SIE prac quiz part 2 (sec 10-12)

Which of the following points to a general decline in prices occurring during severe recessions and the unemployment rate is rising. A) Stagflation B) Stagnation C) Contraction D) Deflation

D Explanation Deflation is a general decline in prices. Deflation usually occurs during severe recessions when unemployment is on the rise.

Economists call mild, short-term contractions A) troughs. B) declines. C) depressions. D) recessions.

D Explanation Economists call mild, short-term contractions recessions. Longer, more severe contractions are depressions.

The consumer price index is a measure of A) the change in bond yields. B) the change in the value of equities. C) the change in economic output. D) the change in prices.

D Explanation The consumer price index is a measure of the prices of goods. When compared over time, if the prices are increasing, the economy is experiencing inflation. If the prices are decreasing, the economy is experiencing deflation.

Which regulatory body oversees trading in the over-the-counter (OTC) market? A) Securities and Exchange Commission (SEC) B) New York Stock Exchange (NYSE) C) Municipal Securities Rule Board (MSRB) D) Financial Industry Regulatory Authority (FINRA)

D FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons. FINRA also regulates investment companies and limited partnership transactions.

Those industries that are least affected by normal business cycles are A) defensive industries. B) growth industries. C) cyclical industries. D) special situation.

A Defensive industries are least affected by normal business cycles. Companies in defensive industries produce nondurable consumer goods, such as food, pharmaceuticals, and tobacco or supply essential services such as those supplied by utility companies. Public consumption of such goods remains fairly steady throughout the business cycle.

All the following are coincident indicators except A) changes in durable goods inventories. B) trade sales. C) retail employment. D) personal income.

A Explanation Changes in durable goods inventories (whether an increase or decrease) is a leading economic indicator. Trade sales, retail employment, and personal income are all coincident indicators.

Rising employment due to an increase in demand for goods and services would be associated with periods of A) inflation. B) stagnation. C) stagflation. D) deflation.

A Explanation During inflationary periods, prices are rising due to a rising demand for goods and services. This will have the effect of creating more employment. Conversely, when the economy slows down, employment generally falls and claims for unemployment benefits will rise.

An expansion in the business cycle would be characterized by A) increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values. B) increase in want ads in newspapers and decrease in nonfarm jobs. C) increasing college enrollments and enlistment in military service. D) higher consumer debt and rising inventories.

A Explanation Expansions in the business cycle are characterized by increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values. Each of the remaining characterizations would more likely be associated with periods of contraction in the economic business cycle.

Which of the following can encourage economic growth because gradually increasing prices tend to stimulate business investment? A) Mild inflation B) Deflation C) Stagnation D) High inflation

A Explanation Inflation is a general increase in prices. Mild inflation encourages economic growth because gradually increasing prices stimulate business investment. High inflation reduces a dollar's buying power, which hurts the economy.

Financial Industry Regulatory Authority (FINRA)'s Conduct Rules are designed to promote A) fair and ethical trade practices when dealing with the public. B) settlement of disputes between member firms without resorting to the courts. C) uniform trade practices for firms to follow when dealing with other member firms. D) efficient and just handling of trade practice violations.

A Explanation The Conduct Rules specify trade practices that are fair and ethical when dealing with the public. Events that must be reported are also described.

Which of the following cannot enforce their own rules? A) MSRB B) FINRA C) SEC D) CBOE

A Explanation The MSRB relies on FINRA and the SEC to enforce its rules for broker-dealers, and banking regulators to enforce their rules for banks.

The Uniform Practice Code (UPC) establishes uniform trade practices pertaining to all of the following except A) communications with the public. B) settlement and ex-dates. C) good-delivery procedures. D) don't know (DK) procedures.

A Explanation The UPC established uniform trade practices and other guidelines for broker-dealers to follow when they do business with other member firms, including transaction settlement, good delivery, ex-dates, trade confirmations, and DK procedures.

Which of the following sets of FINRA rules focuses on fair dealing with the public? A) Conduct Rules B) Uniform Practice Code C) Code of Arbitration D) Code of Procedures

A The Conduct Rules deal with a broker-dealer's (and representative's) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers.

Each self-regulatory organization (SRO) functions under the Securities and Exchange Commission's (SEC's) oversight and is accountable to the commission for enforcing federal securities laws. While the Municipal Securities Rule Board (MSRB) regulates all matters related to the underwriting and trading of state and municipal securities, it does not have enforcement powers of its rules. Which of the following does the MSRB rely on for enforcement of these rules? A) Financial Industry Regulatory Authority (FINRA) B) Chicago Board Options Exchange (CBOE) C) Federal Deposit Insurance Corporation (FDIC) D) Securities and Exchange Commission (SEC)

A The MSRB regulates all matters related to the underwriting and trading of state and municipal securities but does not have enforcement powers. It depends on other SROs (e.g., FINRA) for the enforcement of its rules.

