Understanding Trading, Customer's Accounts, and Prohibited Activities (Green cards) Flashcards
Which of the following is a way to increase information security?
A) Using password-protected laptops
B) Encrypting the company website
C) Sharing software programs between employees
D) Allowing employees to take files home with them
A:
Using password-protected laptops would be one possible measure that would help protect confidential information. Encrypting the company website would not be helpful, but
encrypting email interactions would increase information security. Software programs should be password-protected to help protect data. Allowing employees to take files home with them would not increase information security.
When are taxes incurred on a traditional IRA?
A) Never
B) When the initial investment occurs
C) When the money is withdrawn
D) Annually when the beneficiary pays income tax
C:
Taxation occurs when the money is withdrawn.
People invest already-taxed income into Roth IRAs. No IRAs require annual taxation.
At the end of the second quarter, if a company has a stock price of $10 and pays a dividend of $0.50 every quarter, what is the annualized dividend yield?
A) 5%
B) 0.5%
C) 10%
D) 20%
D:
The dividend yield formula calls for dividing the annual dividend by the current stock price. The company has been paying a quarterly dividend of $0.50, so the annual rate is $2.00 which is 20% of $10.
Which of the following is an advantage of a Roth IRA when compared to other types of IRAs?
A) Contributions to the plan are tax-deductible.
B) Required minimum distributions (RMDs) are not required at the age of 72 when the original owner is alive.
C) Funds are taxed as ordinary income when withdrawn in retirement.
D) There is no provision for catch-up contributions. “
B:
An advantage of a Roth IRA is that required minimum distributions (RMDs) are not required at the age of 72 when the original owner is alive. The other options listed are not advantages of Roth IRAs.
John and Sarah are a married couple and contact a broker in order to open an account that gives them authority over it and allows for continued control if the other spouse dies. What type of account should the broker recommend?
A) Joint Tenants in Common (JTIC) Account
B) Marital Account
C) Transfer on Death (TOD) Account
D) Joint Tenants with Rights of Survivorship (JTWROS) Account
D:
John and Sarah would need to open a Joint Tenants with Rights of Survivorship (JTWROS) Account to meet their specifications. The Joint Tenants in Common (JTIC) Account would not allow them to retain control of the account in the event of a joint tenant death. A Marital Account allows for
marital property and trust accounts to be controlled
by a trustee. A Transfer on Death (TOD) Account helps with the transfer of assets upon the account holder’s death.
Which of the following would be expected to earn a risk-free rate?
A) Short-term treasury bonds
B) Equities
C) Options
D) Commodities
A:
Short-term treasury bonds and highly rated money market funds would be expected to earn a risk-free rate. Equities. options, and commodities experience more volatility in their returns.
The S&P 500 return for a time period was 7%. Maggie, a fund manager, had a benchmark in the S&P 500 that returned 9%. What was the Alpha generated?
A) 2%
B) -2%
C) 14%
D) 9%
A:
The Alpha is the excess return that fund managers generate against an index benchmark. The Alpha is the return of the fund manager less the return of the selected index: 9% - 7% = 2%
When the market or an asset is identified as “bearish,” what are investors most likely to do?
A) Sell their investments and assets.
B) Temporarily freeze their trading activity.
C) Invest more and buy more assets.
D) Diversify their investment portfolio.
A:
Choice A is correct because a bearish market is one in which investors expect prices to decline soon, leading investors to sell their assets. Choice B is incorrect because halting trading activity could result in losses if prices fall. Choice C is incorrect because investing more is the opposite of what one should do in a bearish market. Choice D, despite being a good long-term investment strategy, is incorrect because it is not a response to a bearish or bullish market.
Which order type is certain to be fulfilled?
A) Market
B) Buy Stop
C) Limit
D) Sell stop-limit
A:
Choice A is correct because a market order is to be fulfilled as soon as practical at the current market price. Choices B, C, and D are incorrect because they have conditions that may not be fulfilled before the end of the day, and at that point, they would expire unless they were good-til-cancelled (GTC) orders. In that situation, it is still not certain that any of these orders would be fulfilled because the market price may never reach the specified price targets in the orders.
Which definition of a short sale is correct?
A) It is a sale of a security that is borrowed but not owned.
B) It is a sale that is settled on the trade date.
C) It is a sale of stock with fewer than 100 shares (a round lot).
D) It is a sale on behalf of a minor in a UGMA or UTMA account.
A:
A short sale is the sale of a borrowed security in the expectation that the price will decline. Choice B is incorrect because a short sale is irrelevant to the time to settle. Choice C is incorrect because a short sale is irrelevant to the quantity of shares in the transaction. Choice D is incorrect because a short sale is irrelevant to a uniform gift to minors account (UGMA) or uniform transfer to minors account (UTMA).
Which of the following is a defining characteristic of a Roth IRA?
A) Contributions to it are tax-deductible.
B) Withdrawals from it are tax-free.
