SIE missed questions UPDATED
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 holding company. B) a direct participation program. C) a market maker. D) a clearing corporation.
C, 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.
In order to receive a declared dividend a shareholder must be an owner of record at the close of business on the A) payable date. B) ex-dividend date. C) record date. D) declaration date.
C, Shareholders must be owners of the stock on or before the record date in order to receive the current dividend.
Which of the following is true for U.S. Treasury-issued securities? A) T-notes and T-bills pay interest annually. B) T-notes are purchased at a discount to par, while T-bonds are purchased as a percentage of par. C) T-bills are purchased at a discount, while T- bonds are purchased as a percentage of par. D) T-bills and T-bonds pay interest semiannually.
C, T-bills are purchased at a discount, while T- bonds and T-note are purchased as a percentage of par. T-notes and T-bonds pay interest semiannually, but interest on T-bills is not paid until maturity (the difference between the discount paid and par value received).
Records of original entry must be recorded no later than the next business day and must be kept readily available for A) four years. B) three years. C) two years. D) six years.
C, The records must be maintained for a period of six years but must be readily available for two years.
The Investment Company Act of 1940 classified all the following as investment companies except A) management companies. B) unit investment trusts. C) private investment companies. D) face-amount certificates.
C, The three classifications established under the Investment Company Act of 1940 are face-amount certificates, unit investment trusts, and management companies (open and closed-end funds). Private investment companies do not come under the Act of 1940.
Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer? A) Open cash account for six months or more B) Signed risk disclosure statement C) At least three separate penny stock purchases D) Signed transaction agreement
C, Under penny stock rules, investors are established customers if they have deposited funds or securities in an account for at least one year before the penny stock transaction, or have purchased at least three different penny stocks from the same broker-dealer.
All of the following would require that updated account information be sent to the customer for confirmation within 30 days except A) the customer informs the firm of a change in investment objectives. B) the account is a newly opened one. C) the account records system has been changed to a new format. D) 36 months have passed since the account was opened.
C, Updated account information must be sent to the customer with 30 days for confirmation upon the opening of the account, at least once every 36 months thereafter, and in the event of the customer notifying the firm of changes in any information shown or listed on the account form.
All of the following terms and phrases are associated with the sell side of the contract except A) has an obligation. B) lose the premium if the contract expires. C) receives the premium. D) writes the contract.
B, The buyer of the contract pays the premium and loses it if the contract expires. The seller receives the premium and keeps it if the contract expires. The buyer has a right to exercise the contract. The seller has an obligation if the buyer decides to exercise. Buyer, holder, owner, and long all mean the same thing. Seller, short, and writer all mean the same thing.
The coupon rate on a debt security represents A) the interest rate the investor has agreed to pay the issuer. B) the interest rate the issuer has agreed to pay the investor. C) the principal amount due to the investor at maturity. D) the principal amount loaned to the issuer.
B, The coupon rate on a debt security represents the interest rate the issuer has agreed to pay the investor for use of the funds loaned to the issuer.
All of the following would be included in the expense ratio of a fund except A) salaries and administrative fees. B) front-end or back-end load. C) 12b-1 fee. D) portfolio management fee.
B, The expense ratio includes ongoing operating expenses but not sales charges. A front- or back-end load is a sales charge.
Which of the following are municipal securities? A) Coverdale Saving Plans B) UGMA Saving Accounts C) UTMA Saving Accounts D) 529 Savings Plans
D, 529 plans are established by each individual state—therefore they are municipal issues.
Which of the following best describes how a buy stop @ 39 would fill? A) The next price below 39 after the market price falls to 39 B) The next price above 39 after the market price rises to 39 C) The next available price after the market price falls to 39 D) The next available price after the market price rises to 39
D, A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.
Your customer opens a position at 45 and then closes it later at 47. This represents A) a 2-point gain. B) a 2-point loss. C) a 47-point gain. D) a 2-point gain or loss.
D, 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).
A corporation needs to build a new manufacturing facility costing several hundred million dollars. In which of the following markets could this new capital be raised? A) Secondary market B) Government bond market C) Municipal bond market D) Capital market
D, Capital markets are a source of financing for corporations, municipalities, and governments. Capital can be raised by issuing equities or debt and offering the securities to investors in an initial public offering (IPO) or an additional public offering (APO). Note that bonds might be issued by a municipality or the federal government to raise money, but corporations (as noted in this question) do not issue government bonds, either federal or municipal.
