Chapter Practice Tests For SIE (Chapter 1,2,3,4,5,6,7,8,9,10)
All of the following positions would provide a hedge against a decline in the market value of a common stock portfolio EXCEPT?
Buying Call options.
The primary regulatory agency for the issuance and regulation of the securities market is the:
[A] Securities Exchange Commission
Assume a customer buys 1 ABC July 40 call for 4 and sells 1 ABC October 40 call for 7. The customer closes out his positions by purchasing the October 40 call for 9 and selling the July 40 call for 5. What is the profit or loss?
$100 loss
A customer purchased 100 shares of ARK stock at $60 per share. He then purchased one ARK September 80 put at 6. He exercises the put when the market price of ARK stock is $67 and has a:
$14 profit per share.
The following breakpoints are printed in a mutual fund prospectus: PURCHASE AMOUNT SALES CHARGE To $19,999 9% To $39,999 8% To $59,999 7% $80,000 & above 6% Of the following, which would likely constitute a violation of breakpoint sales regulations?
A purchase of $39,500
Which of the following are true concerning rights?
I. They may be listed on a stock exchange. II. They entitle the holder to subscribe to stock at less than the market price. III. They normally have a short term lifespan.
Which of the following would probably be most leveraged?
A utility company.
A customer buys one ABC Sept 50 put for $2.50 when the price of ABC stock is 60. What is the MAXIMUM profit that the customer may realize?
$4,750
A customer buys 100 shares of ABC at 50 and one ABC Sept 55 put @ 5. Later, the customer sells the shares for $58 per share and sells the put for 2. What is his profit or loss?
$500 profit
An option investor decides to buy 4 ABC Aug 60 Calls @ 4 and sell 8 ABC Aug 70 Calls @ 3 when ABC is at 65. What would be the profit or loss to the customer at expiration if the market price of ABC had declined to 50?
$800 profit
Leafy Trees Inc. has the following facts regarding its common shares as of April: Authorized Shares: 10,000,000 Issued and Outstanding: 8,000,000 May: It repurchases 1,000,000 shares. June: It completes a 2 for 1 stock split. How many shares are outstanding after the split?
14,000,000 The company has 8,000,000 shares outstanding before any corporate action is effected. It then repurchases 1,000,000 shares, which is now treasury stock. The outstanding number of shares is reduced to 7,000,000 (issued stock - treasury stock = outstanding stock). After this, the company completes a 2 for 1 stock split. So the new outstanding figure is: 2/1 x 7,000,000 = 14,000,000.
ABC Inc. Announced a 2 for 1 stock split. An investor owns 100 shares with a current market price of $50 per share. After the split, the investor will own?
50 Shares at $100 per Share.
A customer purchases 1 XYZ July 50 call @ 5. The customer will breakeven at which of the following market prices for the underlying security?
55
An individual in a 35% tax bracket owns shares in a municipal bond fund that yields 4%. What yield would he need from a corporate bond fund to have the same after-tax return?
6%
Which of the following is a corporate bond quote?
75 1/2.
The stock of a corporation is selling at $55 per share and the corporation pays a quarterly dividend at $1.30. The yield is?
9.5% (5.20 Annual Div / 55 Mkt px) = .0945 = 9.5%) To calculate the current yield, you must multiply the QUARTERLY dividend by 4. The yield is based on the annual dividend.
Which bond would be most suitable for an investor who invests for maximum liquidity?
A bond with one year maturity.
An issuer of bonds sees that interest rates have gone down. The issuer wishes to redeem an existing bond issue and refund it with new bonds that have a lower coupon rate. What bond feature is necessary in order for the issuer to effectively complete their desired refunding?
A call feature.
If a customer believes that interest rates will decline substantially, she should invest in?
A long term Corporate Bond with a coupon rate of 10% at a 12% basis, non callable.
A "series" of options is:
All option contracts of the same class having the same expiration date, exercise price, and unit of trading.
Place the following types of bonds in order of highest coupon rate to lowest coupon rate, assuming all mature at the same time.
AAA Corporate Bonds. U.S. Government Bonds. AAA Municipal Bonds.
An option contract for ABC is for 109 shares. Which of the following is probably true?
ABC has paid a stock dividend.
Zero coupon bonds would be most suitable for an investor seeking which one of the following?
Accumulation of capital.
Assuming all of the following products are available, which provides the customer with the BEST opportunity to invest in a foreign stock?
An American Depository Receipt (ADR).
All of the following activities would be reason to send a Suspicious Activity Report (SAR) to FinCEN at the U.S. Department of the Treasury, EXCEPT: [A] A man walks into the branch wishing to open an account by making 5 cash deposits, each of which he wishes to limit to $4,950. [B] A long-time client with no history of wire transfers from foreign sources receives several wire transfers from undisclosed foreign sources, each of which total just under $10,000. [C] An immigrant from a foreign country who is now a U.S. citizen walks into the branch and wishes to open a Traditional IRA by depositing a personal check for $2,500. [D] A woman who has been a client at the firm for 20 years and has never deposited over $2,000 at one time walks into the branch with an unnamed man and $50,000 in cash and wishes to open a separate individual account.
An immigrant from a foreign country who is now a U.S. citizen walks into the branch and wishes to open a Traditional IRA by depositing a personal check for $2,500.
Under option exchange rules, when must an option account be approved?
Before the first transaction.
When determining whether position limit rules have been violated, which option positions on the same underlying security are combined under Option Clearing Corporation Rules? Long puts and long calls. Short puts and long calls. Long puts and short calls. Short puts and short calls.
II and III
In regards to recourse loans in a DPP?
Any principal (capital) repayment reduces the investors basis. The investor is liable for repayment.
Athens Fund has an ask price of $19.25, while the ask price of the Troy Fund is $18.50. The net asset value per share of the Athens Fund is $20.25, while the Troy Fund has a net asset value per share of $17.02. Which of the following is probably true?
Athens is a closed-end fund, while Troy is an open-end fund.
An investor holds an equity REIT. which TWO would have the most detrimental effect on the value of this investors product?
Builders have flooded the market with new structures. The prime rate has seen a notable increase.
Normally a stock will begin ex-dividend on the...?
Business day prior to the record date.
Your client purchased XTX stock at 60. The stock is now at 70. Your client believes the price will decline to 65. He should:
Buy a 70 Put or write a 70 call .
A corporate bond is purchased at a discount. Which of the following would best state its future rate of return?
Basis or yield to maturity.
An individual comes in and wishes to open an options account. At what time must such an account be approved?
Before the acceptance of the first options trade
A debt security that can be backed by various assets such as auto loans, mortgages, or credit card debt is called a(n)?
CDO
Which of the following statements is true concerning yield spreads between Collateralized Mortgage Obligations (CMOs) and U.S. Treasuries of comparable maturities?
CMO yields are higher than U.S. Treasury yields.
Which of the following facts is provided in a call provision of a callable bond?
Callable date and the price at which the bond will be called.
All of the following are TRUE about the types or kinds of preferred stock EXCEPT?
Callable where shares may be redeemed by the company at a stated discount from par on certain dates.
An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds:
Can be used to secure additional bonds and all bonds rank equally.
REITs can. pass through all of the following to investors except?
Capital losses.
Which of the following would provide a corporate issuer the most inexpensive source of capital?
Common Stock.
