SIE QBank Quizzes
Stagnation in the economy can be associated with
high unemployment Economic "stagnation" refers to prolonged periods of slow or little economic growth, unusually accompanied by high unemployment.
A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is
a clearing agent A clearing agent is an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties. While some broker-dealers are self-clearing (act as their own clearing agent), simply being a broker-dealer doesn't always include being able to provide the services of a clearing agent.
An investor purchases a bond in the secondary market at $950. Assuming $1,000 par value, this bond is trading at
a discount
Money market instruments are typically
fixed-income (debt) securities with short-term maturities
If the U.S. dollar is weak against foreign currency,
foreign currency buys more U.S. goods; therefore, U.S. exports will increase
Which is the most common way investors pay a mutual fund's sales charge?
front end load The front-end load is the most common way a mutual fund's sales charge is paid. The sales charge is paid at the time of purchase. Front-end load, or Class A, shares have lower expenses than other classes, because the fund does not have to keep books on sales charge payments. It's already taken care of.
Options contracts
give one party the right to buy or sell the underlying security Options contracts involve 2 parties: buyer and seller. One party (buyer) has the right to either buy or sell the underlying security, while the other party (seller) would have the obligation to fulfill the contra side of the buy or sell transaction.
All the following are exempt from the Securities Act of 1933 EXCEPT:
Limited partnership Limited partnership interests are not exempt securities. The exempt securities include U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational, and nonprofit association issues and more.
Which of following securities is least likely to have an active trading market?
Limited partnership interests A disadvantage to limited partnership interests is the lack of liquidity. Of the choices above, direct participation programs such as limited partnership interests are generally deemed illiquid. Whereas municipal debt securities, preferred stock, and REITs are often freely traded in their respective marketplaces.
A bank is likely to do which of the following when the Federal Reserve Board (FRB) eases the money supply?
Lower its prime rate The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB eases the money supply (makes more money available to lend), banks can charge less for loans and will lower their lending rates. The hypothecation process isn't a rate, but a percentage amount (140% of the debit balance) and will not be impacted by the Fed's action with the money supply.
Which of the following has the greatest influence on the money supply within the United States?
The Federal Open Market Committee (FOMC The Federal Reserve Board influences the money supply by buying and selling U.S. government securities in the open market which expand or contract the money supply. The Federal Open Market Committee (FOMC) consists of the Board of Governors of the Federal Reserve System and several Reserve Bank presidents. The committee meets regularly to direct the government's open-market operations. For example, when the FOMC directs the purchase of securities, it increases the supply of money in the banking system, and when it sells securities, it decreases the supply.
Which of the following statements best describes financial risk?
The risk that an issuer will be unable to meet interest and principal payments on debt obligations Financial risk emanates from the use debt financing (leverage). It represents the potential inability to meet interest and principal payments on debt obligations, which can lead to bankruptcy. It is sometimes called credit risk or default risk.
A municipality wants to issue GO bonds that will put it over its statutory debt limit. Which of the following is TRUE?
They may do so with voter approval The amount of GO debt that a municipal government may incur can be limited by state or local statutes to protect taxpayers from excessive taxes. In order to issue bonds that would exceed this borrowing limit voter approval would be needed—that is, the approval of those who would be paying the taxes.
Certain investors are deemed "accredited" when they have a net worth of
$1 million not including net equity in the primary residence An accredited investor is defined as a natural person who has a net worth of $1 million or more, not including net equity in a primary residence; or has had an annual income of $200,000 or more in each of the two most recent years (or $300,000 jointly with a spouse) and who has a reasonable expectation of reaching the same income level during the current year.
An investor is short 1 December 15 put at 6. The investor's maximum loss on this position is
$900 A put writer's maximum loss is the put's strike price (15) less the premium received (6)—in this case, 9 points. Note that this is the same as the breakeven. This maximum loss occurs when the stock price drops to zero. The investor is forced to buy the worthless stock at the option's strike price of 15 and, therefore, has lost 15 points. The investor's total loss (15), however, is reduced by the premium (6) received, making the ML 9 points ($900).
