Progress 04B
Which business is cyclical? A. Appliance manufacturer B. Packaged food C. Pharmaceuticals D. Utilities
A. Cyclical stock is associated with companies whose value will rise and fall with the economy. Cyclical industries include appliances, steel, construction, and automobiles. Defensive companies will resist a recession and include pharmaceuticals, utilities, and packaged food (i.e., groceries).
The maximum political contribution from a municipal finance professional (MFP) to a candidate for whom she may not vote is: A. $0 B. $100 C. $250 D. $500
A. No contribution is allowed if the MFP is not permitted to vote for the candidate. Making a contribution of any amount will subject the firm to a two-year ban on municipal securities business with that issuer.
The Gross Domestic Product (GDP) is the total value of: A. Goods and services produced in the U.S. B. Minerals produced in the U.S. economy C. Foodstuffs and manufactured products produced in the U.S. D. Goods produced in the U.S. and expected to last at least three years
A. The Gross Domestic Product (GDP) is the total value of goods and services produced in the U.S. in any particular year.
A registered person fails to participate in the Regulatory Element Continuing Education (CE) program. The person's status is: A. Inactive until she completes the program B. Inactive for a minimum of two years C. Inactive until she passes the required registration examination D. Suspended until she completes the program
A. The content of the Regulatory Element CE requirements is written by the Securities Industry/Regulatory Council on Continuing Education. FINRA will notify a broker-dealer 30 days in advance of a registered person's appropriate anniversary date. This will be the anniversary of the person's initial registration or a significant disciplinary action. (A significant disciplinary action restarts the clock.) The registered person then has 120 days from that anniversary date to complete the Regulatory Element training. If the person does not complete the training within the prescribed time frame, her registration will be deemed inactive until she completes the training. A registered person with an inactive registration is prohibited from performing any activity, or receiving any compensation, that requires securities registration.
Which of the following items is NOT included in an income statement? A. The amount of goodwill B. Selling and administrative expenses C. Interest expense D. The amount of income taxes paid
A. The income statement of a company includes its sales (revenues), less its operating expenses (selling and administrative expenses is an example), less interest paid on its debt, which equals earnings before taxes. Taxes are then deducted to determine net income, from which dividends may be declared. It also includes nonrecurring events such as the closing of a business or extraordinary items. The amount of goodwill is found on a company's balance sheet.
Suspicious withdrawals have recently been taken from an account that's owned by a client who is 70-years-old. The registered representative suspects that the client is unaware of these withdrawals and that the customer's niece has been withdrawing money without the customer's knowledge. Which of the following is the best course of action for the RR to ensure that the account is not being exploited? A. Call the niece and schedule a meeting B. Halt suspicious withdrawals from the account C. Talk to his supervisor to obtain approval for power of attorney so that he can manage the client's account directly D. Halt all suspicious activity in the account
B. Broker-dealers are permitted to place a hold on suspicious withdrawals from accounts that are owned by persons who are age 65 and older. FINRA's rule is an attempt to limit the exploitation of these adults. The rule doesn't permit a broker-dealer to limit purchase and sales, only withdrawals.
If an associated person signs the arbitration clause in Form U4 they are agreeing to which of the following? A. To use arbitration as the process for resolving disputes only with customers B. To use arbitration as the process for resolving disputes that involve his employer, other member firms and associated persons, and customers C. To use arbitration as the process for resolving disputes that involve only his employer D. To use arbitration as the process for resolving disputes that involve only other FINRA member firms
B. Form U4 contains a predispute arbitration clause. By signing this form a person agrees to use arbitration as the process for resolving disputes that involve his employer, other FINRA member firms and associated persons, and customers. Rule violations are resolved by FINRA hearing panels or SEC personnel, not arbitration
A customer invests a significant amount of money in a bond portfolio. What risk is the customer MOST concerned with if interest rates fall dramatically? A. Credit risk B. Call risk C. Capital risk D. Prepayment risk
B. If interest rates fall, it may result in bond issuers calling their bonds back and refinancing to lower interest rates. This represents call risk for investors. Credit risk, also referred to as default risk, is the risk that a bond issuer will not make interest and/or principal payments on its bonds. Capital risk is the risk of losing all or a part of your investment. When interest fall, mortgages may be refinanced and paid off early, which results in prepayment risk on mortgage-backed securities.
A customer contacts her registered representative to buy an OTC stock. Rather than buying the shares directly from a market maker, the broker-dealer contacts another broker-dealer and that firm buys the shares from a market maker. Since this creates two levels of transaction fees, it is referred to as: A. Free-riding B. Interpositioning C. Backing away D. Churning
B. Interpositioning occurs when, while executing an order for a customer, a broker-dealer places another broker-dealer between itself and the market. This practice is generally prohibited, unless the customer received a better price by executing the transaction in this manner. Backing away is a violation which involves a market maker failing to honor a firm quote that it has given to another dealer.