Which of the following is a lagging indicator? A) Raw materials orders B) Increase in the consumer loans to personal income ratio C) Decrease in industrial production D) Increase in hours worked

B Changes in the ratio of consumer installment credit to personal income is a lagging indicator. Changes in industrial production and hours worked are coincident indicators. Changes in raw materials orders is a leading indicator.

Which of the following is the largest self-regulating organization (SRO)? A) MSRB B) FINRA C) CBOE D) SEC

B Explanation All broker-dealers in the United States who deal in corporate securities are required to be members of FINRA. The SEC has jurisdiction over all securities business in the United States, but it is not an SRO.

Which segment of the business cycle would one expect to find rising interest rates and higher wages? A) Contraction B) Expansion C) Recession D) Trough

B Explanation Expansions in the business cycle are characterized by increasing consumer demand for goods and services and increasing industrial production. One would expect these increases to lead to rising interest rates as demands for loans for purchases increases and higher wages for workers as production increases.

Which of the following is a self-regulatory organization (SRO)? A) Securities and Exchange Commission (SEC) B) Financial Industry Regulatory Authority (FINRA) C) Federal Deposit Insurance Corporation (FDIC) D) Federal Reserve Board (FRB)

B Explanation FINRA is considered the primary SRO in the securities industry.

Which of the following is a leading indicator? A) Corporate profits B) New orders for consumer goods C) Gross domestic product D) Wages

B Explanation New orders for consumer goods is a leading indicator, foretelling future economic activity (the actual purchase of those goods). Wages and gross domestic product are coincident indicators. Corporate profits are lagging indicators.

Should a member firm or an associated person be found in violation of Financial Industry Regulatory Authority (FINRA)'s Conduct Rules, a number of sanctions may be imposed. However, under the Code of Procedure, FINRA may not A) bar an associated person from the industry forever. B) impose a prison sentence on the violator. C) censure the violator. D) issue a fine to a member firm or associate.

B Explanation Only a court can issue a prison sentence. Each of the remaining answer selections, bar, fine, and censure, are sanctions FINRA could impose under the Code of Procedure.

Which of the following sets of FINRA rules focuses on disputes in the industry and with customers who have filed a predispute agreement? A) Conduct Rules B) Code of Arbitration C) Uniform Practice Code D) Code of Procedures

B Explanation The Code of Arbitration covers disputes over money between representatives, member firms, banks, and customers.

According to the U.S. Commerce Department, the economy is in a depression when a decline in real output of goods and services lasts A) beyond 12 months (4 quarters). B) 18 months or more (6 quarters). C) 6 months or more (2 quarters). D) 9 months or more (3 quarters).

B Explanation The U.S. Commerce Department defines a depression as a decline in real output of goods and services lasting 18 months or more (6 quarters).

An analyst is trying to determine upcoming economic activity to better determine her recommended investment strategy. She would be most interested in A) coterminous indicators. B) leading indicators. C) coincident indicators. D) lagging indicators.

B Explanation When someone wants to know what future economic activity may be, she would be most interested in leading indicators. These indicators move in advance of economic activity. Coincident indicators move along with economic activity, and lagging indicators follow economic activity. There is no such thing as a coterminous indicator.

An associated person of a Financial Industry Regulatory Authority (FINRA) member firm has been found guilty of forging a customer's signature on a document relating to a securities transaction. Under the Code of Procedure, FINRA could impose any of the following sanctions except A) suspension from FINRA that might cause the person extreme hardship. B) imprisonment for a specified period. C) requiring the person to retake the licensing exam before resuming work. D) a fine far in excess of the amount involved in the transaction.

B FINRA does not have arrest or imprisonment authority, but in the event of a violation, FINRA may impose any fitting sanction on the guilty firm or associated person. Customary penalties include censure, suspension, expulsion, and fines, but FINRA is not limited to those. For example, taking the licensing exam is often imposed on associated persons found guilty of a violation.

The economy is showing that employment is low, there is little consumer demand, and loans for expansion and retooling are way down, showing a lack of business activity. Yet prices for consumer goods are still rising. Economists would call this a period of A) stagnation. B) stagflation. C) inflation. D) deflation.

B Inflation is characterized by a rise in prices for goods and services. Stagnation is characterized by high unemployment and lack of growth and business activity. When these occur simultaneously, economists refer to these times as periods of stagflation.

Which of the following regulatory bodies regulates but has no enforcement powers? A) Financial Industry Regulatory Authority (FINRA) B) Municipal Securities Rule Board (MSRB) C) Chicago Board Options Exchange (CBOE) D) Securities and Exchange Commission (SEC)

B 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.