A registered representative speaks to a customer about a particular 6% municipal bond quoted on a 6.5% basis. Which of the following is CORRECT? 1.) 6% is the bond's coupon. 2.) 6% is the bond's current yield. 3.) 6.5% is the bond's yield to maturity. 4.) 6.5% is the bond's current yield.
1 and 3 When a bond is referred to by a yield percentage (6%), it is the coupon (nominal or stated) yield being referenced. Basis yield refers to yield to maturity (YTM). Hence, a 6% coupon bond currently trading with a 6.5% YTM.
Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does NOT exceed
10%
Six days into the cooling-off period, an issuer receives a deficiency letter from the SEC requesting clarification and corrections. Once the issuer submits these, and assuming that they satisfy the deficiency, the cooling-off period will resume. With no other deficiencies arising, the issue should become effective in
14 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 6 days, which means that the issue should be effective 14 days later.
According to the U.S. Commerce Department, the economy is in a depression when a decline in real output of goods and services lasts
18 months or more (6 quarters)
Which of the following positions would give an investor an unlimited loss potential? Short 1 IBS Jul 50 put Short 100 shares of IBS stock Short 1 IBS Jul 50 uncovered call Short 1 IBS Jul 50 covered call
2 and 3 A short stock position gives an investor unlimited risk potential if the stock should rise because the investor must eventually buy back the stock at the higher price. Because stock can rise an unlimited amount, there is unlimited risk. The sale of a naked call requires that, if exercised, the writer must buy the stock in the market and deliver it at the strike price. Again, because the stock can rise to some unlimited price, the position carries unlimited risk.
An investor asks for a copy of mutual funds Statement of Additional Information (SAI). The request must be satisfied within
3 business days, free of charge
A bond with a 3% stated yield and a $1,000 par value would pay how much in annual interest?
3%
When a limited partnership is liquidated (dissolved), the priority of payments to settle accounts are made from first to last in which order? 1. General partners 2. Limited partners 3. General creditors 4. Secured creditors
4,3,2,1 Creditors are paid first in a liquidation, with priority given to the secured lenders before general lenders; limited partners are paid first of the partners, with general partners last to be paid.
An investor purchases a bond at $900 with a 5% coupon and a 5-year maturity. The bond has a current yield of
5.6% Current yield is determined by dividing annual interest (coupon) payment by the current market price of the bond ($50 / $900 = 5.6%). Years to maturity is not a factor in calculating current yield.
A written promise made by a corporation to pay the principal at its due date and interest on a regular basis on one of its debt issues but backed by no physical assets or titles to assets could only be
A debenture is a debt obligation of a corporation backed only by its word and general creditworthiness. Debentures are written promises of the corporation to pay the principal at its due date and interest on a regular basis.
A customer has held an account with a broker-dealer for over one year. A registered representative associated with the firm recommends the purchase of an unlisted security trading at $3.50. What documentation, if any, is required prior to the trade?
A disclosure statement is required, but not a suitability statement.
Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933 EXCEPT
Access equals delivery rule Securities offerings may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under Regulation A+, Regulation D, Rule 147 and Regulation S.
Which of the following issues only common stock?
An open-end management investment company An open-end (mutual fund) management investment company may only issue redeemable common stock. A unit investment trust offers units of beneficial ownership. A closed-end management investment company may also issue bonds and preferred stock, while a face-amount certificate company offers a contract, as opposed to units or shares.
Which of the following is a characteristic shared by both corporate debentures and income bonds?
Both must pay principal as it comes due. All bonds must pay principal when due. Income bonds, however, are not required to pay interest when due unless the earnings of the issuer are deemed to be sufficient and the board of directors declares that interest payments be made.
A court has ordered a corporation to liquidate all assets under a federal bankruptcy proceeding. Which of the following is TRUE?
