SIE EXAM UNIT 1
mark the following as true or false: 1.____the final prospectus may be delivered via the internet before a sale 2.___a shelf registration is good for 5 years 3.___the access equals delivery rule is not applicable to the preliminary prospectus 4.___additional public offerings (APOs) of sited securities do not require delivery of a prospectus 5.___once the SEC approves a registration, the cooling off period ends and an effective date is established
1. T 2. F 3. T 4. T 5. F
Which of the following choices would BEST describe a "follow-on" offering? A) An issue of shares by a public company that is already listed on an exchange B) An IPO that has additional shares added by the issuer on the effective date C) The common stock that is issued attached to a "rights" offering D) An offering to the employees of the issuing company
A. an issue of shares by a public company that is already listed on an exchange A follow-on public offer (FPO) is an issue of shares by a public company (registered and reporting to the SEC) that is currently listed on an exchange and has previously gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.
Which of the following types of broker-dealer would most likely have correspondent firms? A) Self-clearing B) Market maker C) Fully disclosed D) Introducing
A. self-clearing A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs those services are known as its correspondents.
determining monetary policy and taking actions to implement this policies is the responsibility of A. the Federal Reserve Board (FRB) B. the Depository Trust and Clearing Corporation (DICC) C. the Internal Revenue Service (IRS) D. the Securities Investors Protection Corporation (SPIC)
A. the Federal Reserve Board (FRB)
what federal law regulates the initial sale of securities to the public? A. the Securities Act of 1933 B. the Securities Exchange Act of 1934 C. the Investment Company Act of 1940 D. the Truth in Investing Act
A. the Securities Act of 1933
when securities are sold to the investing public in what are know as issuer transactions, the transactions are being done in A. the primary market B. the secondary market C. the third market D. the fourth market
A. the primary market
which of the following is added to M2 to arrive at M3? A. $100,000 and larger time deposits B. currency in circulation C. checking accounts D. gold and silver bars in bank storage vaults
A. $100,000 and larger time deposits
The enforcement of MSRB rules upon broker-dealers is performed by A) NYSE B) FINRA C) OCC D) MSRB
B. FINRA The MSRB has rulemaking, but not enforcement capability. The enforcement of their rules on broker-dealers has been delegated to FINRBank regulatory agencies, such as the FRB, enforce the MSRB rules on banks who act as municipal dealers
it is generally agreed that the 2 primary policies impacting the U.S. economy are fiscal and monetary. Which of the following would be considered tools of fiscal policy? I. government spending II. operations of the FederalOpen Market Committee (FOMC) III. changing the reserve requirements IV. taxation A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
The U.S. gross domestic product is best described as A) all goods and services produced within the nation B) all services produced in the nation only C) all goods produced in the nation minus the value of all services produced D) all goods and services produced domestically but sold overseas
A. all goods an services produced within the nation The U.S. gross domestic product is best described as all goods and services produced within the nation. Consumption or sales of the goods and services domestically or overseas is not a factor when calculating GDP.
A broker-dealer that concentrated its business efforts on proprietary trading would most likely be functioning as A) an investment banker B) a market maker C) an underwriter D) an investment adviser
B. market maker When a broker-dealer buys and sells securities for its own account as the major portion of its business model (proprietary trading), it is functioning primarily as a market maker (making markets in those securities). Investment banking and underwriting both primarily involve assisting issuers with bringing new securities issues to public investors. Investment advisers sell advice, they don't trade securities.
A business entity that performs the function of receiving and delivering payments and securities on behalf of both parties to a securities transaction is called A) a broker-dealer B) a depository C) a clearing agency D) a transfer agent
C. clearing agency This is the function of a clearing agency. Although there are some broker-dealers that do act as clearing agents, being a broker-dealer doesn't always include providing the services of a clearing agent. The broker-dealer would need to meet all of the requirements of being a clearing agent.
an intermediary between the buy and sell sides of a transaction is know as A. a custodian B. a transfer agent C. a clearing agent D. a depository
C. clearing agent
Which of the following points to a general decline in prices occurring during severe recessions and the unemployment rate is rising. A) Stagflation B) Stagnation C) Deflation D) Contraction
C. deflation Deflation is a general decline in prices. Deflation usually occurs during severe recessions when unemployment is on the rise.
the Uniform Securities Act (USA) is the template from which state securities laws are delivered. Under the USA, a BD would have to register with the state under all of the following conditions EXCEPT A. there was an office in the state B. calls were directed to prospects in the state C. the BD made a market in municipal bonds issued by the state D. call were received from clients in the state
C. the BD made a market in municipal bonds issued by the state
Which of the following entities is chiefly responsible to conduct U.S. monetary policy and maintain the stability of the financial system? A) Securities and Exchange Commission (SEC) B) Internal Revenue Service (IRS) C) The Federal Reserve Board D) New York Stock Exchange (NYSE)
C. the Federal Reserve Board The Federal Reserve is the central bank of the United States, and a special committee within the Federal Reserve System known as the Federal Open Market Committee (FOMC) sets monetary policy.