Financial Industry Regulatory Authority (FINRA) staff must submit new rules and await approval from which of the following regulatory bodies prior to becoming effective? A) New York Stock Exchange (NYSE) B) Securities and Exchange Commission (SEC) C) Municipal Securities Rule Board (MSRB) D) Chicago Board Options Exchange (CBOE)

B The MSRB, NYSE, and CBOE are deemed self-regulatory organizations (SROs) and are on an equal footing with FINRA. All SROs must first petition the SEC for approval of a new rule.

Different degrees of inflation can impact the economy differently. Which of the following best reflects this? A) High inflation spurs the economy forward by increasing the demand for goods. B) Mild inflation can encourage growth and stimulate the economy. C) High inflation pushes prices to their highest levels, continuously pushing the economy higher. D) Mild inflation can thwart business investments and slow economic growth.

B While mild inflation can encourage economic growth because gradually increasing prices tend to stimulate business investments, high inflation pushes prices up, reducing the U.S. dollar's buying power. Ultimately, high inflation hurts the economy.

Economists refer to longer, more severe contractions in the economy as A) declines. B) depletions. C) depressions. D) recessions.

C Economists call mild, short-term contractions recessions while longer, more severe contractions are called depressions.

Recent reports indicate that the gross domestic product (GDP) has been declining steadily over the past two quarters. This would suggest A) a depression. B) an economic expansion. C) a recession. D) an inflationary period.

C Explanation A recession is defined as six consecutive months (two quarters) or more of economic decline. By contrast, a depression is six consecutive quarters of economic decline

Deflation occurs during A) a depression, coinciding with an economic trough in the business cycle. B) a depression, coinciding with economic expansion in the business cycle. C) a recession, coinciding with an economic contraction. D) a recession, coinciding with economic peaks.

C Explanation Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle.

Financial Industry Regulatory Authority (FINRA) regulates all matters related to investment banking, including A) trading in the futures markets. B) trading in commodities markets. C) trading in the over-the-counter (OTC) market. D) trading in fixed annuities.

C Explanation FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons.

If an arbitration agreement has not been signed, under which two of the following circumstances would a dispute between a Financial Industry Regulatory Authority (FINRA) member firm and a retail customer go to arbitration? 1. The dispute cannot otherwise be resolved to the satisfaction of both parties. 2. The customer requests that the dispute go to arbitration. 3. The amount under dispute is less than $50,000. 4. The FINRA director of arbitration so rules. A) I and III B) III and IV C) I and II D) II and IV

C Explanation Generally speaking, a broker-dealer firm has the customer sign a binding arbitration agreement before opening the account. In the absence of such an agreement, if a dispute cannot otherwise be resolved, the dispute can go to arbitration if the customer wishes it so.

Economic reports show that there is a general rise in prices for consumer goods and a high unemployment rate occurring simultaneously. This combination can best be described as A) deflation. B) inflation. C) stagflation. D) stagnation.

C Explanation Stagflation is the term used to describe the unusual combination of inflation (a rise in prices) and high unemployment (stagnation). This generally occurs when the economy isn't growing (there is a lack of consumer demand and business activity), yet prices for goods are still rising.

Which of the following sets of FINRA rules focuses on broker-dealers doing business with other broker-dealers? A) Code of Procedures B) Code of Arbitration C) Uniform Practice Code D) Conduct Rules

C Explanation The Conduct Rules deal with a broker-dealer's (and representative's) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers.

Which of the following entities considers appeals of decisions made in department of enforcement (DOE) actions? A) Federal Bureau of Investigation (FBI) B) Federal Reserve Board (FRB) C) The National Adjudicatory Council (NAC) D) Municipal Securities Regulatory Board (MSRB)

C Explanation The National Adjudicatory Council (NAC) hears appeals from DOE decisions. An NAC ruling may be appealed to the SEC, then to the appellate courts.

According to the U.S. Commerce Department, the economy is in a recession when a decline in real output of goods and services lasts A) 9 months or more. B) beyond 12 months. C) 6 months or more. D) 18 months or more.

C Explanation The U.S. Commerce Department defines a recession as a decline in real output of goods and services for six months or more.

The measure of a nation's economic output is A) gross national product. B) S&P 500 Index. C) gross domestic product. D) Consumer Price Index.

C Explanation The gross domestic product measures all the output within a nation's borders. The gross national output is a measure of only the economic output of a country's citizens and companies, regardless of location.

A measure of a nation's citizen's economic activity is A) Consumer Price Index. B) S&P 500 Index. C) gross national product. D) gross domestic product.

C Explanation The gross national output is a measure of only the economic output of a country's citizens and companies, regardless of location. The gross domestic product measures all the output only within a nation's borders.

Downturns in the business cycle or economic contractions are characterized by all of the following except A) rising numbers of bankruptcies. B) higher consumer debt. C) falling inventories. D) rising numbers of bond defaults.

