SIE: Unit 1
When engaging in open-market operations, taking actions to either expand or contract the money supply, the FRB will buy or sell?
= Treasury securities *The FRB will buy or sell Treasury securities in the open market to either expand or contract the money supply. Reference: 1.3.1
An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is BEST described as a(n)?
= Trustee *A trustee is legally appointed to manage as a fiduciary assets in a trust.
A weak U.S. dollar leads to more?
= U.S. exports and a balance of payments surplus *When the dollar is weak relative to other currencies, it makes U.S. goods more affordable for foreign consumers to buy, so U.S. exports increase. As more goods flow out of the U.S., more money flows in—surplus. Reference: 1.3.3
A corporation sells shares to the investing public in order to raise capital. This is known as?
= an issuer transaction *The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions. Reference: 1.2.1
A broker-dealer that executes trades and settles transactions for another broker-dealer is called a?
= carrying firm *Carrying firms, also known as clearing firms, execute trades, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks such as sending trade confirmations and statements for themselves as well as for other broker-dealers classified as introducing, or fully disclosed firms. Reference: 1.1.4
Economists refer to longer, more severe contractions in the economy as?
= depressions *Economists call mild, short-term contractions recessions while longer, more severe contractions are called depressions.
Regarding registration for the sale of securities, those registered under the Investment Company Act of 1940, such as mutual funds, would be considered?
= federal covered securities and not required to register at the state level *Investment companies registered under the Investment Company Act of 1940 offer securities that are deemed to be federally covered. The effect of this designation is that states do not have jurisdiction over the registration requirements of these securities; no state registration can be required. Therefore federally covered securities are required to register at the federal level only.
A deficit in the U.S. balance of payments can occur if?
= interest rates in foreign countries are higher than U.S. domestic rates. U.S. consumers are purchasing (importing) foreign goods. *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. Reference: 1.3.3
When the demand for money exceeds the supply?
= interest rates rise, making consumer borrowing more difficult *Money available to lend is like all commodities in that its cost (interest) is impacted by supply and demand. When the demand for money exceeds the supply, interest rates rise, making consumer borrowing more difficult Reference: 1.3.1
Fiscal policy?
= is not considered the most efficient means to solve short-term economic issues. is reflected in the budget decisions enacted by our president and Congress. *Fiscal policy is reflected in the budget decisions enacted by our president and Congress. This political process takes time for conditions and solutions to be identified and implemented and is therefore not considered the most efficient way to solve short-term economic issues. Reference: 1.3.1
State registration is not required if the transaction is exempt. An example of an exempt transaction would be?
= one that is unsolicited *Purchases and sales that are unsolicited (unsolicited transactions) are exempt under the blue-sky (state securities) laws. Municipal bonds and U.S. government bonds are examples of exempt securities, not transactions. Reference: 1.4.3
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?
= stagflation *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. Reference: 1.3.2
Exports from the United States would likely increase if?
= the Japanese yen strengthened against the dollar the U.S. dollar weakened against the British pound *U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar. Reference: 1.3.3
The federal law requiring companies offering public equity or debt securities to provide a prospectus to investors is known as?
= the Securities Act of 1933 *The Securities Act of 1933 is also known as the Prospectus Act. With limited exceptions, companies looking to offer securities to the public must provide a prospectus to those who are approached about purchasing those securities. A prospectus is a disclosure document that provides key information about the company. Reference: 1.4.3
The broker loan rate charged by banks is also known as?
= the call loan rate *The broker loan rate or call loan rate is the interest rate banks charge broker-dealers on money that broker-dealers borrow to lend to margin account customers.
Considered the most volatile of the benchmark interest rates in the economy would be?
= the federal funds rate *The federal funds rate is the rate banks charge each other for overnight loans of $1 million or more. With overnight representing the shortest of loans and short-term interest rates being the most volatile, this rate is considered to be the most volatile of all the benchmark interest rates.
The access equals delivery rule applies to?
