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Which of the following is considered to be a security? A) Section 529 plan B) Coverdell ESA C) Section 457 plan D) Section 403(b) plan
A 529 The definition of security specifically excludes retirement plans (the Coverdell was originally known as the Education IRA). Section 529 plans are technically considered municipal fund securities.
Which of the following items would be found on a family balance sheet? A) Spouse's engagement ring B) Income taxes paid C) Dividends and interest received D) Annual salary
A) A balance sheet, whether for a family or a business, shows assets and liabilities, not income and expenses. The ring is certainly an asset; the others are income or expenses.
A mutual fund's computed NAV on April 24 is $100 per share. On April 25, the portfolio realized gains of $2 per share, and enjoyed $1 per share in unrealized appreciation. What would the NAV be on April 26 assuming an unchanged market? A) $100 per share B) $101 per share C) $103 per share D) $102 per share
B) A mutual fund's net asset value per share (NAV) is the fund's total assets minus total liabilities (net asset) divided by the number of shares outstanding. The major asset is the fund's portfolio. Portfolio securities are carried at their value as of the close of the markets (4PM ET). As a result, unrealized appreciation (and depreciation) are part of the NAV. Therefore, when that gain (or loss) is realized, paper profit (or loss) is now real and there is no change to total assets. In the subject question, the realization of the $2 per share gain has no effect, but, the new $1 in unrealized appreciation increases the NAV by that amount.
A unique requirement for those investment advisers who maintain custody of customer assets is the filing of A) the Form ADV-H B) the Form ADV-E C) the Form ADV Part 1 D) the Form ADV Appendix 1
B) The Form ADV-E is used as the cover page for the annual surprise audit performed by the independent accountant on all IAs who maintain custody of customer assets.
FNK reported earnings of $2.47 per share last year on its stock, which is trading at 24.75. It paid a $0.93 dividend on its common stock. What was its dividend payout ratio? A) 26.6% B) 10% C) 38% D) 67%
C 38 The company earned $2.47 per share and paid a $0.93 dividend per share, which is 38% of the earnings ($0.93 ÷ $2.47 = 38%).
Arthur M. Munger recently joined Piedmont Partners LLP as an analyst and is curious about modern portfolio theory (MPT). He approaches his senior, Sarah, to describe MPT. Sarah tells Arthur that MPT suggests that A) by combining securities into a diversified portfolio, the overall portfolio risk will be more than the weighted average risk of the individual stocks. B) we cannot outperform the overall market. C) by combining securities into a diversified portfolio, the overall portfolio risk will be less than the weighted average risk of the individual stocks. D) the total risk of a portfolio cannot be reduced at all.
C) A diversified portfolio of stocks that are not perfectly positively correlated with each other will have portfolio risk (as measured by standard deviation of returns) less than the weighted average risk of the individual stocks.
The capital asset pricing model (CAPM) is an investment theory that serves as a model for A) measuring the correlation between a security and the overall market B) pricing securities based on their total risk C) pricing securities based on their unsystematic risk D) pricing securities based on their systematic risk
D Under the CAPM, securities are priced based on their systematic risk only, because this risk cannot be eliminated through diversification. The expected return of a security or portfolio is calculated by adding the rate on a risk-free security to a risk premium multiplied by the asset's systematic risk.
A farmer who produces soybeans believes that this year's crop will be the biggest ever. The farmer would most likely hedge this risk by A) going short soybean futures B) going long soybean forwards C) going long soybean futures D) going short soybean forwards
D) A big crop means more supply and lower prices when the crop is harvested. Hedging involves taking an opposite position (benefiting if prices fall). If the farmer is correct, selling short at today's price will enable delivery in the future at that higher price. Because this is a producer who will have product to deliver, forwards are likely to be more appropriate than futures.
Steve and Haley, ages 48 and 45, respectively, invest in large-cap stocks, international stock mutual funds, and real estate. They consider themselves moderately aggressive investors. Their investment portfolio is subject to all of the following risks except A) default risk. B) systematic risk. C) currency risk. D) business risk.
