Unit 18

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

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

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

A) either a buy or a sell.

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

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

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

A) sell short to open a position.

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

A) the customer may still enter orders.

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

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

When investors open a position by going long the security, they can close the position by

selling the security.

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

B) short stock.

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

B) unsolicited.

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

C) long the position and bullish.

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

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

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

C) timing and price only.

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

C) unlimited liability.

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

D) limited profit potential and an unlimited loss potential.

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

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

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

II and III

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

A) Sell to open

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

B) Selling short involves selling shares not yet owned.

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

D) Buy 1,000 shares of CDT

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

I and II

A person who is vested with legal rights and powers to be exercised for the benefit of another is known as

a fiduciary.

A customer who is bullish on ABC would most likely

buy ABC long.

Shares to sell short have been located in order to be borrowed. Once sold short, these shares will be known as

covered

Blaine Smith has owned XYZ stock for several years and believes it is time to take his profit and invest that money in another stock. He should

sell XYZ to close.

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

A) Selling short

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

A) Selling to close

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

A) a 2-point gain or loss.

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

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

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

C) Prompt approval by a principal following each discretionary trade

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

C) a short bearish position.

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

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

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

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

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

I and IV