SIE - QBank Test ID: 88650460

If it finds that the registration statement needs revision, expansion, or to have corrections made, the SEC may suspend the review of the new issue and issue a deficiency letter. Once the issuer submits a corrected registration statement, the 20-day cooling-off period

resumes where it had left off (If the SEC issues a deficiency letter suspending its review of the new issue, the 20-day cooling-off period is halted and resumes where it had left off once the corrected registration statement is received.)

A client opens a new margin account and, as the initial trade, purchases 300 shares of MS Corporation common stock at $10 per share. The firm would send the client a margin call for

$2,000 (No credit may be extended in a new margin account with less than $2,000 in equity. This purchase of $3,000 of stock would normally require 50% payment ($1,500) in accordance with Regulation T, but because it is the initial trade in the account, the $2,000 minimum must be met.)

Your customer opens a position at 45 and then closes it later at 47. This represents

2-point gain or loss (Because we do not know if the opening transaction was a buy or a sell from what we are told, this could be either a 2-point gain or loss. If the opening transaction was a buy, this represents a gain (bought at 45, sold at 47). But if the opening transaction was a sell, this represents a 2-point loss (sold at 45, bought back at 47).)

An investor is short a January 30 call at 5. Breakeven is

35 (Breakeven for a call (long or short) is premium (5) plus strike price (30). In this case 35 points. Because short calls are bearish, the investor who is short the call needs the stock to be below the BE (35), while the investor who is long the call wants it to be above the breakeven point (35) to make a profit. Always remember that BE for both parties to the contract is always the same number.)

Once a customer account has been opened at a broker-dealer, rules require that updating information on the account record occur no less frequently than once every

36 months (Account updating must occur at least every 36 months thereafter.)

Which of the following scenarios would NOT violate general standards regarding member firm communications?

A recruitment advertisement promises substantial training to be delivered to incoming employees. (FINRA holds broker-dealers to certain general standards regarding all member firm communications, including recruitment advertising. Promises of training in recruitment pieces would not be considered exaggerated or misleading. None of the other scenarios would be acceptable and all would be deemed misleading, unbalanced regarding risk, or simply untrue.)

Of the following, which would NOT be considered institutional communications with the public?

An internal memo promoting a new product that will be offered to your firm's institutional customers only (Institutional communications specifically exclude internal communications such as memos. Communications with another member firm, a government entity, such as a municipality or with someone designated to act on behalf of one of your firm's institutional customers, would all fall within the definition of institutional communications.)

Which of the following violates the FINRA Conduct Rules?

Allowing a former RR to keep a securities license with your firm, even though no business is expected to transpire (Allowing a former RR to keep a securities license with a firm even though no business is expected to transpire is known as "parking" a license and is a prohibited practice. A member has up to 30 days to file a copy of Form U-5 after the termination of an employee. Receiving a complimentary dinner at a seminar presented by a mutual fund sponsor can be permitted but must be in a location that is considered appropriate to the purpose of the meeting. A private securities transaction with an immediate family member is permissible as long as there is no compensation.)

An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed?

As ordinary income (With a nonqualified annuity, all distributions more than the cost basis will be taxed as ordinary income.)

Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer?

At least 3 separate penny stock purchases (Under penny stock rules, investors are established customers if they have deposited funds or securities in an account for at least 1 year before the penny stock transaction, or have purchased at least 3 different penny stocks from the same broker-dealer.)

Which of the following is a characteristic shared by both corporate debentures and income bonds?

Both must pay principal as it comes due. (All bonds must pay principal when due. Income bonds, however, are not required to pay interest when due unless the earnings of the issuer are deemed to be sufficient and the board of directors declares that interest payments be made.)

Accusations of FINRA Conduct Rule violations will heard and handled under the

Code of Procedure (The Code of Procedure (COP) describes how member violations of the Conduct Rules will be heard and handled.)

Which of the following is considered to be the order of the stages in a business cycle?

Expansion, peak, contraction, trough (The correct order for the stages of a business cycle is expansion followed by a peak, then a contraction that ends in a trough. The cycle then repeats. Note that because this order represents a cycle, the correct answer has no set starting point or ending point, as long as the stages are shown in the right order.)

Which of the following oil and gas direct participation programs might be considered the riskiest?

Exploratory (Exploratory programs, also called wildcatting programs, are those that look for resources near existing producing wells in the hopes of finding more deposits. These are considered riskiest of the oil and gas programs—exploratory, income or a combination of the 2. Raw land is a type of real estate program, not an oil and gas program.)