a tombstone advertisement includes all of the following EXCEPT A. the offering price B. the name of the issuer C. the risks associated with the offering D. the number of shares to be sold
C. the risks associated with the offering
A company that offers sales of another company's securities would BEST be described as a(n) A) market maker B) issuer C) underwriter D) transfer agent
C. underwriter A broker-dealer (investment banker) that works with an issuer to bring the issuer's securities to the market by offering the securities for sale to investors is best described in this context as an underwriter.
Which one of the following is NOT a tool used by the Federal Reserve Board (FRB) to impact the money supply? A) Changing the reserve requirements B) Changing the discount rate C) Changing the prime rate D) Open market operations of the FOMC
C. changing the prime rate The prime rate is set by money-center banks, not the FRB. The remaining 3 answer choices are the tools available to the FRB to affect the money supply.
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is BEST described as a(n) A) clearing corporation B) holding company C) direct participation program D) market maker
D. market maker Market makers are broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.
Deflation occurs during A) a depression, coinciding with economic expansion in the business cycle B) a depression, coinciding with an economic trough in the business cycle C) a recession, coinciding with an economic contraction D) a recession, coinciding with economic peaks
c. recession coinciding with economic contraction Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle.
A preliminary prospectus is used to solicit A) sales before the effective date B) sales after the effective date C) indications of interest before the registration filing date D) indications of interest before the effective date
D. indications of interest before the effective date A preliminary prospectus cannot be distributed before the registration date. Between the registration and effective dates, it is used to solicit or gauge indications of interest. After the effective date, sales can be solicited and a final prospectus would be available and must be used to do so.
The prime rate is set by A) the Federal Reserve Board B) the Securities and Exchange Commission C) the Federal Open Market Committee D) individual banks
D. individual banks The prime rate is the interest rate that large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans. Each bank sets its
a fully disclosed BD A. self-clears the transactions of its customers B. is known as a clearing agent C. is like the depository trust company in tat it can take custody of funds and securities D. is an introducing firm clearing its transactions through a carrying firm
D. is an introducing film clearing its transactions through a carrying firm
All of the following are true regarding the term market EXCEPT A) it includes stock exchanges B) it can be a physical place or an electronic venue C) it is where buyers and sellers come together for the purpose of trading assets D) it is unique to the U.S. securities industry
D. it is unique to the U.S. securities industry The term market is used to describe any physical place or electronic venue where buyers and sellers can come together for the purpose of trading assets. Markets can be found in nearly every nation in the world and would include stock markets and other trading venues where they exist.
Regarding the purchase of new equity issues by restricted persons, which statements are TRUE? I. An investment club is permitted to buy a new equity issue at the offering price. II . An investment club is not permitted to buy a new equity issue at the offering price. III. An investment club that has eight members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. IV. An investment club that has twelve members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. A) I and IV B) I and III C) II and III D) II and IV
A. I and IV As long as an investment club has no restricted persons as members, it may purchase new equity issues at the public offering price. An Investment Club that has restricted persons as members may still participate in an IPO so long as the total ownership of the club's assets by restricted persons does not exceed 10%. A registered representative is a restricted person under the rules regarding the purchase of new equity issues. In "III" the registered representative owns 12 ½ % (100%/8 = 12 ½) of club's assets. In "IV" the registered representative owns 8 1/3% (100%/12 = 8 1/3), under the 10% maximum allowed.