Debtholders are paid before stockholders. When a corporation is liquidated, employee wages and accrued taxes are paid first. These are followed by all debt instruments, which are to be followed by equity holders (stockholders). One of the preferences for preferred stockholders is that, in a liquidation, any preferred stock classes are paid before common stock.
An LP is a type of
Direct participation program
Which of the following statements regarding systematic risk as it relates to an investment portfolio is TRUE?
Diversification will not eliminate it. Systematic risk is the risk that changes in the overall economy will have an adverse effect on individual securities, regardless of the company's circumstances. Understanding what it is, is to know that no amount of diversification will eliminate it completely. While one might be able to mitigate it somewhat, one cannot diversify away systematic risk.
Which regulatory body oversees trading in the over-the-counter (OTC) market?
FINRA FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons. FINRA also regulates investment companies and limited partnership transactions.
All of the following SROs function under the SEC's oversight EXCEPT
FSLIC Self-regulatory organizations (SROs) function under the SEC's oversight. Each SRO is accountable to the Commission for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction. These include FINRA, MSRB, and the CBOE.
Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets?
Factors outside the United States can have immediate and prolonged impact on our securities and trade markets, and thus our domestic economy.
Which of the following are methods of registering securities within a state? Registration by coordination Registration by qualification Registration by notification Registration by application
I and II
Which of the following are included in the semiannual financial reports a mutual fund must provide to its shareholders? Balance sheet showing assets, liabilities, and net assets Separate listing of physical property held by the fund Income statement detailing profit and loss for the period Personnel list detailing any changes in staff or position titles
I and III
A deficit in the U.S. balance of payments can occur if I. interest rates in foreign countries are higher than U.S. domestic rates II. interest rates in foreign countries are lower than U.S. domestic rates III. U.S. consumers are purchasing (importing) foreign goods IV. foreign consumers are purchasing (importing) U.S. goods
I and III Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets.
A company is already public with several major stockholders. Sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares. This is a secondary offering a primary offering an additional public offering an initial primary offering
I and III Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an additional public offering (APO) rather than an IPO.
A firm designated as self-clearing can I. act in a back-office capacity for an introducing firm II. not act in a back-office capacity for an introducing firm III. clear and settle transactions executed by other firms IV. only clear transactions it executed
I and III Self-clearing firms not only clear and settle their own executions (transactions) but can clear the executions of other firms that would be considered introducing or fully disclosed firms. In this light, fully disclosed firms are those that "introduce" their business to clearing firms. Clearing and settling transactions includes providing any back-office functions needed.
Exports from the United States would likely increase if the Japanese yen strengthened against the dollar the U.S. dollar strengthened against the euro the U.S. dollar weakened against the British pound the Swiss franc weakened against the dollar
I and III 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 are considered tools used to implement fiscal policies? Government spending Operations of the FOMC Changing the reserve requirements Taxation
I and IV Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation. Increases in taxes and decreases in government spending slow the economy, while lowering taxes and increasing government spending spur growth in the economy.
By purchasing shares of stock in a company, investors can benefit from which of the following? I. An increase in the price of the shares II. An increase in price of the company's debt securities III. An increase in the yield of the company's outstanding debt securities IV. The receipt of profits to be distributed
I and IV Stockholders as owners can benefit from an increase in the price of the shares (capital appreciation) and by sharing in earnings through the receipt of dividends (distributed profits). Both are potential benefits, but neither are guaranteed.
In what order do the following economic phases typically occur? Recovery Trough Decline Prosperity
I, IV, III, II Expansion (recovery) is considered to be the beginning of the business cycle, followed by the peak (prosperity), contraction (decline), and trough.
Which of the following would cause a mutual fund's NAV per share to fall? The fund purchases securities for the portfolio. The fund pays a dividend to shareholders. The market value of the portfolio declines. A large number of shares are redeemed.