Which of the following benchmark interest rates is considered a barometer of the direction of short-term interest rates?

Federal funds rate (The federal funds rate is the rate that commercial money center banks charge each other for overnight loans of $1 million or more. Overnight, representing the shortest of loans, makes this rate a good indicator of the direction short-term interest rates are taking.)

Firms applying for FINRA membership are required to agree to I. be in compliance with all federal securities laws II. pay dues, assessments, and other charges the associa¬tion levies III. pass the appropriate qualification exam(s) IV. attend a FINRA annual conference no less frequently that once every 3 years

I and II (Firms must agree in their membership application that they will comply with all federal securities laws and make payment of dues and assessments when requested. Although qualification exams must be passed by individuals representing the firm, there is nothing requiring the firm itself to do so, nor is attendance at FINRA conferences required.)

Regarding limited partnerships, which of the following are TRUE? I. A general partner can be held personally liable for business losses and debts. II. A limited partner can be held personally liable for business losses and debts. III. A general partner business decisions are legally binding on the partnership. IV. A limited partner business decisions are legally binding on the partnership.

I and III (General partners have unlimited liability, meaning that they can be held personally liable for the partnership's losses and debts. In their role to manage the partnership, they make decisions that are legally binding on the partnership.)

The market price of a company's common stock could be affected by I. the company's earnings II. changes in the business cycle III. FRB policies IV. International conflicts

I, II, III, and IV (Obviously, the price of a company's common stock will be impacted by earnings, whether it is higher or lower than anticipated. Changes in the business cycle, as well as FRB policies, will also carry weight in the marketplace. In today's global economy, conflicts even on the other side of the world can affect stock market prices.)

In what order do the following economic phases typically occur? I. Recovery II. Trough III. Decline IV. Prosperity

I, IV, III, II (Expansion (recovery) is considered to be the beginning of the business cycle, followed by the peak (prosperity), contraction (decline), and trough.)

Which of the following would be unacceptable reasons for an officer of a member firm to make a contribution to the election campaign of a political candidate? I. The candidate is a member of the officer's political party. II. The candidate has promised to steer business to the officer's firm. III. The candidate is a close relative of a potential customer of the firm. IV. The officer approves of the policies and programs the candidate has proposed.

II and III (Political contributions may never be used to procure or enhance business.)

Which of the following are account types that can be opened at a broker-dealer? I. Credit account II. Margin account III. Cash account IV. Debit account

II and III (The 2 basic account types that may be opened at a broker-dealer are cash accounts, where the customer pays in full for securities purchases, and margin accounts, where the customer borrows securities for short sales (short margin account), or funds his purchases in part with money borrowed through his broker-dealer (long margin account).)

A bond having an 8% coupon is selling with an 8.25% yield to maturity. Which of the following statements are TRUE? I. Nominal yield is higher than YTM. II. Current yield is higher than nominal yield. III. Nominal yield is lower than YTM. IV. Current yield is lower than nominal yield.

II and III (The bond is offered with a YTM of 8.25%. Because the YTM is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the nominal yield is lower than both the current yield and the yield to maturity.)

Regarding primary and secondary offerings, which of the following are TRUE? I. An offering can only be either a primary or secondary. II. An offering can be a combination of primary and secondary. III. An IPO is a secondary offering. IV. An APO is a primary offering.

II and IV (An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs (initial primary offering) and APOs (additional primary offerings) are primary offerings, where the issuer receives the sale proceeds.)

Considering a customer's nonfinancial considerations is as important as considering the customer's financial concerns. Included in the category of nonfinancial considerations are I. salary II. marital status III. credit card debt IV. number and ages of dependents

II and IV (Nonfinancial considerations are those that are not generally monetized. Even so, they can sometimes be more important than the financial ones. Things like marital status and the number and ages of the customer's dependents play a critical role in determining the appropriate investment strategies. Of course, knowing the salary and debt is important, but those are financial considerations, not the subject of this question.)

If a broker-dealer holds the stock of an investor in street name, which of the following must be forwarded to the investor promptly upon receipt? I. Articles about the company found in financial industry literature II. Proxy statements relating to upcoming shareholder meetings III. Changes in the credit status of the issuing corporation IV. Quarterly financial and other reports generated by the issuer

II and IV (Stock a broker-dealer holds in street name will be the subject of financial reports, proxy statements, and other material generated by the issuer that is important for the investor, the beneficial owner of the stock, to have. Accordingly, the broker-dealer must forward the material to the investor promptly.)