It would be reasonable to expect an increase in exports from the United States if I. the dollar strengthened against the euro II. the yen strengthened against the dollar III. the Swiss franc weakened against the dollar IV. The dollar weakened against the British pound A) II and IV B) I and III C) II and III D) I and IV
A. II and IV U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar
Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules? A) MSRB B) FINRA C) CBOE D) NYSE
A. MSRB The Municipal Securities Rulemaking Board (MSRB) is unique among regulatory bodies in that it writes its own rules, but by law, it cannot enforce them. Rather, the Board must rely entirely upon other designated examining authorities to enforce its rules
which of the following would be a leading economic indicator? A. S&P 500 Index B. industrial production C. duration of unemployment D. gross domestic product (GDP)
A. S&P 500 Index
All of the following are self-regulatory organizations (SROs) EXCEPT A) SEC B) MSRB C) FINRA D) NYSE
A. SEC All US exchanges such as the NYSE and CBOE are SROs. In addition, FINRA and the MSRB are SROs. The Securities Exchange Commission (SEC) is not
An institutional customer, such as a hedge fund, utilizes the services of a broker-dealer who provides custody of securities as well as other back-office functions while allowing the customer to establish relationships with other broker-dealers for the purpose of executing orders. This account would be known as A) a prime account B) a fully disclosed account C) a clearing account D) a self-clearing account
A. a prime account A BD that provides custody of securities and other back-office functions but allows the customer to maintain relationships with other BDs who will provide execution services is known as a prime BD. The account, known as a prime account, is maintained at the prime broker rather than with any executing broker
Both exempt and nonexempt securities have full disclosure documents available to the investing public so that an informed investment decision can be made. The document associated with exempt securities would be A) an official statement or offering circular B) a prospectus or offering circular C)an official statement or registration statement D) a prospectus or disclosure document
A. an official statement or offering circular Exempt securities are not required to be registered with the SEC (are exempt) and therefore have no prospectus requirement. They do have full disclosure documents, however, and depending on the particular type of exemption, these are official statements or offering circulars. Nonexempt securities, those required to register with the SEC (are not exempt), are required to have a prospectus to serve as the full disclosure document.
an issuer wishing to raise additional capital engages the services of an underwriter who proposes limiting the sale to the 6 New England states. In doing so, it is most likely that the registration method to be used will be A. coordination B. qualification C. notice filing D. solely with SEC
A. coordinations
Underwriters who are assisting an issuer in bringing securities to the investing public can do which of the following between the time the registration was filed with the SEC and the effective date? A) Distribute a preliminary prospectus to the investing public B) Solicit orders from investors to purchase the securities C) Make a binding offer to sell the securities D) Mail sales literature to those who have expressed an interest in purchasing the securities
A. distribute a preliminary prospectus to the investing public The time between the registration filing date with the SEC and the effective date is known as the cooling-off period. During this time, a preliminary prospectus may be distributed to gauge investor interest but no offers to sell the securities can be made and no orders to purchase the securities can be taken. While a preliminary prospectus and tombstone ad can be used, sales and advertising literature specific to the securities cannot be.
Which segment of the business cycle would one expect to find rising interest rates and higher wages? A) Expansion B) Recession C) Trough D) Contraction
A. expansion Expansions in the business cycle are characterized by increasing consumer demand for goods and services and increasing industrial production. One would expect these increases to lead to rising interest rates as demands for loans for purchases increases and higher wages for workers as production increases.
Considered the most volatile of the benchmark interest rates in the economy would be A) the federal funds rate B) the broker call loan rate C) the prime rate D) the discount rate
A. federal funds rate The federal funds rate is the rate banks charge each other for overnight loans of $1 million or more. With overnight representing the shortest of loans and short-term interest rates being the most volatile, this rate is considered to be the most volatile of all the benchmark interest rates.
For the primary market, which of the following is TRUE? A) Issuer transactions occur in the primary market, and securities are offered at a public offering price. B) Issuer transactions occur in the primary market, and price is determined by supply and demand. C) All U.S. exchanges are primary markets, where price is determined by supply and demand. D) All U.S. exchanges are primary markets, where securities are offered at a public offering price.
A. issuer transactions occur in the primary market, and securities are offered at a public offering price The primary market, regulated by the 1933 Securities Exchange Act, is where securities are offered by issuers (issuer transactions) at an offering price. The sales proceeds of these transactions go to the issuer.
To prevent inflation by tightening the availability of credit, the FRB would do any of the following EXCEPT A) lower the prime rate B) raise the reserve requirement C) raise the discount rate D) sell U.S. government securities in open-market operations
A. lower the prime rate To slow the economy in an attempt to prevent inflation by tightening the availability of credit (less money available, which raises interest rates), the FRB can sell U.S. government securities in open-market operations, raise the discount rate, and raise the reserve requirement. The prime rate is set by banks not the FRB.
an individual or institution willing to hold securities positions in its own proprietary account for the purpose of providing liquidity to he marketplace is A. market maker B. a broker C. a trustee D. a custodian
A. market maker
Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory, and posting a public quote for this activity, you would know that it is a A) market maker B) executing for commissions only C) fully disclosed broker dealer D) clearing agent
A. market maker BDs who incorporate proprietary trading into their business model are known as market makers. As a market maker the BD trades in their own account attempting to profit. A firm making markets may be a carrying firm or a fully disclosed firm. Commissionable transactions are those done by brokers for customer accounts, not proprietary trades.