All of the following are correct concerning customer background and financial information according to option exchange rules, EXCEPT
Customer background and financial information must be returned by the customer to the firm for account purposes within 15 days of being sent and reviewed by the customer.
Intrinsic value for an option is defined as the?
Difference between the stock's market price and option strike price, if exercise would be profitable to the holder in a long position.
Which of the following would be TRUE of an open-end investment company that only invests in municipal bonds?
Dividend payouts of interest received on the municipal bonds within the portfolio would be exempt from federal income taxes.
An investor buys 100 shares of ABC common stock at 25. If the investor later buys a put on ABC, he/she has:
Hedged against a price decline
A single 25 year old investment banker has income of $300,000 and net worth in excess of a million dollars. Her investment objective is capital appreciation. All of the following would be appropriate for this investor except?
High yield preferred stock.
Which of the following would be eligible for a sales breakpoint when purchasing mutual fund shares? A trustee for a corporate pension plan A father and his minor child A father and his 30-year-old son An investment club
I and II only
A client invests in a mutual fund and signs a letter of intent. Which of the following statements are TRUE? ABC Fund will probably hold some shares in escrow. If additional investments are not made, the client will be required to send a check for the difference in the load. If additional investments are not made, the client will not be required to send a check for the difference in the load, instead a portion of the client's shares would be sold
I and III only
In what order do the following receive payments in the event of a corporate liquidation?
I. Debenture Holders. II. Preferred stockholders. III. Senior lien bondholders. IV. Taxes.
Which if the following characteristics of corporate "Junk Bonds." They are:...?
I. Issued by corporations with questionable credit strength. II. Also called "High-Yield" Bonds. III. Sometimes used to finance the takeover of one corporation by another. IV. Bonds issued with credit ratings of BB or lower.
Which of the following is TRUE of a bond selling above par?
I. The current yield is lower than the nominal yield. III. The yield is less than the current yield. IV. The nominal yield always remains fixed.
When selling a put option, which two of the following are true? I. The seller controls the exercise of the contract. II. The buyer controls the exercise of the contract. III. You would be obligated to buy the stock upon exercise. IV. You would be obligated to sell the stock upon exercise.
II and III
Which of the following statements are true regarding registered bonds?
II. Ownership of the bond is transferable only upon proper endorsement III. Principal payments are sent directly to the registered owner of the bond.
The interest rate in a collateralized mortgage obligation:
Is paid at the coupon rate over the life of a bond.
Which of the following are true concerning treasury stock?
It does not vote, it does not pay dividends and it appears on a balance sheet as a deduction from issued stock.
A corporation increases the dividend payments to common stockholders. Assume that the price of the common remains unchanged. How does this affect the dividend yield of a stock?
It increases.
Which of the following corporate bonds would be considered most secured?
Mortgage bonds.
The Alternative Minimum Tax (AMT) may be applied to shareholders of a mutual fund that has which of the following securities contained within?
Municipal bonds issued for private industry purposes.
Preferred stock is cumulative, it means that the stock?
Must pay all dividends in arrears prior to the payment of the dividend in common stock.
Which of the following types of investments should be used as a long-term investment and not for short-term trading purposes?
Mutual funds.
Of the options transactions listed below, which one is required to indicate whether the position is "covered" or "uncovered?"
Opening Sale
When a cash dividend is paid on a stock, an investor with a short position in the stock would?
Owe the dividend to the lender.
Which of the following is NOT a benefit of owning preferred stock rather than common stock?
Preferred shareholders have preemptive rights ahead of common shareholders.
Of the securities listed below which would be classified as a fixed income security?
Preferred stock.
Which of the following securities may offer convertible features that allow the holders to exchange the securities for other issues of the company?
Preferred stock. Corporate bonds.
Mr. Smith is the holder of a put option. He instructs his broker to exercise the option. The broker submits the option exercise notice to the Options Clearing Corporation. The OCC would normally:
Randomly select a clearing member who is short that series to satisfy the exercise notice.
Fannie Mae commonly securitizes which of the following forms of debt to create CMO products?
Residential Mortgages.
Collateral Mortgage Obligations are collateralized by all of the following EXCEPT:
Sally Maes.
A customer would have an unlimited dollar risk if he was:
Short 1 WL Jan 50 put and short 100 shares of WL stock
An investor who wishes to minimize market risk should buy?
Short-term bonds.
Which of the following entities is responsible for accepting and guaranteeing the exercise of listed option contracts?
The Options Clearing Corporation (OCC)
In which of the following cases is an RR prohibited from selling a call option?
The RR receives the order from a corporate client who issued the underlying stock.
Which would be a counter cyclical industry
The gold mining industry.
Which of the following best describes the nominal yield on a bond?
The interest stated on the face of the bond.
When mortgages are pooled together to create a CMO product?
The mortgages are said to be securitized.
You are evaluating a number of preferred stocks with varying features. One of the preferred stocks that you are evaluating shows a pattern of increased market value in relation to increases in the market value of the common stock of the company. Of the following preferred stock features, which is the MOST LIKELY cause of this pattern
The preferred stock likely carries a conversion feature.
Concerning the taxation of Collateralized Mortgage Obligations (CMO's), which of the following decreases the yield of the bond?
The return is taxable at the Federal, state, and local levels.
When the owner of common stock receives Proxy Material, which of the following do they have?
The right to vote their shares in the voting manner presented at the shareholders meeting.
The Trust Indenture Act of 1939 regulates corporate debt issues and requires the designation of a trustee. What duty does this trustee have?
The trustee is charged with acting on behalf of bondholders and ensuring that the rights of these bondholders are not infringed upon.
Which of the following is not true regarding Exchange Traded Funds (ETF's)?
They cannot be bought on margin or sold short.
A corporation may issue refund bonds to accomplish any of the following EXCEPT:
To increase the capitalization of the company.
Trading in a stock has been suspended. Which of the following is true regarding trading in options on that stock?
Trading in the options is also halted.
A customer wishing to exercise their preemptive rights should send the rights to the...?
Transfer agent.
A customer writes 10 ABC May 40 calls @ 4.75 when the market price of ABC is $42 per share. She does not own ABC shares. What is the customer's maximum loss potential?
Unlimited
A security which gives the holder the privilege of investing in a company stock at a predetermined price at any time, over a long period of time is known as a?
Warrant.
A corporate bond that was originally rated as an investment Grade Bond and is downgraded to a Junk Bond would be referred to as a?
When investment grade bonds are downgraded to Junk Bonds, they are referred to as Fallen Angels.
An emerging growth company is generally defined as a company...
With total annual gross revenue of less than $1 Billion for its most recent fiscal year.
The effect of steadily declining interest rates on the secondary bond market is:
Yields decrease. Prices increase.
Which of the following is not true about Regulation A Offerings? [A] It is limited to $50,000,000 in any 12 month period. [B] The securities issued are restricted. [C] Limited partnerships can use them. [D] Filing with SEC is required.
[B] The securities issued are restricted.
A U.S.-based customer has recently retired. She will travel to Spain from April through June, return in July and then travel again to France from August through September. The client has requested that the RR hold her mail during her absence. According to FINRA rules, which of the following can the RR do? [A] The RR can hold the mail for both trips, totaling 5-months. [B] The RR can hold the mail for the trip to Spain only, totaling 3-months. [C] The RR cannot hold the investors mail as there is a two-month per year limit. [D] The RR can hold the mail for the trip to France only.