A) Their investment portfolio is subject to all of these risks except default risk. Default risk primarily applies when holding debt securities. A portfolio heavily concentrated in equity securities is going to have market (systematic) risk. Business risk is the risk that a company's managerial decisions or even factors out of its control, such as expiration of a patent, may negatively affect the value of an equity investment. By holding investments in international stock mutual funds, they are subject to exchange rate risk.
Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients? An adviser that requires prepayment of $1,000 in fees, 9 months in advance, has liabilities that exceed its assets and does not disclose this fact to clients. An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients. A) II and III B) I, II, and III C) I and II D) I and III
A) An adviser's financial impairment must be disclosed to clients if the adviser has discretion or has custody or requires prepayment of more than $1,200 in fees, 6 or more months in advance. Legal or disciplinary action taken against an adviser by a court or a regulatory authority within the past 10 years must be disclosed to clients in any case. Note also that by requiring prepayment of over $1,200 in fees, 6 or more months in advance, an adviser is required to include an audited balance sheet with Part 2 of Form ADV, which must be filed with the SEC and made part of the adviser's disclosure brochure.
Which of the following bonds has the shortest duration? A bond with A) a 10-year maturity, 10% coupon rate. B) a 10-year maturity, 6% coupon rate. C) a 20-year maturity, 6% coupon rate. D) a 20-year maturity, 10% coupon rate.
A) Two factors go into the computation of a bond's duration - the length to maturity and the coupon rate. When the maturities are the same, the bond with the highest coupon has the shortest duration. When the coupons are the same, the bond with the nearest maturity has the shortest duration. The 10% bond maturing in 10 years "wins" on both counts. It has the nearest maturity with the highest coupon. All else being equal, a bond with a longer duration will be more sensitive to changes in interest rates.
Which of the following would best describes a Yankee bond? A) U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States B) U.S. dollar-denominated bond issued by a U.S. entity inside the United States C) U.S. dollar-denominated bond issued by a non-U.S. entity outside the United States D) U.S. dollar-denominated bond issued by a U.S. entity outside the United States
A) Yankee bonds are issued by non-U.S. entities in marketplaces inside the United States. The bonds are issued in U.S. dollars meaning these foreign issuers will have currency risk if the dollar drops in value against their local currency.
Under UTMA, which of the following are allowable distributions for the benefit of the minor? A) The cost to attend a summer camp B) A percentage of housing expenses, such as the utilities for his bedroom C) A percentage of food expense D) Clothing expense for child who has gone thru a growth spurt
A) You cannot use UTMA (or UGMA) money for the basics of food, clothing and shelter; those are the responsibility of the parent. An optional expense, such as summer camp, vacation, sports league registration, would be permitted.
All of the following statements regarding futures contracts are correct EXCEPT A) completing a futures contract requires the delivery of the commodity. B) a short position will increase in value if the underlying commodity or asset declines in value. C) purchasing a contract for future delivery is considered taking a long position. D) futures contracts can be written on financial assets or commodities.
A)completing a futures contract requires the delivery of the commodity. In almost all cases, the holder of the futures contract will purchase an offsetting contract canceling the original position or sell the contract prior to expiration. In isolated cases, delivery of the commodity may be made but is not required. Futures contracts can be written on financial assets such as currencies and stock indexes, as well as on commodities such as agricultural products or precious metals. As with anyone taking a short position, the value goes up when the price of the underlying asset declines. And, just as purchasing a stock or bond, a long position represents one of ownership.
Which of the following situations would present a conflict of interest that an adviser must disclose to clients to avoid unlawful and deceitful behavior under the Investment Advisers Act of 1940? A) The adviser owns real estate that is unrelated to his investment advisory business, but it requires considerable time and attention. B) The adviser receives compensation from the issuer of securities that he recommends to his clients. C) The adviser has a non-securities-related loan from a large commercial bank where one of his clients is a vice president. D) A family member of the adviser has been indicted for securities fraud unrelated to the adviser or the clients' securities.
B) An adviser has an affirmative duty to provide full and fair disclosure in those transactions where his interests may conflict with the best interests of the client. If an adviser receives payment from an issuer of securities sold to his clients, the adviser's judgment on the investment merits of the security could be influenced. The client must be informed of and consent to this arrangement to prevent fraud. Advisers are allowed to have separate businesses that do not, by their nature, present a conflict of interest.