C Explanation When the economy is contracting, inventories tend to rise (not fall) due to a decreasing demand for goods.

The measure of the inflation rate is A) the EAFE Index. B) the business cycle. C) the Consumer Price Index. D) the S&P 500 Index.

C Inflation is an increase in prices over time. The consumer price index measures the price of a basket of goods. When comparing the value of this basket of goods, we can identify whether there's inflation or deflation occurring.

Several months of slow economic growth and rising unemployment have characterized the economy. Market analysts would describe this as a period of A) deflation. B) inflation. C) stagnation. D) stagflation.

C Stagnation is defined as prolonged periods of slow or little economic growth accompanied by high unemployment.

The U.S. gross domestic product is best described as A) all goods produced in the nation minus the value of all services produced. B) all services produced in the nation only. C) all goods and services produced within the nation. D) all goods and services produced domestically but sold overseas.

C The U.S. gross domestic product is best described as all goods and services produced within the nation. Consumption or sales of the goods and services domestically or overseas is not a factor when calculating GDP.

Economic growth has slowed to a halt with little consumer demand, but prices for goods and services are still rising. This is known as economic A) deflation. B) contraction. C) stagflation. D) stagnation.

C When prices for goods and services are rising (inflation) during times when the economy isn't growing (stagnation), the economy is known to be in a period of stagflation.

All the following are leading indicators except A) stock prices. B) the money supply. C) personal income. D) new orders.

C The money supply, new orders, and stock prices are all leading indicators. These increase in advance to an increase in economic activity. Personal income, however, is a coincident indicator moving along with economic activity.

Which of the following refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment? A) Trough B) Deflation C) Stagflation D) Stagnation

D Explanation Economic stagnation refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment.

All of the following are part of Financial Industry Regulatory Authority (FINRA)'s manual regarding employee conduct and reportable events except A) Conduct Rules. B) Code of Arbitration Procedure. C) Uniform Practice Code (UPC). D) Sales Practice Code.

D Explanation FINRA publishes the Conduct Rules, the UPC, the Code of Procedure, and the Code of Arbitration Procedure to regulate employee conduct and reportable events. There is no Sales Practice Code.

Which of the following organizations looks to promote self-discipline among members and investigate and resolve grievances between the public and members and between members? A) Municipal Securities Rule Board (MSRB) B) Securities Investor Protection Corporation (SIPC) C) Securities and Exchange Commission (SEC) D) Financial Industry Regulatory Authority (FINRA)

D Explanation FINRA regulates all matters related to investment banking, trading in the over-the-counter (OTC) markets and some exchange markets, and the conduct of FINRA member firms and associated persons including the promotion of self-discipline among members. It also investigates and looks to resolve grievances between the public and members and between members. The MSRB relies upon FINRA to perform dispute resolution.

All the following are lagging indicators except A) labor cost per unit of output. B) outstanding commercial loans. C) corporate profits. D) personal income.

D Explanation Personal income is a coincident indicator. Corporate profits, labor cost per unit of output, and outstanding commercial loans are lagging indicators.

Which of the following is a coincident indicator? A) S&P 500 Index B) Increase in the duration of unemployment C) Housing starts D) Household income

D Explanation Personal or household incomes are coincident indicators, moving up and down along with the overall economy. Equity prices and housing starts are both leading indicators. Changes in the duration of unemployment is a lagging indicator.

Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the A) Code of Arbitration Procedure. B) Uniform Practice Code. C) Uniform Securities Act. D) Code of Procedure.

D Explanation The Code of Procedure describes how member violations of the Conduct Rules will be heard and handled.

The MSRB has jurisdiction for making rules in all of the following cases except A) broker-dealers trading municipal securities. B) broker-dealers underwriting municipal securities. C) banks selling municipal securities. D) municipalities selling their own securities.

D Explanation The MSRB makes regulations for broker-dealers and banks buying and selling municipal securities but does not have authority over the municipalities.

Increasing cost of goods and services and high unemployment are characteristics of A) stagnation. B) deflation. C) inflation. D) stagflation.

D Stagflation is the rare occurrence where the economy is contracting and income is dropping but prices are still rising.

Which of the following sets of FINRA rules focuses on how member violations will be handled? A) Code of Arbitration B) Conduct Rules C) Uniform Practice Code D) Code of Procedures

D The Code of Procedure covers improper acts by member firms and representatives.

Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules? A) New York Stock Exchange (NYSE) B) Chicago Board Options Exchange (CBOE) C) Financial Industry Regulatory Authority (FINRA) D) Municipal Securities Rule Board (MSRB)

D The MSRB differs from other regulatory bodies in that it writes its own rules, but by law, it cannot enforce them. Rather, the board must rely entirely upon other designated examining authorities to enforce its rules.