SIE Practice 1

The steps or order of events to open an options account would occur in the following order: 1.) obtain essential facts about the customer, 2.) give the customer an options disclosure document (ODD), 3.) have the manager approve the account, enter the initial order, and 4.) have the customer sign the options agreement within ___ calendar days.

15

Some issuers issue securities in electronic form, while some securities have been issued in physical form. Which of the following statements are true in relation to electronic or physical form? A) All U.S. government securities are issued in book entry form B) Corporate bonds have always been issued in electronic form C) All U.S. government securities are issued with physical paper certificates D) Corporate stocks can only exist in electronic form

A) All U.S. government securities are issued in book entry form

Which of the following would be required for a good 'til canceled order to remain in force for more than six months? A) The customer would need to reconfirm the order B) The specialist on the NYSE would need to reconfirm the order C) The broker-dealer would need to reconfirm the order for it to remain in force D) Nothing; it stays on the books until the customer cancels it

A) The customer would need to reconfirm the order

Of the following, reinvestment risk is most closely associated with A) call risk B) market risk C) inflation risk D) capital risk

A) call risk -When interest rates fall, callable securities are likely to be called.

A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would BEST be described as a(n) A) municipal advisor B) municipal securities representative C) investment adviser D) market maker

A) municipal advisor

An investor needs to decide whether or not they would like to maintain their percentage of ownership in a company that has decided to increase the number of outstanding shares. Which of the following is the best description of what is taking place? A) Rights will be distributed to existing stockholders with an exercise price lower than the current market value B) Rights will be distributed to existing stockholders; they have only two options: exercise the rights or let them expire. C) Warrants will be distributed to existing stockholders and they will have two to five years to decide whether or not to buy the stock at the strike price. D) Warrants will be distributed to existing stockholders with an exercise price equal to the current market value.

A) Rights will be distributed to existing stockholders with an exercise price lower than the current market value -issued (typically) for a period of four to six weeks (30-45 days).

_____________________ is communication to 25 or fewer retail investors in a 30-day period. A. Correspondence B. Retail C. Educational D. Institutional

A. Correspondence

A registered representative opens a new options account for a customer. In which order must the following actions take place? I. Obtain approval from the branch manager II. Obtain essential facts from the customer III. Obtain a signed options agreement IV. Enter the initial order A) I, II, III, IV B) II, I, IV, III C) II, I, III, IV D) I, II, IV, III

B) II, I, IV, III

When a limited partnership is liquidated (dissolved), the priority of payments to settle accounts are made from first to last in which order? I. General partners II. Limited partners III. General creditors IV. Secured creditors A) I, II, III, IV B) IV, III, II, I C) IV, III, I, II D) I, IV, III, II

B) IV, III, II, I

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) a clearing agent. B) a market maker. C) an executing for commissions only. D) a fully disclosed broker-dealer.

B) a market maker.

A customer who has written an option contract receives an assignment notice. This customer is A) now obligated to short the stock at the current market value. B) now obligated to either buy or sell the underlying stock at the strike price. C) the party who must notify the Options Clearing Corporation (OCC) that they intend to exercise the contract. D) the party who may now assign the contract to another investor.

B) now obligated to either buy or sell the underlying stock at the strike price.

_____________________ is communication to more than 25 investors in a 30-day period. A. Correspondence B. Retail C. Educational D. Institutional

B. Retail

In the event that a customer complaint is received it is essential that the appropriate personnel are notified immediately. Which of the following need not be notified or only notified regarding specific scenarios? A) The branch manager in the location where the account is serviced B) The account's registered representative, if received by someone else C) The Financial Industry Regulatory Authority (FINRA) D) The principal supervising the registered representative servicing the account

C) The Financial Industry Regulatory Authority (FINRA) -A notice to Financial Industry Regulatory Authority (FINRA) is required only in regards to certain scenarios, such as allegations of theft, forgery, misappropriation of funds, or securities.

_______________________ pay interest only if earnings are sufficient and the payments to be made are declared by the board of directors (BOD). A) subordinated debentures. B) debentures. C) income bonds. D) convertible bonds.

C) income bonds.