[A] The RR can hold the mail for both trips, totaling 5-months.
New Issue sales generally include all of the following EXCEPT: [A] Market-out clause [B] Sending preliminary prospectuses which include the offering price [C] Stabilization clause [D] Penalty clauses
[B] Sending preliminary prospectuses which include the offering price
All of the following mutual fund terms have the same meaning except
[C] public offering price
You are an RR at a firm and one of your customers calls you up and informs you that she wishes to exercise a long listed option that she currently holds. To whom would your firm present such an exercise order?
Your firm would present the order to the OCC (Options Clearing Corporation).
How many custodians and minors are allowed per account under the Uniform Gifts/Transfer to Minors Act? [A] 1 custodian and 1 minor [B] 1 custodian and 2 minors [C] 2 custodians and 1 minor [D] 1 custodian and unlimited number of minors
[A] 1 custodian and 1 minor
All of the following option terms are synonymous EXCEPT?
[A] Buyer - holder [B] Time value - At-the-money [C] Intrinsic value - In-the-money [D] Writer - short ANS:B
Under FINRA Rules, when must a market maker on NASDAQ report his trading volume? [A] Daily [B] Weekly [C] Monthly [D] Yearly
[A] Daily
Which of the following would be the best investment choice for an investor seeking significant capital appreciation as well as income?
[A] Equity income fund
Which of the following is one of the main purposes of the SEC? [A] Facilitate capital formation [B] Protect issuers [C] Establish monetary policy [D] Manage interest rates
[A] Facilitate capital formation
Trading practices in the over-the-counter market for corporate securities is subject to regulation by which of the following? FINRA SEC SIPC FOMC [A] I and II [B] III and IV [C] I, II and IV [D] All
[A] I and II
The bid and ask on mutual fund shares which charge a sales load represents which two of the following: The net asset value is the bid. The net asset value less a redemption fee is the bid. The ask is the net asset value plus the maximum sales load. The ask is the net asset value plus the average sales load.
[A] I and III
In a municipal bond underwriting, who signs the agreement among underwriters? Syndicate members Bond counsel Trustee Issuer
[A] I only
Municipal security issuers and market participants are subject to which of the following? Anti-Fraud Provisions of the Securities and Exchange Act of 1934. Prospectus delivery requirements to purchasers of new issues (Securities Act of 1933). Issuer reporting requirements to the SEC under the Securities and Exchange Act of 1934.
[A] I only
According to SEC Rule 147 on Intrastate Offerings, which of the following are true? Purchasers of the offering must be full time residents of the state. Purchasers must be residents 80% of each year to qualify. Resales may be made without restriction to anyone. Resales may be made to non-residents only after six months from the date of the last sale by the issuer.
[A] I, III
Two sisters want to establish a joint account, giving each authority to trade at any time. Which of the following should the Registered Representative determine, or obtain, prior to opening the account? Trading authorizations from both of the sisters. Determine if they want to set up a Joint Tenants in Common or Joint Tenants With Rights of Survivorship. Get a signed Consent Agreement allowing checks to be paid to either sister individually. Determine if they want to open a Cash or Margin Account. [A] II and IV [B] I, II, and IV [C] II, III, and IV [D] I, II, III, and IV
[A] II and IV
A RR of a retail member firm is attempting to cultivate a key employee of a large institutional investor client. The RR invites the employee to join him for dinner at an excellent restaurant and front row center tickets at a professional hockey game. After the game, they talk business over drinks. The total expense for the evening was $1,000. Which of the following statements about this expense is TRUE? [A] It is permitted because it is an ordinary and necessary business expense [B] It is permitted under all circumstances [C] It is prohibited under all circumstances [D] It is prohibited because it exceeds $100.
[A] It is permitted because it is an ordinary and necessary business expense
All of the following are TRUE about the Correspondence category of communications with the public EXCEPT: [A] It requires internal approval by a principal or supervisor of the firm before its use [B] It is defined to be any written communication that is sent to 25 or fewer investors within any 30 calendar day period [C] A retail investor includes retail customers and prospective customers, other than institutional investors. [D] Written procedures must provide for the supervision and review of correspondence by the broker-dealer firm
[A] It requires internal approval by a principal or supervisor of the firm before its use
FINRA Rules require that a customer give written authorization before a Discretionary Account can be opened. When must the written authorization be given by a customer, on a Discretionary Account, under FINRA Rules? [A] Prior to the first transaction in the Discretionary Account. [B] Prior to the end of the month the Discretionary Account was established. [C] Within a reasonable time after the Discretionary Account is opened. [D] Written authorization is never required, oral authorization is sufficient.
[A] Prior to the first transaction in the Discretionary Account.
Which of the following types of Funds BEST describe the Fund which has a portfolio which consists almost entirely of stocks of gold mining companies.
[A] Sector Fund (Specialized Fund)
In the liquidation of a broker/dealer, after the SIPC trustee has distributed all specifically identifiable customer securities, a customer of the broker/dealer has $545,000 market value of fully paid securities being held in street name and $140,000 cash in an account. Which of the following statements regarding SIPC coverage for this customer would be correct? [A] The customer would be covered for a maximum of $500,000 by SIPC and would become a general creditor of the broker/dealer for the remainder of his claim. [B] The customer would be covered for $500,000 in securities and $140,000 cash for a total of $640,000. [C] The customer would be covered for $140,000 cash only; the securities in street name are not covered under SIPC. [D] The customer would be covered for either $140,000 or $500,000 securities at his discretion.
[A] The customer would be covered for a maximum of $500,000 by SIPC and would become a general creditor of the broker/dealer for the remainder of his claim.
When shares of stock are being sold to the public for the first time, which of the following is TRUE? [A] This would be an example of primary market activities. [B] This would be an example of secondary market activities. [C] This would be an example of third market activities. [D] This would be an example of fourth market activities.
[A] This would be an example of primary market activities.
Disciplinary actions taken by SROs [A] are subject to SEC review. [B] must be voted on by members. [C] can be modified by member firms if deemed too severe. [D] are filed with the SEC but are not subject to review
[A] are subject to SEC review
While a branch office manager is reviewing the trading activity in the discretionary accounts in her branch, she notices a high turnover rate in one of the accounts and high commissions paid to the RR. Such trading activity is generally referred to as [A] churning. [B] painting the tape. [C] unsuitability. [D] rogue trading.
[A] churning.
