SIE Exam 3

Which of the following is an SRO? Correct answer A. You did not choose this answer. A MSRB Incorrect answer B. You chose this answer. B SEC Incorrect answer C. You did not choose this answer. C SIPC Incorrect answer D. You did not choose this answer. D FDIC

The best answer is A. Both FINRA and the MSRB are SROs - self-regulatory organizations under SEC oversight. The MSRB write rules for municipal market participants, but it does not enforce those rules. Enforcement of MSRB rules is performed by FINRA for broker-dealers. SIPC is the Securities Investor Protection Corporation, which insures customer accounts at broker-dealers from B/D failure. FDIC (Federal Deposit Insurance Corporation) insures customer accounts at banks from bank failure.

An underwriting commitment in which an investment banking firm commits to buy and sell an entire issue of stock and assumes all financial responsibility for any unsold shares is a(n): Correct answer A. You chose this answer A firm commitment underwriting Incorrect answer B. You did not choose this answer. B all or none underwriting Incorrect answer C. You did not choose this answer. C best efforts underwriting Incorrect answer D. You did not choose this answer. D shelf underwriting

The best answer is A. In a firm commitment underwriting, the investment banking firm agrees to buy the issue outright from the issuer, so the issuer is assured of getting its financing. The firm is acting as a principal. The underwriter turns around and sells that issue to the public, and if any shares remain unsold, they belong to the underwriter(s). Thus, the underwriter assumes full financial liability. In contrast, in a best efforts underwriting, the investment bank acts as agent only, using its best efforts to sell to the public, but does not take responsibility for the unsold shares. A variation is an "all or none" underwriting where the deal does not go through unless the entire issue is sold - but, again, the underwriter takes no liability. A shelf underwriting is not an underwriting commitment type - rather it is a type of securities registration with simpler rules for seasoned issuers

All of the following statements are true about listed securities EXCEPT: Correct answer A. You chose this answer A listed securities trade in theSecond Market Incorrect answer B. You did not choose this answer. B underRegulation T, all listed securities are marginable Incorrect answer C. You did not choose this answer. C listed securities are subject toRegulation SHO Incorrect answer D. You did not choose this answer. D listed companies must be registered with, and report their results to, the SEC

The best answer is A. Listed securities (those listed on an exchange) are marginable under Regulation T. Under the Exchange Act of 1934, Regulation SHO requires that before any equity security (either listed or unlisted) can be sold short, the member firm must affirmatively determine that the security can be borrowed and delivered on settlement. This is called the "locate" requirement. Listed securities trade in the first (exchanges), third (OTC trading of exchange listed securities) and fourth (direct trades between institutions via ECNs) markets. The second market is trading of unlisted securities over-the-counter. These are OTCBB and Pink OTC Markets issues. Listed companies must register with, and report their results to, the SEC

The components of M-2 include all of the following EXCEPT: Correct answer A. You chose this answer A Jumbo CDs Incorrect answer B. You did not choose this answer. B Time Deposits Incorrect answer C. You did not choose this answer. C Demand Deposits Incorrect answer D. You did not choose this answer. D Currency in Circulation

The best answer is A. M-2 is a broader money definition than M-1. M-1 consists of currency in circulation and demand deposits. M-2 consists of M-1 plus time deposits. Certificates of Deposit over $100,000 are "negotiable" CDs, also known as Jumbo CDs. These are included in an even broader money definition, M-3, which is M-2 plus Jumbo CDs (certificates of deposit over $100,000). L is M-3 plus savings bonds and money market instruments, and is the broadest money supply measure. (Note that the Federal Reserve no longer computes M-3 or L, but these may still be tested.)

