SIE Master Exam
B) American depositary receipts (ADRs) ADRs are a type of equity security designed to simplify foreign investing for Americans. An ADR is created when shares are purchased in the foreign company's home market. These shares are then deposited in a foreign branch of a U.S. bank and a receipt (the ADR) is created. The ADR provides U.S. investors with a convenient way to diversify their holdings beyond domestic companies.
A Japanese computer chip manufacturer sells primarily to U.S. auto manufacturers. They desire to raise additional capital by tapping into U.S. equity markets. Which of the following securities would help the issuer to accomplish this goal? A) Yen-based stocks B) American depositary receipts (ADRs) C) Global stocks D) Foreign depositary receipts
B) just below the dollar amount at which the sales charge is reduced A breakpoint sale refers to a sale made just below the point at which the investor would otherwise receive the reduced sales charge. The unethical practice may earn a higher commission for the salesperson, but it is not in the best interest of the customer.
A breakpoint sale is defined as the sale of mutual fund shares in an amount A) at or above the dollar amount at which the sales charge is reduced. B) just below the dollar amount at which the sales charge is reduced. C) just below the public offering price of the fund. D) required as the minimum investment in a fund as specified by the SEC.
A) a market maker Market makers are broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as A) a market maker. B) a direct participation program. C) a holding company. D) a clearing corporation.
A) Dividends The distribution of profits to shareholders would generally be in the form of dividends to be received at the discretion of the board of directors. Bonds and warrants are other types of securities a company might issue, while options are a derivative product that would not be issued by the company.
A company decided to distribute profits to its shareholders. This distribution takes place on a date specified by the corporation's board of directors. What type of distribution is this? A) Dividends B) Options C) Bonds D) Warrants
B) Wednesday, August 5 When a regular way transaction occurs for corporate securities, ownership is recognized as changing hands on the settlement date. For corporate securities, settlement date is the trade date plus two business days (T+2).
A corporate stock transaction occurs regular way on Monday, August 3. Ownership of the securities is recognized as changing hands between buyer and seller on A) Thursday, August 6. B) Wednesday, August 5. C) Tuesday, August 4. D) the trade date.
D) a share of an ETF represents an entire portfolio, or a specific selection, of securities. While a NAV can be calculated for an ETF, the price is set by the market and changes throughout the trading day.
A customer has expressed interest in exchange-traded funds (ETFs) and wishes to discuss them with you. You could tell the customer all of the following except A) selling short and trading on margin are available transactions with ETFs. B) ETFs have a NAV, calculated at the end of the trading day, that serves as the trading price until the next NAV is calculated. C) real-time quotes are available for ETFs. D) a share of an ETF represents an entire portfolio, or a specific selection, of securities.
B) Monthly Regardless of activity in the account, if the account holds any penny stocks, broker-dealers must provide an account statement to the customer monthly.
A customer of a broker-dealer holding two penny stocks in her account, purchased on unsolicited trades, should expect to receive an account statement how frequently? A) Annually B) Monthly C) Only months when a penny stock transaction has occurred D) Quarterly
B) the Code of Arbitration (COA) The Code of Arbitration (COA) governs the resolution of disagreements and claims between members, registered representatives, and the public; it addresses monetary claims. Written complaints may come in any form, including instant messages, tweets, texts, and emails.
A customer submits a written complaint disputing monetary charges assessed against an account held at a member broker-dealer. Resolution of this complaint will take place by A) the Uniform Practice Code (UPC). B) the Code of Arbitration (COA). C) the Code of Procedure (COP). D) the Conduct Rules.
B) in the event of death, the decedent's interest is distributed through the decedents estate Parties in accounts designated as joint tenants with right of survivorship (JTWROS) have survivorship rights, should any person in the account die; assets remain in the account as property of the survivors.
A married couple opens a new account as JTWROS. All of the following statements regarding this account are true except A) if certificates are requested, they must contain the names of both parties. B) in the event of death, the decedent's interest is distributed through the decedent's estate. C) mail may be sent to either party with the permission of the other party. D) orders may be given by either party.
C) jail sentenced for directors and officers A broker-dealer found to be noncompliant with an SEC rule or regulation may be subject to the following: censure; limits on activities, functions, or operations; suspension of its registration (or one of its associated person's license to do business); revocation of its registration; or monetary fines. Jail sentences can only be assessed in a criminal prosecution.
A member firm broker-dealer is found to be in violation of a Securities and Exchange Commission (SEC) federal regulation and could be subject to all of the following except A) limits on activities the firm may participate in. B) revocation of the firm's registration. C) jail sentences for directors and officers. D) monetary fines. Explanation A broker-dealer found to be noncompliant with an SEC rule or regulation may be subject to the following: censure; limits on activities, functions, or operations; suspension of its registration (or one of its associated person's license to do business); revocation of its registration; or monetary fines. Jail sentences can only be assessed in a criminal prosecutio
B) 196.98 shares Mutual funds can issue fractional shares. This is an advantage for those who invest in mutual funds because they can think in terms of the dollars they want to invest rather than in the numbers of shares they want to purchase. Wanting to invest $3,000 at the current price of $15.23 allows 196.98 shares to be purchased ($3,000 ÷ $15.23 = 196.98 shares).