A Registered Representative (RR) possesses material, non-public information about a publicly-traded company. The RR violates federal regulations in all of the following situations EXCEPT when the RR
[A] does not share nor trade on the information
The primary goal of the Patriot Act is to detect and prevent
[A] money laundering
A customer with a cash or margin account fails to make payment on a new purchase of securities within 4 business days of trade date. Under Reg T, the broker/dealer is not required to liquidate portions of the customer's account if payment for the purchase in the account is for: [A] $1,000 or less [B] $2,000 or more [C] $5,000 [D] Any unpaid amount
[A] $1,000 or less
Harvey had his registration revoked last year. If he wants to re-join the securities industry as a licensed person, who can approve it? [A] FINRA [B] The SEC [C] The member firm's executive committee by unanimous vote only [D] The U.S. Justice Department
[B] The SEC
A buy limit order for 200 shares of XYZ is entered on the designated market maker's book at 21. XYZ trades ex-dividend after the order is entered. The dividend is $1.32. The order will now appear on the designated market maker's book at what price? [A] $19.50 [B] $19.68 [C] $19.75 [D] $22.32
[B] $19.68
Which of the following regarding proxies must be provided to customers if they hold their securities at a member firm in street name? [A] Copies of red herrings of any secondary offering conducted by the issuer in the past two years [B] Annual reports published by the issuer [C] Any research report on the issuer that is published by the member firm [D] Any news story published in the media that discusses the proxy
[B] Annual reports published by the issuer
Bobby has a degree in finance. He studied hard for his Series 7 and Series 66 exams and passed both with great scores. Bobby has never traded stocks, bonds, or options personally and has just recently acquired his first client with a moderate net worth. The client voices an interest in getting a higher rate of return using leverage, and Bobby immediately recommends options on a few different stocks, on which Bobby has done little research. Which of the following is TRUE of this scenario? [A] With Bobby's degree and the fact that he passed his exams, his background and education make him knowledgeable enough to recommend options as an investment strategy. [B] Because Bobby has never traded securities, has not researched the stocks on which he has recommended options, and because he may lack an understanding of his own recommendations, Bobby has likely violated FINRA's Suitability Rule. [C] Because the customer has a moderate net worth and has expressed using leverage, Bobby's recommendation of the options positions would be suitable for the client. [D] Because Bobby does not have years of experience with these specific securities, there is no way for Bobby to make this recommendation without violating FINRA's Suitability Rule.
[B] Because Bobby has never traded securities, has not researched the stocks on which he has recommended options, and because he may lack an understanding of his own recommendations, Bobby has likely violated FINRA's Suitability Rule.
Regarding the lending and borrowing of money between customers and registered representatives, which of the following would NOT require written pre-approval? The customer is the registered representative's brother. An outside business activity, aside from broker-customer activities, has been established and the lending arrangement is solely related to this outside business activity. The customer has been a friend of the registered representative since high school, prior to the broker-customer relationship. The customer lending to the registered representative is a financial institution that makes a business of lending money for personal and business reasons. [A] I and II [B] I and IV [C] II and III [D] II and IV
[B] I and IV
Which of the following are things that a registered representative should use to determine that an investment is suitable to a customer? The customer's financial situation and needs Information about the customer secured from independent sources The customer's education The customer's financial goals and risk tolerance [A] I and II [B] I and IV [C] II and III [D] III and IV
[B] I and IV
Which of the following orders are entered above the current market price of the stock? Buy Stop Sell Stop Buy Limit Sell Limit [A] I and III [B] I and IV [C] II and III [D] II and IV
[B] I and IV
Which of the following are uses of a stop order? To assure an execution at a specific price To protect the profit on a long position of a customer To limit the loss on a short position for a customer [A] I and II [B] II and III [C] I and III [D] All
[B] II and III
Which of the following statements are true regarding an order entered to buy 600 shares of ABC at 45? The floor broker must remain at the trading post until the order is executed The order is left with the designated market maker, and will be entered in the designated market maker's book The order must be executed at the exact price specified in the order The order may be partially executed [A] I and III [B] II and IV [C] III and IV [D] I, II, III and IV
[B] II and IV
Which of the following is NOT commonly associated with UITs (Unit Investment Trusts)?
[B] Management company structure
Recommendations to a customer: [A] Must be approved in advance by a principal. [B] Must be suitable on the basis of the facts disclosed by the customer regarding his other holdings and his financial situation. [C] Must be approved in advance by a principal and must be suitable on the basis of the facts disclosed by the customer. [D] Are not covered by FINRA Rules.
[B] Must be suitable on the basis of the facts disclosed by the customer regarding his other holdings and his financial situation
SEC regulations permit an underwriter to distribute shares of a new offering:
[B] On the effective date.
Which of the following is TRUE regarding account statements? [A] If clients wish to waive their right to statements, they can do so in writing. [B] Regulations require that account statements be sent a minimum of quarterly. [C] Regulations require that account statements be sent a minimum of semi-annually. [D] Account statements must be sent after the completion of each trade in the customer's account.
[B] Regulations require that account statements be sent a minimum of quarterly.
An elderly person has an account with a member firm. The account has $50,000 average net equity. The RR has generated $15,000 in commissions so far from 45 trades. Which of the following should the RR's supervisor do? [A] Send the client an active trading letter and allow trading to continue. [B] Require that the trading activity be reduced immediately. [C] Review the account performance and contact the customer if the total account value has fallen. [D] No action is required as the customer has not filed a complaint.
[B] Require that the trading activity be reduced immediately.
One of your clients has been pleased with your recommendations and now wants to allow you, their RR, discretionary authority over their account. The client tells you that they have filled out and sent the appropriate forms to give written discretionary authority but the firm has not yet received the paperwork. An earnings report comes out on one of the securities in the customer's account and you expect a drop in price on the stock. You try to call the customer about the report, but the customer does not answer the phone. Assuming that the paperwork is in the mail, what action should you take in this situation? [A] Since the paperwork is in the mail, you should place an unsolicited order in the account to sell the security and avoid losses. [B] Though it may result in a loss in the customer's account, you should hold off on taking action until you reach the customer or receive the paperwork. [C] Since the paperwork is in the mail, you should contact the nearest family member to the client and inform them of the situation to get permission to sell the security and avoid losses. [D] You should place a discretionary order in the account and mark it as solicited so the customer avoids losses.
[B] Though it may result in a loss in the customer's account, you should hold off on taking action until you reach the customer or receive the paperwork.
If an investment company is trading at a discount to its NAV the security must be a(n)
[B] closed-end fund
Self-regulatory organizations (SROs) are required by federal securities laws to do all of the following EXCEPT: [A] established rules of fair practice [B] determine fair market prices [C] establish arbitration procedures [D] establish standards of professional qualification
[B] determine fair market prices
An associated person at a member firm is
[B] generally prohibited from participation in purchasing shares during an initial public offering.
An Operations Professional has direct responsibility of "covered operations functions." Such Covered Functions include all of the following EXCEPT [A] collection, maintenance and disbursement of funds. [B] managing the firm's business continuity planning. [C] customer confirmations and statements. [D] receipt and delivery of securities.
[B] managing the firm's business continuity planning.
A registered representative (RR) of the firm is known to be going through a divorce and having some personal financial difficulties. The RR submits a request to back-office personnel to change pertinent contact information on the accounts of the RR's immediate family and member's of the RR's estranged wife's immediate family to his personal contact information. The Operations Professional (OP) who receives the request should
[B] recognize the request as abnormal and refer the request to a supervisor or personnel in the compliance department.
A customer of a FINRA member firm is on vacation. He wants the firm to discontinue his mail. Upon receiving written instructions from the customer, the member firm may do all of the following under FINRA Rules, EXCEPT [A] send the mail to another address of the customer's at the end of the two or three-month period. [B] send the mail to another registered representative's office to be held for the client. [C] hold his mail up to two months if the customer is traveling in the United States. [D] hold his mail up to three months if the customer is traveling abroad.
[B] send the mail to another registered representative's office to be held for the client.
To minimize the interest rate risk, a bond portfolio should invest in [A] high quality bonds. [B] short maturities. [C] long maturities. [D] municipal bonds only.
[B] short maturities.