Which item would be found on a corporation's income statement? Correct answer A. You chose this answer A Taxes Incorrect answer B. You did not choose this answer. B Quick Assets Incorrect answer C. You did not choose this answer. C Liabilities Incorrect answer D. You did not choose this answer. D Stockholders' Equity

The best answer is A. The income statement details all items of revenue and expense to arrive at net income after tax. Thus, taxes are deducted from the income statement to arrive at this figure. This is the income figure that is used to compute earnings per share. Assets and quick assets (those that can be turned quickly to cash) are balance sheet items, as are liabilities. All assets minus all liabilities equals net worth - this is the same as stockholders' equity. These are all found on the balance sheet - not the income statement

To take a second job, an employee of a FINRA member firm: Correct answer A. You chose this answer A must amend his or her U 4filing with FINRA and the SEC Incorrect answer B. You did not choose this answer. B must get written permission from the SEC Incorrect answer C. You did not choose this answer. C must get written permission from FINRA Incorrect answer D. You did not choose this answer. D must limit the extra hours worked to 20 per week

The best answer is A. To take a second job, FINRA requires that the individual obtain the written permission of his or her employer. In addition, any outside business activities must be disclosed on that individual's U-4 filing, so the U4 must be amended promptly if the employer approves and outside work is taken. Finally, any outside business activities are shown on that registered representative's BrokerCheck report. Under FINRA rules, there is no limit to the hours that may be worked in a second job

Which statement is TRUE? Correct answer A. You did not choose this answer. A The proceeds from a primary distribution go to the issuer while the proceeds from a secondary distribution go to a selling shareholder Incorrect answer B. You did not choose this answer. B Primary distributions cannot be purchased on margin while secondary distributions can be purchased on margin Incorrect answer C. You chose this answer. C There is no limitation on the size of a primary distribution while secondary distributions have caps on the maximum permitted sale Incorrect answer D. You did not choose this answer. D Primary distributions must be made at the POP (Public Offering Price) while secondary distributions must be "at the market" offerings

The best answer is A. Underwritten offerings can be primary or secondary offerings (or both at the same time!). Assume that a privately held company wants to go public. The company wants to raise $300,000,000. To do this, the company will be issuing $150,000,000 of new shares (this is the primary portion of the distribution, where the proceeds of the sale go to the issuer) and another $150,000,000 consists of shares being sold by officers and directors of the company (who now want to cash out some or all of their investment in the company). The proceeds from the secondary portion go to the selling shareholders. This is a combined primary and secondary offering. All shares are sold with a prospectus at the POP and full payment is required (which is the case for any prospectus offering).

Once auctioned on Monday or Tuesday, Treasury Bills are issued to the winning bidders and must be paid for immediately following the auction date on the following: Incorrect answer A. You did not choose this answer. A Tuesday Incorrect answer B. You did not choose this answer. B Wednesday Correct answer C. You chose this answer C Thursday Incorrect answer D. You did not choose this answer. D Monday

The best answer is C. The Federal Reserve conducts Treasury Bill auctions weekly on Monday and Tuesday. The Bills are issued to the winning bidders, and must be paid for, on the Thursday immediately following the auction date

An investor has purchased shares of an international bond fund. Which statement is TRUE? Correct answer A. You chose this answer A The fund will have superior performance if the value of the foreign currency increases Incorrect answer B. You did not choose this answer. B Performance will be unaffected by currency swings since the investor is U.S.-based Incorrect answer C. You did not choose this answer. C The fund will have superior performance if the dollar strengthens Incorrect answer D. You did not choose this answer. D Performance will be unaffected by currency swings since the investment is Dollar-based

The best answer is A. An international bond fund will have securities that are denominated in foreign currencies. If the foreign currency value rises against the dollar, then when the fund's NAV is converted into dollars, proportionately more dollars will be created, since each unit of foreign currency buys more dollars. This would result in superior performance from the U.S. investor's point of view. Remember, just because an investment is dollar- denominated, investors can't assume the holding is immune from currency swings.

If the United States balance of payments goes from a deficit to a surplus position, the value of the U.S. dollar should: Correct answer A. You chose this answer A appreciate Incorrect answer B. You did not choose this answer. B depreciate Incorrect answer C. You did not choose this answer. C fluctuate Incorrect answer D. You did not choose this answer. D stagnate

The best answer is A. If the United States exports more to foreign countries than is imported, then there is a balance of payments surplus. To pay for their purchases, foreigners must sell their currency and buy the U.S. dollar (since payment for purchases in the U.S. is made in dollars). Thus, the value of the U.S. dollar will rise.

In a best efforts underwriting, the underwriter is acting as a(n): Correct answer A. You chose this answer A agent Incorrect answer B. You did not choose this answer. B principal Incorrect answer C. You did not choose this answer. C dealer Incorrect answer D. You did not choose this answer. D specialist (DMM)

The best answer is A. In a best efforts underwriting, the underwriter promises to use his or her best efforts to sell the issue but takes no financial liability. Thus, this is an agency relationship. In contrast, firm commitment underwritings are principal relationships.