When applying for registration as an investment adviser representative, which of the following must be disclosed? A) Complete employment history for the past 5 years. B) Certain financial information such as any unsatisfied judgments or liens against the applicant. C) Residential history for the past 3 years. D) Highest educational level achieved and the institution attended.
B) This question probably contains more detailed information than will be covered on the exam. Negative financial information, such as unsatisfied judgments or liens and bankruptcy filings must be disclosed. Employment history for the past 10 years and residential history for the past 5 years must be shown. If, during the past 10 years, the applicant was a full-time student, then that must be shown, but that is the extent of educational information required.
If the current risk-free rate is 3% and the expected market risk premium is 6%, what return should we expect from a security that has a beta of 2? A) 12% B) 15% C) 18% D) 9%
B) 15 In most questions of this type, we are given the market return. Here, there is a trick. We are told there is a market risk premium of 6%. That means that the market return must be 6% above the risk-free rate, or 9%. Now, we can plug in the formula. Expected return = 3% + ([9% -3%] × 2) = 3% + (6% x 2) = 3% + 12% = 15%. In this question, because we're already given the risk premium, we can avoid the first step. That would be 3% + (6% x 2) = 3% + 12% = 15%.
Q1 Which of the following would be causes for concern about cybersecurity? 1A broker-dealer keeps all the firm's financial records in a ledger book 1B A broker-dealer stores some of the firm's financial records electronically 1C A broker-dealer's agents operate as independent contractors and maintain devices that access personally identifiable information about clients 1D A broker-dealer's bookkeeper prefers to do the books from home on a personal computer
B,C,D Regressive taxes are those where the rate remains the same, regardless of the cost of the item subject to the tax. For example, if your state has a 6% sales tax, it makes no difference if you are buying an item for $1.00 or one for $10,000, the tax rate is the same 6%. The other choices given are progressive taxes where the tax rate increases as the dollar amount being taxed increases.
According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, under which of the following circumstances has the investment adviser acted properly? A) An adviser promises a client that by following the firm's trademark investment program, the returns will exceed those of the previous 12 months or all fees paid will be returned. B) An advisory firm states in the advisory contract that if the investor does not experience a minimum return of 6%, the firm will pay the client out of its own funds to make up any difference. C) An adviser discloses confidential information about an advisory account to the spouse, who is a joint owner of the account. D) An adviser tells a client that, by keeping his entire portfolio invested in government securities, he will not experience a great deal of appreciation but is guaranteed not to lose money.
C) According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it is unethical for an adviser to guarantee performance or rebate fees if performance is below a minimum standard. With respect to government securities, there is no, at least for exam purposes, default risk, but there is interest rate risk; all of the choices are improper. Disclosure of confidential account information may be made under a court or IRS order or when requested by a joint owner of the account.
Which of the following is a characteristic of an investment-grade general obligation municipal bond? A) The bond's periodic interest is paid to investors only when sufficient revenue is collected by the municipality. B) The bond's main source of investment risk is financial risk. C) The taxing authority of the issuing government or municipality backs the issue's repayment. D) The bond retains a direct claim on specific property.
C) General obligation bonds are backed by the full faith and credit of the government issuing the debt and are repaid through taxes collected by the government body. The main source of investment risk for a municipal security is interest rate risk. General obligation bonds do not retain a claim on specific property. The government issuing the bonds uses its taxing authority to pay the interest and repay the principal. Revenue bonds, not general obligation bonds, are dependent on revenue collected from the financed project.
The primary function of the Federal Reserve System (the Fed) is to A) issue bonds to the general public. B) implement fiscal policy. C) carry out monetary policy. D) manage the revenues and expenditures of the federal government.
C) The Federal Reserve controls the money supply, enabling it to significantly affect interest rates. The Fed will follow a loose, or easy, monetary policy when it wants to increase the money supply to expand the levels of income and employment. In times of inflation, when it wants to constrict the money supply, the Fed will follow a tight monetary policy. The U.S. Treasury issues bonds to the general public to finance the budget deficits of the federal government.
Under the Uniform Securities Act, when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is A) a violation of the trustee's fiduciary responsibility B) an exempt security C) an exempt transaction D) a nonexempt transaction
D) Among the list of exempt transactions are those made by fiduciaries, including trustees in bankruptcy, but not other trustees. Therefore, this is a nonexempt transaction. The fact that this is an IAR who is the trustee has no bearing on the question.
Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except A) ISOs may only be granted to employees while NSOs may be given to virtually anyone. B) there is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO. C) the holder of an ISO can recognize capital gain (loss) as a result of exercise, whereas ordinary income (loss) is the result with an NSO. D) the recipient of the grant of the ISO has no income tax consequences at the time of the grant.
D) Whether the grant is of an ISO (qualified) or an NSO (nonqualified), there are no tax consequences to the recipient at the time of the grant. It is only after exercise (NSO) and sale after exercise (ISO) that the recipient of the grant has tax consequences. Each of the other choices represents a difference. ISOs can only be granted to employees while the NSO can also be granted to members of the board of directors and even to vendors. With an ISO, capital gain (loss) treatment is available upon the sale of the stock if the recipient holds the stock purchased through exercise at least 1 year from the date of exercise and at least 2 years from the date of the grant. With an NSO, the recipient can only have ordinary income (loss) based on the difference between the exercise price and the market value when the option is exercised. Finally, if the recipient of an ISO does not exercise the option within 10 years of the grant, it is treated as an NSO for tax purposes.
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees? A) Advisory fees B) Markups and markdowns C) Commissions D) Account closing fees
D) It is very common for a broker-dealer to charge a fee for processing the closing of an account. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may guarantee investment results
NEVER
An investor is considering the purchase of $100,000 maturity value of zero-coupon AAA-rated corporate bonds scheduled to mature in 20 years. Among the risks that this investor will be assuming are A) default risk B) interest rate risk C) prepayment risk D) reinvestment risk
A,B Even though these bonds are rated AAA, 20 years is a long time and it is possible that this corporation may not even exist when the maturity date arrives. Adding to the risk is the fact that there are no interest payments in the interim. That is why the most commonly recommended zero-coupon bonds are those issued or guaranteed by the U.S. Treasury. Because zero-coupon bonds have the longest duration for their maturity of any bonds, they have the greatest exposure to interest rate changes. Prepayment risk is only found with mortgage-backed securities, and one of the benefits of zeroes is that there is no reinvestment risk.
The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if A) results do not reflect the deduction of fees B)actual market conditions during the referenced period are not disclosed C) the advertisement did not reflect performance for a minimum period of 3 years D) the advertisement did not disclose that it applied to only a specific group of clients
A,B,D Advertising that reflects past performance must show a minimum period of 1 year, not 3. All investment advisers' advertising must reflect deduction of fees; disclose the specific group of clients to which it applies, if applicable; and state actual market conditions during the referenced period.
Which of the following phrases best describes a prudent investor? A) An investment adviser representative handling a discretionary account B) A trustee who invests with reasonable care, skill, and caution C) The custodian for a minor under the Uniform Transfers to Minors Act D) A person in a fiduciary capacity who invests in a prudent manner
B) Although all of these may have a fiduciary responsibility; the definition, as expressed in the Uniform Prudent Investor Act of 1994, requires reasonable care, skill, and caution.
.Which of the following orders would be used to protect a short sale profit? A) A sell short B) A buy stop C) A sell stop D) A buy limit
B) For a short sale to earn a profit, the current market value must be lower than the sale price. An investor must buy the stock at a lower price to realize a profit. To protect denotes buying if the market starts to rise. Therefore, a buy stop would be entered above the current market value to protect the profit and trigger a purchase in the event the market starts to rise.
Which of the following is (are) TRUE regarding violations of the Uniform Securities Act? The Administrator may issue a cease and desist order without a prior hearing. Violators may incur a criminal penalty of a $5,000 fine or 3 years in jail, but not both. There is no statute of limitations on the return of criminal indictments. A) I and II B) I only C) I, II, and III D) II and III
B) The Administrator may issue a cease and desist order with or without a prior hearing. The statute of limitations on criminal violations is 5 years, not unlimited. Regarding the criminal penalties described, the amounts are correct—a $5,000 fine, 3 years in prison—but violators may face both, not just one or the other.