The difference between the current bid and ask price for an OTC stock is called the [A] quote. [B] spread. [C] concession. [D] tick.
[B] spread.
Mr. Jones has a margin account with no cash or securities position. He purchases 100 shares of WL at 83 and one WL January 90 listed put at 10. The required deposit when Regulation T is 50% is: [A] $4,150 [B] $5,150 [C] $5,650 [D] $9,300
[B] $5,150
In a general margin account, hypothecation occurs when: [A] A bank gives a loan to a broker/dealer to cover loans made to its margin customers. [B] A broker/dealer makes a margin loan to a customer and uses the customer-margined securities as collateral for the loan. [C] A request for an additional cash deposit in a margin account due to a decline in the market value of securities. [D] The borrowing of stock from broker/dealer by a customer when the customer expects a decline in the market value of a security.
[B] A broker/dealer makes a margin loan to a customer and uses the customer-margined securities as collateral for the loan.
All of the following statements regarding common stock are correct EXCEPT: [A] Common shares may be held in street name by a broker/dealer. [B] Common shares may be called by the issuing corporation after a specified date. [C] Common shares may be used as collateral for a loan in a margin account. [D] Ownership of common shares may be transferred with proper assignment on the back of the stock certificate.
[B] Common shares may be called by the issuing corporation after a specified date.
It is materially misleading for a registered representative to state all of the following to a customer EXCEPT: [A] "The EFG Fund will assure you a continuous, dependable rate of return." [B] "The GRE Fund's growth record for the past decade will be surpassed in the next decade." [C] "ABC Fund's portfolio is highly diversified and will probably reflect general market performance." [D] "NBC was the top rated growth fund this year and will be the top rated growth fund next year."
[C] "ABC Fund's portfolio is highly diversified and will probably reflect general market performance."
Which of the following investment companies typically will not charge a management fee?
[C] A unit investment trust.
Regulations require that which of the following be delivered at least quarterly? [A] Confirmations [B] Privacy notices [C] Account statements [D] Disclosure of firm financial condition
[C] Account statements
Which of the following documents must be retained for the life of the organization according to SEC rules?
[C] Articles of Incorporation
A customer is long one XYZ Dec 20 call as a hedge against a short position of 100 shares of XYZ common. The short sale should: [A] Not be marked to the market. [B] Be marked to the market only if the stock declines below the strike price. [C] Be marked to the market daily. [D] Be marked to the market only if the stock rises above the striking price.
[C] Be marked to the market daily.
Which of the following is NOT needed in order to open a new customer account? [A] Name and address of employer [B] Investment objectives [C] Beneficiary for the account [D] Social security or tax ID#
[C] Beneficiary for the account
The Securities Investor Protection Corporation was created primarily to protect: [A] Insurance company customers [B] Customers of broker/dealers against market risks [C] Customers against the risk of loss from the failure of a broker/dealer [D] Customers of banks
[C] Customers against the risk of loss from the failure of a broker/dealer
An individual is in the process of becoming registered with a broker-dealer. All of the following are requirements of this individual, EXCEPT: [A] Within 30 calendar days, the individual must obtain written consent of the employing member in order to maintain accounts that the individual has at other broker-dealer firms. [B] Disclosure of any outside business activities that provide the individual with compensation. [C] Disclosure of monthly income from a family trust. [D] If the individual has been found to have violated any provision of securities laws or regulations.
[C] Disclosure of monthly income from a family trust.
Which of the following is NOT affiliated with the Depository Trust Clearing Company (DTCC)? [A] The National Securities Clearing Corporation (NSCC) [B] Continuous Net Settlement (CNS) [C] Federal Deposit Insurance Corporation (FDIC) [D] Fixed Income Clearing Corporation (FICC)
[C] Federal Deposit Insurance Corporation (FDIC)
Which of the following would be the MOST important factor to consider when determining the suitability of a mutual fund investment for a customer?
[C] Fund objectives
Which of the following issues can be offered to the public under the 1933 Act? An exempt security. A security registered under the Act. An issue on which the SEC has approved the preliminary prospectus.
[C] I and II
Stabilizing bids may be placed: At the offering price Above the offering price Below the offering price
[C] I and III
Regarding Intrastate Offerings, which of the following are applicable: Buyers who are residents 80% of each year are considered a full-time resident. Buyers must be full-time residents of the state. Resales may be made to non-residents only after a 6 month period from the date of the last sale by the issuer. Resales may be made to non-residents any time
[C] II and III
Corey has held an account at a municipal securities dealer for several years. He will be retiring soon and will travel to Australia and New Zealand for a two-month trip. He calls his registered representative, Ryan, and tells him that while he is traveling he may not be able to answer calls or respond to communications promptly. Corey also tells Ryan that if he has any trading recommendations while he is gone that he should just execute the trades as he deems appropriate. How should Ryan respond to Corey's instructions? [A] Corey granted Ryan permission to trade while he is unavailable so the RR can use discretion as to which trades, if any, should be executed. [B] Ryan should request that Corey sign and return written discretionary authorization prior to Ryan executing any trades in the account. [C] If the BOM or a principal at the firm monitors the activity in Ryan's account during his absence, the RR can place orders. [D] Only during extreme market declines should Ryan should be placing any trades in Corey's account to avoid signicant account losses.
[C] If the BOM or a principal at the firm monitors the activity in Ryan's account during his absence, the RR can place orders.
If an RR wants to invest in a Private Securities offering, the branch manager should advise the RR that [A] The BOM must review the offering memorandum for the offering. [B] The RR must provide the firm with a written notice detailing the proposed transaction. [C] Investments may be made as long as duplicate statements of the activity are provided to the member firm. [D] The RR may participate but none of the RR's clients would be allowed to participate.
[C] Investments may be made as long as duplicate statements of the activity are provided to the member firm.
Which of the following is NOT a provision of the PATRIOT Act?
[C] It requires a reduction in penalties for money laundering.
Stan decides he is going to open a cash account with ABC Broker-Dealer. While completing the new account report form, ABC determines that Stan is a registered representative with another broker-dealer. All of the following would be requirements that ABC Broker-Dealer must adhere to EXCEPT: [A] Send written notice to Stan's broker-dealer disclosing that Stan is opening an account with ABC Broker-Dealer. [B] ABC Broker-Dealer must provide Stan with a notification that they are going to disclose to Stan's broker-dealer that he has opened an account with them. [C] Obtain prior written approval from Stan's broker-dealer when executing any transactions in Stan's account with ABC Broker-Dealer. [D] Stan's broker-dealer must advise Stan of its approval or disapproval regarding the opening of the account with ABC Broker-Dealer.
[C] Obtain prior written approval from Stan's broker-dealer when executing any transactions in Stan's account with ABC Broker-Dealer.
A broker at a FINRA member firm wants to work on weekends for his brother-in-law's computer software development firm. The broker feels that there will be no conflict of interest with his brokerage work. Before starting such part time work, the broker must: [A] Provide written notice to FINRA [B] Get written permission from his brokerage firm [C] Provide written notice to the member firm before engaging in such activity. [D] Provide a written opinion to his brokerage firm that there is no conflict of interest resulting from the part time work
[C] Provide written notice to the member firm before engaging in such activity.