The holders of which of the following securities are considered owners of the issuing corporation? I. Mortgage bonds II. Debentures III. Preferred stock IV. Common stock

III & IV (Persons who own stock in a company are considered owners; thus, both common and preferred shareholders have ownership (equity) in a corporation. Mortgage bonds and debentures are 2 types of debt securities offered by corporations. Debtholders are creditors of the corporation, not owners.)

Under what circumstances could a broker-dealer firm share in a financial loss with a customer?

If the loss was due to an error on the part of the firm (While a registered representative may share in profits and losses with a customer, provided certain requirements are met, the firm itself may only share in losses, and only if the loss is due to an error on the part of the firm.)

When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will do which of the following?

Increase interest rates on loans to consumers (When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will tighten the money supply; securities go into the economy, and money comes out of the economy. Less money available increases interest rates to consumers.)

Within the money supply, which of the following are part of M2 but NOT M1?

Money market mutual funds (Money market funds are part of M2 but not M1. M2 includes everything in M1, plus time deposits and money market funds.)

At expiration, for those who trade put options, which of the following is TRUE?

Put buyers want the contract to be in the money. (At expiration, put buyers (like call buyers) want the contracts to have intrinsic value and, therefore, to be in the money. Put writers (like call writers) want the contracts to be either at or out of the money and, therefore, have no intrinsic value.)

Each of the following is defined as an investment company EXCEPT

Real estate investment trusts (REITs) (Real estate investment trusts (REITs) are not investment companies such as UITs and management companies (both open and closed-end).)

A corporation has issued a single bond having successive maturity dates set from 2020 through 2030. This is known as what type of bond?

Serial (Serial maturity bonds are all issued at one time and mature in successive years. Note that there is no "series" maturity type.)

FINRA is concerned about potential conflicts of interest in providing incentives or rewards for selling a sponsor's product. Which of the following situations regarding a product sponsors product training or education for outside RRs would FINRA disallow?

Spouses are included in the invitation with travel expenses paid for. (FINRA deems payment or reimbursement by sponsors in connection with meetings held to train or educate representatives acceptable as long as certain requirements are met. These would include, but are not limited to, the following: the representative obtains the member firm's prior permission to attend, the location of the meeting is appropriate to the purpose of the meeting, there is no payment or reimbursement for a guest (e.g., a spouse) of the representative attending the meeting, and there is no payment or reimbursement for certain expenses incurred in connection with meetings, such as golf outings.)

Shares must be borrowed in order to

sell short to open a position (When selling short, an investor is opening a position (a short position). Selling short means selling shares not yet owned. In order to do so, the shares must be borrowed first.)

An investor looking to speculate in penny stocks would be exempt from the suitability statement requirement under which of the following circumstances?

The investor is an established customer. (Established customers are exempt from the penny stock suitability statement requirement. An established customer is someone who has held an account with the broker-dealer for at least one year (and has made a deposit of funds or securities); or has made three purchases of qualifying penny stocks that occurred on separate days and involved different issuers. No one is exempt from the risk disclosure requirements.)

A GTC order is left unexecuted at the end of the trading day on the last business day of April. Which of the following is TRUE?

The order will be automatically canceled. (All GTC orders if unexecuted will be automatically canceled on the last business day of April and the last business day of October. If the customer wishes to have the order continue working beyond that date, it must be reentered after the automatic cancellation.)

Which of the following securities are most likely deemed marginable by either the Federal Reserve Board (FRB) or regulatory bodies such as FINRA and the New York Stock Exchange?

Treasury bonds (Although treasury securities are exempt from FRB Regulation T, they are OTC securities approved by the FRB as being good collateral for loans.)

Regarding purchases on margin, which of the following is TRUE?

Warrants can be purchased on margin, but rights cannot. (Warrants are marginable securities, but rights are not.)

The U.S. balance of payments deficit would decrease in all of the following scenarios EXCEPT

a decrease in purchases of U.S. securities by foreign investors (A deficit in the balance of payments occurs when more money is flowing out of the country than in. When foreign investors decrease their purchases of U.S. securities, the flow of money coming into the United States decreases, this adds to the deficit rather than decreasing it.)

An investor owning 400 shares of CDS stock receives notice that the stock will be split. When the split is complete, the customer owns 600 shares of stock. The split must have been

a forward, uneven split (Because the split resulted in the investor owning more shares, it was a forward split. Because the ratio of shares owned before and after the split was 2:3 (400:600 in this case), the split was an uneven split.)

An investment that allows for a share in the income, gains, losses, deductions, and tax credits of the business entity to pass through to investors is known as

a limited partnership (Limited partnerships (LPs) pass through to investors (partners) a share in the income, gains, losses, deductions, and tax credits of the business entity.)