= the final prospectus and aftermarket delivery obligations *The access equals delivery rule applies to the final prospectus and aftermarket prospectus delivery obligations. It does not apply to preliminary prospectuses. No prospectus can be delivered before the registration date. Reference: 1.4.4
An investor opens an account with BNZ Government Securities, a broker-dealer limiting its transactions exclusively to securities issued by the U.S. government. The account holds $250,000 of Treasury bonds, $250,000 of Treasury notes, and $50,000 in cash. If BNZ's broker-dealer business should fail, the investor would receive SIPC protection in the amount of?
= $0.00 *Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in U.S. government securities are exempt. Reference: 1.1.3
For a new issue that qualifies for listing on an exchange, a prospectus must be provided to all purchasers for how many days after the effective date?
= 25 *For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket (after the effective date) is 25 days. For nonlisted and non-Nasdaq securities the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days. Reference: 1.4.4
Regarding the purchase of new equity issues by restricted persons, which statements are TRUE?
= An investment club is permitted to buy a new equity issue at the offering price. An investment club that has eight members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. *As long as an investment club has no restricted persons as members, it may purchase new equity issues at the public offering price. An Investment Club that has restricted persons as members may still participate in an IPO so long as the total ownership of the club's assets by restricted persons does not exceed 10%. A registered representative is a restricted person under the rules regarding the purchase of new equity issues. In "III" the registered representative owns 12 ½ % (100%/8 = 12 ½) of club's assets. In "IV" the registered representative owns 8 1/3% (100%/12 = 8 1/3), under the 10% maximum allowed. Reference: 1.4.2.3.1
Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal?
= Best efforts underwriting *In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.
Those industries that are LEAST affected by normal business cycles are?
= Defensive industries *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. Reference: 1.3.2
In what order do the following economic phases typically occur?
= Expansion (recovery) is considered to be the beginning of the business cycle, followed by the peak (prosperity), contraction (decline), and trough. * Recovery Trough Decline Prosperity
Which of the following organizations was created to protect investors financially from a bank failure?
= FDIC *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. Reference: 1.1.3
Which of the following is an SRO?
= FINRA *FINRA is considered the primary self-regulatory organization (SRO) in the securities industry. Reference: 1.1.2
Which regulatory body oversees trading in the over-the-counter (OTC) market?
= FINRA *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. Reference: 1.1.2
Which of the following benchmark interest rates is considered a barometer of the direction of short-term interest rates?
= Federal funds rate *The federal funds rate is the rate that commercial money center banks charge each other for overnight loans of $1 million or more. Overnight, representing the shortest of loans, makes this rate a good indicator of the direction short-term interest rates are taking.
Issuance and trading of securities are regulated at more than one governmental level. These would include regulations at which of the following?
= Federal level State level
Which of the following best describes a final prospectus?
= Meets the full and fair disclosure requirements of the Securities Act of 1933 *A prospectus is a disclosure document meant for distribution to the public. It must constitute full and fair disclosure of all material facts about the issuer and the security. Only a preliminary prospectus or tombstone ads can be used during the cooling-off period. Reference: 1.4.4
An official statement is a disclosure document that would be used in connection with an offering of which of the following securities?
= Municipal bonds *An official statement (OS) serves as a disclosure document and contains any material information an investor might need about a municipal bond issue. Municipal bonds are exempt from registration under the Securities Act of 1933. Reference: 1.4.5
Which of the following securities is exempt from the Securities Act of 1933?
= Municipal note *Municipal debt securities including short term notes are exempt from the Securities Act of 1933. Reference: 1.4.5
Which of the following statements is TRUE?
= 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.
All of the following are self-regulatory organizations (SROs) EXCEPT?
= SEC *All US exchanges such as the NYSE and CBOE are SROs. In addition, FINRA and the MSRB are SROs. The Securities Exchange Commission (SEC) is not. Reference: 1.1.2
Broker-dealers who transact securities business with other BDs or customers must be registered with?
= SEC *Any entity such as a broker-dealer intending to do business with other BDs or customers involving securities must be registered with the Securities and Exchange Commission (SEC).
Which of the following companies was created by an act of Congress and provides securities investors limited financial coverage in the event that the investor's servicing broker-dealer fails financially?
= SIPC *The Securities Investor Protection Corporation (SIPC) was created by Congress to meet customer claims in the event of a broker-dealer bankruptcy. Reference: 1.1.3
For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable?