II and III
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? For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale. The registration statement is effective upon completion of the cooling-off period. Shelf registration allows the issuer to sell portions of a registered shelf offering over a 2-year period without having to reregister the security. Shelf registration allows the issuer to sell portions of a registered shelf offering over a 3-year period without having to reregister the security.
II and IV
For a real estate DPP, which of the following is TRUE?
Income can be derived from rents received for the properties. For real estate DPPs, both income and capital growth are possible. Income comes from the property rents received, and capital growth would come from the appreciation of the properties.
A broker-dealer's business model allows for only the purchase and sale of securities for retail customer accounts. It does not execute, settle, or clear its customer's transactions, nor does it tend to any back-office functions such as sending trade confirmations or forwarding proxies. This broker-dealer would best be described as what type of firm?
Introducing/fully disclosed A fully disclosed "introducing" broker-dealer is what the word implies—it introduces its customer's business to a clearing firm. Clearing firms (often called carrying firms or agents) hold funds and securities and settle transactions (clear and process) for their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office.
Currency held by the public, including checking accounts and time deposits less than $100,000, and money market mutual funds would best be described by economists as
M2 M2 is M1 (currency held by the public including checking accounts) plus time deposits less than $100,000 and money market mutual funds.
Characteristics common to penny stocks would include which of the following?
Market price less than $5 per share and unlisted
A customer has a short-term investment time horizon and a fairly certain need for funds she wishes to invest. Which of the following might meet those 2 investment objectives?
Money Market Instruments With a short-term time horizon and an already identified need for the funds, the only choice of those listed here would be money market instruments with a fixed rate of return. Bonds are generally long-term instruments, and equity investments, such as common stock, do not offer a fixed rate of return and can be volatile.
Which of the following securities is exempt from the Securities Act of 1933
Municipal note Municipal debt securities including short term notes are exempt from the Securities Act of 1933.
Which of the following are NOT covered by the Federal Deposit Insurance Corporation (FDIC)?
Mutual funds and 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 expiration, for those who trade put options, which of the following is TRUE?
Put buyers want the contract to be in the money.
All of the following are self-regulatory organizations (SROs) EXCEPT
SEC
Which of the following statements with regard to the issuance of securities is TRUE?
The Securities Act of 1933 provides criminal penalties for fraud The Securities Act of 1933 (also known as the Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities Act, and Prospectus Act) ensures that the investing public is fully informed about a security and its issuer when the security is offered on the primary market. The Act provides criminal penalties for fraud in the issuance of new securities. The SEC review period, known as the cooling-off period, must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.
Why is a fixed annuity NOT considered to be a security?
The fixed annuity buyer assumes no investment risk. With fixed insurance products such as whole life insurance and fixed annuities, the insurance company assumes the investment risk. This elimination of investment risk for the purchaser is what differentiates the product from a security. Note that with fixed products, even though not a security, the purchaser faces inflation risk.
What might happen if a limited partner begins making day-to-day business decisions for the partnership?
The partner might jeopardize the limited liability status held as an LP. While LPs can vote on overall business objectives, they cannot vote on any day-to-day operational business decisions. A limited partner having any control over the partnership's day-to-day operations could be judged a general partner and lose LP status.
A market in which exchange-listed securities are traded in the OTC market would BEST be described as the
Third Market Broker-dealers registered as OTC market makers in exchange-listed securities may execute transactions in the Third Market. All securities listed on the NYSE and most securities listed on the regional exchanges are eligible for OTC trading as long as the trades are reported to the Consolidated Tape within 10 seconds of execution.
U.S. government deposits securities with a trustee against which certificates are sold representing principal only with no regular interest payments. These are known as
Treasury STRIPS When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as Treasury STRIPS.
The business cycle includes all of the following classifications EXCEPT
Waves Throughout modern history, periods of economic expansion have been followed by periods of contraction in a pattern referred to as the "business cycle" or "economic cycle". Business cycles go through four stages; expansion, peak, contraction, and trough.