A mutual fund's public offering price is $15.23. An investor who wishes to invest $3,000 in the fund will purchase how many shares? A) Must purchase some multiple of 100 shares B) 196.98 shares C) 197 shares and be billed for an additional $0.31 D) 196 shares and receive $14.92 in change
D) an acceptable practice A private securities transaction is any sale of securities outside an associated person's regular business and his employing member. Private securities transactions are also known as selling away. However, in this example, the representative simply directed the customer to a firm that could handle the customer's request. As long as the representative recieved no compensation for this activity, the recommendation to go to another firm does not violate any industry regulation.
A registered representative has a customer who is interested in using options strategies such as spreads and straddles. The registered representative's firm does not offer options transactions as part of their existing business model. As such, the registered representative directs the customer to another broker-dealer that allows for option trading. This is A) an example of selling away. B) an example of placing away. C) a private securities transaction. D) an acceptable practice
D) firm element requirement FINRA's firm element requirements mandate that member firms prepare annual training programs that take into account such factors as recent regulatory developments, the scope of the member's business activities, the performance of its personnel in FINRA's regulatory element training, and its supervisory needs. This annual in-house training must be given to all registered persons who have direct contact with the public
A registered representative is required to participate in an annual training plan prepared by the broker-dealer, which takes into account—among other things—recent regulatory developments, the scope of the broker-dealer's business activities, and its supervisory needs to comply with FINRA's A) regulatory element requirement. B) Uniform Practice Code. C) arbitration rules. D) firm element requirement.
C) the performance of the separate account A key feature of the variable annuity is that the premium is invested into the insurance company's separate account rather than the general account. It is the performance of the separate account that provides the annuity's investment return each month. There are no guarantees as to the separate account performance or return each month.
A variable annuity's investment return each month is based on A) the contracts stated guaranteed monthly return. B) the assumed interest rate stated in the contract. C) the performance of the separate account. D) the performance of the insurance company's general account.
C) corporate accounts Sole proprietorship accounts, partnership accounts, and limited liability companies are not incorporated. Corporations are incorporated.
All of the following accounts are for unincorporated businesses except A) sole proprietorship accounts. B) partnership accounts. C) corporate accounts. D) limited liability company accounts.
D) a repurchase agreement (REPO) APOs, IPOs, and SPOs all result in funds going to the issuer and are, therefore, issuer transactions. A REPO is a money market instrument where money changes hands between the buyer and the seller.
All of the following are issuer transactions where the proceeds of the offering go to the issuing company except A) a subsequent public offering (SPO). B) an initial public offering (IPO). C) an additional public offering (APO). D) a repurchase agreement (REPO).
B) they are registered as investment companies REITs have many similarities to investment companies but are not classified as an investment company under the Investment Company Act of 1940.
All of the following are true of REITs except A) they can be registered under subchapter M. B) they are registered as investment companies. C) they can pass through gains but not losses. D) listed REITS are liquid investments.
D) its primary purpose is to avoid estate taxes for the grantor In a revocable living trust the grantor has complete control over the trust while alive, and because of this, the grantor is also subject to any tax implications of the trust.
All of the following are true of a revocable living trust except A) the grantor is subject to the tax consequences of the trust while alive. B) the grantor can remove items from the trust. C) the grantor can add items to the trust. D) its primary purpose is to avoid estate taxes for the grantor.
A) they track single stocks rather than hypothetical portfolios Indexes such as the DJIA or the S&P 500 are hypothetical portfolios, not single stocks. While there's no single standard or benchmark, an index can be used as a performance standard one can monitor and therefore judge the performance of a portfolio or investment against. When we refer to the stock market's performance in general, we are most likely referring to the performance of an index or average that tracks stocks or bonds. These benchmarks can serve as an indicator of the overall direction of the market as a whole, or the direction of individual market sectors.
All of the following are true regarding market indexes except A) they track single stocks rather than hypothetical portfolios. B) they are performance standards investors can monitor. C) they can be used to compare against the performance of one's portfolio. D) they can demonstrate the overall direction of the market.
C) a limited partnership Both general and limited partnerships pass through to investors (partners) a share in the income, gains, losses, deductions, and tax credits of the business entity. Limited partnerships shield the limited partners from liablility incurred by the partnership; general partners have no such protection.
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 while protecting the investors from liability is known as A) an option. B) a real estate investment trust (REIT). C) a limited partnership. D) a general partnership.
B) 300 shares at $10 per share The position's net value will always remain unchanged before and after any split adjustment. In this case, 100 shares × $30 = $3,000. For an even stock split, the number of shares increases by the split ratio. Here, given a 3:1 split, 100 shares becomes 300 shares. Because we know the net value must be unchanged, we divide $3,000 by the new number of shares to calculate the new price per share ($3,000 ÷ 300 shares) of $10.
An investor has the following position in MES stock: 100 shares at $30. After a 3:1 stock split, this investor will have A) 200 shares at $15 per share. B) 300 shares at $10 per share. C) 100 shares at $90 per share. D) 300 shares at $30 per share
C) a serial bond Bond maturities come in different types: term, serial, and balloon (there is no series maturity bond). A serial maturity is one where the issuer is scheduled to repay portions of the principal at intervals over a period of years until the entire balance has been repaid
An investor holds a bond where the issuer is scheduled to repay the borrowed principal at intervals over a number of years. This investor is holding A) a balloon bond. B) a term bond. C) a serial bond. D) a series bond.