= Securities Act of 1933 regulating issues that must be offered by prospectus *Nonexempt securities are those that must be registered with the SEC under the Securities Act of 1933. The Securities Act of 1933 mandates that offerings of these securities must be made by prospectus. Reference: 1.4.2
Which of the following best describes a prospectus?
= It is a full and fair disclosure of all material information and facts regarding the issuance of securities. *The Securities and Exchange Commission (SEC) requires full and fair disclosure of all material information and facts regarding the issuance of securities. This disclosure is done via a prospectus, which is required to provide investors enough information to make fully informed buying decisions. Reference: 1.4.3
A bank is likely to do which of the following when the Federal Reserve Board (FRB) eases the money supply?
= Lower its prime rate. *The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB eases the money supply (makes more money available to lend), banks can charge less for loans and will lower their lending rates. The hypothecation process isn't a rate, but a percentage amount (140% of the debit balance) and will not be impacted by the Fed's action with the money supply. Reference: 1.3.1
According to economists which of the following is the correct characterization of the money supply?
= M3 includes all of M1 and M2. *M3 includes all of M1 and M2, plus time deposits of more than $100,000 and repurchase agreements with terms longer than one day. In this light, M3 is that measure of the money supply that is the most inclusive. Reference: 1.3.1
Which of the following regarding monetary or fiscal policy is TRUE?
= Monetary policy is what the FRB engages in when it attempts to influence the money supply. *Monetary policy is what the FRB engages in when it attempts to influence the money supply. Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation, and those decisions impacting deficits and surpluses.
Under the Uniform Securities Act (USA), state laws require that registered representatives must register in a state in which of the following circumstances?
= The registered representative is a resident of the state. The registered representative solicits business in the state. *State laws require that broker-dealers with an office in the state, or those that direct calls into the state or receive calls from the state, be registered in that state. Registered representatives must register in a state if they are residents or if they solicit business in a state. Reference: 1.4.3
An investor is viewing a company's prospectus on the Securities Exchange Commission's website. Which of the following is TRUE?
= This satisfies the access equals delivery rule for a final prospectus. *A prospectus will be deemed to precede or accompany a security for sale if the final prospectus has been filed with the SEC and can be viewed on the SEC website. The access equals delivery model applies to the final prospectus and aftermarket prospectus delivery obligations but not to the preliminary prospectus delivery obligations. Reference: 1.4.4
The law that provides the legal framework for state registration of securities is the?
= Uniform Securities Act *The Uniform Securities Act provides a legal framework for the state registration of securities, as well as the registration requirements applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives. Reference: 1.4.3
Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as?
= a carrying firm *A firm that chooses to "introduce" its customers' business to another firm to clear and process transactions, as well as handle all back-office tasks such as sending trade confirmations and taking custody of customer funds and securities, is known as an "introducing" or "fully disclosed" firm. The firm receiving the business is known as the "carrying" or "clearing" firm. Reference: 1.1.4
The U.S. balance of payments deficit would decrease in all of the following scenarios EXCEPT?
= a decrease in purchases of U.S. securities by foreign investors *A deficit in the balance of payments occurs when more money is flowing out of the country than in. When foreign investors decrease their purchases of U.S. securities, the flow of money coming into the United States decreases, this adds to the deficit rather than decreasing it.
The Securities Act of 1933 requires that?
= a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale *While some new issues can be exempt from registration, the Securities Act of 1933 requires that a new issue, unless it is specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sales can be made. Reference: 1.4.2
Securities sold in an issuer-related transaction would best be described as?
= a primary offering *When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company.
Deflation occurs during?
= a recession, coinciding with an economic contraction *Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle. Reference: 1.3.2
A company is already public with several major stockholders. Sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares. This is?
= a secondary offering. an additional public offering. *Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an additional public offering (APO) rather than an IPO. Reference: 1.4.2
The U.S. gross domestic product is best described as?
= all goods and services produced within the nation *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. Reference: 1.3.3
Tombstone ads?
= are permitted before the effective date *Tombstone ads are the only form of advertising that is permitted from the time the registration statement is filed with the Securities and Exchange Commission and the effective date of the offering. While they are not mandatory for new issues, they can be used as an announcement and description of the securities to be offered, showing only minimal information. They are not an offer to sell the securities. Reference: 1.4.3
All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities EXCEPT?