Malta Broadcasting Co. (MBC) announces a plan to acquire the Boston Post Newspaper Co. The terms are 1 Malta for 4 Post. Malta is trading at 41 and Post at 18. Malta's Board meets soon to discuss the proposal. There is concern about the merger being legal under the anti-trust laws. The trader at the brokerage firm of Grin & Barrett purchased 15,000 Malta and sold 7,000 Post short. He has engaged in a market proceeding known as: [A] Optional Hedge [B] Reverse Hedge [C] Risk Arbitrage [D] Tender Offer
[C] Risk Arbitrage
Which of the following entities or systems is used to settle the majority of equity transactions, corporate bond transactions, and municipal bond transactions in the United States? [A] The New York Stock Exchange (NYSE) [B] The National Association of Securities Dealers Automated Quotations (NASDAQ) [C] The Continuous Net Settlement (CNS) System offered by the Depository Trust & Clearing Corporation (DTCC) [D] The Order Audit Trail System (OATS), established by the Financial Industry Regulatory Authority (FINRA)
[C] The Continuous Net Settlement (CNS) System offered by the Depository Trust & Clearing Corporation (DTCC)
All of the following are correct concerning Blue Sky Laws EXCEPT: [A] An issuer who intends offering securities for sale in various states must comply with the provisions of the Act of 1933 as well as the securities laws within each appropriate state. [B] The securities division has the power to revoke broker/dealer and/or salesman licenses if state laws are violated. [C] The Securities Act of 1933 establishes standard provisions which must appear in every Blue Sky Law. [D] These laws attempt to protect the public against the fraudulent sale of securities within a state.
[C] The Securities Act of 1933 establishes standard provisions which must appear in every Blue Sky Law.
The opening of a discretionary account under FINRA Rules must be approved by a(an): [A] Regional President [B] Sales assistant. [C] the Member or a designated person of the Member [D] Registered representative with five years' experience.
[C] the Member or a designated person of the Member
Under the SEC SHO rules, before a broker/dealer can execute a short sale order in an equity security for a customer, which of the following is true? [A] The broker/dealer must have a long position in the security in its inventory. [B] The broker/dealer must have a net short position in the security. [C] The broker/dealer must have reason to believe it either has or can borrow the security and deliver it on settlement date. [D] The broker/dealer must be certain the customer will repurchase the security within a reasonable period of time.
[C] The broker/dealer must have reason to believe it either has or can borrow the security and deliver it on settlement date.
One of your clients owns an individual account and does not want any outside influence over the account. The client would like to ensure that probate is avoided in the event that they unexpectedly pass away and has named an immediate family member as the beneficiary of their account. This customer's needs will be best met by which of the following? [A] The customer should set up a Joint Tenants with Rights of Survivorship Account. [B] The customer should set up a Uniform Gifts to Minors Account. [C] The customer should set up a Transfer on Death agreement for securities in the account. [D] The customer should set up a Tenants in Common Joint Account.
[C] The customer should set up a Transfer on Death agreement for securities in the account.
Which of the following is not correct [A] Many underwriting contracts include a market out clause that relieves underwriters of their underwriting obligation under certain circumstances. [B] If any securities sold by a syndicate member are returned to the managing underwriter during the life of the syndicate, the member is often penalized a proportionate share of the spread. [C] The preliminary prospectus includes the offering price of the issue. [D] Stabilization is a means whereby the syndicate manager may offset the effect of a flowback of securities into the market.
[C] The preliminary prospectus includes the offering price of the issue.
Mr. Smith has been considering the purchase of a mutual fund and has decided he wants to buy $8,000 of the fund but only has $4,000 to invest now. He asks you, his registered representative, to lend him the other $4,000 which he will repay in 2 months. Which of the following is correct about this situation? [A] The rep may lend the customer the funds as long as the agreement is in writing. [B] The rep should establish a margin account for the customer and buy the fund shares on margin. [C] The rep must deny the customer's request for a loan. [D] The rep may lend the customer funds with the firm's prior approval.
[C] The rep must deny the customer's request for a loan.
When disclosing information to a client with regard to Class B shares, which of the following is true?
[C] There is the potential of a deferred sales charge.
All of the following offerings are exempt from the FINRA filing requirement of offering documents for private placements EXCEPT offerings made:
[C] To individual investors
Which of the following represents the primary reason an investor would sell stock short? [A] To establish a permanent tax loss. [B] To defer taxes. [C] To realize a profit if prices decline. [D] To liquidate a long stock position.
[C] To realize a profit if prices decline.
An investment company that maintains a diversified portfolio of bonds, preferred stocks and common stocks would most likely be classified as a(an)
[C] balanced fund.
A customer with a short position in ABC sees that the price of ABC has been declining. To protect his position, the order which should be entered by the customer is a [A] sell stop [B] buy limit [C] buy stop [D] sell limit
[C] buy stop
A customer opens an account at a member firm and gives the minimum amount of information necessary to open the account, refusing to answer several questions. The customer deposits multiple checks into the account over a period of a month, all of which are just below $5,000. Shortly thereafter, the customer liquidates the majority of the assets in the account with checks drawn over a period of several days, all of which are below $5,000. An Operations Professional or Registered Representative who notices this behavior should
[C] file a Suspicious Activity Report (SAR), even though the amounts that are deposited or withdrawn never exceeded $5,000 in any one transaction.
When is a broker-dealer firm which is a member firm of FINRA is allowed to share in customer profits and losses? [A] Never [B] if the customer is a family member [C] if sharing in the profits and losses is in direct proportion to the member's contribution to the account [D] if it received prior written consent of SEC
[C] if sharing in the profits and losses is in direct proportion to the member's contribution to the account
All of the following would be considered advertising or sales literature under security industry regulations, EXCEPT [A] form letters. [B] seminar texts. [C] internal memos. [D] radio advertisements.
[C] internal memos.
An order to buy or sell an option at a specific price or better is a [A] day order. [B] market order. [C] limit order. [D] contingency order.
[C] limit order.
If a broker-dealer fails the trustee appointed by SIPC will [A] secure temporary financing for the broker-dealer with the Federal Reserve. [B] freeze the assets of the broker-dealer and recover damages in bankruptcy court. [C] liquidate the assets of the broker-dealer in an orderly fashion and notify customers on how they can file their claims. [D] hire an investment banker to seek a suitable merger partner with the failing broker-dealer.
[C] liquidate the assets of the broker-dealer in an orderly fashion and notify customers on how they can file their claims.
Under the Uniform Gifts/Transfer to Minor's Act, the owner of the securities in the account is the [A] custodian. [B] parent. [C] minor. [D] donor.
[C] minor.
A broker/dealer is going to distribute a new issue of securities for a corporation. In providing such Investment Banking service the broker-dealer may do all of the following except? [A] Provide advice to issuers of securities [B] Form and manage the underwriting syndicate [C] offer the securities to registered representatives of the broker-dealer prior to distribution to the public [D] Help the corporation complete the registration statement to be filed with the SEC
[C] offer the securities to registered representatives of the broker-dealer prior to distribution to the public
The breakpoint on a mutual fund purchase is the
[C] point when the percentage sales charge is reduced.
Mr. Jones has a margin account and wants to sell short 500 shares immediately. Which of the following is true about this situation? [A] the registered representative should enter the order immediately for the client. [B] the registered representative should not enter the order since the client has never sold short before and the managers approval is needed. [C] the registered representative, prior to executing the order must be sure that the firm can locate the securities to borrow for the short sale. [D] immediately following the execution of the short sale, the firm must locate the securities needed to effect delivery to the buyer.