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as

a market maker (When a broker-dealer buys and sells securities into and out of its own account as for the purpose of making a profit it is engaged in proprietary trading and is acting as a market maker (making markets in those securities). Investment banking and underwriting both primarily involve assisting issuers with bringing new securities issues to public investors. Agents act on behalf of others in the marketplace, such as a broker-dealer buying or selling for one of its customers.)

An officer of a broker-dealer firm would be categorized as a restricted person if that individual attempted to purchase

a new issue IPO at the public offering price (As restricted persons, officers of broker-dealer firms or other institutional investors are prohibited from purchasing a new issue (IPO) at the public offering price.)

Treasury bond (T-bond) interest is stated as

a percentage of par value (Like Treasury notes (T-notes), Treasury bonds (T-bonds) have interest stated as a percentage of par value. Example: Par value $1,000, with 4% interest equals $40 interest per year (0.04 × $1,000 = $40).)

Electronic delivery of documents requires all of the following EXCEPT

a recording of the customer verbally agreeing to such receipt (Consent to receive documents such as confirmations and account statements by electronic means must be in writing.)

If a call contract has no intrinsic value, it must be

at, or out of the money (If a contract has no (zero) intrinsic value, it can only be either at or out of the money. Anytime a contract has intrinsic value, it is in the money by that amount.)

Failure to honor a firm quote is called

backing away. (Failure to honor a quote stated as firm is a rules violation called backing away.)

Money market instruments guaranteed by a bank that are used to provide capital for international trade are called

banker's acceptances (Banker's acceptances (BAs) provide short-term financing for importers and exporters.)

Each of the following are likely to be found on a trade confirmation EXCEPT

bond credit rating (Trade confirmations are required to include many details about the trade and the securities including, but not limited to, the trade date, description of the security, CUSIP number, commissions (not markups or markdowns) and more. There is no obligation for the firm to print the bond credit rating on the trade confirmation.)

A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues,

both persons are considered restricted (Working for a BD, the RR is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted.)

An investor owns MMS call options. This investor is

bullish, hoping the stock will rise (Call owners have the right to purchase the stock. Being in a position to buy (own) the stock make them bullish. Bulls want stocks to go up.)

Common shareholders wanting to vote on issues at a shareholder meeting can do so in all of the following ways EXCEPT

by telephone or text message (Common shareholders wanting to vote at a shareholder meeting can do so in person or in absentia, using a proxy delivered by mail or online. Voting by text or telephone would not be permitted.)

The risk when investing, where one has the potential to lose all or part of the investment due to circumstances that are unrelated to the issuer's financial strength or well-being, is known as

capital risk (This is the definition of capital risk. For example, capital risk might be least when investing in securities backed by the federal government but much more prevalent when investing in derivative products.)

Some bonds have a feature that prohibits them from being called by the issuer before a certain date. This is known as

call protection (Some callable bonds have a feature known as call protection, which essentially limits the issuer from calling them in before a certain date. The length of the call is predetermined, and during this time, the investor knows that the bind cannot be called away.)

Interest-rate risk

cannot be reduced by diversification (Interest-rate risk is one of the systematic risks that cannot be reduced by diversification. It is the risk that fluctuating interest rates will impact bond prices. Primarily, when interest rates are rising, bond prices will be pushed lower.)

Once a dividend is initially declared by the board of directors, any future dividend payments

carry no guarantee of payment in any amount (While the potential to share in the company's profits by receiving dividends is considered one of the benefits of equity ownership, one of the risks is the possibility of dividend income decreasing or ceasing entirely. Dividends are not guaranteed in any way.)

Preferred shares have

characteristics of both equity and debt securities (Preferred shares are equity securities, but not only do they have the characteristics of equity securities, they share some of the characteristics of debt securities as well. The most notable characteristic is that a preferred stock's annual dividend represents its fixed rate of return, like the fixed rate of return for a bond (debt security).)

A registered representative with discretionary authority has been doing two or three trades per week in her customer's discretionary account. The volume of transactions is not in keeping with the historic activity in the account and the trades don't all align very well with the account objectives. A principal noted that other than generating commissions, the trades seem to have little profit potential. This is likely a red flag for

churning (Excessive trading in a customer's account to generate commissions rather than to help achieve the customer's stated investment objectives is an abuse known as churning. This can occur in both discretionary and nondiscretionary accounts)

Voting rights are a privilege generally afforded to

common shareholders only (One of the differences between common and preferred shareholders is that preferred shareholders generally have (with few rare exceptions) no voting rights.)