= credit unions *Credit unions cannot serve as a depository or clearing facility for securities transactions. Reference: 1.1.4
After the filing of a registration for a new issue with the SEC, and still in the registration's cooling-off period, broker-dealers may?
= give a red herring to prospective investors *During the cooling-off period, red herrings (preliminary prospectuses) may be distributed and tombstone advertisements may be published. Indications of interest can be taken but are nonbinding on all parties. Sales literature may not be distributed during the cooling-off period. Reference: 1.4.3
During periods of economic decline and contraction, one would expect?
= gross domestic product (GDP) to decrease *During periods of economic decline and contraction, GDP, the measure of goods and services produced, decreases. This decrease is due to a lack of consumer demand for goods and services during economic declines, which leads to rising inventories and continued lessening in production.
Stagnation in the economy can be associated with?
= high unemployment *Economic "stagnation" refers to prolonged periods of slow or little economic growth, unusually accompanied by high unemployment. Reference: 1.3.2
When the money supply in the economy increases?
= interest rates go down, hence borrowing and spending for consumers is easier *Increases in the money supply means more money is available to lend. This pushes interest rates down, hence borrowing and spending for consumers is easier Reference: 1.3.1
All of the following are true regarding the term market EXCEPT?
= it is unique to the U.S. securities industry *The term market is used to describe any physical place or electronic venue where buyers and sellers can come together for the purpose of trading assets. Markets can be found in nearly every nation in the world and would include stock markets and other trading venues where they exist.
In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as?
= mini-max *A mini-max offering is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.
Carrying firms may NOT?
= mix customer funds and securities with their own *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.
An individual who purchases securities for a personal account is called a(n)?
= retail investor *An individual who makes investments such as the purchase of securities for his or her account rather than for an organization is a retail investor. This investor may be accredited, but there is no way to know for sure given the limited information. Reference: 1.1.4
The rate at which banks lend to broker-dealers for the purpose of lending money for margin loans is typically?
= slightly above (a percentage point or so) other short-term lending rates *The broker call loan rate is the rate at which banks lend to broker-dealers for the purpose of lending money for margin loans. This rate is usually slightly above, by a percentage point or so, other short-term lending rates. Reference: 1.3.1
The largest component of the U.S. balance of payments is?
= the balance of trade *U.S. imports and exports are the components used to calculate the balance of trade. The balance of trade is the measure of those 2 components against each other—the net being either more money coming into or going out of the U.S. economy. That measure, the balance of trade, is the largest component of the U.S. balance of payments. Reference: 1.3.3
A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be a(n)?
= primary offering *A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government. The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publically, as is the case here, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering.
To contract or slow economic growth U.S. fiscal policy should be to?
= raise taxes and cut government spending for programs and development *Fiscal policies to slow economic growth or contract the economy would encompass both increases in taxes leaving consumers with less money to spend, slowing economic growth, and cutting government spending for programs and development that would otherwise have created more jobs. Fewer jobs will slow economic growth as well.
Economists call mild, short-term contractions?
= recessions *Economists call mild, short-term contractions recessions. Longer, more severe contractions are depressions. Reference: 1.3.2
Which of the following would be considered an isolated nonissuer transaction exempt from state registration under the Uniform Securities Act?
= An individual buying stock from another individual without using the services of a registered representative *Isolated nonissuer transactions are those occurring in the secondary market (nonissuer) that occur infrequently (very few transactions per agent/representative per year; the exact number varies by state). These transactions generally do not involve securities professionals.
The FDIC protects which of the following?
= Bank depositors *The Federal Deposit Insurance Corporations protects bank depositors in the event the bank fails. It will cover up to $250,000 for each recognized separate account.
A broker-dealer and its associated persons may be subjected to sanctions for violations of FINRA and SEC rules. Which of the following penalties can be levied against the associated persons?
= Censure *There are many ways a firm and its associated persons can be sanctioned by FINRA including censure. However, imprisonment and forced withdrawal from SIPC are not approved disciplinary actions. Reference: 1.1.1
When the Federal Open Market Committee (FOMC) directs that Treasury securities be purchased in the open market, this will do which of the following?