Which statement is TRUE about new registered stock offerings? Correct answer A. You chose this answer A Any purchaser who received apreliminary prospectusmust also receive the finalprospectus Incorrect answer B. You did not choose this answer. B The final prospectus must be delivered within 10 business days of the effective date Incorrect answer C. You did not choose this answer. C Any purchaser will pay thePublic Offering Price plus a small sales charge Incorrect answer D. You did not choose this answer. D Any purchaser will pay the Public Offering Price plus a nominal commission or mark-up

The best answer is A. New stock issues are sold under a prospectus that states the Public Offering Price, which is inclusive of any compensation to the underwriter (the spread). Additional commissions or charges above the POP are not allowed. Whether or not the purchaser received a preliminary prospectus is a moot point - any purchaser must get the final prospectus at, or prior to, confirmation of sale, which will occur far sooner than 10 days from the effective date!

Which statement is TRUE regarding margin regulations? Correct answer A. You did not choose this answer. A In-house rules may be more stringent than FINRA rules Incorrect answer B. You did not choose this answer. B Exchange rules may be less stringent than Federal Reserve rules Incorrect answer C. You chose this answer. C In-house rules may be less stringent than FINRA rules Incorrect answer D. You did not choose this answer. D In-house rules must be approved by the SEC prior to any change

The best answer is A. Regarding margin rules, FINRA rules may be more stringent than Federal Reserve rules, but cannot be less stringent. Firm rules can be more stringent than FINRA rules, but cannot be less stringent.There is no requirement to have in-house rule changes pre-approved by the SEC.

The director of a public corporation wishes to sell stock of that company in compliance with Rule 144. Which statement is FALSE? Correct answer A. You chose this answer A Registered control stock must be held for 6 months, fully paid, before it can be sold Incorrect answer B. You did not choose this answer. B Unregistered restricted stock must be held for 6 months, fully paid, before it can be sold Incorrect answer C. You did not choose this answer. C If the sale is for 5,000 shares or less, worth $50,000 or less, no SEC filing is required Incorrect answer D. You did not choose this answer. D Any short swing profits (within 6 months) from trading the stock must be returned to the corporation

The best answer is A. Rule 144 requires that unregistered shares be held fully paid for 6 months before they can be sold under the rule. Registered shares held by officers can be sold without meeting the holding period requirement, but are subject to the other provisions of the rule. No filing is required if 5,000 shares or less, worth $50,000 or less, are sold every 3 months. Under the Securities Exchange Act of 1934, any short swing profits (achieved within a 6-month time frame) that officers derive from trading that company's stock must be repaid to the company.

Which of the following callers is NOT subject to the provisions of the Federal Telephone Consumer Protection Act of 1991? Correct answer A. You chose this answer A An Animal Shelter Incorrect answer B. You did not choose this answer. B Securities Firm Incorrect answer C. You did not choose this answer. C Telemarketing Firm Incorrect answer D. You did not choose this answer. D Real Estate Company

The best answer is A. The Federal Telephone Consumer Protection Act of 1991 applies to any unsolicited "commercial" phone calls. Charitable (not-for-profit) institutions are exempt from the Act's provisions

The use of which tool of the Federal Reserve has the biggest impact on money supply levels? Incorrect answer A. You did not choose this answer. A Open market operations Incorrect answer B. You did not choose this answer. B Discount rate Correct answer C. You chose this answer C Reserve requirements Incorrect answer D. You did not choose this answer. D Margin on securities

The best answer is C. Monetary policy tools of the Fed include setting reserve requirements, open market operations, setting the discount rate, and setting margin rates on securities. Changing reserve requirements has the largest impact on money supply levels, due to the effect of the "money multiplier." Because only a small percentage of deposits are retained on reserve, the amount that is lent out by the bank "multiplies out" as it is deposited to another bank, which retains a portion and lends out the balance, which is deposited to another bank, which retains a portion and lends out the balance, etc. Changing the reserve requirement would have an enormous expansionary or contractionary effect on money supply levels - hence this tool of the Federal Reserve is almost never changed.