Your customer has purchased 1 February 35 call at 2 on Tuesday, December 4. This transaction will settle on
Wednesday, December 5
Treasury note (T-note) interest is stated as
a percentage of par value Like Treasury bonds (T-bonds), Treasury notes (T-notes) have interest stated as a percentage of par value. Example: Par value $1,000, with 8% interest, equals $80 interest per year (0.08 × $1,000 = $80).
A new registered representative receives a memo discussing the distribution of a "red herring." The RR knows that the memo is referencing
a preliminary prospectus The term "red herring" is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus.
Assuming $1,000 par value, a bond priced at $1,200 is trading at
a premium When a bond is priced above par value, it is trading at a premium (premium to par).
deflation occurs during
a recession, coinciding with an economic contraction Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle.
During the cooling-off period of a new registration filed with the SEC
a red herring may be given to prospective investors
A company reorganizing with the intent to emerge from a bankruptcy is likely to issue which of the following type of bonds to accomplish that goal?a
adjustment bonds Income bonds, also known as adjustment bonds, are used when a company is reorganizing. These bonds allow the issuer to only pay interest if the corporation has enough income to meet the interest payment obligations. This allows the corporation some flexibility while attempting to reorganize and emerge from bankruptcy.
The U.S. gross domestic product is best described as
all goods and 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 Japanese computer chip manufacturer wants to attract U.S equity investors. Which of the following securities would help the issuer to accomplish this goal?
american depositary receipts
All of the following are examples of legislative risk EXCEPT
an environmental regulation enacted to require certain precautions be taken Legislative risk results from a change in the law. Changes to the tax code are the most common legislative risks. Regulatory risk comes from a change to regulations that might impact certain individuals or businesses. The imposition of environmental regulations is one such example.
All of the following are considered control persons (owning control stock) EXCEPT
an unaffiliated shareholder owning 8% of the outstanding shares
Tombstone ads
are permitted before the effective date Tombstone ads are the only form of advertising that is permitted from the time the registration statement is filed with the Securities and Exchange Commission and the effective date of the offering. While they are not mandatory for new issues, they can be used as an announcement and description of the securities to be offered, showing only minimal information. They are not an offer to sell the securities.
An investor owns one NMS June 40 call trading at 5. If the underlying value of NMS stock is 45, the contract is trading
at parity This call contract is in the money by 5 points (45 - 40). It therefore has intrinsic value of 5 points. When a contracts premium (5) equals its intrinsic value (5), it is trading right at parity.
The largest component of the U.S. balance of payments is
balance of trade U.S. imports and exports are the components used to calculate the balance of trade. The balance of trade is the measure of those 2 components against each other—the net being either more money coming into or going out of the U.S. economy. That measure, the balance of trade, is the largest component of the U.S. balance of payments.
Intangible drilling costs associated with oil and gas DPPs can generally
be deducted completely in the first year of the program The deduction allowable for intangible drilling costs associated with oil and gas DPPs is one of the unique tax advantages of these programs. These costs can be deducted completely in the first year of the program instead of over the life of the program.
When interest rates in the open market move up or down, a bond's coupon rate will
be unaffected by the open-market interest rates Though the price of a bond will react to market forces, such as supply and demand, and be interest-rate sensitive (inverse), the coupon is always the same: A fixed percentage of par value established by the issuer when the bond was first issued.
A company is about to introduce a new product. While confident in the product's appeal and market, it is still an unknown factor until sales results are viewed later. Investors holding stock in the company are at this time specifically exposed to
business risk Business risk is an operating risk related to poor or untimely management decisions. Decisions regarding if and when to introduce new products are one example of those that might expose investors specifically to business risk.
Some bonds have a feature that prohibits them from being called by the issuer before a certain date. This is known as
call protection
Once a dividend is initially declared by the board of directors, any future dividend payments
carry no guarantee of payment in any amount While the potential to share in the company's profits by receiving dividends is considered one of the benefits of equity ownership, one of the risks is the possibility of dividend income decreasing or ceasing entirely. Dividends are not guaranteed in any way.