= Lower interest rates on loans to consumers *When the Federal Open Market Committee (FOMC) directs that Treasury securities be purchased in the open market, this will loosen the money supply; securities come out of the economy and money goes in to the economy. More money available lowers interest rates to consumers.
If large money center commercial banks begin to lower their prime rates, which of the following is most likely to occur?
= Smaller banks will lower lending rates for creditworthy corporate customers as well. *When large money center commercial bank lower the prime rate, the rate charged to their most creditworthy corporate customers, smaller banks will generally follow in order to stay competitive. The discount rate is set by the FRB (not banks), and if the broker call loan rate banks charge is impacted, it would also be lowered (not increased). Reference: 1.3.1
Match the following statement to the BEST expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes?
= Supply-side Economic Theory *Supply-side economics holds that governments should allow market forces to determine prices of all goods. Supply-side adherents judge that the federal government should decrease government spending and taxes. In this way, sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably. Reference: 1.3.2
Which of the following has the greatest influence on the money supply within the United States?
= The Federal Open Market Committee (FOMC) *The Federal Reserve Board influences the money supply by buying and selling U.S. government securities in the open market which expand or contract the money supply. The Federal Open Market Committee (FOMC) consists of the Board of Governors of the Federal Reserve System and several Reserve Bank presidents. The committee meets regularly to direct the government's open-market operations. For example, when the FOMC directs the purchase of securities, it increases the supply of money in the banking system, and when it sells securities, it decreases the supply. Reference: 1.3.1
Shelf offerings are covered under which if the following?
= The Securities Act of 1933 *The shelf offering (registration) provision under the Securities Act of 1933 allows issuers to quickly raise capital when needed or when market conditions are favorable. Reference: 1.4.3
For a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers within how many days after the effective date?
= 25 * For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket is 25 days. For nonlisted and non-Nasdaq securities, the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days. Reference: 1.4.4
Six days into the cooling-off period, an issuer receives a deficiency letter from the SEC requesting clarification and corrections. Once the issuer submits these, and assuming that they satisfy the deficiency, the cooling-off period will resume. With no other deficiencies arising, the issue should become effective in?
= 14 days *When the issuer submits the corrections necessary to satisfy the deficiency letter, the 20-day cooling-off period picks up where it left off; in this case, from 6 days, which means that the issue should be effective 14 days later.
After the issuer files a registration statement with the SEC, the time known as the cooling-off period begins. This allows a registration to become effective as early as?
= 20 calendar days after the date the SEC has received it *Once the registration statement has been received by the SEC, a cooling-off period begins and it must last at least 20 calendar days. This allows the registration to become effective as early as 20 calendar days after the date the SEC has received it. Reference: 1.4.3
The Federal Reserve Board (FRB) does all of the following EXCEPT?
= enact fiscal policy *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.
A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following?
= A carrying firm *Most firms choose to "introduce" their customers to another member firm known as a clearing or carrying firm to handle back office tasks, such as clearing trades, sending trade confirmations, settlement and reporting compliance, trade execution, and custody of customer funds and securities. Reference: 1.1.4
A company with previously issued shares outstanding wants to issue more shares to the public. These new shares are issued in what is known as?
= A company with previously issued shares outstanding wants to issue more shares to the public. These new shares are issued in what is known as *The first time that a company issues shares to the public, it engages in an IPO (initial public offering). Later offerings are known as SPOs (subsequent primary offerings) or APOs (additional public offerings). The IPO and any SPO or APO are all issuer transactions and are, therefore, done in the primary market. Reference: 1.4.2
The transfer agent for a corporation is responsible for each of the following EXCEPT?
= Acting as an intermediary between the buy and sell sides of a transaction *The transfer agent (often a bank) for a corporation is responsible for ensuring that its securities are issued in the correct owner's name, canceling old and issuing new certificates, maintaining records of ownership, and handling problems relating to lost, stolen, or destroyed certificates. Acting as an intermediary in a trade is the function of the clearing corporation. Reference: 1.1.4
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?
= Capital market *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 would be associated with loans made to member banks of the Federal Reserve?