Laws increasing or decreasing taxation would be best associated with

fiscal policy enacted by the president and Congress (Tax laws are fiscal (not monetary) policy and are enacted by the president and Congress.)

Tax credits for partners in a real estate program can come primarily from

government-assisted housing and historic rehabilitation properties (For partners in a real estate programs, tax credits would come primarily from programs concentrating on properties designated for government-assisted housing or historic rehabilitation. These are credits offered by the federal government.)

An investor who relies heavily on fixed interest payments from long-term (25-30 years) bonds should be most concerned with

inflation risk (Sometimes referred to as purchasing power risk, inflation risk is the effect of rising prices over a long period while an investor is collecting fixed interest payments. For example, if a bond's yield is lower than the inflation rate, the purchasing power of the interest payments received diminishes over time.)

Short sellers have

limited profit potential and an unlimited loss potential (Short sellers are bearish—wanting to see the stock go down in value. Because stock could only go down as far as zero, the profit for a short seller is limited to the difference between the price the stock was shorted at and zero. By contrast, the risk for a short seller is that the stock goes up in value and there is no limit to how high the stock might rise, giving the short seller potentially unlimited losses.)

A market maker owning 70,000 shares of HCHS stock noted that it is down .25 on the day so far. Near the very end of the trading day the market maker enters an order to buy 100 shares at the market. This is likely an attempt to

mark the close (Effecting trades at or near the close of the trading day to influence the closing price of a stock is called marking the close. In this example the buy order at the close is likely intended to push the stock up so that the MM's position in the stock would be marked at a higher price.)

All of the following are taxable to the investor EXCEPT

stock dividends (A stock dividend is payment of additional shares of the issuer to the stockholder rather than payment of cash. The price of the stock is adjusted so that the total value of the outstanding stock is the same before and after the dividend is paid. Stock dividends are thus not taxable.)

The rate on an adjustable preferred stock would most likely be indexed to

the Treasury bill (T-bill) rate (The dividend on an adjustable-rate preferred stock is tied to a particular benchmark interest rate, and the Treasury bill rate is a common benchmark. The CPI, the PPI, and the DJIA are not interest rates.)

When making unsolicited cold calls to prospects, a registered representative must disclose all of the following to the individual called EXCEPT

the address of any securities issuer mentioned during the call (When making cold calls, the caller must disclose his name and the name of the member broker-dealer, the telephone number or address at which the caller may be contacted, and that the purpose of the call is to solicit the purchase of securities. When securities of any issuer are mentioned in such a call, there is no requirement to disclose the address of the issuer.)

The flow of money between the United States and other countries is known as

the balance of payments (The balance of payments represents the flow of money between the United States and other countries.)

The interest rate negotiated for an uncollateralized overnight loan between 2 money center banks is known as

the federal funds rate (The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured (no collateral) loan.)

Listed options can be exercised by

the holder from the time of purchase until they expire (Listed options can be exercised by the holder (owner, buyer, party who is long) from the time of purchase until they expire. Writers (sellers, party who is short) cannot exercise contracts. Instead, writers are assigned when the owners of the contracts exercise them.)

Treasury receipts are backed by

the issuing broker-dealer (Treasury receipts are issued by broker-dealers. Although Treasury securities (T-notes and bonds) are held in trust at a bank and collateralize the Treasury receipts, unlike Treasury securities backed by the U.S. government, these Treasury receipts can only be backed by their issuer, the issuing broker-dealer.)

If a broker-dealer firm wishes to become a FINRA member firm, it must make its application

to the FINRA district office where the applying firm has its home office (An application to become a FINRA member firm must be made to the FINRA district office in the district where the applying firm has its home office.)

FINRA requires that member firms provide at least how many names as emergency contacts as a part of their business continuity plan?

two (FINRA requires that member firms provide at least two names of individuals who will act as emergency contacts as a part of their business continuity plan. There rule requires that both of these persons be principals.)

Interest-rate sensitivity for preferred shareholders should be understood to mean that

when interest rates rise, the prices for preferred shares can fall (Preferred shares, like debt securities, are sensitive to and have an inverse relationship to interest rates. Rates up, prices down. Rates down, prices up.)

Holders of subordinated debt instruments know that in the case of a corporate liquidation, they

will be paid back last of all debtholders (In the event of a corporate bankruptcy, subordinated debtholders, while having no guarantees of being paid, would come last of all bondholders in the liquidation priority—subordinate.)