Series 7 - Chapter 4

All of the following statements are TRUE regarding ADRs, EXCEPT:

American Depositary Receipts (ADRs) are priced in dollars and are sensitive to the value of the stock and the fluctuations of the currency in the underlying issuer's host country. ADRs may be listed on an exchange and may be sponsored by the company (issuer). The trading volume of ADRs varies considerably among issues. Securities that are not heavily traded may have significant disparities between the price of the ADR and the underlying stock

Which TWO of the following securities will MOST likely be subject to a withholding tax? A bond issued by a U.S. company but sold to U.S. investors A bond issued by a foreign company but sold to U.S. investors Stock issued by a foreign company but sold to U.S. investors Stock issued by a U.S. company but sold to U.S. investors

Choice (II) is an example of a Yankee bond and choice (III) is an example of an ADR. Dividends and interest paid to a U.S. investor on foreign securities may be subject to a withholding tax by the country from which they were paid. If the investor has securities that paid dividends and/or interest that were subject to a foreign tax, the broker-dealer will send the investor a form that will report the gross amount of the dividends or interest, and the amount of tax withheld by the foreign government.

ABC Corporation has issued a new cumulative, convertible preferred stock. The provisions of the new issue provide for which TWO of the following choices? Dividends would be paid on the preferred stock after any dividends are allowed to be paid on the common stock Omitted dividends will accumulate and must be paid before any dividends are allowed to be paid on the common stock The stock may be converted into common stock at any time by the preferred stockholder ABC Corporation may call the stock at its par value before the call protection period has expired

Dividends on preferred stock are paid before, not after, dividends are paid on common stock. Cumulative refers to omitted dividends that will accumulate and must be paid prior to any common stock dividends being paid and these securities may be converted into common stock at any time. Preferred stock that is convertible usually has a call feature, but the preferred stock may not be called until the call protection has expired.

Which of the following transactions are NOT exempt from the penny stock disclosure rules?

Securities sold in the following transactions are NOT subject to the penny stock disclosure rules. Transactions with an institutional accredited investor Private placements Transactions with the issuer, officers, directors, general partners, or 5% owners Transactions that are not recommended by the broker-dealer Transactions by a broker-dealer whose commissions and markups from penny stocks do not exceed 5% of its total commissions and markups While transactions with established customers are exempt from the account approval requirements, they are not exempt from the penny stock disclosure rules.

Series K preferred stock is suitable for which of the following investors?

Series K preferred stock has the following characteristics: It is issued by a financial service company It has no maturity date It pays a fixed rate for a period and then switches to a floating rate (usually based on LIBOR) It's dividend is non-cumulative and it may not carry voting rights It is callable at the option of the issuer Series K preferred stock is suitable for an investor who is seeking a high fixed dividend for a period followed by a floating rate dividend. An investor who is seeking capital appreciation based on the increasing value of the common stock should consider convertible preferred stock, not K shares.