Which of the following statements is correct concerning currency risk when investing in an American depository receipt (ADR)? A) Currency risk is still a factor when purchasing an ADR. B) U.S. investors are protected from currency risk by the depositary bank. C) Currency risk is eliminated because the securities are dollar denominated. D) U.S. investors are protected from currency risk by the underlying foreign corporation.
A, ADRs are issued and pay dividends in U.S. dollars eliminating the complications of currency conversion. However, ADRs are still subject to currency risk. Why? The company pays dividends in its home currency, and the issuing bank pays out those dividends in U.S. dollars. When the exchange rate changes, the amount these dividends (in U.S. dollar terms) will fluctuate as well. Also, the value of the ADR itself will rise and fall with the value of the underlying foreign stock which is partially due to currency swings.
John Bourne places a buy limit order at 42 when the market price of the stock is at 45. Which of the following best describes how the order would fill? A) The order can only be filled at a price of 42 or lower. B) The order would be filled immediately because the market price is already above 42. C) The order would be filled between when the stock price is between 42 and 45. D) The order would be filled at the next available price after the stock price drops to 42.
A, Buy limit orders are placed below the current market price and fill at the stated price or lower.
In a reverse split, what happens to the cost basis and number of shares? I. The cost basis goes up. II. The number of shares goes down. III. The cost basis goes down. IV. The number of shares goes up. A) I and II B) II and III C) I and IV D) III and IV
A, For reverse splits the price goes up and the number of shares goes down.
In a real estate limited partnership (DPP), the general partner has A) unlimited liability and an active role. B) unlimited liability and a passive role. C) limited liability and a passive role. D) limited liability and an active role.
A, In limited partnerships, whether real estate or other types, the general partner is the active partner managing the business and taking on unlimited liability.
What is the intrinsic value of an XYZ 40 call sold at a premium of 3 when the current market value of XYZ is at 30? A) $0 B) $7 C) -$7 D) -$10
A, Intrinsic value is the amount that a contract is in the money. The premium of the contract is not a factor. All calls are in the money when the market value of the stock is above the strike price.
Money market instruments are typically A) fixed-income (debt) securities with short-term maturities. B) equity securities with short- to intermediate-term maturities. C) fixed-income (debt) securities with short- to intermediate-term maturities. D) equity securities with short-term maturities.
A, Money market instruments are fixed-income (debt) securities with short-term maturities, typically one year or less.
A tombstone announcement may contain all of the following except A) an offer to sell the securities. B) type of security. C) number of shares offered. D) names of the underwriters.
A, No offer to sell can be made with a tombstone announcement. A tombstone is just information that an offer is coming to the market.
John and Tara Bourne have two children, Henry and Avery, who they want to set up custodial accounts for. Which of the registrations of the accounts are allowed? A) John Bourne custodian for Henry Bourne B) John Bourne custodian for Henry and Avery Bourne C) John and Tara Bourne custodians for Henry and Avery Bourne D) John and Tara Bourne custodians for Avery Bourne
A, Only one adult and one minor are allowed on each account.
Which of the following are true of nonqualified plans but not true of qualified plans? I. Contributions are not tax deductible II. Contributions are tax deductible III. Plan needs IRS approval IV. Plan does not need IRS approval A) I and IV B) II and III C) II and IV D) I and III
A, Qualified plans require IRS approval and the contributions are tax deductible. Because nonqualified plans' contributions are not deductible they do not require IRS approval.
Firms must file a SAR within how many days of becoming aware of a suspicious transaction? A) 30 days, and they are required to notify the customer involved that a report has been filed B) 10 days, and they are prohibited from notifying the customer involved that a report has been filed C) 30 days, and they are prohibited from notifying the customer involved that a report has been filed D) 10 days, and they are required to notify the customer involved that a report has been filed
C, A SAR must be filed within 30 days of becoming aware of the suspicious activity, and firms are prohibited from notifying the customer involved that a report has been filed.
All of the following are taxable to the investor except A) capital gains distributions. B) semiannual interest payments. C) stock dividends. D) cash dividends.
C, 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.
A deficit in the U.S. balance of payments can occur if I. interest rates in foreign countries are higher than U.S. domestic rates. II. interest rates in foreign countries are lower than U.S. domestic rates. III. U.S. consumers are purchasing (importing) foreign goods. Iv. foreign consumers are purchasing (importing) U.S. goods. A) I and IV B) II and III C) I and III D) II and IV
C, Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets.