C) It allows catch-up contributions at age 50 and up.
D) Mandatory minimum distributions at age 72.
B:
Qualified withdrawals from Roth IRAs (done after age 59 1/2 and after satisfying a 5-year holding period) are tax-free.
Tax-deductible contributions are a characteristic of a traditional IRA, not a Roth IRA. Catch-up contributions at age 50 and up are a characteristic of both traditional IRAs and 401(k)s but not of Roth IRAs. Choice D is incorrect because not requiring such distributions at that age is a unique trait of Roth IRAs.
Which equation is an expression of a basis point, which may be used to refer to the yield of an investment, especially a debt security?
A) 0.1% = one basis point
B) 0.01% = one basis point
C) 0.001% = one basis point
D) 1% = one basis point
B:
Choice B is correct because .01 of 1% equals one basis point. Choices A, C, and D are incorrect because .01 of 1% equals 1 basis point.
Which definition of the bid price is correct?
A) It is the amount the seller asks the broker-dealer to obtain for a stock.
B) It is the amount the seller’s broker-dealer asks the clearing broker to obtain for the stock.
C) It is the amount the market maker asks in order to sell the stock to the buyer.
D) It is the amount the buyer pays for the stock “
D:
Choice D is correct because the seller sells the stock to the market maker at the bid price set by the market maker. Choices A, B, and C are incorrect because the bid price is set by the market maker and is the price the seller receives
for the stock.
In which corporate action is the shareholder provided with more new shares in exchange for fewer old shares?
A) Buyback
B) Stock split
C) Reverse stock split
D) Tender Offer
B:
A stock split exchanges old shares for new, with more new shares than old. Choice A is incorrect because a buyback is when a corporation buys its own stock in the open market to decrease shareholders and retain more dividends. Choice C is incorrect because a reverse stock split exchanges fewer new shares for old. Choice D is incorrect because a tender offer is a public offer to purchase a set quantity of shares at a set price.
What does an investor expect will happen after they complete a long purchase?
A) The investor expects the exchange to halt trading for 15 minutes.
B) The investor expects the exchange to halt trading for the remainder of the day.
C) The investor expects the market value of the security to rise.
D) The investor expects a stock split in the security. “
C:
The investor expects to sell the security for a higher price at some point in the future. Choices A and B are incorrect because a long purchase would not necessarily be accomplished in anticipation of a halt in trading. Choice D is incorrect because a long purchase is not necessarily done in anticipation of a stock split. An expected rise in the stock price, for whatever reason, would be the main reason to
make a long purchase.
A customer wants to open an account to save for their hild’s education. Which of the following account types would be suitable?
A) 529 College Savings Account
B) Fee-eased Account
C) Discretionary Account
D) Joint Tenants with Rights of Survivorship Account
A:
A 529 College Savings Account is a tax-advantaged savings plan that allows tax-free growth of earnings and tax-free
withdrawals when using funds for qualified educational expenses. In Choice B, the advisor charges a fee based on a percentage of managed assets; In Choice C, the customer allows the broker or advisor to make investment decisions;
and in Choice D has two or more individuals with equal rights and shared ownership.
Which of the following statements is true regarding record keeping requirements for investment advisers?
A) Records must be maintained for at least five years.
B) Records can be discarded after one year.
C) All records must be kept in hard copy format
D) Investment advisers do not have to maintain records.
A:
Investment advisers are required to keep records related to their business activities, including client accounts, transactions, and communications for at least five years. lt is important for investment advisers to maintain accurate and complete records to ensure compliance with applicable laws and regulations. Failure to do so can result in disciplinary action and fines by regulatory authorities.
Which of the following is the difference between the bid and ask price called?
A) Spread
B) Order type
C) Bid wanted
D) Offer wanted
A:
When trading a security, the bid price represents the highest amount a buyer is willing to pay, while the ask price indicates the lowest price a seller is willing to accept. The difference between these two prices is referred to as the spread, and it reflects the transaction cost incurred by both parties involved in the trade. The spread is an essential factor in assessing the liquidity of a security.
What type of order is executed at the current market price?
A) Market order
B) Limit order
C) Stop order
D) Day order
A:
A market order is an order to buy or sell a security at the current market price. When one is placed, the trade is executed immediately at the best price. In contrast, a limit order buys or sells a security at a specific price or better, while a stop order buys or sells a security once the price of the security has reached a specified level. A day order buys or sells a security that is valid for the current trading
day only.
Which department is responsible for ensuring that a firm’s financial statements are accurate and in compliance with applicable regulations?
A) Internal audit department
B) Investment banking department
C) Compliance department
D) Research department
A:
The internal audit department evaluates/ensures the accuracy of a firm’s financial Statements and regulation compliance and identifies/mitigates operational and financial risks. Choice B provides financial advisory services and executes capital markets transactions for clients; Choice C ensures the firm’s compliance with relevant laws and
regulations; and Choice D conducts research to
inform the firm’s investment decisions.