Which action would NOT help a client diversify his or her portfolio? Incorrect answer A. You did not choose this answer. A Buying bonds in a portfolio that have different credit ratings Correct answer B. You chose this answer B Buying stocks in a portfolio in accounts held at different broker-dealers Incorrect answer C. You did not choose this answer. C Buying an index fund that invests solely in domestic securities and another index fund that invests solely in foreign securities Incorrect answer D. You did not choose this answer. D Buying a target date mutual fund based on the customer's investment objectives and investment time horizon

The best answer is B. Diversification takes many forms to offset investment risks - one can diversify into different asset classes, can diversify by geographic regions, can diversify bond holdings by maturity and/or credit quality, etc. Buying holdings at different broker-dealers does nothing to diversify a portfolio. A target date fund allows the customer to set up a target date when the money will be needed, and the fund manager will then allocate investments in early years to growth equities, shifting to a safer mix (stocks/bonds) as the years progress, and finally shifting the asset mix to mainly money market instruments as the cash is needed. Thus, it gives both diversification and portfolio reallocation as the years progress to fulfill the customer's investment objective.

What is ACME Corporation's Debt or Bond Ratio? Incorrect answer A. You did not choose this answer. A 3% Correct answer B. You chose this answer B 33% Incorrect answer C. You did not choose this answer. C 66% Incorrect answer D. You did not choose this answer. D 75%

The best answer is B. The formula for the "Debt Ratio" is: $10,000,000$30,000,000=33% Long Term Capital consists of $10,000,000 of long term debt + $1,000,000 of preferred stock and $19,000,000 of common equity.Common equity consists of common at par ($6,000,000), capital in excess of par ($7,800,000), and retained earnings ($5,200,000) for a total of $19,000,000.

What is DEF Corporation's Quick Ratio? A .39:1 Correct answer B. You chose this answer B 1.1:1 Incorrect answer C. You did not choose this answer. C 2:1 Incorrect answer D. You did not choose this answer. D 7.90:1

The best answer is B. The formula for the "Quick" Ratio is: $62,000,000 - $28,000,000$31,000,000=1.1:1

Under IRS regulations, a gain or loss upon current disposition of an asset is considered to be short term if the asset has been held for: Incorrect answer A. You did not choose this answer. A 6 months or less Correct answer B. You chose this answer B 1 year or less Incorrect answer C. You did not choose this answer. C 2 years or less Incorrect answer D. You did not choose this answer. D 5 years or less

The best answer is B. Under IRS rules, a security's holding period is short term if the security has been held for up to 1 year. Short term capital gains are taxed at a maximum rate of 37% (the maximum individual tax rate). If the position is held for over 1 year (1 year and 1 day), then any gain or loss is long term. Gains on assets held over 12 months are taxed at a maximum rate of 15%. (Note that this rate is raised to 20% for taxpayers in the highest tax bracket.)

Which statement is TRUE concerning "wrap accounts"? Incorrect answer A. You did not choose this answer. A Wrap accounts must be registered with the SEC and sold with a prospectus Correct answer B. You chose this answer B To sell a wrap account, the registered representative must also be licensed as an investment adviser representative by the state Incorrect answer C. You did not choose this answer. C To sell a wrap account, the registered representative must also be licensed to sell insurance products by the state Incorrect answer D. You did not choose this answer. D Wrap accounts cannot be sold by registered representatives

The best answer is B. Wrap accounts "wrap" all services provided into a fee arrangement that is not transaction based - instead, the fee might be a fixed annual dollar fee; or a fee based on percentage of assets under management. Wrap accounts are defined as advisory products in most states, and a state investment adviser representative license is required (Series 65 or 66 exam) in addition to the federal Series 7 license needed to sell all securities.

Which decision by a registered representative requires specific customer authorization? Incorrect answer A. You did not choose this answer. A Determining time of execution in a cash account Correct answer B. You chose this answer B Determining the number of shares purchased in a margin account Incorrect answer C. You did not choose this answer. C Determining price of execution in a margin account Incorrect answer D. You did not choose this answer. D Determining the execution venue for a trade in a margin account

The best answer is B. Generally, a written power of attorney is required only if a registered representative chooses more than price and/or time of execution in a customer transaction. (The firm/rep may however choose the trading venue without a POA) Thus, if the registered representative chooses the security to be traded or the size of the trade, a discretionary power of attorney is required. It makes no difference if the transaction is effected in either a cash account or a margin account.