Which of the following pairs are NOT covered by the Federal Deposit Insurance Corporation (FDIC) at any level? A) Mutual funds and annuities B) Certificates of deposit and mutual funds C) Certificates of deposit and self-directed IRAs D)Savings accounts and annuities
A. mutual funds an annuities Investment products that are not deposits are not covered by the FDIC. This would include life insurance policies, mutual funds, annuities, and individual securities such as stocks and bonds. "At any level" means neither partially nor fully.
All of the following are true of tombstone advertisements EXCEPT A) they are mandatory and must be placed during the cooling-off period B) they are not an offer to sell or solicit sales for the securities C) they would be expected to show the number of shares to be offered D) they can be placed by the underwriters
A. they are mandatory and must be placed during th cooling-off period Tombstone advertisements are not mandatory. They can be placed by the issuer or the underwriters and contain only bare bones facts about the new issue that is limited in scope and detail. However, expected information to be found there would include the name of the issuer and underwriters, type of security, number of shares to be offered, and the offering price or expected price range. All must have a disclosure or advisory that the ad is not an offer to sell or solicit sales for the shares.
When engaging in open-market operations, taking actions to either expand or contract the money supply, the FRB will buy or sell A) Treasury securities B) corporate equity securities C) corporate bonds D) U.S government agency securities
A. treasury securities The FRB will buy or sell Treasury securities in the open market to either expand or contract the money supply.q
First Amalgamated Bank of Buffalo, a large commercial bank, is a member of the Federal Reserve System. Should the bank need to increase its reserves, it could I. borrow from the FRB and pay the discount rate II. borrow from the FRB and pay the federal funds rate III. borrow from another member bank and pay the discount rate IV. borrow from another member bank and pay the federal funds rate A) I and III B) I and IV C) II and IV D) II and III
B. I and IV When a bank needs to borrow money to increase its reserves it can borrow from the Federal Reserve Bank, or it can borrow from another member bank like itself. When borrowing from the FRB, the banks pay the discount rate. When borrowing from another member bank, the banks pay the federal funds rate.
which of the following actions fo the Federal Reserve Board (FRB) would like have the effect of causing interest rates to increase? I. the Federal Open Market Committee (FOMC) buying securities II. raising the reserve requirements III. raising the discount rate IV. raising the prime rate A. I and II B. II and III C. II and IV D. III and Iv
B. II and III
an entity such as a corporation wishing to offer securities for sale to the public for the purpose of raising capital is A. an underwriter B. an issuer C. a trustee D. a transfer agent
B. an issuer
the magnolia steel corporation needs to build a refinery plant. it is estimated to cost $750 million to complete. What market can be used to raise the money needed to build the new plant? A. currency market B. capital market C. secondary market D. money market
B. capital market
Producers would generally report rising inventories during which period of the business cycle? A) Recovery B) Contraction C) Peak D) Expansion
B. contraction Downturns in the business cycle (a contraction) tend to be characterized by rising inventories (a sign of slackening consumer demand). During expansion (recovery is a synonym) and peak, goods are usually moving as fast as they can be produced with little chance of buildup in inventories.
assuming all other factors to remain constant, an increase in imports would most likely cause GDP to A. increase B. decrease C. initially increase and then decrease D. remain the same
B. decrease
which state of the business cycle is characterized by using interest rates and higher wages? A. contraction B. expansion C. recession D. trough
B. expansion
An investment banker primarily engages in which of the following activities? A) Assisting wealthy individuals manage their investment portfolios B)Helping issuers to raise capital through securities issuances C) Offering high net worth investors private banking services D) Helping banks find appropriate investments for excess reserves
B. helping issuers to raise capital through securities issuances Investment bankers help issuers by marketing securities to potential investors. The function of the investment banker (also known as an underwriter) is to help the issuer to structure capital raises and at times, form syndicates with other underwriters to facilitate this money raising process.
When the money supply in the economy decreases, A) interest rates go down, hence borrowing and spending for consumers is more difficult B) interest rates go up, hence borrowing and spending for consumers is more difficult C) interest rates go up, hence borrowing and spending for consumers is easier D) interest rates go down, hence borrowing and spending for consumers is easier
B. interest rates go up, hence borrowing and spending for consumers is more difficult Decreases in the money supply means less money is available to lend. This pushes interest rates up, hence borrowing and spending for consumers is more difficult.
for the Depository Trust and Clearing Corporation (DTCC), all of the following are true EXCEPT A. it is a member if the Federal Reserve System B. it acts as a retail bank servicing savings and checking accounts C. it serves for the purpose of providing custody of securities D. it is a worldwide clearing agent
B. it acts as a retail bank servicing savings and checking accounts
The primary regulatory body for the securities industry would be which of the following? A) Financial Industry Regulatory Authority (FINRA) B) Securities and Exchange Commission (SEC) C) Federal Reserve Board (FRB) D) Municipal Securities Rule Board (MSRB)
B. securities and exchange commission (SEC) Created under the Securities Exchange Act of 1934, the overriding or primary securities industry regulatory body is the Securities and Exchange Commission (SEC).
