Unit 18

An opening transaction can be A) either a buy or a sell. B) a sell only. C) a buy only. D) a short sale only.

A) either a buy or a sell.

A customer wishes to sell short 1,000 shares of ABC. Prior to executing the order, the registered representative must A) locate shares that can be lent to effect the sale. B) have the customer pledge personal collateral to cover the sale. C) receive principal permission to execute the trade. D) receive permission from the customer to borrow shares.

A) locate shares that can be lent to effect the sale.

Shares must be borrowed in order to A) sell short to open a position. B) buy to close a position. C) sell short to close a position. D) buy to open a position.

A) sell short to open a position.

All of the following are bullish positions except A) short stock. B) long stock. C) long warrants. D) long calls.

A) short stock.

A registered representative suggests a trade to a customer which the customer agrees is suitable given their investment objectives. The order is entered. This transaction is A) solicited and the order ticket must be marked solicited. B) unsolicited and the order ticket should be marked unsolicited. C) neither solicited or unsolicited and the order ticket should be marked as neither. D) solicited but the order ticket need not be marked in any special way.

A) solicited and the order ticket must be marked solicited.

A customer called his registered representative to place a trade to buy 100 shares of ABC. The customer wants to put a limit on the order, but is unsure what would be an appropriate price. At the suggestion of the registered representative, the customer enters the order with a limit of $30. This trade was A) unsolicited. B) discretionary. C) not held. D) solicited.

A) unsolicited.

A closing transaction can be A) a short sale. B) either a buy or a sell. C) a sell only. D) a buy only.

B) either a buy or a sell.

Short sellers have A) limited profit and loss potential. B) limited profit potential and an unlimited loss potential. C) unlimited profit and loss potential. D) unlimited profit potential and limited loss potential.

B) limited profit potential and an unlimited loss potential.

Ownership of a security indicates that one is A) short the position and bearish. B) long the position and bullish. C) short the position and bullish. D) long the position and bearish.

B) long the position and bullish.

Meeting the location requirements and the borrowing of securities when a customer wants to sell short is done by A) the customer or entity that the shares will be borrowed from. B) the broker-dealer on behalf of the short-selling customer. C) the customer who wants to sell short. D) the purchaser of the securities being sold short.

B) the broker-dealer on behalf of the short-selling customer.

With a discretionary account A) churning is permitted by the party given the discretion. B) the customer may still enter orders. C) the customer may refuse any trades done by the party given the discretion. D) a full power of attorney is needed on file to grant discretion.

B) the customer may still enter orders.

A registered representative enters a discretionary order for her clients account. All of the following are required except A) a record of the order must be maintained. B) the order must be approved by a principal prior to entry. C) the order should be included in those required to be reviewed frequently. D) the order must be identified as or marked discretionary.

B) the order must be approved by a principal prior to entry.

Discretion given to a registered representative to make transactions applies to all of the following except A) whether to buy or sell. B) the number of shares or units for the transaction. C) timing and price only. D) the security for the transaction.

C) timing and price only.

A customer who is short against the box may close the position by all the following except A) covering the short with the stock in his account. B) combining purchases of stock with stock already owned by the customer. C) purchasing twice the stock in the open market. D) depositing the fair market value of the shorted stock into his account.

D) depositing the fair market value of the shorted stock into his account.

Selling shares not yet borrowed or located to be borrowed is A) known as closing a position with a sale and is prohibited. B) known as closing a short sale with a purchase. C) known as a short sale and is prohibited. D) known as a naked short sale and is prohibited.

D) known as a naked short sale and is prohibited.

Blaine Smith has owned XYZ stock for several years and believes it is time to take his profit and invest that money in another stock. He should A) buy XYZ to close. B) buy XYZ to open. C) sell XYZ to open. D) sell XYZ to close.

D) sell XYZ to close.

When investors open a position by going long the security, they can close the position by A) selling the security short. B) buying the security. C) opening a new position in the security. D) selling the security.

D) selling the security.

All of the following are required for a discretionary account except A) the customer must authorize discretion. B) all trades must be promptly approved by a principal at the firm. C) a principal at the firm must authorize discretion. D) the account must receive FINRA approval prior to the first trade.

D) the account must receive FINRA approval prior to the first trade.

Potential risks of owning common stock include all of the following except A) business risk. B) market risk. C) low priority in liquidation. D) unlimited liability.

D) unlimited liability.