B) a wash sale, and taking the loss is prohibited Quickly repurchasing a security that was just sold for a loss is recognized as having the intention to take advantage of the loss for tax purposes but not lose the income or potential for future gains from the security. This is known as a wash sale and taking the loss is prohibited. For the loss to be allowed, the investor must wait at least 30 days before repurchase. Matched orders, pegging, and supporting are all prohibited activities meant to manipulate stock prices.
An investor notices that a bond originally bought at 95 some years ago is now trading at a price of 88. The investor sells the bond, then buys it back the next day for 88.5 with the intention of declaring a loss from the original purchase and sale on this year's tax return. This would be known as A) pegging and is taking the loss allowed. B) a wash sale, and taking the loss is prohibited. C) matched orders, and taking the loss is prohibited. D) supporting, and taking the loss is allowed.
B) a $25 capital loss
An investor purchased an MJS Corporation 6% 20-year bond at issue for $950. Two years later, the investor sold the bond for $925. This investor experienced A) a $925 return on investment. B) a $25 capital loss. C) a $25 interest loss. D) a $25 return on investment.
A) purchasing-power risk Long-term AAA rated bonds by definition have very low credit risk, but because they offer fixed income over an extended period, they subject their owner to inflation, or purchasing power, risk.
An investor who commits a sizable portion of her portfolio to long-term AAA rated bonds would be exposing herself to A) purchasing-power risk. B) liquidity risk. C) less market risk than if the portfolio were invested in money market instruments. D) uncertainty about the ability of the issuer to make timely payments of interest and principal.
B) They will be involved in extensive fundraising activities for a charitable institution. If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must provide prior written notice to the member. These affiliations would include serving as an officer or director of a company or owning any interest in another financial services company.
Associated persons or registered representatives who want to work outside of their existing employment with their current broker-dealer may do so if they provide prior written notice to the member. In which of the following would notice not be required? A) They intend to serve only in the capacity of a director of another company with no compensation. B) They will be involved in extensive fundraising activities for a charitable institution. C) The amount of total compensation expected from the outside employer is less than $7,500 per year. D) Ownership equaling 5% interest in another financial services company is intended to be made.
D) being charged with a non-securities-related misdemeanor Only misdemeanor convictions (not a charge) involving securities, money, or investments would lead to automatic disqualification.
Automatic disqualification for an individual to be registered in the securities industry would not include A) being under an SEC order to be barred from associating with a broker-dealer. B) having been found to enter a misstatement in the application for membership. C) having been found as the cause of another associated person's suspension. D) being charged with a non-securities-related misdemeanor.
B) Securities Investor Protection Corporation (SIPC) Depending on their lines of business, broker-dealers are subject to a variety of regulatory bodies, such as FINRA, the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), state administrators, and others. Those broker-dealers that have a municipal securities line of business must comply with Municipal Securities Rule Board (MSRB) rules which are enforced by FINRA. However, SIPC is not a regulatory body; rather it provides insurance protection for investors of failed broker-dealers.
Broker-dealers and registered representatives may be subject to each of the following administrative and regulatory bodies except A) state securities administrator. B) Securities Investor Protection Corporation (SIPC). C) NYSE. D) Financial Industry Regulatory Authority (FINRA).
A) systematic risk Risks that effect the markets as a whole are systematic risks. Nonsystematic and unsystematic are different terms for risks that apply to a specific issuer or issue. Universal risk is not a term used for securities risk.
Changes in the overall economy that negatively impact securities values are called A) systematic risk. B) universal risk. C) nonsystematic risk. D) unsystematic risk.
A) the annual income divided by the market price Current yield equals the coupon rate (annual income) divided by the current market price. This is a very common formula on the test.
Current yield equals A) the annual income divided by the market price. B) the market priced divided by the annual income. C) the par value divided by the stated rate. D) the stated rate divided by the par value.
A) Having no intrinsic value A put is out of the money when the price of the stock exceeds the strike price. An out-of-the-money option has no intrinsic value.
DRG Pharmaceuticals, Inc. common stock is currently trading at $52 a share. A put with a strike price of $50 a share would be described as which of the following? A) Having no intrinsic value B) Trading at the money C) Having $2 of intrinsic value D) Trading in the money
C) The employee's benefits and length of service requirements are explained in the plan disclosure documents. Defined benefit plans pay employees retirement income based on their length of service and career earnings. These plans typically vest over several years with all investment decisions being made by the employer. Retirement plan distribution payments are typically taxable, regardless of the retiree's age.
Defined benefit retirement plans offer which of the following features? A) Employees get to select their investment mix. B) Plan assets vest after 12 months. C) The employee's benefits and length of service requirements are explained in the plan disclosure documents. D) Retirement payments are tax free after age 59½.
A) Age 65 When opening a new account or updating account information for a senior citizen, firms must make a reasonable effort to obtain the name and contact information of a trusted contact person.