Which of the following settlement arrangements has trade and settlement occurring on the same day? A) Buyer's option B) Regular way settlement C) Cash settlement D) Seller's option
C, If both parties to the trade agree, and if the buyer has the cash on hand and the seller has the securities on hand, trade and settlement can take place on the same day. This is known as cash settlement.
Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is true? A) All reduce investor returns because they reduce the amount of money available for the fund to invest. B) Only management fees and operating expenses reduce investor returns by reducing the amount of money available for the fund to invest. C) Sales loads increase investor returns because they are received by the fund increasing the amount they have to invest. D) All increase investor returns because each is received by the fund increasing the amount they have to invest.
A, Sales loads go to the underwriters or broker-dealers selling the shares for the fund. Therefore, they are subtracted from the dollars invested and in that light reduce possible returns for investors. Management fees and operating expenses are ongoing costs to the fund and, therefore, reduce the dollars that can be invested, again reducing potential returns.
An allowable deduction to compensate for decreasing natural resources in an oil and gas DPP are known as A) depletion allowances. B) tax credits. C) depreciation deductions. D) deductions for IDCs.
A, Tax deductions that compensate an oil and gas program for the decreasing supply of the resource after it is taken out of the ground and sold are known as depletion allowances.
A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer's name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover A) the entire $565,000. B) $250,000 for the savings and checking accounts and $100,000 for the custodial account. C) $225,000 for the savings account, $100,000 for the custodial account, and nothing for the checking account. D) a total of $250,000, divided proportionately among the three accounts.
A, The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank. Each account listed (savings, checking, and custodial) is a separate ownership category under FDIC rules, so all the money in each of them is covered.
Which of the following regulatory bodies regulates but has no enforcement powers? A) Municipal Securities Rule Board (MSRB) B) Financial Industry Regulatory Authority (FINRA) C) Securities and Exchange Commission (SEC) D) Chicago Board Options Exchange (CBOE)
A, The MSRB regulates all matters related to the underwriting and trading of state and municipal securities. While they have the authority to write the MSRB rules and regulations, they have no enforcement powers.
A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm? A) Clearing/carrying B) Introducing/fully disclosed C) Market making D) Prime/executing
B, A fully disclosed introducing broker-dealer is what the word implies—it introduces its customers to a clearing firm. Clearing firms (often referred to as carrying firms) hold their customer's funds and securities as well as those of their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office. Because the risk associated with holding customer funds and securities is not present, net capital requirements are much lower for introducing firms than they are for self-clearing or carrying broker-dealers.
Which of the following statements is correct concerning currency risk when investing in an American depository receipt (ADR)? A) U.S. investors are protected from currency risk by the depositary bank. B) Currency risk is still a factor when purchasing an ADR. C) U.S. investors are protected from currency risk by the underlying foreign corporation. D) Currency risk is eliminated because the securities are dollar denominated.
B, ADRs are issued and pay dividends in U.S. dollars eliminating the complications of currency conversion. However, ADRs are still subject to currency risk. Why? The company pays dividends in its home currency, and the issuing bank pays out those dividends in U.S. dollars. When the exchange rate changes, the amount these dividends (in U.S. dollar terms) will fluctuate as well. Also, the value of the ADR itself will rise and fall with the value of the underlying foreign stock which is partially due to currency swings.
Carrying firms may not A) clear and settle transactions for their customers. B) mix customer funds and securities with their own. C) send trade confirmations and statements to customers. D) execute transactions for their customers.
B, Carrying firms can do trade executions, clear and settle transactions, and handle all back-office tasks, such as sending trade confirmations and statements. While they can take custody of customer funds and securities, they may not commingle them with those belonging to the firm. Abiding by the rule is known as segregating customer funds and securities.
Companies in defensive industries would be the manufactures of A) fighter jets. B) pharmaceuticals. C) armored personnel carriers. D) automobiles.
B, Defensive industries are those that make products that are not as sensitive to economic cycles because people use the same amount of these products regardless of the condition of the economy. Other examples would be food and utilities.
All of the following are classifications of communications with the public except A) correspondence. B) sales literature. C) institutional communications. D) retail communications.