Which of the following activities is an unregistered employee of a brokerage firm allowed to perform? A. Accept an unsolicited order from an existing customer B. Send a prospective client an account opening form C. Explain the benefits and drawbacks of an exchange-traded fund (ETF) D. Ask a prospective customer about her investment objectives
B. Unregistered employees of a brokerage firm are permitted to send potential customers account forms and also invitations to brokerage sponsored events. However, unregistered employees are prohibited from accepting orders, talking to customers about objectives, or explaining financial products to either existing or prospective customers.
An employee of a broker-dealer is required to obtain her firm's prior written consent to: A. Open an account at a financial institution in order to obtain a mortgage B. Open an account at a financial institution in order to obtain a line of credit C. Open an account at an affiliate of a bank in order to trade securities D. Open an account at a bank which permits her to move funds between accounts
C. Employees of broker-dealers who intend to open outside accounts for the purpose of executing securities trades are required to obtain the prior written consent of their firm. An employee of a broker-dealer who opens an account to obtain a mortgage, obtain a line of credit, or to move funds between accounts does not require the prior written consent of her member firm.
A hurricane hit the hub of the U.S. financial system and caused a significant disruption in the stock market. This is an example of: A. Political risk B. Legislative risk C. Event risk D. Regulatory risk
C. Event risk is the risk that a large event will cause a significant decline in the market value of securities. Event risk is a form of systematic (undiversifiable) risk. Each of the other choices are forms of unsystematic (diversifiable) risk.
A municipal finance professional (MFP) of XYZ Brokerage has contributed $100 to a candidate running for mayor of the town in which the MFP resides. XYZ Brokerage wants to underwrite the municipal securities of the same town. If the MFP wants to provide additional support to the mayor's campaign without affecting the municipal securities business of XYZ Brokerage, what additional contribution is she allowed to make? A. $50 B. $100 C. $150 D. $250
C. Municipal finance professionals (MFPs) are allowed to contribute up to $250 per election to a candidate for whom they may vote. However, if an MFP cannot vote for a candidate, then any contribution made will violate the MSRB political contribution rule. In this question, since the MFP had already contributed $100, she can contribute an additional $150. If the political contributions exceed $250, the MFP's firm is prohibited from conducting a negotiated underwriting in that municipality's bonds for two years.
When is a registered individual required to complete her continuing education? A. Every four years B. Every five years C. On her second anniversary and every three years thereafter D. On her third anniversary and every three years thereafter
C. RRs are required to participate in the Regulatory Element of continuing education training at their two-year anniversary of their initial securities registration and every three years thereafter.
Which of the following choices is a lagging economic indicator? A. Stock prices B. Money supply C. Index of Industrial Production D. Average prime rate
D. Average prime rate is considered a lagging indicator. Money supply and stock prices are leading indicators. The Index of Industrial Production is a coincidental indicator.
A representative may guarantee a customer against a loss: A. With the written permission of a principal of the firm B. Only if the customer is an immediate family member C. Only if the customer is an institutional investor D. Under no circumstances
D. Employees of a broker-dealer are prohibited from guaranteeing customers against loss.
A registered representative (RR) wants to compensate an unregistered person who is employed by another broker-dealer for referrals that resulted in commissions. Which of the following statements is TRUE concerning such compensation? A. The person may be compensated based on a percentage of the commissions that are paid to the registered representative. B. The unregistered person may only be compensated if it's approved by a principal of the RR's firm. C. The person may not be compensated unless there is a written agreement between the RR and the unregistered person. D. The person is unregistered and may not be compensated for the referrals.
D. In order to be compensated for transactions, a person must be registered. Referral fees are considered a form of compensation.
Which of the following choices has the LEAST amount of interest-rate risk? A. A Treasury bond maturing in 30 years B. A newly-issued GNMA security that's backed by 15-year mortgages C. A Treasury STRIP maturing in eight years D. A BB-rated corporate debenture maturing in two years
D. Interest-rate risk is primarily related to the maturity of a bond. The longer the bond's maturity, the more interest-rate risk it has. In this case, the two-year debenture has the least interest-rate risk because it has the shortest maturity. A bond's rating influences its credit risk, not its interest-rate risk.
A listing of coincident economic indicators includes: A. Consumer expectations B. The S&P 500 Index C. Housing starts D. Personal income
D. Personal income is a coincident indicator. Coincident indicators tend to move directly with the business cycle and show what's currently happening in the economy.
To participate in the sale of securities through a private securities transaction, what step must a registered representative (RR) take? A. Request a meeting with her principal to explain the details of the sale B. Call her supervisor and inform him of the sale and the RR's potential compensation C. As required by the written supervisory program of the broker-dealer, initiate the appropriate compliance filing after the transaction has started D. Provide written notice to her principal which discloses her participation and expected compensation
D. Registered representatives (RRs) must provide written notification to their supervising principal if they intend to participate in a private securities transaction. If an RR will be receiving compensation, she must also receive written approval from her broker-dealer. Any RR's that don't provide notification or obtain approval are guilty of a violation that's referred to as "selling away."