For a new customer opening an account, assuming there are no physical or mental impairments, what age would trigger the registered representative to request that the name of a trusted contact person for the account be given? A) Age 65 B) Age 18 C) Age 55 D) Age 21
A) They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less. No matter how much income individuals or couples receive, they may contribute to their IRAs if they have earned income. Each is entitled to contribute 100% of earned income up to the maximum allowed. However, if either or both of them are covered under a qualified plan, limits may exist on the deductibility of the contributions.
If a 40-year-old customer earns $65,000 a year and his 38-year-old spouse earns $40,000 a year, how much may they contribute to an individual retirement account (IRA)? A) They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less. B) They may contribute up to the maximum annual allowable dollar limit, split evenly between both accounts. C) They may not contribute because their combined income is too high. D) Only the higher wage earner may contribute to an IRA.
A) a cash account with limited power of attorney For a person other than the account owner to withdraw assets and make trading decisions, full power of attorney is required. A limited power of attorney allows someone other than the account owner to enter trades but not to withdraw assets.
If a customer wishes to open a cash account in their name only but allow a third party to make some of the trading decisions but take no other actions, they must instruct their broker-dealer to open A) a cash account with limited power of attorney. B) a limited joint tenancy account. C) a custodial account. D) a cash account with full power of attorney.
A) 100% To qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, a REIT must pass at least 90% of its net investment income on to the shareholder. In this case, it is distributing only 85% and must therefore pay taxes on all of its net investment income.
If a real estate investment trust (REIT) distributes 85% of its net investment income to shareholders, on how much of its net investment income must the trust pay taxes? A) 100% B) 85% C) Only on that portion not taxable to the shareholders D) 15%
A) depositing the entire amount of the trade by the settlement day In a cash account, 100% of the funds required to pay for a purchase must be deposited in the account by the settlement day. Funds are only required beforehand if the account is frozen.
In a cash account, an investor must pay for a purchase by A) depositing the entire amount of the trade by the settlement day. B) having at least 50% of the trade in the account. C) having the cash available in the account. D) depositing at least 50% of the purchase price by settlement.
C) preferred stock Remember that issuing equities is less risky than issuing debt because when issuing debt, the issuer is obligated to pay the creditor back! When issuing equities such as preferred stocks, the issuer has no obligation to ever pay any of the money back; therefore, it is less risky for the issuer.
In general, a corporation assumes the least risk when it obtains funds from the sale of A) zero coupons. B) debentures. C) preferred stock. D) secured bonds.
A) Johnson recommended a variable annuity to an individual who is looking for liquidity Suitability should be the concern when presenting variable annuities to people who desire liquidity. Annuities involve substantial charges and tax penalties for early withdrawal.
Janet Johnson, a registered representative and licensed insurance agent, meets in the home with a 50-year-old widower to discuss what to do with life insurance proceeds of his deceased spouse. The widower is apprehensive about liquidity. Johnson hands him a prospectus for a variable annuity and recommends the funds be conservatively invested in separate accounts within the annuity. Johnson takes time to carefully explain and illustrate a 6% gross return over a 20-year period and further explains that earnings will grow tax deferred. What did Johnson do wrong? A) Johnson recommended a variable annuity to an individual who is looking for liquidity. B) Nothing. Johnson made a careful, individualized presentation of a securities product. C) The separate accounts should have been presented as mutual funds. D) Johnson waited until the presentation to deliver the prospectus.
C) Sell 10 BST calls In order to generate an income with option, you must sell (write) the contract. Cash would be used to cover a short put, but against a long stock, you would sell (write) calls. This would be a covered call as the customer owns 1,000 shares and the 10 contracts would be for 1,000 shares (100 shares per contract).
Juan owns 1,000 shares of the big box retailer Buystuff, Inc. (Ticker: BSTF). He has owned the shares for 10 years and they have appreciated nicely. If Juan desires to generate income from the BSTF position, he could do which of the following? A) Sell 10 BSTF puts B) Buy 10 BSTF calls C) Sell 10 BSTF calls D) Buy 10 BSTF puts
C) states to provide municipalities a place to invest funds short term. LGIPs are established by states to provide other government entities, such as cities, counties, school districts, or other state agencies, with a short-term investment vehicle to invest funds.
Local government investment pools (LGIPs) are established by A) the federal government to provide municipalities a place to invest funds long term. B) local municipalities to allow states a place to invest funds short term. C) states to provide municipalities a place to invest funds short term. D) states to provide municipalities a place to invest funds long term.
D) a right to a dividend Shareholders of common stock have the privilege of receiving dividends if so declared by the board. The payment of a dividend is not a legal obligation of the corporation, so not a right. The right to inspect the books, vote on board members, and freely transfer shares are all rights granted to shareholders.
NuBuckle, Inc., is an established accessory maker that is listed on several major exchanges. If your client owns 200 shares of NuBuckle common shares, they have all of the following rights except A) a right to vote for who will serve on the board. B) a right to transfer their shares as they see fit. C) a right to inspect the books. D) a right to a dividend.
B) being in a depression The economy is in a recession when a decline in real output of goods and services, which can be measured by the gross domestic product (GDP), lasts for six months or more. It defines a depression, however, as a severe downturn lasting for six quarters (18 months) or more. When in a recessionary state or a depression, the economy is contracting. When the contraction ceases, the economy would then be in that part of the economic cycle, known as the trough.