Which of the following best describe a wrap account? I. The firm offering the account would need to be registered as both a broker-dealer and an investment advisor II. The account fee covers both transactions and advice III. The wrap fee for the account covers only where the firm acts as a broker or acts as a dealer IV. The firm may only be registered as a broker or dealer A) III and IV B) I and II C) I and IV D) II and III

B) I and II

Which type of accounts bills a single fee annually for a group of services that might include asset allocation, portfolio management, and executions? A) Cash account. B) Wrap account. C) Option account. D) Margin account.

B) Wrap account.

An investor with no existing positions in MMS stock sells 100 shares. This is A) a long bearish position. B) a short bearish position. C) a short bullish position. D) a long bullish position.

B) a short bearish position.

The trade would need to be placed in a discretionary account if the registered representative chooses which of the following? I. The time of execution of the trade II. Which security to buy III. How much of the security to buy IV. At what price to execute the trade A) I and IV B) II and IV C) I and II D) II and III

D) II and III

A customer who is bullish on ABC would most likely A) buy ABC long. B) sell ABC long. C) sell ABC short. D) buy ABC short.

A) buy ABC long.

Shares to sell short have been located in order to be borrowed. Once sold short, these shares will be known as A) covered. B) naked. C) closed. D) uncovered.

A) covered.

Which of the following are required in discretionary accounts? A) Approval by a principal for discretion to be permitted in an account B) FINRA approval to open the account C) SEC approval to open the account D) Prior approval by a principal before each discretionary trade is placed

A) Approval by a principal for discretion to be permitted in an account

Which of the following choices would a registered representative be able to make for a customer in a nondiscretionary account? I. The time of execution of the trade II. Which security to buy III. How much of the security to buy IV. At what price to execute the trade A) I and IV B) I and II C) II and IV D) II and III

A) I and IV

Which of the following transactions has the most risk? A) Selling short B) Buying to open C) Short against the box D) Selling to close

A) Selling short

An investor is long MJS stock. For this investor, which of the following is true? A) The risk is that the stock falls in price. B) The risk is that the stock remains stable in price. C) The risk is that the stock goes up in price. D) Maximum loss can be unlimited.

A) The risk is that the stock falls in price.

A person who is vested with legal rights and powers to be exercised for the benefit of another is known as A) a fiduciary. B) a sponsor. C) a dealer. D) a broker.

A) a fiduciary.

Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares? A) Write 10 CDT call options B) Buy 1,000 shares of CDT C) Sell 1,000 shares of CDT D) Buy 10 CDT call options

B) Buy 1,000 shares of CDT

A client calls a registered representative and states that she lives in New York City and is looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany New York School District that would be triple tax free for the client. Which of the following would be the registered representative's best course of action? A) Determine suitability prior to the trade and mark the trade unsolicited. B) Determine suitability prior to placing the trade and mark the trade solicited. C) No suitability determination is required because the bonds will be tax free for the client and mark the trade solicited. D) No suitability determination is required because these bonds will be tax free for the client and mark the trade unsolicited.

B) Determine suitability prior to placing the trade and mark the trade solicited.

The locate requirement is an element of which of the following transactions? A) Sell to close B) Buy to close C) Sell to open D) Buy to open

C) Sell to open

Which of the following is true regarding short sales? A) Selling short means selling less shares than were purchased. B) Selling short involves purchasing the shares first. C) Selling short involves selling shares not yet owned. D) Selling shares not yet owned is prohibited.

C) Selling short involves selling shares not yet owned.

Selling long is equivalent to which of the following? A) Selling short B) Selling to open then buying to close C) Selling to close D) Selling to open

C) Selling to close

Your customer opens a position at 45 and then closes it later at 47. This represents A) a 2-point loss. B) a 47-point gain. C) a 2-point gain or loss. D) a 2-point gain.

C) a 2-point gain or loss.

An investor who has a short position in 500 shares of JKH common stock would eliminate that position by A) entering a closing sale order for 500 shares of JJK. B) entering a closing purchase order for 500 shares of ABC. C) entering a closing purchase order for 500 shares of JKH. D) entering an opening purchase order for 500 shares of JKH.

C) entering a closing purchase order for 500 shares of JKH.

A registered representative is explaining discretionary and nondiscretionary accounts to a customer. Only one of the following statements is accurate and can be made by the registered representative. Which is it? A) If I decide that the account should be a discretionary one you will no longer be able to enter orders yourself. B) I decide if the account should be set up as discretionary or nondiscretionary, but must do so in your best interest. C) In a discretionary account you will have the opportunity to approve any order I want to enter before I enter it. D) In a nondiscretionary account no order can be entered without your prior approval.

D) In a nondiscretionary account no order can be entered without your prior approval.

Which of the following transactions has the least risk? A) Selling short B) Selling to open C) Buying to open D) Short against the box

D) Short against the box