All of the following are defined as "institutional clients" for purposes of the FINRA communications rules EXCEPT: Incorrect answer A. You did not choose this answer. A insurance company Incorrect answer B. You did not choose this answer. B bank Correct answer C. You did not choose this answer. C investor with $25 million of assets Incorrect answer D. You chose this answer. D savings and loan

The best answer is C. FINRA distinguishes between "retail communications" and "institutional communications" because "institutional communications" go to sophisticated investors who can take care of themselves. While retail communications must be approved by a principal prior to use, institutional communications are subject to "post use review and approval" by a principal. An institutional communication is defined as one that is distributed to an institutional investor - a bank, savings and loan, insurance company, registered investment company, registered investment adviser, employee benefit plan with at least 100 participants, government entity or a person with at least $50 million of assets for investment.

All of the following are exempt issues under the Securities Act of 1933 EXCEPT: Incorrect answer A. You did not choose this answer. A U.S. Government Bonds Incorrect answer B. You did not choose this answer. B Savings and Loan Issues Correct answer C. You chose this answer C Real Estate Investment Trusts Incorrect answer D. You did not choose this answer. D MunicipalRevenue Bonds

The best answer is C. Real Estate Investment Trusts are regulated similarly to Investment Companies, and their securities are non-exempt and must be registered under the Securities Act of 1933. U.S. Government issues, savings and loan issues, and municipal issues are exempt.

When advertising the availability of a municipal security at a "yield," a municipal firm: Incorrect answer A. You did not choose this answer. A must own the security Incorrect answer B. You did not choose this answer. B may only quote current yield Correct answer C. You chose this answer C must disclose whether the yield is the coupon rate or yield to maturity Incorrect answer D. You did not choose this answer. D must disclose whether the yield is the coupon rate or current yield

The best answer is C. Under MSRB rules, a municipal firm is permitted to offer a security that it does not own as long as the firm is prepared to sell that security at the quoted price (the MSRB states that the dealer must know that the bond can be acquired - this is the equivalent of a car dealer selling you a new car that the dealer does not have on the lot. As long as the car dealer knows where the car can be purchased, say from another dealer, then it can be sold to you). Any yield quoted must state whether the yield is the coupon rate, yield to maturity, or yield to call date. Current yield is thought by the MSRB to be somewhat misleading and may not be shown unless the yield to maturity is also shown.

When selecting syndicate members for a new corporate bond offering, the managing underwriter will consider all of the following attributes when choosing a potential member EXCEPT: Incorrect answer A. You did not choose this answer. A financial capability to handle its portion of the offering Incorrect answer B. You did not choose this answer. B track record in past underwritings Correct answer C. You chose this answer C back-office capability Incorrect answer D. You did not choose this answer. D geographic location

The best answer is C. When selecting underwriters in a corporate offering, the manager will consider the track record of that firm in previous underwritings; whether the firm has sufficient capital to handle its portion of the offering; whether the firm has participated in underwritings with that manager in the past; and the geographic location of the syndicate members, so that the broadest customer base can be reached. The back-office capability (order processing, generation of confirmations and statements, delivery of securities, etc.) of the syndicate member is not a consideration since only the managing underwriter handles this aspect of the underwriting.

Over a period of 18 months, prices of goods and services decrease by 2%, and market interest rates decrease by 3%. This signals that the economy is in a period of: Incorrect answer A. You did not choose this answer. A depression Incorrect answer B. You did not choose this answer. B prosperity Correct answer C. You chose this answer C deflation Incorrect answer D. You did not choose this answer. D recession

The best answer is C. When there is persistent inflation, asset prices increase and market interest rates rise. When there is persistent deflation, asset prices decrease and market interest rates fall. "Disinflation" is a decline in the inflation rate - so it means that the rate of inflation is decreasing. A recession is 2 consecutive quarters of GDP decline. A depression is 6 consecutive quarters of GDP decline

All of the following are prohibited practices under FINRA rules EXCEPT: Incorrect answer A. You did not choose this answer. A Interpositioning Incorrect answer B. You did not choose this answer. B Free riding Correct answer C. You chose this answer C Arbitrage Trading Incorrect answer D. You did not choose this answer. D Backing Away

The best answer is C. Backing away from quotes (not honoring the quote) is prohibited; interpositioning another firm between a customer and market maker is prohibited; and free riding (buying and then selling an issue without paying for it) is also prohibited. Arbitrage is a basic trading activity.