B, FINRA has three classifications of communication with the public. Correspondence is communication to 25 or fewer retail investors in a 30-day period. Retail communications is to more than 25 retail investors in a 30-day period. Institutional communication is going to banks, insurance companies, mutual funds, et cetera.
A put will have intrinsic value if, just before expiration, the price of the underlying stock is A) greater than the exercise price. B) less than the exercise price. C) anywhere near the exercise price, above or below. D) equal to the exercise price.
B, Put buyers are bearish. Puts have intrinsic value if the price of the underlying stock falls below the exercise price of the option, The client will be profitable if the price decline (below the strike) exceeds the amount of the premium paid. If the price of the stock rises above the exercise price or is the same as the exercise price, the put will expire worthless.
Continuing education requirements are a part of the securities industry's ongoing commitment to furthering the knowledge base for registered representatives. Which of the following CE requirements are needed by a registered rep? I. Blue-sky requirement II. Registration requirement III. Firm element training IV. Regulatory element training A) II and IV B) III and IV C) I and III D) I and II
B, Registered persons are required to participate in continuing education (CE) programs. The CE requirement has two components: a regulatory element and a firm element. Regulatory element requires that all registered persons complete a computer-based training session within 120 days of the person's second registration anniversary and every three years thereafter. Firm element requires member firms to prepare an annual training plan that takes into account such factors as recent regulatory developments, the scope of the member's business activities, the performance of its personnel in the regulatory element, and its supervisory needs.
An issuer has a subordinated debt issue outstanding. Which of the following is true? A) A subordinated debenture has a claim that is senior to all other debt issues and equity issues. B) A subordinated debenture has a claim that is junior to all other debt but senior to preferred stock. C) A subordinated debenture has a claim that is junior to all other debt issues. D) A subordinated debenture has a claim that is senior to all other debt and senior to common stock.
B, Subordinated debt (usually debentures) have a junior claim to all other debt issues but, like all debt, is senior to the claims of all equity holders, both preferred and common.
A company's management team has agreed to issue additional shares of common stock in part to provide an employee stock ownership plan. It is agreed the issuance of the stock is not urgent and can wait until more favorable market conditions exist. What type of registration is most suitable under these conditions? A) A shadow registration B) A shelf registration C) An employee stock ownership plan (ESOP) registration D) An expansion registration
B, The Securities Act of 1933 permits issuers to quickly raise money in the capital markets when needed or when market conditions are just right. For example, if a company files a shelf registration statement with the Commission, there is no intention to immediately sell the securities. However, when the right time arrives—either interest rates are at a likely low point or funds are needed to complete a project—the company can in essence, take the securities from the shelf without the delay of registering with the Securities and Exchange Commission (SEC), as that has already been done. Shelf registration (shelf offering) is available for both primary and secondary offerings.
All of the following regarding the firm element of a broker-dealer's continuing education (CE) requirement are true except A) it is applicable to both registered representatives and registered principals. B) it is prepared by Financial Industry Regulatory Authority (FINRA) for the member firm to administer. C) it must take into account the scope of the member firm's business. D) it comprises training for those who have direct contact with the public.
B, The firm element of a broker-dealer firm's continuing education (CE) requirement is prepared by the member firm. It comprises training for those personnel who have direct contact with the public, and it must be completed by all registered persons. Among other things, it must take into account the scope of the firm's business.
The spread a dealer makes is best described as A) none of these. B) the ask minus the bid. C) the total commission. D) the ask plus the bid.
B, The spread is what a dealer makes as a markup when he sells from his inventory if he buys at the bid and sells at the ask. A commission is charged in an agency transaction.
Treasury bills A) can be issued with initial maturities of 3, 12, 24, and 50 weeks. B) are issued at a discount without a stated interest rate. C) have the highest interest-rate risk of all Treasury securities. D) are always issued at a slight premium to par value.
B, Treasury bills are always issued at a discount, without a stated interest rate. Because of their short-term maturities, they have the lowest interest-rate risk for Treasury securities, not the highest. They are issued with maturities of 4, 13, 26, and 52 weeks.
In order for a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment, all of the following statements are correct except A) the agreement must be entered into before the termination of employment. B) there must be a contract in effect calling for these continuing commissions. C) it would be permissible to pay continuing commissions to a surviving spouse. D) earnings from referred business from existing clients would be eligible for payment.
