Unit 18: Position, Strategies, & Trade Authority
Which of the following transactions has greatest risk?
Selling short
Which of the following transactions has the least risk?
Short against the box
Two weeks ago representative Pete introduced his customer Neil to the Windmill Growth Fund in response to Neil's interest in growth funds. Today the customer calls Pete to place a trade to invest $10,000 in the Windmill Growth Fund. This is
a solicited trade
Shares to sell short have been located in order to be borrowed. Once sold short, these shares will be known as
covered
An opening transaction can be
either a buy or a sell.
Before executing a short sale the broker-dealer must first
locate the shares to be borrowed.
Blaine Smith has owned XYZ stock for several years and believes it is time to take his profit and invest that money in another stock. He should
sell XYZ to close.
Meeting the location requirements and the borrowing of securities when a customer wants to sell short is done by
the broker-dealer on behalf of the short-selling customer.
A registered representative enters a discretionary order for her clients account. All of the following are required except
the order must be approved by a principal prior to entry.
Which of the following best describe a wrap account?
The firm offering the account would need to be registered as both a broker-dealer and an investment advisor | The account fee covers both transactions and advice
Rep. Pete receives a call from his client, Neil, to place a trade. He wants to buy 200 shares of the Starshine Entertainment Company. Pete asks Neil a few questions about the trade before placing it. This is
an unsolicited trade
A customer who is short against the box may close the position by all the following except
depositing the fair market value of the shorted stock into his account.
Who must grant permission for a representative to have discretionary trading authority on an account?
The customer and a principal of the broker-dealer
An investor who has a short position in 500 shares of JKH common stock would eliminate that position by
entering a closing purchase order for 500 shares of JKH.
A registered representative handling a fiduciary account must be aware of the fact that
investment decisions must be made in accordance with the prudent investor rule.
Selling shares not yet borrowed or located to be borrowed is
known as a naked short sale and is prohibited.
All of the following are required for a discretionary account except
the account must receive FINRA approval prior to the first trade.
All of the following would be required for a discretionary account except
the account must receive Financial Industry Regulatory Authority (FINRA) approval prior to the first trade.
A customer called his registered representative to place a trade to buy 100 shares of ABC. The customer wants to put a limit on the order, but is unsure what would be an appropriate price. At the suggestion of the registered representative, the customer enters the order with a limit of $30. This trade was
unsolicited.
A customer has an account with a broker-dealer who provides a group of services, such as asset allocation, portfolio management, trade executions, and administration, for a single fee. This is known as a
wrap account.
Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares?
Buy 1,000 shares of CDT
A client calls a registered representative and states that she lives in New York City and is looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany New York School District that would be triple tax free for the client. Which of the following would be the registered representative's best course of action
Determine suitability prior to placing the trade and mark the trade solicited.
A client calls a registered representative and states that they live in New York City and that they are looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany, NY, school district that would be triple tax free for the client. Which of the following would be the registered representative's best course of action?
Determine suitability prior to placing the trade and mark the trade solicited.
Which of the flowing is true regarding short sales?
Selling short involves selling shares not yet owned.
The locate requirement is an element of which of the following transactions?
Sell to open
Which of the following choices would a registered representative be able to make for a customer in a nondiscretionary account?
The time of execution of the trade | At what price to execute the trade
Your client, Bill Hearst, inherited several thousand shares of his grandfather's auto parts manufacturer, National Autoparts. He sells a portion of the position in order to raise some cash to buy a new boat. Which of these is true?
This is a secondary market transaction. | This is a long sale of the stock.
An investor with no existing positions in MMS stock sells 100 shares. This is
a short bearish position.
Two months ago your customer sold short 200 shares of Seabird Airlines at $15 a share. Today, the stock is trading at $10 a share. In order to close out the position your customer would
buy 200 shares of Seabird.
A customer who is bullish on ABC would most likely
buy ABC long.
Your customer purchased 300 shares of XYZ stocks six months ago and sold the shares last week. The actions your customer took in relation to XYZ were to
buy long and sell long.
When investors open a position by going long the security, they can close the position by
selling the security.
A customer is long 400 shares of BuyStuff Inc., a big-box retailer. He borrows 400 shares to sell while maintaining his long position. This sale is called
short against the box.
All of the following are bullish positions except
short stock.