The maximum maturity on commercial paper is: Incorrect answer A. You did not choose this answer. A 30 days, because a longer maturity would cause the issue to be non-exempt Incorrect answer B. You did not choose this answer. B 90 days, because a longer maturity would cause the issue to be non-exempt Correct answer C. You chose this answer C 270 days, because a longer maturity would cause the issue to be non-exempt Incorrect answer D. You did not choose this answer. D 360 days, because a longer maturity would cause the issue to be non-exempt

The best answer is C. Commercial paper issued by corporations is an exempt security under the Securities Act of 1933, as long as its maturity does not exceed 270 days. If commercial paper were issued with a longer maturity, it would have to be registered and sold with a prospectus (a time consuming and expensive process, so this does not happen).

Which of the following actions on the part of a corporation would require a registration statement filing with the SEC under Rule 145? Incorrect answer A. You chose this answer. A Stock dividenddistribution Incorrect answer B. You did not choose this answer. B Stock split Correct answer C. You did not choose this answer. C Spin off of a division Incorrect answer D. You did not choose this answer. D Reverse stock split

The best answer is C. Corporate distributions that result in an issuer distributing the exact same class of security to existing shareholders do not require a registration statement filing with the SEC. Thus, a corporation distributing a stock dividend or splitting its stock would not require a registration statement filing. However, if a corporation spins off a subsidiary to its shareholders, the shareholders are receiving stock in a different company, so a registration statement must be filed for those shares. If a corporation merges with another publicly held company, a new corporation is being created, and a registration statement must be filed as well.

A primary offering of $200,000,000 of ACME Corporation 10% debentures with a 20 year maturity would be regulated under the: Incorrect answer A. You did not choose this answer. A Securities Act of 1933 only Incorrect answer B. You did not choose this answer. B Securities Exchange Act of 1934 and Trust Indenture Act of 1939 Correct answer C. You chose this answer C Securities Act of 1933 and Trust Indenture Act of 1939 Incorrect answer D. You did not choose this answer. D Investment Company Act of 1940 and Securities Act of 1933

The best answer is C. New corporate bond issues are non-exempt securities under the Securities Act of 1933 and thus must be registered and sold under a prospectus. In addition, corporate bond offerings in excess of $50,000,000 fall under the Trust Indenture Act of 1939, requiring that the bonds be sold under a Trust Indenture. The Securities Exchange Act of 1934 regulates the trading markets (secondary market) - not the primary market. Investment companies fall under the Investment Company Act of 1940; regular corporate securities are not subject to this Act.

Once an individual has completed the SIE exam, he or she: Incorrect answer A. You did not choose this answer. A is only permitted to accept unsolicited trades from clients Incorrect answer B. You did not choose this answer. B is only permitted to report completed trades to clients Correct answer C. You chose this answer C will become licensed upon passing the appropriate representative qualification exam Incorrect answer D. You did not choose this answer. D will become licensed upon being hired by a registered broker-dealer

The best answer is C. The SIE is a "corequisite exam." In order to be licensed as a registered representative, the SIE must be passed; and the appropriate representative qualification exam must be passed (e.g., Series 6 or Series 7). Note that being hired by a registered broker-dealer does not make one registered. To be registered, that individual must complete a U4 application and pass the appropriate licensing exam

An officer of a listed company calls his registered representative and tells him to sell the maximum amount of that company's common shares in accordance with Rule 144. Prior to placing the order to sell, the registered representative calls five of his customers and tells them to sell that company's stock. Which statement is TRUE? Incorrect answer A. You did not choose this answer. A This action does not violate any securities laws Incorrect answer B. You did not choose this answer. B This action violates the Securities Act of 1933 Correct answer C. You chose this answer C This action violates the Securities Exchange Act of 1934 Incorrect answer D. You did not choose this answer. D This action violatesRule 144

The best answer is C. This is a violation of the Securities Exchange Act of 1934 Rule 10b-5. When the registered representative received the sell order from the officer, he is obligated to execute that order before acting on the information he has received. Once the order is executed, the Form 144 has been filed (it must be filed either at or prior to execution of the order) and the order is public information. At this point, he can trade for himself or his customers, and he is no longer considered to be an "insider." In effect, the registered representative is "front running" the officer by telling his other customers to sell before placing the officer's sell order. This is a violation of the Securities Exchange Act Rule 10b-5.