Index and foreign currency options must be settled in
cash Index and foreign currency options are cash settled. Instead of shares of stock being delivered as a result of the exercise, cash must be delivered by the party assigned (short the contract). This is because delivering all of the components of an index is not possible and delivering foreign currency would require exchanging one currency for another, and possibly having banking relationships abroad. Settling in cash (U.S. dollars) facilitates the exercise and assignment process much easier for U.S. investors.
A broker-dealer and its associated persons may be subjected to sanctions for violations of FINRA and SEC rules. Which of the following penalties can be levied against the associated persons?
censure There are many ways a firm and its associated persons can be sanctioned by FINRA including censure. However, imprisonment and forced withdrawal from SIPC are not approved disciplinary actions.
Preferred shares have
characteristics of both equity and debt securities Preferred shares are equity securities, but not only do they have the characteristics of equity securities, they share some of the characteristics of debt securities as well. The most notable characteristic is that a preferred stock's annual dividend represents its fixed rate of return, like the fixed rate of return for a bond (debt security).
Those industries that are LEAST affected by normal business cycles are
defensive industries Defensive industries are least affected by normal business cycles. Companies in defensive industries produce nondurable consumer goods, such as food, pharmaceuticals, and tobacco or supply essential services such as those supplied by utility companies. Public consumption of such goods remains fairly steady throughout the business cycle.
Partners in direct participation leasing programs can receive write-offs for all the following EXCEPT
depletion Write-offs (deductions) associated with leasing programs are those taken for operating expenses, depreciation of the equipment owned and leased, and interest costs on the loans to purchase the equipment. Depletion, however, is a deduction associated with natural resources programs, such as oil and gas.
During the cooling-off period, underwriters may NOT
distribute sales literature or advertising material
A share of stock in the hands of a stockholder represents
entitlement to receive profits through dividends when distributed and the right to vote for who will serve on the board of directors Each share of stock entitles its owner to a portion of the company's earnings through dividends when distributed and a proportionate vote in major management decisions such as electing individuals to the board of directors (BOD).
A company that is extensively over leveraged using debt financing whenever available would be exposing its investors to
financial risk Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company's debt obligations. This is the definition of financial risk.
A preliminary prospectus is used to solicit
indications of interest before the effective date
The prime rate is set by
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 own prime rate.
Holding a callable bond with call protection is least impactful for the investor when
interest rates are rising Bonds are more likely to be called when interest rates are falling. Call protection, a length of time during which the bond cannot be called, protects the investor during these times. Therefore, the call protection is least impactful when interest rates are rising—in other words, least impactful during times when the bond wouldn't likely be called.
U.S. Treasury notes are U.S. government-issued
intermediate-term debt securities with maturities of 2-10 years
All of the following would be associated with hedge funds EXCEPT
investing in government debt securities Hedge fund managers often employ highly speculative strategies and products associated with substantial risk. These might include using leverage (borrowing to purchase securities), selling securities short, (selling securities the portfolio does not own), investing in commodities or currencies, and utilizing derivative products such as options or futures. Investing in federal government debt securities, considered among the safest and risk-free investments would be uncharacteristic of hedge funds.
A guaranteed bond
is debt backed by another company, such as a parent company
An underwriting group is currently assisting an issuer with the preparation and filing of the registration statement for a new issue. Who is responsible for the accuracy of the information within the registration statement?
issuing corporation While underwriters can assist with preparation and filing, the accuracy and adequacy of these documents is the responsibility of the issuer.
A client has established a long put position. The contract will have intrinsic value when the price of the underlying stock is
less than the exercise price Put buyers are bearish and want the underlying stock to fall in value. Puts give the owner the right to sell at the contract's exercise (strike) price. Therefore, the put contract will pick up intrinsic value if the price of the underlying stock falls below the contract's strike price. The long put position will become profitable if the stock falls below the strike by more than the amount of the premium paid.