Numbers measuring the output of goods and services have been declining for just under two years. The economy would be characterized as A) expanding. B) being in a depression. C) being just under the recessionary measurement threshold. D) being in an economic trough within the business cycle.
C) Currency and index options are cash settled in U.S. dollars When exercised, equity options are settled in the underlying security. This means that the underlying shares must be delivered by the short party assigned. However, when currency and index options are exercised, they are settled in cash. This means that U.S. dollars must be delivered by the short party assigned.
Regarding delivery for listed option contracts when exercised, which of the following is true? A) Currency and equity options are settled in the underlying security. B) Equity and index options are settled in U.S. dollars. C) Currency and index options are cash settled in U.S. dollars. D) Equity options are cash settled in U.S. dollars.
A) Warrants are sometimes bundles with other securities Rights are short term, given to existing shareholders, and allow the holder to purchase shares below current market value (not at a premium). By contrast, warrants are long term, can be bundled with other securities, and allow the owner to purchase shares at a price that is above the current market value at the time the warrants were issued.
Regarding stock rights and stock warrants, which of the following is true? A) Warrants are sometimes bundled with other securities. B) Rights cannot be sold in the open market and are only exercised once received. C) Rights are exercised to purchase shares at a premium above the security's price when issued. D) Warrants have a short-term subscription length (expiry).
C) The fourth market is for institutional investors and eliminates the need for brokers to act as intermediaries The third market, or Nasdaq Intermarket, is a trading market in which exchange-listed securities are traded in the OTC market. In the third market, brokers registered as OTC market makers are used to do the transactions. The fourth market is for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers. These transactions take place through ECNs.
Regarding the third and fourth markets, which of the following is true? A) The fourth market is for the trading of OTC issues only. B) The third market can be accessed through electronic communication networks (ECNs) only. C) The fourth market is for institutional investors and eliminates the need for brokers to act as intermediaries. D) The third market allows institutions to trade directly with each other.
A) not be required to retake her qualifying exams She has been away from her position with a member firm for less than two years; she is not required to retest. FINRA does not provide an allowance for full-time studies. She will need to complete a new U-4, but the number of changes are not relevant (unless there is a disqualifying event).
Registered Representative Jan Wu terminated her employment with her broker-dealer 18 months ago in order to return to school and complete a graduate degree in finance. She has completed her education and applies for a position with a new broker-dealer firm. She will A) not be required to retake her qualifying exams. B) be required to retake her qualifying exams because more than two years have passed since she sat for the exams. C) not be required to retake her exams because she was a full-time student, and there is no time limit for returning so long as the representative was a full-time student. D) be required to retake her qualifying exams because of the number of changes to her U-4.
D) the national and the firm's do-not-call registries and not call any number that appears on either list. The TCPA only refers to the national and the firm's DNC registries. It is unlawful to cold call any number that appears on either list.
Registered Representative Jim Terry recently purchased a list of potential investors and plans to begin to cold call them soon. In addition to the other rules of the TCPA of 1991, Jim needs to consult A) the national and the firm's do-not-call registries and not call any number that appears on both lists. B) the national and the state's do-not-call registries and not call any number that appears on either list. C) the national and the state's do-not-call registries and not call any number that appears on both lists. D) the national and the firm's do-not-call registries and not call any number that appears on either list.
A) one business day after the trade date An equity option trade settles the next business day (T+1).
Regular way settlement for the purchase of an equity option occurs A) one business day after the trade date. B) the same business day as the trade date. C) two business days after the trade date. D) three business days after the trade date.
A) FINRA within 10 days of use
Representative Gary Willikers recently passed his licensing exams and was hired by Seacoast Securities, Inc., a broker-dealer member firm. He was recommended to the position by his Uncle George, who has worked for the firm for over a decade. Gary would like to send out a mail advertisement to help generate new customers. In order to do this, Gary will need approval from a principal of the firm, and the communication must be filed with A) FINRA within 10 days of use. B) the SEC within 10 days of use. C) FINRA at least 10 days before use. D) FINRA at least 30 days before use.
C) Forever The membership agreement is an organizational document for a limited liability corporation (LLC), similar to a corporation's articles of incorporation. Although LLCs are not specifically mentioned in the LEM, organizational documents are discussed. The correct answer may be reached by a process of elimination and some intuitive thinking.
Seacoast Securities, LLC must maintain a copy of its membership agreement for how many years? A) Six years B) Four years C) Forever D) Three years
C) must be registered as a principal of the firm Anyone who manages or supervises any part of a member firm's investment banking or securities business must be registered as a principal with FINRA, including people involved solely in training associated persons.
Someone responsible only for training associated persons at a Financial Industry Regulatory Authority (FINRA) member firm A) need not hold any registration because training is the person's only function. B) need not be registered because training is considered administrative. C) must be registered as a principal of the firm. D) need only be registered as a registered representative.
B) 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.
Tax credits for partners in a real estate program can come primarily from A) any property with the potential to appreciate in value. B) government-assisted housing and historic rehabilitation properties. C) historic rehabilitation and any rent-producing properties. D) income-producing properties, both residential and retail.
