. Discretionary Order
b. Sell Short
Selling borrowed shares is known as selling short
What does “Wash trades” involve?
a. Buying and selling to create high trade volume
b. Trading pools for price manipulation
c. Front running large block orders
d. Backing away from firm quotes
a. Buying and selling to create high trade volume
Wash trades involve creating the appearance of high trade volume.
What is the primary purpose of the Depository Trust Corporation (DTC)?
a. To issue new securities
b. To clear and settle options trades
c. To hold and clear security positions
d. To regulate trading practices
c. To hold and clear security positions
The DTC holds and clears security positions in book-entry form.
How is the settlement date determined for stocks and corporate bonds?
a. Same day as the trade
b. One business day after the trade date (T+1)
c. Two business days after the trade date (T+2)
d. Three business days after the trade date (T+3)
c. Two business days after the trade date (T+2)
This is the standard settlement period for stocks and corporate bonds.
What is the purpose of a DK notice in trade comparisons?
a. Designation for Know
b. To delay the settlement process
c. To resolve mismatched trade reports
d. To identify key trade details
C. To resolve mismatched trade reports
DK notices are used to resolve discrepancies in trade reports
When does interest accrue for corporate and municipal bonds?
a. On a 30-day month/360-day year basis
b. On an actual day month/actual year basis
c. Only on interest payment dates
d. Based on the market interest rate
a. On a 30-day month/360-day year basis
Corporate and municipal bonds typically accrue interest on this basis
What does the term “Trading Flat” mean in the context of bond trading?
a. No change in the bond’s market value
b. No accrued interest is due
c. The bond is traded without the dividend
d. The bond is currently making interest payments
b. No accrued interest is due
Trading flat means no accrued interest is due during settlement
What is the role of the Ex-Dividend Date?
a. Determines the payment date
b. Sets the record date
c. Reduces the stock price by the dividend amount
d. Initiates the dividend declaration
C. Reduces the stock price by the dividend amount
On the ex-dividend date, the stock price is adjusted downward.
What is the significance of the Record Date in dividend processing?
a. Determines the payment date
b. Initiates the dividend declaration
c. Buyer must be the owner of record to receive the dividend
d. Reduces the stock price by the dividend amount
c. Buyer must be the owner of record to receive the dividend
The buyer must be the owner of record on the record date to receive the dividend
When does a forward stock split take place?
a. Before the ex-dividend date
b. On the ex-dividend date
c. After the record date
d. On the payment dat
a. Before the ex-dividend date
A forward stock split takes place before the ex-dividend date.
What is the purpose of a stock dividend?
a. To increase the stock price
b. To decrease the number of outstanding shares
c. To provide additional shares to existing shareholders
d. To eliminate dividends for a specific period
c. To provide additional shares to existing shareholders
Stock dividends provide additional shares to existing shareholder
What happens to the stock price during a 2:1 stock split?
a. It is reduced by half
b. It is doubled
c. It remains unchanged
d. It is increased by 2
a. It is reduced by half
In a 2:1 stock split, the stock price is reduced by half
On what date is the ex-date for stock splits and stock dividends?
a. Payment date
b. Record date
c. Settlement date
d. Payment date + 1
D. Payment date + 1
The ex-date for stock splits and stock dividends is one day after the payment date
A customer places an order to sell 100 XYZ at $38 Stop Limit. What does this order mean?
a. It is elected at $38 or lower and can be executed at $38 or higher.
b. It is canceled automatically if not executed immediately.
c. It can only be executed if the market price falls below $38.
d. It is a market order to sell at $38 or higher.
a. It is elected at $38 or lower and can be executed at $38 or higher.
A stop-limit order becomes a limit order once elected and can be executed at the specified price or better.