A corporation seeking to raise funds in order to expand its manufacturing capacity would do so in A) the secondary market B) the capital market C) the funding market D) the currency market
B. the capital market Raising new capital is generally accomplished through the issuance of stock (equity capital) or bonds (debt capital). This is done in the capital market. When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company.
the prospectus delivery requirement, access equals delivery, is satisfied when a. a red herring is initially sent by mail to investors during the cooling off period b. the final prospectus has been filed with the SEC and is available on the SEC's website for investors to see c. he preliminary prospectus has been filed with FINRA and is therefore available on FINRA's website for investors to see d. the final prospectus has been filed with FINRA and is available on FINRA's website for investors to see
B. the final prospectus has been filed with the SEC and is available on the SEC's website for investors to see Beyond physical delivery of a paper prospectus, access equals delivery is the industry standard for meeting the final prospectus delivery requirements. It is deemed to be satisfied when the final prospectus has been filed with the SEC and is therefore available on the SEC's website for investors to log in and see. This standard does not apply to delivery of a preliminary prospectus before the effective date.
the federal regulatory body that governs the securities industry is A. the financial industry regulatory authority (FINRA) B. the securities and exchange commission (SEC) C. the NYSE D. the federal reserve board (FRB)
B. the securities and exchange commission (SEC)
A company that offers sales of another company's securities would BEST be described as a(n) A) market maker B) underwriter C) transfer agent D issuer
B. underwriter A broker-dealer (investment banker) that works with an issuer to bring the issuer's securities to the market by offering the securities for sale to investors is best described in this context as an underwriter.
the FDIC provides insurance guaranteeing the safety of a depositors accounts in FDIC member banks for each deposit up to A. $150,000 B. $200,000 C. $250,000 D. $500,000
C. $250,000
GEMCO Oil and Gas, listed on the NYSE, wishing to sell up to $300 million of convertible debt as market conditions permit, files a shelf registration statement with the SEC. Which of the following statements are TRUE? I. For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale. II. The registration statement is effective upon completion of the cooling-off period. III. Shelf registration allows this issuer to sell portions of a registered shelf offering over a 2-year period without having to reregister the security. IV. Shelf registration allows this issuer to sell portions of a registered shelf offering over a 3-year period without having to reregister the security. A) I and III B) II and IV C) I and IV D) II and III
C. I and IV Section 415 of the Securities Act of 1933 allows publicly traded issuers to register an offering for sale at times to be determined by the issuer. In essence, the issuer is taking the securities "off the shelf" and selling them when needed, hence the name, shelf offering. No new registration is required for a period of 2 years, but, a supplemental prospectus must be filed with the SEC before each sale. A Well Known Seasoned Issuer (WKSI) has a three year shelf offering.
The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of the following statements comply with those rules for initial (IPO) and additional (APO) public offerings? I. An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days. II. An IPO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. III. An APO of a stock listed on the NYSE requires delivery for a period of 25 days. IV. An APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. A) II and III B) III and IV C) I and IV D) I and II
C. I and IV The prospectus delivery rules are: IPO for listed or Nasdaq—25 days; APO for listed or Nasdaq—none; IPO for non-Nasdaq—90 days; APO for non-Nasdaq—40 days.
Sales for new issues of securities may be solicited A) before the cooling-off period B) before, during, or after the cooling-off period, if done with a final prospectus C) after the cooling-off period D) during the cooling-off period
C. after the cooling off period Sales can only be solicited after the cooling-off period (upon the effective date). Solicitations of all sales must be done with a final prospectus.
An individual is defined by the SEC as an accredited investor if the individual has a net worth of A) $10 million or more, or has had an annual income of $100,000 or more in each of the 5 most recent years B) $5 million or more, or has had an annual income of $500,000 or more in each of the 2 most recent years C) Greater than $1 million, or has had an annual income of greater than $200,000 in each of the 2 most recent years D) $3 million or more, or has had an annual income of $200,000 or more in each of the 5 most recent years
C. greater than $1 million, or has had an annual income of greater than $200,000 in each of the 2 most recent years By definition, an accredited investor is one who has a net worth of over $1 million (excluding net equity in a primary residence), or has had an annual income of more than $200,000 in each of the 2 most recent years with a reasonable expectation of reaching the same income level in the current year. Note that for joint tax filers, the minimum income level is over $300,000.