B) the Investment Company Act of 1940 The Investment Company Act of 1940 classified investment companies into three types: face-amount certificate, unit investment trust, or management. The act required that they be registered with the SEC.
The federal act that requires registration with the Securities and Exchange Commission (SEC) as a face-amount certificate company, unit investment trust company, or management company is A) the Securities Act of 1933. B) the Investment Company Act of 1940. C) the Trust Indenture Act of 1939. D) the Securities Exchange Act of 1934.
B) all of the goods and services produced within the nation. A country's annual economic output, which is comprised of all of the goods and services produced within the nation, is known as its GDP.
The gross domestic product (GDP) for a country is best defined as A) all of the goods and services sold domestically. B) all of the goods and services produced within the nation. C) all of the goods and services exported to other countries for consumption. D) the difference between goods produced and services produced.
A) 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater Rule 144 allows the selling of 1% of the outstanding shares every three months or the average weekly trading volume of the last four weeks, whichever is greater.
The maximum amount of securities that may be sold by an insider within a three-month period under Rule 144 is A) 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater. B) 1% of the shares outstanding or the average weekly volume of trading in the previous eight weeks, whichever is the lesser. C) the average weekly volume of the previous eight weeks. D) 5% of the shares outstanding.
D) money laundering The Bank Secrecy Act established the U.S. Treasury Department as the lead agency for developing regulations in connection with anti-money laundering (AML) programs. Before September 11, 2001, money laundering rules were concerned mostly with the origin of the cash. The term money laundering was defined as the process of creating the appearance that money originally obtained from criminal activity, such as drug trafficking or terrorist activity, came from a legitimate source.
The process used to make money obtained from illegal activity appear to have been generated legally is called A) rehypothecation. B) liquidity. C) funds cleansing. D) money laundering.
A) a general obligation municipal bond This is a type of municipal bond called a double-barrel bond. Though revenue from ticket sales will be used to pay for the bond, ultimately, the cost of the bond may fall back on the taxpayer. That makes this a GO and is why, unlike a revenue bond, the issue had to be approved by the residents of Sandy Place in a vote.
The residents of the city of Sandy Place, California, recently voted in favor of issuing a bond. The proceeds of the bond will be used to build a baseball stadium for the local minor league baseball team. Though the bond's costs are expected to be covered by the ticket revenue from the stadium, the bond contains a provision that requires the city to pay the bond's interest payments as well as pay the principal at maturity if the ticket sales are insufficient. This bond is an example of A) a general obligation municipal bond. B) a revenue municipal bond. C) a mortgage bond. D) a senior debenture.
D) a limited partnership with partners as passive investors An investment company is not a limited partnership. Investment companies are organized as open-end companies (mutual funds), closed-end companies, unit investment trusts, or face-amount certificate companies.
Under the Investment Company Act of 1940, an investment company may take all of the following forms except A) a closed-end investment company. B) a unit investment trust. C) an open-end investment company. D) a limited partnership with partners as passive investors.
A) blue-chip stocks on margin A custodian may not purchase securities in an account on margin or pledge them as collateral for a loan.
Under the Uniform Transfers to Minors Act (UTMA), a custodian may invest in all of the following except A) blue-chip stocks on margin. B) non-investment grade (junk) bonds. C) mutual funds in growth shares. D) U.S. Treasury notes with less than one year to maturity.
D) Guaranteed life income Variable annuities will pay an income for the life of the annuitant if annuitized. Annuities are generally illiquid investments that grow tax deferred. The tax-deferred growth will be taxed on withdrawal, so it is not tax free. Qualified variable contracts are funded with pretax contributions, but these are limited to annual maximums similar to those found in 401(k) plans.
Variable annuities include which of the following attributes? A) Intraday liquidity B) Tax-free growth C) Unlimited pretax contributions D) Guaranteed life income
D) represents a return of capital invested ( principal) Cost basis at liquidation represents a return of capital and therefore is not taxed. Any amount above cost basis at that time is a capital gain. The gain (or loss) would be the difference between the amount invested and the sales proceeds.
When a security position is liquidated for a gain, cost basis A) represents the difference between capital invested and sales proceeds. B) is taxed as a capital gain. C) is taxed as ordinary income. D) represents a return of capital invested (principal).
B) A heavy equipment maker Heavy equipment is a cyclical industry, tending to move in tandem with the business cycle. Precious metals tend to be counter cyclical. Food and fuel are defensive industries.
Which of the following companies is in a cyclical industry? A) A gold mining company B) A heavy equipment maker C) A petroleum refiner D) A beverage bottler
A) Diversification Creating a diversified portfolio is a common way to reduce nonsystematic risk. Concentration is the opposite of diversification. Inflation is a measure of price increases. Stratification really doesn't apply here at all.
Which of the following is a common way to reduce nonsystematic risk? A) Diversification B) Stratification C) Inflation D) Concentration
D) Risk tolerance Financial considerations are those that may be defined by a lump sum of money or a stream of payments (like income, debt payments, or adjusted gross income). Risk tolerance is not defined this way and is a nonfinancial consideration.