Foreign exchange rates are set in which market? Incorrect answer A. You did not choose this answer. A First Market Incorrect answer B. You did not choose this answer. B Third Market Correct answer C. You chose this answer C Interbank Market Incorrect answer D. You did not choose this answer. D Equity Market

The best answer is C. Trading of foreign currencies occurs in the Interbank Market. This is an institutional market trading very large units of currency from money-center bank to money-center bank.

Which of the following securities is NOT exempt from the Securities Act of 1933? Incorrect answer A. You did not choose this answer. A Benevolent Association issues Incorrect answer B. You did not choose this answer. B Small Business Investment Company issues Incorrect answer C. You did not choose this answer. C Common Carrier issues Correct answer D. You chose this answer D Industrial Company issues

The best answer is D. Benevolent association, small business investment company, and common carrier issues are all exempt under the Securities Act of 1933. Industrial companies are not exempt - their securities must be registered and sold with a prospectus

Monetary policy is set by: Incorrect answer A. You did not choose this answer. A Supreme Court decisions Incorrect answer B. You did not choose this answer. B Congressional action Incorrect answer C. You did not choose this answer. C Presidential edict Correct answer D. You chose this answer D Federal Reserve action

The best answer is D. Monetary policy is set by the Federal Reserve Board. The Federal Reserve can either tighten; or loosen; credit by using any of its 4 tools, which can be memorized as "DORM." D is Discount rate; O is Open Market Operations; R is Reserve Requirements; and M is Margin on securities

Under the provisions of the Securities Exchange Act of 1934, all of the following must be registered EXCEPT: Incorrect answer A. You did not choose this answer. A Sales personnel of member firms Incorrect answer B. You did not choose this answer. B Member firms Incorrect answer C. You did not choose this answer. C Officers of member firms Correct answer D. You chose this answer D Clerical employees of member firms

The best answer is D. The Securities Exchange Act of 1934 requires the registration of each securities exchange, so that it now becomes a "self-regulatory organization" (SRO), subject to SEC oversight. In addition, FINRA and the MSRB are SROs. The Act requires that member firms register with FINRA; that their officers register; and that their sales employees and traders register. (Now you know where the term "registered representative comes from! And to be registered, you must pass both the SIE and the appropriate Top-Off Exam - these exams are corequisites.) Clerical persons are not required to register

A portfolio that only holds the securities of a few different issuers has: Incorrect answer A. You did not choose this answer. A no risk Incorrect answer B. You did not choose this answer. B systematic risk Incorrect answer C. You did not choose this answer. C nonsystematic risk Correct answer D. You chose this answer D both systematic and nonsystematic risk

The best answer is D. The basic idea of diversification of a portfolio is that it reduces risk. If a portfolio consists of only a few positions, an adverse event affecting one of the positions can result in a big loss. If the portfolio consists of a broad range of positions, an adverse event affecting only a single position will not have as big a negative impact. A portfolio that is fully diversified still has risk. It is said to only have "systematic" risk, which is the same as market risk. If the overall market drops, the portfolio will likely drop by a similar percentage. A portfolio that is not fully diversified is said to have both "systematic" and "nonsystematic" risk. As more and more positions are added to the portfolio, the "nonsystematic risk" is diversified away, leaving the portfolio only with "systematic" risk.

What can be given to a client during the 20-day cooling off period for a new securities offering? Incorrect answer A. You did not choose this answer. A Prospectus Incorrect answer B. You did not choose this answer. B Advertisement Incorrect answer C. You did not choose this answer. C Recommendation Correct answer D. You chose this answer D Red Herring

The best answer is D. When a new issue is "in registration" during the 20-day cooling off period, the SEC reviews the filing for full and fair disclosure. This is the "quiet period" during which the issue cannot be advertised, recommended or sold. The only permitted communication is a preliminary prospectus, also called a red herring (because it has a red disclaimer stating that it is not an advertisement). The red herring does not include the final POP, but it can have an estimated price range. The final POP is not set until the very end of the 20-day cooling off period.

