Unit 18 - Position, Strategies, and Trade Authority
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
Shares to sell short have been located in order to be borrowed. Once sold short, these shares will be known as
covered.
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
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? I. This is a secondary market transaction. II. This is a primary market transaction. III. This is a long sale of the stock. IV. This is a short sale of the stock (he never purchased it).
I and III
Which of the following choices would a registered representative be able to make for a customer in a nondiscretionary account? I. The time of execution of the trade II. Which security to buy III. How much of the security to buy IV. At what price to execute the trade
I and IV
A registered representative placing trades in a customer account must have discretionary authority if they choose which of the following aspects of the trade?
The action to be taken, the asset to be traded, OR the amount of the trade
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 opening transaction can be
either a buy or a sell.
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.
Selling shares not yet borrowed or located to be borrowed is
known as a naked short sale and is prohibited.
Short sellers have
limited profit potential and an unlimited loss potential.
Before executing a short sale the broker-dealer must first
locate the shares to be borrowed
With a discretionary account
the customer may still enter orders.
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.
Discretion given to a registered representative to make transactions applies to all of the following except
timing and price only
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 registered representative is explaining discretionary and nondiscretionary accounts to a customer. Only one of the following statements is accurate and can be made by the registered representative. Which is it?
In a nondiscretionary account no order can be entered without your prior approval.
Which of the following 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 transactions has the most risk?
Selling short
An investor is long MJS stock. For this investor, which of the following is true?
The risk is that the stock falls in price.
Your customer opens a position at 45 and then closes it later at 47. This represents
a 2-point gain or loss.
A person who is vested with legal rights and powers to be exercised for the benefit of another is known as
a fiduciary
An investor with no existing positions in MMS stock sells 100 shares. This is
a short bearish position.
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
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.
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
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
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