Which of the following is a non financial consideration? A) Income B) Debt service C) Last year's AGI D) Risk tolerance
C) They are regulated under the Investment Company Act of 1940 Hedge funds are considered unregulated (not highly regulated). They employ strategies and invest in such a way that they are not considered suitable for anyone but accredited investors. These strategies might include utilizing derivative products, commodities and currencies, margin (borrowing) trading, and selling short.
Which of the following is not a characteristic associated with hedge funds? A) They can have highly leveraged portfolios. B) They might speculate in commodities and currencies. C) They are regulated under the Investment Company Act of 1940. D) They can invest in derivative products.
C) Education Form U4 does not inquire about a person's education, though the work history would include any time spent as a full-time student. The current residence is required as is a 10-year work history. A felony conviction within the prior 10 years must be disclosed.
Which of the following is not information required for Form U4? A) Work history B) Felony conviction C) Education D) Home address
D) A customer unconcerned about losses It would not be unusual to transfer money between people with the same last name because they are presumably family members. However, substantial movement between accounts that are not related would be suspicious, as would customers not caring about losses. It might be because they are laundering money. Concern about substantial commissions is healthy. Transactions that alone, or in the aggregate, involve at least $5,000 in funds that appear to serve no business or lawful purpose would be considered suspicious.
Which of the following may be considered suspicious? A) Moving large sums of money between accounts with the same last names B) Transactions that alone, or in the aggregate, involve at least $2,000 C) A client expressing undue concern about substantial commissions being charged to the account D) A customer unconcerned about losses
C) A brokerage report shows the security is properly valued Brokerage reports may not be distributed while a security is in registration. Expected dates for pricing and road shows (due diligence meetings) may be communicated to potential buyers. The underwriters are named in the issue's registration statement.
Which of the following may not be disclosed to a potential buyer while a security is in registration? A) The issue is expected to be priced early June. B) There will be a road show in NYC in May. C) A brokerage report shows the security is properly valued. D) The issue is being offered through ABC Investment Bank.
A) Class A Class A shares, also known as front-end load shares, have an up-front sales charge that is usually subject to breakpoints. They have no back-end load and are sold with low or no 12b-1 fees and lower operating expenses.
Which of the following mutual fund share classes has no back-end load, lower operating expenses, and low or no 12b-1 fees? A) Class A B) Class C upon conversion to Class B C) Class B D) Class C
A) A Rule 147 Offering Intrastate offerings are done under a Rule 147 exemption. Regulation S offerings are used for offshore transactions and Regulation A offerings may be offered nationally.
Which of the following offering types would be used for a deal that will be sold exclusively to residents of one state? A) A Rule 147 offering B) A Regulation A offering C) A Regulation S offering D) A Rule 144 offering
B) The grandparent of a member broker-dealer employee Those restricted from making purchases of an IPO at the public offering price include member firm employees and their immediate family members, as well as fiduciaries acting on behalf of the underwriters or issuer. While immediate family members include parents, in-laws, spouses, siblings, children, or any other individual to whom the person provides material support, aunts and uncles, as well as grandparents, are not considered immediate family members.
Which of the following persons would be allowed to purchase shares of an initial public offering (IPO)? A) An attorney acting on behalf of the managing underwriter B) The grandparent of a member broker-dealer employee C) The father of a member broker-dealer employee D) Someone owning 15% of a member broker-dealer
C) The maximum contribution varies state to state The features of Section 529 plans, including their contribution limits and fees, vary widely from state to state. Section 529 plans have no age limits as to participation; they are open to both children and adults who plan to attend college or graduate school. For college savings plans, there is no state residency requirement for owners or beneficiaries of Section 529 plans.
Which of the following statements describing Section 529 plans is true? A) Most state college savings plans require either the owner or the beneficiary of the plan to be a state resident. B) They can only be opened for children under age 18. C) The maximum contribution varies from state to state. D) The fees associated with them are similar from state to state.
D) Municipalities, the federal government, and corporations can raise funds in the capital markets Capital markets are a source of financing for corporations, municipalities, and governments
Which of the following statements is true? A) Only municipalities can raise funds in the capital markets. B) Only the federal government and municipalities can raise funds in the capital markets. C) Only corporations can raise funds in the capital markets. D) Municipalities, the federal government, and corporations can raise funds in the capital markets.
B) Collateral trust certificate Collateral trust bonds or certificates are issued by corporations that own securities of other companies as investments. The certificates are secured by a pledge of those securities as collateral.
Which of the following terms best describes a corporate debt instrument secured by a pledge by the issuer of property that consists of stocks or bonds of other corporations? A) Debenture B) Collateral trust certificate C) Unit investment trust D) Equipment trust certificate
C) A registered representative buys and sells the same security for a customer three times during a single day Without further information, it would seem likely that trading the same security three times in one day would be viewed as excessive trading. Purchasing the incorrect amount, commingling and front running are prohibited practices, but are not classified as churning (excessive transactions).
Which of the following would be considered excessive transactions? A) A customer orders 100 shares. The registered representative places an order for him for 200 shares. B) A customer orders 5,000 shares of an over-the-counter (OTC) stock. The registered representative orders 100 shares for himself before placing the customer's order. C) A registered representative buys and sells the same security for a customer three times during a single day D) A registered representative places a customer's securities into the firm's investment account.