By virtue of a stocks listing for trading on a U.S. stock exchange, which of the following risks is reduced or even recognized as eliminated?l
liquidity risk One of the advantages of a security being traded on a U.S. listed stock exchange is the ready availability of buyers and sellers. This means the investment can be considered a liquid one—easy to divest of at a fair price, if and when one needs to.
To ease its monetary policy, allowing consumers to borrow more easily, the Federal Reserve Board can
lower the discount rate
Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is 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.
Common stockholders owning dividend paying stocks are exposed to
market risk and current income risk In owning common shares, the investor stands to lose current income through dividend reduction or suspension (current income risk), as well as capital loss, should the market price decline (market risk).
A company an individual has invested in by purchasing 1000 shares of common stock has unfortunately gone bankrupt. This investor
may lose all that was invested but is not liable for any corporate debts that cannot be satisfied during the dissolution process In the event of bankruptcy, common shareholders are paid back last of all in the dissolution process and priority. They are not guaranteed anything and can lose all of their investment. However, they have limited liability status, meaning that while they can lose their entire investment, they cannot be held liable for any of the corporation's remaining debts.
Repurchase agreements and reverse repurchase agreements are
money market instruments Repurchase (repo) agreements and reverse repurchase agreements are short-term debt securities and are, therefore, a type of money market instrument.
All of the following are identified as types of investment companies in the Investment Company Act of 1940 EXCEPT
municipal bond pool The Investment Company Act of 1940 defined face-amount certificate companies, unit investment trusts, closed-end management investment companies, and open-end management investment companies (the latter, mutual funds) as investment companies.
Some institutions can function as a depository and intermediary for settling transactions between buyers and sellers of securities. All of the following are acceptable for this purpose EXCEPT
national banks Being a bank alone does not allow for serving as a depository or clearing facility for securities transactions. The National Securities Clearing Corporation and the Depository Trust Company are set up specifically to perform these functions, and they may also be performed by broker-dealers known as carrying or clearing firms.
Regarding the purchase of new equity issues (IPOs), restricted persons may
not purchase shares of a new issue Persons characterized as restricted persons are prohibited from purchasing shares of new issues in any quantity. If one is already restricted, working for a bank or a BD does not exempt them from the rule.
A method of registering securities at the state level that is reserved only for federal covered securities is known as
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.
A provision for filing securities at the state level used solely for securities that are considered to be federal covered securities is known as
notice filing When securities are deemed to be federally covered, the states have no jurisdiction over the registration requirements. However, the National Securities Markets Improvement Act did provide that states could require the filing of a notice (notice filing) to sell securities in that state, along with the payment of a filing fee.
With a balloon maturity,
the major portion of the principal debt is paid on the final maturity date
A stock currently has a market value of $75 per share. If a put option on the stock has an exercise price of $60, the put option is
out of the money This put option has a zero intrinsic value and is therefore out of the money by the 15 points difference by which the market price exceeds the strike price. A put option has intrinsic value or is in the money when the current market price of the underlying asset is less than the exercise price (in this example, $60).
Which of the following is an example of an equity security?
preferred stock
An investor buys 1 DWQ May 70 call at 2, giving the investor the right to buy 100 shares of DWQ at $70 per share. All the specifications of the transaction are set or standardized by the Options Clearing Corporation EXCEPT
premium of 2 Options Clearing Corporation (OCC) sets standard exercise prices and expiration dates for all listed options, but the options premiums that buyers pay are determined by the market.
An investor owns a bond purchased several years ago yielding 3%, which at the time was considered a fair return. However, these fixed 3% interest payments have not kept up with the inflation rate. This situation presents the investor with
purchasing power risk Inflation can generally be associated with diminished purchasing power—purchasing power risk. During times of inflation, a dollar will not be able to purchase what it had previously in the way of goods and services. Investments such as bonds paying fixed rates of return are negatively impacted during these times.