Most economists would agree that rising employment would be found during periods of A) stagflation B) stagnation C) inflation D) deflation
C. inflation During inflationary periods, there is generally a rising demand for goods and services. This will have the effect of creating more employment. Conversely, when the economy slows down, employment generally falls (claims for unemployment benefits rise).
In most cases, the majority of private placements are sold to A) individuals who meet the definition of accredited investor B) investment bankers C) institutional investors D) general public investors
C. institutional investors Although private placement securities may be sold to small groups of wealthy individuals who meet certain net worth and income criteria (accredited investors), by far the greatest volume is sold to institutional investors.
When the demand for money exceeds the supply, A) interest rates fall, making consumer borrowing more difficult B) interest rates fall, making consumer borrowing easier C) interest rates rise, making consumer borrowing more difficult D) interest rates rise, making consumer borrowing easier
C. interest rates rise, making consumer borrowing more difficult Money available to lend is like all commodities in that its cost (interest) is impacted by supply and demand. When the demand for money exceeds the supply, interest rates rise, making consumer borrowing more difficult
which of the following statements regarding the 3rd market is TRUE? A. it refers to the trading of unlisted stocks directly between institutional investors B. the services of a broker acting as an agent or intermediary are not used C. it is composed of listed securities traded OTC D. it is composed of unlisted securities
C. it is composed of listed securities traded OTC
when a government actively manipulates the economy through tax and spending policies, this is referred to as A. supply and demand economics B. monetarist economics C. Keynesian economics D. supply-side economics
C. keynesian economics
The Federal Reserve is concerned that the economy is slowing. Which of the following actions would the Fed most likely engage in? A) Double the reserve requirements for member banks B) Raise the margin requirements under Reg. T C) Pursue an easy money policy to lower interest rates D) Engage in open market sales of T-Bills
C. pursue an easy money policy to lower interest rates Monetary policy is implemented by the FRB. Monetary policy attempts to control the supply of money to influence the level of interest rates which, in turn, will either stimulate or dampen the U.S. economy. If the FRB believes the economy is sluggish and needs to be stimulated, it will attempt to lower interest rates by pursuing an easy money policy. Lower rates are designed to encourage borrowing in an effort to stimulate growth. Raising the margin rate or reserve requirements are tightening actions which will dampen economic activity. Selling T-Bills will reduce the money supply and raise rates which is also a tightening action.
The primary purpose of the Securities Act of 1933 is to A) provide a basis for the regulation of exchanges and electronic trading venues B) regulate all persons associated with industry member firms C) require full and fair disclosure in connection with the sale of securities to the public D) authorize the designated self-regulatory organizations (SROs) to enforce securities rules and regulations
C. require full and fair disclosure in connection with the dale of securities to the public The primary purpose of the Securities Act of 1933 is to require full and fair disclosure in connection with the sale of securities to the public.
the requirement for a supplemental prospectus to be filed before each sale is applicable to a. additional issues b. sales of shares in the secondary market c. shelf registration sales d. initial public offering sales
C. shelf registration sales through a shelf offering, an issuer who is already a publicly traded company can register new securities without selling any of the share until late for rating to sell portion of the shares. for securities offered via shelf registration, a supplemental prospectus must be filed with the SEC before each sale
an economic environment with little or no economic growth, but where inflation is present, is best described as A. deflation B. depression C. stagflation D. stagnation
C. stagflation
all of the following would be considered a defensive industry security EXCEPT A. tobacco stock B. food chain stock C. steel company stock D. utility company stock
C. steel company stock
ABC Corporation has filed a registration statement with the SEC for the sale of 1 million shares of common stock. This will be the first public offering for ABC. Twelve days into the cooling-off period, ABC receives a deficiency letter from the SEC requesting further information. Five days later, ABC submits the required corrections. Assuming no other problems, this issue should become effective in A) 3 days B) 15 days C) 20 days D) 8 days
D. 8 days When the issuer submits the corrections necessary to satisfy the deficiency letter, the 20-day cooling-off period picks up where it left off; in this case, from 12 days.
With regards to fiscal policy, it would be CORRECT to state that I. fiscal policy is considered the most efficient means to solve short-term economic problems II. fiscal policy is not considered the most efficient means to solve short-term economic problems III. fiscal policy refers to governmental budget decisions enacted by our president and Congress IV. fiscal policy refers to governmental budget decisions enacted by our president and the cabinet A) I and IV B) II and IV C) I and III D) II and III
D. II and III Because the political process determines fiscal policy, it takes time for conditions and solutions to be identified and implemented. Therefore, it is not considered an efficient way to solve short-term economic problems. Fiscal policy is the responsibility of our president and the Congress
Which of the following transactions represents the greatest potential risk to an investment banker? A) A stock split B) A spin-off C) A best efforts IPO D) A firm commitment offering
D. a firm commitment offering In a firm commitment offering the underwriter acts as principal and assumes the risk of bringing a new securities issue to market. The underwriter buys shares from the issuer and resells the securities to the public at a higher price - the public offering price (POP) and earns this price differential (spread) for its efforts. If the shares cannot be sold, the underwriter must place the securities into its inventory and runs the risk of losing money should the position fall in value. Best efforts deals are closed by collecting client funds into an escrow account so no underwriter capital is at risk in these types of offerings. A stock split and spinoff do not involve an underwriter placing any funds at risk.