If you knew a given stock had a 40% chance of earning a 10% return, a 40% chance of earning −20%, and a 20% chance of earning −10%, the expected return would be equal to A) 14% B) −6% C) −10% D) 10%
B) The expected return is computed by taking the probability of each possible return outcome, multiplying it by the return outcome itself, and then adding them all together. In this case, the math is as follows: (0.4 × 10%) + (0.4 × −20%) + (0.2 × −10%), or +4% − 8% − 2%, which equals -6%. Part of the trick here is catching the probable negative returns and the ridiculous assumption that an investor would consider looking at a stock with this kind of expected return. You can always count on NASAA to surprise you.
Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, discretionary authorization is not required when the IAR is going to determine A) the number of shares when a client has named the stock to be purchased for the account B) the price at which at specified security will be sold C) the specific stock to be purchased when the client has indicated the industry group D) which assets will be sold and purchased to meet a specific asset allocation mix
B) Time or price are NOT considered discretion. Selecting the asset, the amount or the action is.
An investment adviser representative is required to make disclosure to the client when A) the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated B) the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale C)transactions recommended to a specific client are inconsistent with those for other clients with objectives that are identical to that particular client D) transactions recommended to the client are inconsistent with those for the IAR's own account A) I and III B) I, II, and III C) II and IV D) II, III, and IV
C) An investment adviser must provide full disclosure to his client if there would be even a hint of conflict of interest. This will include the case where a recommended product will generate a commission or other source of income to the adviser, as well as full disclosure, if a recommendation is not consistent with the adviser's own activity in his own account. The adviser can use any source of information to create his own analysis, disclosure of source only being required if the adviser uses the product of a third party as the presentation to the client. It would be unusual that all clients with the same objectives would purchase or have recommended for purchase the same securities.
An investor owns a long-term U.S. Treasury bond with a 6% coupon and 21 years to maturity. The client wishes to sell and receives a quote from a dealer of 96.13. This number represents A) the discount B) the offer price C) the bid price D) the markdown
C) If you want to sell, the dealer will pay you his bid price. Had the question said the client wanted to buy, the quote would have been the offer (ask) price. What does the 6% coupon and the 21 years to maturity have to do with the question? Nothing. Knowing that treasuries are quoted in 32nds has nothing to do with it either. Also, the price quote is below 100 so it is at a discount, but the better answer is bid price because the question is referring to the quote.
Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change? A) The hypothecation agreement B) The interest computation agreement C) The credit agreement D) The loan consent agreement
C) It is the credit agreement that discloses the terms of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change.
GEMCO Securities, Inc., a broker-dealer registered in the state, has over 10,000 clients ranging from small individual accounts to substantial institutions. GEMCO has determined that the most efficient way to maintain contact with its clients is through electronic communications. Under the USA, these emails must be retained by the broker-dealer for a minimum of A) 2 years B) 8 years C) 5 years D) 3 years
D) The USA specifies that all records, including electronic communications (emails), must be maintained for a minimum of 3 years. For investment advisers, the requirement is 5 years.
An investment adviser cannot adequately advise a client without knowing the client's financial status. When determining that status, it is important to differentiate between financial and nonfinancial considerations. Which of the following would be considered a financial consideration rather than a nonfinancial one? A) Client's marital status B) Fact that both parents were smokers who died of lung cancer C) Client's membership in Greenpeace D) Client's stamp collection
D) Financial considerations are those which can be categorized as an asset or a liability (something that can be assigned monetary value). Although a stamp collection would not be considered a very liquid asset, it is nonetheless something of monetary value. The other choices are nonfinancial because you really can't put a number on them. The Greenpeace membership and the lung cancer deaths of the parents are likely indicators of certain investments that would probably not be suitable due to the values of the client.
To make a quantitative evaluation using the present value computation, which of the following is NOT needed? A) Time period involved B) Account value at the end of the period C) Anticipated rate of return of the portfolio D) Account value at the beginning of the period
D) Present value is calculated to determine the amount required now to have a specified value at some time in the future. It is what we are looking for so we don't have it now.
DERP Corporation has issued 5% convertible debentures maturing in 2040. The conversion price is $40 and the common is currently trading at $48 per share. One would expect the DERP debentures to be selling somewhat A) above $1,000. B) below $1,200. C) below $1,000. D) above $1,200.