All of the following are nonsystematic risks EXCEPT A) call risk B) capital risk C) purchasing power risk D) business risk

C) purchasing power risk

Another term for inflation risk is: A) call risk B) capital risk C) purchasing power risk D) business risk

C) purchasing power risk

Inflation risk is most closely associated with A) nonsystematic risk. B) call risk. C) purchasing power risk. D) interest-rate risk.

C) purchasing power risk.

A broker-dealer wants to give an employee of another firm a gift. This is permitted provided all of the following conditions are met except A) the gift or compensation has the employing member firm's prior approval. B) the gift or compensation is not conditional on sales. C) the gift or compensation is preapproved by the firm's self-regulatory organization (SRO). D) the gift or compensation doesn't exceed the annual $100 limit.

C) the gift or compensation is preapproved by the firm's self-regulatory organization (SRO).

Which of the following is not one of FINRA's classifications of communication: A. Correspondence B. Retail C. Educational D. Institutional

C. Educational

What dollar limit is placed on damages if a suit is filed based on allegations of manipulative practices? A) $250,000 B) $500,000 C) 300% of the damages suffered D) No dollar limit

D) No dollar limit -No dollar limit is placed on damages collectible from a lawsuit based on allegations of fraudulent or manipulative practices.

Which of the following statements is most accurate about feature benefits? A) The put feature benefits both the issuer and investor. B) The put feature benefits the issuer; the call feature benefits the investor. C) The call feature benefits both the issuer and investor. D) The call feature benefits the issuer; the put feature benefits the investor.

D) The call feature benefits the issuer; the put feature benefits the investor. -The call feature allows the issuer to call in old bonds at a high rate of interest and then issue new bonds at a lower rate, similar to refinancing a high interest rate loan.

For securities held in street name, which of the following is true? A) The customer is the named or nominal owner. B) The bank accepting the securities as collateral is the beneficial owner. C) The broker-dealer is the beneficial owner. D) The customer is the beneficial owner.

D) The customer is the beneficial owner.

During the cooling-off period of a new registration filed with the Securities and Exchange Commission (SEC) A) sales literature may be distributed with the preliminary prospectus. B) tombstone advertisements may not be published. C) indications of interest received are binding on the broker-dealers. D) a red herring may be given to prospective investors.

D) a red herring may be given to prospective investors.

_____________________ is communication going to banks, insurance companies, mutual funds, et cetera. A. Correspondence B. Retail C. Educational D. Institutional

D. Institutional

WRJ stock is quoted as 21 bid, 21.15 offer. Which of the following is true? I. A purchase can be made at $21 per share if buying at the market. II. A purchase can be made at $21.15 per share if buying at the market. III. The spread is $0.15. IV. A sale can be made at $21.15 per share if selling at the market.

II and III -A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price—in this quote, 0.15.

A bond backed by a corporation's full faith and credit is I. secured. II. unsecured. III. backed by a specific asset. IV. not backed by any assets.

II and IV

T/F Firms will be denied membership if the applicant has been expelled or suspended by another self-regulatory organization (SRO) or from the foreign equivalent of an SRO.

True

The broker-dealer buys at the (bid/ask) and sells at the (bid/ask). The customer buys at the (bid/ask) and sells at the (bid/ask).

bid ; ask ask ; bid

When securities are held in street name, the (broker-dealer/customer) is the named or nominal owner, but the (broker-dealer/customer) is still the beneficial owner retaining all rights of ownership.

broker-dealer ; customer

When a customer owns a position and then sells that position that is referred to as selling (short/long) or selling to close.

long

During the minimum 20-day cooling-off period of a new registration filed with the Securities and Exchange Commission (SEC), tombstone ads (may/may not) be published, and a preliminary prospectus, also known as a red herring, (may/may not) be distributed to prospective investors.

may ; may

During the minimum 20-day cooling-off period of a new registration filed with the Securities and Exchange Commission (SEC), sales literature (may/may not) be distributed and indications of interest (are/are not) binding on either the investor or broker-dealer.

may not ; are not

Earnings from investments and are known as (earned/portfolio) income.

portfolio

Suitability must be determined on (solicited/unsolicited) trades.

solicited

For a trade to be (solicited/unsolicited), the client would need to specifically identify the bonds he wanted to purchase

unsolicited