During prolonged periods of economic expansion: Incorrect answer A. You did not choose this answer. A loan demand typically falls Incorrect answer B. You did not choose this answer. B unemployment typically rises Incorrect answer C. You did not choose this answer. C the Federal Reserve will typically expand the money supply Correct answer D. You chose this answer D the Federal Reserve will be hawkish and start to tighten credit

The best answer is D. During prolonged periods of economic expansion, interest rates rise. This occurs because the Federal Reserve tightens credit (a hawkish stance) to keep the economy from growing too fast and because demand for loans rises as business activity rises. During expansions, the unemployment rate will fall; not rise.

Which of the following CANNOT be a stabilizing bid for a new issue that has a Public Offering Price of $30 per share? Incorrect answer A. You did not choose this answer. A $29.00 Incorrect answer B. You did not choose this answer. B $29.88 Incorrect answer C. You did not choose this answer. C $30.00 Correct answer D. You chose this answer D $30.13

The best answer is D. Stabilizing bids can only be entered at or below the public offering price, never above. If the bid were allowed to be placed above the public offering price, it would make the issue instantly "hot" and this is prohibited.

The Securities Acts Amendments of 1975 which established the Municipal Securities Rulemaking Board allow the MSRB to do all of the following EXCEPT: Incorrect answer A. You did not choose this answer. A create regulations covering municipal related recordkeeping Incorrect answer B. You did not choose this answer. B create regulations covering disclosure on new issues (Official Statements) Incorrect answer C. You chose this answer. C create regulations for determining fair and reasonable mark-ups and commissions Correct answer D. You did not choose this answer. D enforce any regulations that it adopts

The best answer is D. The MSRB is empowered to create regulations for participants in the municipals market, but has no enforcement power. Enforcement is performed by the banking and securities regulators. The MSRB has set rules related to municipal recordkeeping and disclosure. It also sets guidelines for municipal firms to use when setting commissions and mark-ups to customers, so that the charges are fair

The Securities Exchange Act of 1934 regulates which of the following markets? Incorrect answer A. You chose this answer. A Exchanges only Incorrect answer B. You did not choose this answer. B Listed issues only Incorrect answer C. You did not choose this answer. C Exchanges and ECNs only Correct answer D. You did not choose this answer. D All of the above

The best answer is D. The Securities Act of 1933 regulates the new issue (primary) market. The Securities Exchange Act of 1934 regulates the secondary market (the trading market). The trading markets consist of the first market (trading of listed securities on an exchange), second market (over-the-counter trading of securities not listed on an exchange), third market (over-the-counter trading of securities listed on an exchange floor), and fourth market (direct trading of securities between institutions on ECNs and ATSs).

A customer wishes to purchase $100,000 face amount of municipal bonds that the broker-dealer does not have in inventory. Under MSRB rules, the firm should: Incorrect answer A. You did not choose this answer. A sell short the security to the customer Incorrect answer B. You did not choose this answer. B refer the customer to a municipal firm that has the bonds in inventory Incorrect answer C. You did not choose this answer. C contact at least 5 dealers and obtain quotes for the customer Correct answer D. You chose this answer D contact enough dealers so that a reasonable market quote is obtained

The best answer is D. Under MSRB rules, when a municipal dealer acts in an agency capacity, the price charged must be representative of the market for that type of security. There is no requirement to obtain a pre-set number of quotes, nor is there a requirement to direct the customer to a dealer that physically has those bonds. The dealer would not sell short the bonds to the customer, since short covering is very difficult in the thinly traded municipal market.

Under Internal Revenue Code guidelines, a royalty received from writing a best selling diet book is defined as which type of income? Incorrect answer A. You did not choose this answer. A passive Incorrect answer B. You did not choose this answer. B investment Incorrect answer C. You did not choose this answer. C portfolio Correct answer D. You chose this answer D earned

The best answer is D. Under the Internal Revenue Code, royalty income from books, plays, movie scripts, and magazine articles, are all reported on Schedule C as earned income. Any expenses associated with earning these royalties, may be deducted against any earned income.