The Securities Act of 1933 requires that A) registration with the Securities and Exchange Commission (SEC) before public sale can be made be an option for all new issues B) all new issues be exempted from registration with the Securities and Exchange Commission (SEC) so that they may be sold to the public C) both exempt and nonexempt new issues be registered with the Securities and Exchange Commission (SEC) before public sale D) a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale
D. a new issue, unless specifically expempted from the Act, be registered with securities and exchange committee before the public sale While some new issues can be exempt from registration, the Securities Act of 1933 requires that a new issue, unless it is specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sales can be made.
your BD acts as a primer broker for an institutional account. In this arrangement your BD is likely to be providing which of the following service? A. execution of all transactions B. maintenance of a trading floor operation on an exchange C. ensuring that all exchange-trading rules are complied with D. clearing transaction settlement services for executing brokers
D. clearing transaction settlement service for executing brokers
To grow or expand the economy, U.S. fiscal policy should be to A) cut taxes and government spending for programs and development B) raise taxes and government spending for programs and development C) raise taxes and cut all government spending for programs and development D) cut taxes and increase government spending for programs and development
D. cut taxes and increase government spending for programs and development Fiscal policies to grow or expand the economy would encompass cuts in taxes allowing consumers to have more money to spend, spurring the economy forward, and increasing government spending for programs and development that creates jobs, again spurring the economy forward.
All of the following would decrease the U.S. balance of payments deficit EXCEPT A) a decrease in dividend payments by U.S. companies to foreign investors B) an increase in exports of domestic goods from the United States C) a decrease in imports of foreign goods into the United States D) a decrease in purchases of U.S. securities by foreign investors
D. decrease in purchase of U.S. securities by foreign investors Anything that will bring foreign money to the United States will decrease the balance of payments. Foreign investors pulling their money out of the United States or investing less in the United States will increase the U.S. deficit.
if an investment company bought stock directly from a bank; bypassing any intermediary or broker, this trade took place in A. the primary market B. the secondary market C. the third market D. the fourth market
D. fourth market
When investors buy and sell securities to and from one another, these transactions occur A) in the over-the-counter market only B) in the primary market C) on exchanges only D) in the secondary market
D. in the secondary market Primary market transactions involve the issuer or someone acting on behalf of the issuer, such as an underwriter. Secondary markets are where investors can buy and sell securities to and from one another. The secondary market includes exchanges and the OTC market.
an investor enters an order to purchase shares of XYZ stock. Another investor enters an order to sell XYZ stock. these 2 orders meet on the floor of a U.S. stock exchange where they are executed. This transaction took place in A. the OTC market B. the new issues market C. the primary market D. the secondary market
D. the secondary market
Different degrees of inflation can impact the economy differently. Which of the following best reflects this? A) High inflation pushes prices to their highest levels, continuously pushing the economy higher. B) Mild inflation can thwart business investments and slow economic growth. C) High inflation spurs the economy forward by increasing the demand for goods. D) Mild inflation can encourage growth and stimulate the economy.
D. mild inflation can encourage growth and stimulate the economy While mild inflation can encourage economic growth because gradually increasing prices tend to stimulate business investments, high inflation pushes prices up, reducing the U.S. dollar's buying power. Ultimately, high inflation hurts the economy
There are 2 distinctive types of policies implemented to shape and mold the U.S. economy. They are A) federal and municipal B) supply and demand C) corporate and governmental D) monetary and fiscal
D. monetary and fiscal The 2 distinctive types of policies that impact our economy are monetary and fiscal. Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply via the Federal Open Market Committee (FOMC). Fiscal policy refers to governmental budget decisions enacted by the president and Congress, including increases or decreases in federal spending and money raised through taxation.
A method of registering securities at the state level that is reserved only for federal covered securities is known as A) qualification B) coordination C) federal covered application D) notice filing
D. notice filing The method known as notice filing exempted federal covered securities from state jurisdiction but still established a method by which the states could collect fees when issuers of those securities wished to have them sold in the state.