B) Discussing the advantages of day trading with an existing client to generate more business for you and your firm Discussions with individuals who are not clients of the firm and discussions that are not regarding investments are not considered a recommendation. Suggesting a particular strategy with an existing client is recommendation.
Which of the following would be recommendations? A) Discussing the advantages of your firm over another firm with a prospective client B) Discussing the advantages of day trading with an existing client to generate more business for you and your firm C) Discussing the pros and cons of noninvestment products and services with a prospective client D) Discussing the pros and cons of a variety of account types and registrations with a prospective client
B) introduces its business to a clearing agent Fully disclosed firms introduce their business to clearing firms. Thus, a fully disclosed firm is also known as an introducing broker-dealer. Introducing broker-dealers cannot hold customer funds or securities, nor can they perform as their own back office, or clear, process, and settle transactions. All of these functions would be performed by the carrying (clearing) firm.
Your broker-dealer is a fully disclosed firm. This means that it A) accepts customer funds to be held at the broker-dealer. B) introduces its business to a clearing agent. C) acts as its own back office, performing all functions such as sending out customer statements. D) holds customer securities at the broker-dealer.
B) Buy limit at $20 The buy limit is the best order to fulfill her request to buy the shares for no more than $20 a share. A sell order would sell shares, not buy. The buy stop order cannot be entered when the stock is already above the stop price.
Your customer is interested in Sierra Verde Coffee Company stock, which is currently trading at $22 a share. She would like to buy 400 shares, but not for more than $20 a share. Which order best meets her request? A) Sell limit at $20 B) Buy limit at $20 C) Sell stop at $20 D) Buy stop at $20
B) bullish If a customer thinks a business is going to grow, the customer's attitude is bullish. Someone who is optimistic about the direction or growth of a company is bullish.
Your customer is very excited about Cavendish Carousel Corp., a maker of amusement park rides. He believes that the company is poised to grow in the next several years. His market attitude is described as A) optimistic. B) bullish. C) bearish. D) bovinian.
D) $1,500 The minimum initial deposit under FINRA rules is 100% or $2,000, whichever is less. Reg T requires 50%. The higher requirement of the two is the FINRA requirement of $1,500 (100% of the trade if the trade is less than $2,000).
Your customer purchased 100 shares of Cuesta Verde Homes at $15 per share in a margin account. How much must the customer deposit by settlement day to pay for the trade? A) $750 B) $2,000 C) $2,500 D) $1,500
D) a short-term capital gain Profits from securities transactions are reportable as capital gains, not ordinary income. Only for assets held for more than one year can the gain be reportable at the more favorable long-term capital gain rate. Here, the securities were only held for approximately six months.
Your customer purchased MAS stock in September and sold it in the next year in February for a profit. This profit will be reported for tax purposes as A) long-term ordinary income. B) a long-term capital gain. C) short-term ordinary income. D) a short-term capital gain.
B) a decrease in the value of the U.S. dollar versus the Eurodollar may increase what the car will cost her. If the U.S. dollar declines in value to the Eurodollar (Italy uses the Eurodollar), then the cost of the car in U.S. dollars (the money your customer uses) will increase. All of the other statements are incorrect.
Your customer, Leticia Ryan, loves to drive fast cars. She has been considering purchasing a very fast car from an Italian automaker. Recently, she read that changes in the dollar might impact what she will pay for the car. She asks you to help her understand and you explain to her that A) a decrease in the value of the U.S. dollar versus the Eurodollar may decrease what the car will cost her. B) a decrease in the value of the U.S. dollar versus the Eurodollar may increase what the car will cost her. C) changes in the U.S. dollar versus the Eurodollar will have no effect on the price of her imported car. D) an increase in the value of the U.S. dollar versus the Eurodollar may increase what the car will cost her.
D) B shares B shares are also called back-end loads. The back-end load gets smaller over a holding period of five to seven years, eventually dropping to zero. B shares are good for small dollar investors with long time frames. A shares have front-end loads that can be reduced with larger investments, which is not best for this customer who is limited to the maximum amount allowed for an IRA contribution. C shares are level loads that are best for investors with short time frames but not good for a younger person saving for retirement. I shares are only available to institutional customers and are not tested.
Your customer, Maya Jenyer, is 27 years old and in the 20% federal income tax bracket. She is interested in opening a Roth IRA as a supplement to her retirement savings. Her intention is to place the entirety of her contribution into the Windmill Growth Fund, which offers a choice of share classes. Which share class would likely be best for this customer? A) C shares B) A shares C) I shares D) B shares B shares
A) $1 million or had an annual income greater than $300,000 in each of the two most recent years. An accredited investor is defined as someone having a net worth greater than $1 million or an annual income greater than $200,000 in each of the two most recent years. If a joint purchase, the income requirement rises to $300,000.
Your customers, Frank and Gracia Chen, are considering investing in a private placement to add to their portfolio. They mention they are accredited investors. If accurate, they have a net worth of at least A) $1 million or had an annual income greater than $300,000 in each of the two most recent years. B) $5 million or had an annual income of at least $100,000 in each of the five most recent years. C) $1 million or had an annual income of at least $200,000 in the past year. D) $1 million or had an annual income greater than $200,000 in each of the two most recent years.