To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board can
raise the discount rate Wanting to tighten its monetary policy, which would make it harder for consumers to borrow money, the Federal Reserve Board can raise the discount rate—the rate it charges its member banks for short-term loans. This lessens the availability of money its member banks have to lend to consumers. The federal funds rate isn't a rate charged by the FRB but instead by large commercial banks to one another.
Economists call mild, short-term contractions
recessions Economists call mild, short-term contractions recessions. Longer, more severe contractions are depressions.
All of the following are benefits of using a prime broker EXCEPT
research An institutional investor may select one firm (the prime broker) to provide custody and financing of securities while other firms, called executing brokers, handle all trades placed by the customer. It is not unusual for large companies to use dozens of executing broker-dealers. Trade confirmations from the many executing broker-dealers are consolidated and are provided along with account statements by the prime broker. Prime brokerage is efficient and saves the customer time and money. Research is not associated with prime brokerage accounts.
If it finds that the registration statement needs revision, expansion, or to have corrections made, the SEC may suspend the review of the new issue and issue a deficiency letter. Once the issuer submits a corrected registration statement, the 20-day cooling-off period
resumes where it had left off
Notice filing for securities at the state level is for
securities being issued in an initial public offering only Notice filing at the state level is for securities deemed to be federal covered. The state may require a notice be filed for these securities, such as those listed on national exchanges and those registered under the Investment Company Act of 1940, even though it has no jurisdiction over the registration requirements.
Carrying firms, those that carry customer accounts, must
segregate customer funds and securities from the firms' funds and securities. Carrying firms, those that carry customer accounts, must segregate customer funds and securities from that of the firm's and because carrying customer accounts entails some inherent risk, maintain net capital higher than that which would be required for non-carrying firms.
When the Federal Reserve Board wants to contract (tighten) the money supply, it will
sell Treasury securities to banks in the open market
The Depository Trust Company (DTC)
serves the custody needs of securities industry participants The DTC serves the custody needs of securities industry participants in the US and a number of foreign countries as well. One cannot open traditional savings or checking accounts there as the DTC is not a part of the retail banking system but instead is a member of the Federal Reserve System.
Banker's acceptances are
short-term time drafts issued by banks to corporations Used by corporations to finance international (foreign) trade, BAs are issued by banks to corporations. They are considered money market instruments because of their short-term maturities, generally no longer than 270 days (9 months).
The rate at which banks lend to broker-dealers for the purpose of lending money for margin loans is typically
slightly above (a percentage point or so) other short-term lending rates
Municipal securities can be issued by
states and local governments Municipal securities can be issued by state or local governments or by U.S. territories, authorities, and special districts.
A select pair or group of companies organized to underwrite corporate or municipal securities is BEST known as a(n)
syndicate A syndicate is two or more broker-dealers (investment bankers) which work with an issuer through, for example, the registration process in the case of corporate securities and bring the issuer's securities to the market by selling them to investors. There are syndicates that specialize in underwriting municipal bonds. The members of a syndicate are also known as the underwriters or collectively the underwriting group.
Implementing monetary policy, and thereby undertaking the responsibility to maintain the stability of the U.S. financial system, is
the Internal Revenue Service (IRS) A special committee within the Federal Reserve Bank of the United States is the Federal Open Market Committee (FOMC). This committee sets monetary policy.
In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by
the US Treasury Dept
The interest rate negotiated for an uncollateralized overnight loan between 2 money center banks is known as
the federal funds rate The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured (no collateral) loan.
When the Federal Reserve Board (FRB) utilizes the tools available to it, it is influencing
the money supply Through the use of open-market operations, affecting changes in the discount rate, and setting reserve requirements, the FRB is influencing the money supply. The money supply is the capital available for lending institutions to lend and thus consumers to borrow and spend.
Listed option transactions settle
trade date + 1 business day
a market maker:
trades in a proprietary account to facilitate trading of a security and provide liquidity Any entity, individual or institution, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security is known as a market maker or trader.
A company that offers sales of another company's securities would BEST be described as a(n)
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.