[C] the registered representative, prior to executing the order must be sure that the firm can locate the securities to borrow for the short sale.
When an investor buys either stocks or mutual funds, regular-way settlement of the trade is: [A] same day as the trade date [B] the next business day after trade date [C] trade date plus 2 business days [D] trade date plus 4 business days
[C] trade date plus 2 business days
In an established margin account, a customer sells short 1000 shares of ABC @ 7. What is the required margin on this position? Regulation T is 50%. [A] $2,000 [B] $3,500 [C] $5,000 [D] $7,000
[C] $5,000
A customer has the following positions in a Margin Account: $120,000 Current Market Value - 60,000 Debit Balance $60,000 Equity Reg. T is 50% House Maintenance is 30% Retention Requirement is 50% What dollar amount of securities may the broker/dealer use for purposes of re-hypothecation? [A] $36,000 [B] $60,000 [C] $84,000 [D] $120,000
[C] $84,000
An owner of common shares can usually transfer ownership by doing any of the following EXCEPT: [A] Assigning them. [B] Selling them. [C] Hypothecating them. [D] Gifting them.
[C] Hypothecating them.
Which of the following regarding a customer margin account is FALSE? [A] Securities can be hypothecated. [B] Interest is charged on the debit balance. [C] The loan consent agreement must be signed by the customer. [D] The customer must sign the margin agreement.
[C] The loan consent agreement must be signed by the customer.
Some time after a short sale of 100 ABC, while the client is still short, ABC pays a 6% stock dividend. To close the short, the seller will deliver or purchase [A] 94 shares [B] 100 shares [C] 100 shares plus a due bill [D] 106 shares
[D] 106 shares
Which of the following responses by a market maker would be considered a firm quote? [A] 25 - 25 1/2 work out [B] 32 - 32 1/2 subject [C] 20 BID - OW [D] 15 - 15 1/2
[D] 15 - 15 1/2
On a customer confirmation, firms must disclose whether they acted as a(an): Customer's agent Agent for another person Bona fide market maker Principal [A] I and II [B] I and IV [C] III and IV [D] All
[D] All
State security laws are normally referred to as "Blue Sky Laws" and apply to which of the following? Securities issued or traded within a particular state. Tombstone ads. Registered representatives. Real Estate Investment Trusts (REITs).
[D] All
A FINRA registered representative of Member A wishes to open an account with Member B. Which of the following are true regarding the registered representative and this situations? [A] The registered representative must notify both firms in writing before opening the account. [B] obtain written permission of Member A prior to executing any transactions. [C] if approved for opening, Firm B must follow the instructions of Firm A regarding copies of confirmations and statements. [D] All choices are correct
[D] All choices are correct
All of the following communications with the general public are considered to be Retail Communications subject to the communication rules on advertising EXCEPT: [A] A firms web site [B] Communications to more than 25 retail investors within any 30 calendar day period [C] A firms electronic bulletin board [D] An issuer's prospectus
[D] An issuer's prospectus
Which of the following types of mutual funds would ordinarily be considered the LEAST volatile?
[D] Balanced Fund
All of the following are true with regard to a short against box position except: [A] It can be used as a hedge. [B] It can be used to lock in a profit on an established long position. [C] When the short position is established, the holding period on the long stock no longer accumulates. [D] Capital gains or losses are always treated as short term
[D] Capital gains or losses are always treated as short term
All of the following are required prior to when an employee of a member firm wants to open an investment account at another member firm EXCEPT: [A] The employee must notify in writing the employing member firm. [B] The employing firm must advise the employee of approval or disapproval of the request. [C] The employee must notify in writing the executing firm before the account is opened. [D] Duplicate confirms and statements must be provided to the employing firm.
[D] Duplicate confirms and statements must be provided to the employing firm.
All of the following are TRUE about the new Retail Communication category of communications with the public EXCEPT [A] It is defined as any written communication that is sent to more than 25 retail investors within any 30 calendar day period. [B] They must generally be reviewed and approved by a principal of the firm. [C] Sales literature, advertisements, and independently prepared reprints are in this category [D] Electronic communications are not considered to be Retail Communications.
[D] Electronic communications are not considered to be Retail Communications.
When obtaining information from a customer for a new account the member firm must obtain all of the following EXCEPT: [A] Whether the customer is of legal age [B] The customer's name [C] The customer's address [D] Form W-9 signed by the customer
[D] Form W-9 signed by the customer
A customer wants to open an account for his niece, who is a minor. The customer will make a gift of money and securities under the statutes of the Gifts to Minors Act. Which of the following can a custodian do if stock subscription rights are in the niece's account? Sell the rights and use the proceeds to buy another security. Donate the money to the account to exercise the rights. Sell a different security in the account to get funds to exercise the rights. Sell the rights and hold the money in the account for a reasonable period of time awaiting reinvestment. [A] I and II [B] III and IV [C] I, II and III [D] I, II, III, and IV
[D] I, II, III, and IV
A portfolio manager is creating several new mutual funds. Which of the following investment products could the manage purchase for the funds being created? Warrants on common stock Revenue bonds issued by a municipality Treasury bills of the U.S. Government Equity securities such as the common stock of a corporation
[D] I, II, III, and IV
In handling Joint Tenant with Rights of Survivorship Accounts: Any correspondence may be mailed to either party. Either party may place orders. The checks must be drawn to the names on the account. If one party dies, ownership passes to the survivor. [A] I and II [B] III and IV [C] I, II, and IV [D] I, II, III, and IV
[D] I, II, III, and IV
Under the Securities Act of 1933, which of the following securities issued by an investment company would be subject to the prospectus delivery requirements? Variable annuities Mutual fund shares Face-amount certificates Contractual plan certificates
[D] I, II, III, and IV
Which of the following statements is (are) correct concerning the over-the-counter market? The number of securities traded in this market is greater than on all organized exchanges in the United States combined. Stocks of most insurance companies and banks are traded in this market. Prices of securities in this market are determined by buyers and sellers negotiating with a broker/dealer. It makes it easier to trade publicly held securities not traded on an organized exchange. [A] I and III only [B] II and III only [C] III and IV only [D] I, II, III, and IV
[D] I, II, III, and IV
Which of the following could FINRA require a member firm to do if an investigation is underway? Allow FINRA Examiners to review the firm's books and records Submit written reports requested by the FINRA Submit information by registered representatives [A] I only [B] II only [C] III only [D] I, II, and III
[D] I, II, and III
Which of the following could FINRA require a member firm to do if an investigation is underway? Allow FINRA examiners to review the firm's books and records Submit written reports requested by the FINRA Submit information by registered representatives. [A] I only [B] II only [C] III only [D] I, II, and III
[D] I, II, and III
A Hedge Fund investment would be best suited for which of the following types of investors Senior Investors Accredited Investors Aggressive Investors Qualified Investors
[D] II & IV
A customer alleges wrongdoing on the part of a registered representative and files a complaint with the broker/dealer. The broker/dealer decides to settle without going to arbitration/trial and pays the client a total of $18,000. What is required in this situation? The settlement must be disclosed on the RR's U-4 for a period of 5 years. The settlement must be disclosed on the RR's U-4 for the remainder of the RR's career in the financial industry. The RR must be meet with his compliance department quarterly for a period of three years to review his client activity. The record of the settlement must be made public on the FINRA website [A] I and III [B] I and IV [C] II and III [D] II and IV
[D] II and IV
Of the following documents, which TWO require approval by the designated principal before a registered representative may send them to customers or prospects? Annual Reports Prospectus Advertising Sales literature [A] I and II [B] I and III [C] II and IV [D] III and IV
[D] III and IV
An RR wants to open an account at another member firm. When must the executing member firm notify the employing member firm? [A] Within 7 calendar days of the initial transaction [B] Notification is satisfied by sending a duplicate confirm to the employing member firm. [C] Notification is satisfied by sending a duplicate account statement at the end of the month. [D] In writing before it executes the first trade.