D) The first step here is to compute the parity price. A conversion price of $40 means the debenture is convertible into 25 shares of the common stock (par of $1,000 divided by $40 = 25 shares). With a current market price of $48 per share, the parity price of the convertible would be $1,200 (25 x $48). Because convertible securities generally sell at a slight premium over their parity price, the debentures should have a current market value a bit higher than $1,200.
Which of the following factors has a direct relationship to a bond's duration? A) Coupon rate B) Rating C) Yield to maturity D) Time to maturity
D) The longer the time to maturity, the higher (longer) the duration. Yield to maturity and coupon rate have an inverse relationship. That is, the higher the YTM and the coupon, the lower (shorter) the duration. The bond's rating is irrelevant.
An individual wishing to invest $15,000 into a mutual fund with the intent of having it remain invested for at least 15 years should probably purchase A) Class A shares with a 5.5% front-end load and a 12b-1 fee of .25%. B) Class I shares with no load, no 12b-1 fee, and no CDSC. C) Class C shares with a 12b-1 fee of .75% and a CDSC of 1% during the first year. D) Class B shares with a 12b-1 fee of .75% and a 6-year declining CDSC after which they convert to Class A shares.
D) There are several keys to answering this question. First is recognizing this is an individual investor. Although Class I shares generally offer the best deal, that share class is sold only to institutional investors. Next, we see that the size of the investment is $15,000. That is too small to reach any significant breakpoint. Finally, the client intends to hold the investment for at least 15 years so the CDSC attached to the Class B shares becomes irrelevant. Because the Class B shares are sold without a front-end load, all of the investor's money goes to work. True, the 12b-1 charge is .50% higher than with the Class A shares, but that only lasts for the 6-year period until the B shares convert to A shares. That is a 3% difference over the 6 years, barely over half as much as the 5.5% front-end load. The Class C shares have no front-end load and the CDSC is unimportant here because it disappears after 1 year, but the 12b-1 fee never ends and, over a 15-year or longer period, that can remove the advantage the lack of a front-end load has to offer.
An investor is short stock at 60. The current market price of the stock is 35, and he anticipates it will continue to decline. If he thinks the price will rise temporarily and if he does not wish to close out his short position, his best strategy to prevent a loss would be to A) sell an XYZ 35 put B) sell an XYZ 35 call C) buy an XYZ 35 put D) buy an XYZ 35 call
D) This client is temporarily bullish on the stock but, in the long term, feels that it will continue to decline so the short stock position is to be maintained. If the client is correct, a near-term rise in the price of XYZ will cause the long 35 call to be in the money and the investor can sell the call at a profit. When it comes to hedging a short stock position, buying a call is always the best strategy.
Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his broker-dealer employer? A) The customer is a member of the agent's immediate family. B) The securities are exempt under the Uniform Securities Act. C) The agent will receive no compensation. D) The transactions are authorized in writing by the broker-dealer before execution of the transactions.
D) Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be considered contrary to the standards imposed for an agent to effect securities transactions not recorded on the regular books or records of the broker-dealer that the agent represents, unless the transactions are authorized in writing by the broker-dealer before execution of the transaction.
Which of the following would lead to a debit to our foreign account balance? A) An increase in exports B) Residents of other countries buying apartments here C) Foreign governments repaying loans to U.S. banks D) U.S. residents taking vacations abroad
D) When our foreign account balance is debited, that creates a negative action. It is like a charge on your credit card - your account is debited. On the other hand, a credit to your card account is money coming to you. Our foreign accounts balance will be debited whenever our money goes out rather than coming in. When U.S. residents take vacations abroad, our money is being spent on hotel, restaurants, and other items in foreign countries. The other choices represent a credit to our foreign account balance. When exports increase, more foreign money comes in. When foreigners buy property here, we get their money, and when loans are repaid here, once again, foreign money comes into the U.S.
Which of the following strategies would be considered most risky in a bull market? A) Buying calls B) Writing naked puts C) Writing naked calls D) Buying a put
Writing naked calls provides unlimited liability and the most risk. Buying a call would be an attractive strategy in a bull market with risk limited to calls paid. Writing naked puts risks only the difference between the strike price and zero, less any premium received. Buying a put is a bearish strategy with risk limited to the amount paid for the put.