D, Continuing commissions are permitted, but there is no requirement that they be offered. In order for a former registered representative to receive them, the terms must be spelled out in a contract entered into before termination. The contract may call for payment to heirs but cannot provide any compensation for business referred or introduced by an employee after that person ceases to be registered with the member.
Direct participation programs (DPPs) are set up A) to pass on taxable income only to the investors, but not losses. B) as tax-free investments with no potential write-offs. C) to be taxed directly, much like corporations are taxed. D) having the owners of the business liable for any taxes due.
D, DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability.
Which of the following would be recommendations? A) Discussing the advantages of you firm over another firm with a prospective client B) Discussing the pros and cons of a variety of products and services with a prospective client C) Discussing the pros and cons of a variety of account types and registrations with a prospective client D) Discussing the advantages of day trading with an existing client in order to generate more business for you and your firm
D, Discussions with individuals who are not clients where the firm and the registered representative are not receiving compensation is not considered a recommendation. Suggesting a particular strategy with an existing client is a recommendation.
Financial Industry Regulatory Authority (FINRA) requires that member firms provide at least how many names as emergency contacts as a part of their business continuity plan (BCP)? A) One B) Three C) One only if that person is a principal of the firm D) Two
D, 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. There rule requires that at least one of the contact persons be a registered principal. If a member designates a second emergency contact person who is not a registered principal, this person must be a member of senior management who has knowledge of the firm's operations. A member with only one associated person shall designate as a second emergency contact person from outside of the firm (e.g., the member's attorney, accountant, or clearing firm contact).
In the following situation, who would be guilty of insider trading? A company leaks some insider information to some key employees, but not the public. One of those employees tells his registered representative, and the registered representative tell another customer who trades on the information before it becomes public. I. The person at the company who leaked the information II. The employee who told the registered representative III. The registered representative IV. The customer who traded on the information A) I only B) I II and III C) I and IV D) I, II, III, IV
D, It is illegal to trade on insider information, but it is also illegal to disseminate the information if someone else trades on it.
Which of the following has the most liquidity risk? A) Treasury bonds B) Listed REITs C) Stocks listed on NASDAQ D) Limited partnerships
D, Limited partnerships are generally illiquid; the other options are actively traded securities.
An investor establishes the following position: Long 1 XYZ September 40 call at 2. Utilizing this position, the maximum potential gain for the investor is A) $40 per share. B) $42 per share. C) $38 per share. D) unlimited.
D, Long calls are bullish positions. The investor wants to see the stock go up in price. The maximum gain on a long call is unlimited because, in theory, the underlying stock's price can go to infinity and is, therefore, also unlimited.
The Federal Reserve Board (FRB) does all of the following except A) determine monetary policy. B) regulate and impact the money supply. C) supervise the printing of currency. D) enact fiscal policy.
D, The FRB determines monetary policy (not fiscal) and takes actions to implement its policies, including but not limited to regulating the U.S. money supply and supervising the printing of currency.
List the dates associated with dividend payment in their proper order. A) Record date, declaration date, ex-dividend date, pay date B) Declaration date, pay date, ex-dividend date, record date C) Declaration date, record date, ex-dividend date, pay date D) Declaration date, ex-dividend date, record date, pay date
D, The declaration date is the day the board of directors meets to declare the dividend. The ex-dividend date is the first day that a purchaser of the stock is too late to get the dividend. The record date is the day the shareholder must be on the records of the company to receive the dividend, and the checks are mailed on the pay date.
A corporate bankruptcy liquidation took place. Of the following—general creditors, secured bondholders, subordinated debenture holders, accrued taxes—who was paid first and who was paid last? A) Secured bondholders first, accrued taxes last B) General creditors first, secured bondholders last C) Secured bondholders first, general creditors last D) Accrued taxes first, subordinated bondholders last
D, The liquidation priority is as follows: taxes and wages first, followed by secured debt and then unsecured debt, including general creditors, then subordinated debt and then equity holders with preferred shareholders first, followed by common shareholders. Therefore, of those that are listed here, accrued taxes would be paid first, and subordinated bondholders last.
Which of the following are true of nonqualified plans but not true of qualified plans? A) All withdrawals are tax free. B) All withdrawals are taxable. C) The plan cannot discriminate. D) The plan may discriminate.
D, With qualified plans, all withdrawals are taxable and the plan cannot discriminate it has to be offered to all qualified employees. A nonqualified plan does not need to be offered to all qualified employees, and distributions above the cost basis are taxable.