[D] In writing before it executes the first trade.
An investor seeking a high yield asks his registered representative which type of fund to invest in. The registered representative should recommend which one of the following?
[D] Income fund
The FINRA rules on broker-dealer communications with the public classify all of the following as "communications with the public" EXCEPT: [A] Correspondence [B] Retail Communications [C] Institutional Communications [D] Inter-office memorandum
[D] Inter-office memorandum
Which of the following investment funds would typically see the greatest amount of appreciation if the stock market were to go up?
[D] Large cap equity fund
Which of the following responses by a market maker do NOT represent a firm quote? [A] It is 25 - 25.05. [B] The market is 25 - 25.05. [C] We can trade it 25 - 25.05. [D] Last I saw was 25 - 25.05.
[D] Last I saw was 25 - 25.05.
All of the following are benefits of investing in a Mutual Fund EXCEPT: [A] Many funds offer different Classes of Shares for investors to choose from [B] Many funds offer Dividend Reinvestment Plans [C] Many funds offer Capital Gains Reinvestment privileges [D] Many funds offer tax-exempt exchanges between funds within the same family
[D] Many funds offer tax-exempt exchanges between funds within the same family
Which of the following terms describes the over-the-counter market? [A] Auction market [B] Fourth market [C] Firm market [D] Negotiated market
[D] Negotiated market
An investor has a large portfolio consisting of 50 blue-chip companies. She wants to maintain her current portfolio but is concerned about a potential short-term drop in the overall stock market. Which of the following would BEST hedge her portfolio? [A] Transferring all cash balances in the account into a money market fund [B] Selling all of her portfolio and buying municipal bonds [C] Selling all of her portfolio and buying Treasury bonds [D] Purchasing put options on the S&P 500 Index
[D] Purchasing put options on the S&P 500 Index
Which of the following scenarios carries the greatest potential for increased scrutiny when it comes to anti-money laundering activity?
[D] Several wire transfers from multiple banks outside of the US, where the person sending the funds is only indicated on one of the multiple transfers.
Under the JOBS Act, a research analyst covering an emerging growth company involved in an IPO may do all of the following EXCEPT
[D] Solicit investment banking business
A prospective client requests a numbered account. The registered representative should explain: [A] That trading in such an account may only be done on a cash basis. [B] That numbered accounts are forbidden under industry regulations. [C] That the number used must be the social security number. [D] That a statement signed by the client acknowledging ownership of the account must be filed with the firm.
[D] That a statement signed by the client acknowledging ownership of the account must be filed with the firm.
Which of the following entities is tasked with ensuring a fair and orderly market in a specific security on the floor of an exchange? [A] The Floor Broker [B] The Floor Trader [C] The OTC Market Maker [D] The Designated Market Maker
[D] The Designated Market Maker
When determining the suitability of an investor to invest in a Hedge Fund, all of the following would be relevant EXCEPT:
[D] The historical returns produced by the Hedge Fund
Under the Telephone Solicitation Act of 1991, a fax sent to a customer must contain all of the following information EXCEPT: [A] The date and time the transmission is sent [B] The identity of the sender [C] The telephone number of the sender or sending machine [D] The number of pages in the fax
[D] The number of pages in the fax
All of the following are TRUE of mutual fund "breakpoints" EXCEPT:
[D] The sales practice of "breakpoint selling" is legal and is to be encouraged
An accountant who is not registered as a registered representative with a member firm of FINRA wants to refer prospective investors to your firm for a fee. Under FINRA Rules: [A] This is permissible if the fee is reasonable. [B] This is permissible provided the accountant's commission is paid by your firm. [C] This is permissible provided the accountant does not purchase any interest in the program. [D] This is not allowed under any circumstances.
[D] This is not allowed under any circumstances.
All of the following are considered to be "custodial property" that can be given by a donor to a minor under the Uniform Gifts to Minors Act or the newer Uniform Transfer to Minors Act except: [A] Bearer bonds [B] a life insurance policy [C] an annuity contract [D] a futures contract
[D] a futures contract
Which of the following would indicate a violation of FINRA Rules? [A] excessive activity in customer accounts [B] substantial sales of speculative low-priced [C] short-term trading in mutual funds [D] all of the above
[D] all of the above
Your customer, Mr. Abrams is long 500 WLL and short 500 WLL. The WLL Company makes a cash tender offer substantially above the current market price. To take advantage of this tender offer, Mr. Abrams should [A] sell the long position. [B] deliver the long position against the short position. [C] tender the long position. [D] cover the short position.
[D] cover the short position.
A type of pooled investment that is NOT considered an investment company would be a(n)
[D] hedge fund.
If an employee of an FINRA broker/dealer wants to hold a second job, he must provide written notice to [A] the NYSE. [B] FINRA [C] the SEC. [D] his employer.
[D] his employer.
One prime objective of the Investment Company Act of 1940 is to
[D] insure that individuals investing in investment company shares are fully informed and fairly treated.
Member firm employees who must register as "Operations Professionals" with FINRA include all of the following EXCEPT [A] senior management with direct responsibility over covered operations functions. [B] supervisors or managers that approve or authorize work of covered operations. [C] persons with the authority to commit the firm's capital in furtherance of covered operations functions. [D] persons who structure investment products or transactions for cusotmers.
[D] persons who structure investment products or transactions for cusotmers.
All of the following would be associated with investment banking except? [A] underwriting [B] syndicate groups [C] selling syndicate members [D] trading
[D] trading
A customer is short 1,000 shares of ABC @ $4 per share in his margin account. What is the initial margin requirement on this position? [A] $2,000 [B] $2,500 [C] $3,000 [D] $4,000
[D] $4,000
A customer who is going on vacation enters a GTC order to buy a particular stock. The order is executed. The customer tells the account executive that he wants the stock but will not return in time to pay for the security by the payment date. The customer states he will send a check a few days late. The account executive should do which of the following? [A] Cancel the trade immediately. [B] Pay for the stock himself with a principal's approval. [C] Transfer the order to a margin account. [D] Request an extension of time for payment.
[D] Request an extension of time for payment.
An investor who is short a call option on ABC and wants to offset the position would enter:
a closing purchase
Which of the following options strategies would be best for an investor interested in maintaining his long position in the market while getting maximum downside protection?
buying puts
An investor is considered "uncovered" in which of the following scenarios involving option contracts? The investor:
buys 100 shares of ABC common stock and sells 1 ABC put option
"Rights of accumulation" means that the investor
can qualify for a reduced sales load on mutual fund purchases by combining his related accounts within a mutual fund family
All of the following would cover a put writer in a margin account except:
the underlying stock