In the capital markets, securities such as stocks and bonds can be A) purchased and sold by individuals only B) purchased and sold by institutions only C) offered by the public sector only D) offered by both public and private sectors
D. offered by both the public and private sectors In capital markets, both public and private sectors sell securities in order to raise funds. These securities can be bought and sold (traded) in the capital markets by individuals and institutions alike.
Just as markets can be influenced by many factors, so can the market price of a single company's stock. While all of the following could impact a company's stock price to some extent, which would be the least likely to have a direct and immediate impact? A) Changes in the business cycle B) The company's earnings C) Federal Reserve Board (FRB) policies D) Political elections
D. political elections The price of a company's stock will be impacted directly by the company's earnings and changes in the business cycle. Less directly impactful would be FRB policies to loosen or tighten credit, and least likely to have a direct impact would be the outcome of political elections. It should be noted, however, that the outcome of political elections can influence FRB policies over time and, therefore, where the economy stands in relation to the business cycle. Still, however, elections would have less of an immediate impact.
Which of the following interest rates do large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans? A) Discount rate B) Federal funds rate C) Broker call loan rate D) Prime rate
D. prime rate Each bank sets its own prime rate—the rate charged to their most credit worthy corporate customers for unsecured loans.
a major distinction of a secondary offering is A. the transaction takes place in the secondary market B. the securities are not offered to the general public C. money raised in a secondary offering is more heavily regulated than other offerings D. proceeds are not received by the issuer of securities
D. proceeds are not received by the issuer of securities
economic data shows that the gross domestic product (GDP) has been declining steadily over the past 2 quarters. this would suggest A. expansion B. inflation C. depression D. a recession
D. recession
The Securities Exchange Act of 1934 allows for the creation of self-regulatory organizations (SROs) to write and in some instances enforce compliance by its member firms and persons associated with its member firms. Which of the following is NOT an SRO registered with the Securities Exchange Commission (SEC)? A) The MSRB B) The CBOE C) FINRA D) The DTC
D. the DTC The Depository Trust Company (DTC) performs the functions of a Central Securities Depositary. It does not deal with regulation or enforcement of securities rules. Exchanges such as the CBOE, FINRA, and the MSRB are all self-regulatory organizations (SROs). Note that while the MSRB is an SRO it is not empowered to enforce the rules it writes.
under the Securities Act of 19333, a corporation may qualify for an exemption from the registration statement and prospectus requirements under all of the following exclusionary provisions EXCEPT A. regulation A+ B. regulation D C. rule 147 D. the investment advisers act
D. the Investment Advisors Act
a nonprofit organization requiring members to pay assessments into a general insurance fund used to meet customer claims in the event of a BD bankruptcy is A. the Securities and Exchange Commission (SEC) B. the Depository Trust and Clearing Corporation (DCC) C. the Federal Deposit Insurance Corporation (FDC) D. the Securities Investors Protection Corporation (SIPC)I
D. the Securities Investors Protection Corporation (SPIC)
It is generally agreed that the most volatile interest rate in the U.S. economy is A) the discount rate B) the call money rate C) the prime rate D) the fed funds rate
D. the fed funds rate The federal funds rate is the rate the commercial money center banks charge each other for overnight loans of $1 million or more. It is considered a barometer of the direction of short-term interest rates, which fluctuate constantly and can be considered the most volatile rate in the economy.
The ABC Chemical Corporation wishes to advertise its upcoming offering of common stock in a tombstone advertisement that they, the issuer, will place. When placing the tombstone advertisement, which of the following would be least likely to appear? A) The name of the issuer B) The expected price range of the offering C) The total number of shares being offered D) The names of the investment bankers underwriting the issue
D. the names of the investment bankers underwriting the issue In most cases, the names of the firms underwriting the issue only appear in the tombstone ad when they, rather than the issuer, have placed the ad. In this instance with the tombstone advertisement placed by the issuer themselves, the names of the underwriters would not likely appear.
All of the following are true of tombstone advertisements EXCEPT A) they would be expected to show the number of shares to be offered B) they can be placed by the underwriters C) they are not an offer to sell or solicit sales for the securities D) they are mandatory and must be placed during the cooling-off period
D. they are mandatory and must be placed during the cooling off period Tombstone advertisements are not mandatory. They can be placed by the issuer or the underwriters and contain only bare bones facts about the new issue that is limited in scope and detail. However, expected information to be found there would include the name of the issuer and underwriters, type of security, number of shares to be offered, and the offering price or expected price range. All must have a disclosure or advisory that the ad is not an offer to sell or solicit sales for the shares.
how many primary offerings can a corporation issue? A. 1 primary offering B. 2 primary offerings C. 3 primary offerings D. unlimited
D. unlimited