= Discount rate. *Loans made to member banks of the Federal Reserve are made by the FRB at the discount rate. The call loan rate and the prime rate are rates at which banks lend to broker-dealers and corporate customers, respectively. Although margin is controlled by the FRB, it has no bearing on this question.
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?
= FINRA *Financial Industry Regulatory Authority (FINRA) regulates all matters related to investment banking, trading in the 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. Reference: 1.1.2
Underwriters acting as principals and committing to purchase any unsold shares for the syndicate account would BEST be described as being engaged in a(n)?
= Firm commitment *In a firm commitment underwriters contract with the issuer to buy its securities, acting as principals rather than agents. They are committing to purchase any unsold shares for the syndicate account. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold, and all of the capital needed will be raised. Reference: 1.4.2
Which of the following are considered tools used to implement fiscal policies?
= Government spending Taxation *Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation. Increases in taxes and decreases in government spending slow the economy, while lowering taxes and increasing government spending spur growth in the economy. Reference: 1.3.1
The country's annual economic output of all of the goods and services produced within the nation, is known as
= Gross domestic product *A nation's annual economic output, all of the goods and services produced within that nation, is its gross domestic product (GDP). U.S. GDP includes personal consumption, government spending, gross private investment, foreign investment, and net exports. Reference: 1.3.3
Large time deposits of more than $100,000 are considered to be found in what part of the money supply?
= M3 *M3 is where time deposits of more than $100,000 and repurchase agreements with terms longer than one day are found.
Which of the following is TRUE regarding a member firm operating under FINRA membership or the membership of another self-regulatory organization (SRO)?
= Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few. *Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, and derivatives like options and others (be full service), or limit the products they offer to only a few. They need not adopt proprietary trading into their business model but can if they wish to. Likewise, they need not accommodate doing business with retail customers if they wish to deal only with other industry professionals, such as institutional investors. Reference: 1.1.4 in the License Exam Manual
Select the two distinctive types of policies that impact the U.S. economy?
= Monetary and fiscal *The two distinctive types of policies that impact our economy are monetary and fiscal. Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply via the Federal Open Market Committee (FOMC). Fiscal policy refers to governmental budget decisions enacted by the president and Congress including increases or decreases in federal spending, money raised through taxes, and federal budget deficits or surpluses. Reference: 1.3.1
Which of the following pairs are NOT covered by the Federal Deposit Insurance Corporation (FDIC) at any level?
= Mutual funds and annuities *Investment products that are not deposits are not covered by the FDIC. This would include life insurance policies, mutual funds, annuities, and individual securities such as stocks and bonds. "At any level" means neither partially nor fully. Reference: 1.1.3
Just as markets can be influenced by many factors, so can the market price of a single company's stock. While all of the following could impact a company's stock price to some extent, which would be the least likely to have a direct and immediate impact?
= Political elections *The price of a company's stock will be impacted directly by the company's earnings and changes in the business cycle. Less directly impactful would be FRB policies to loosen or tighten credit, and least likely to have a direct impact would be the outcome of political elections. It should be noted, however, that the outcome of political elections can influence FRB policies over time and, therefore, where the economy stands in relation to the business cycle. Still, however, elections would have less of an immediate impact.
A bank is likely to do which of the following when the Federal Reserve Board (FRB) tightens the money supply?
= Raise its prime rate. *The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB tightens the money supply (makes less money available to lend), banks will need to charge more for loans and will raise their lending rates. The hypothecation process isn't a rate, but a percentage amount (140% of the debit balance) and will not be impacted by the Fed's action with the money supply.
Which of the following are methods of registering securities within a state?
= Registration by coordination. Registration by qualification. *States have two ways to register (or blue sky) securities: coordination and qualification. Notice filing is used solely for those securities that are referred to as federal covered, such as those listed on the NYSE, NASDAQ, or any national securities exchange and investment companies registered under the Investment Company Act of 1940. In this case, the states do not have jurisdiction over the registration requirements of these securities. However, the Uniform Securities Act does provide for states requiring a filing of a notice along with a filing fee to sell securities in that state. Reference: 1.4.3
FINRA staff must submit new rules and await approval from which of the following regulatory bodies prior to becoming effective?
= SEC *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 Securities Exchange Commission (SEC) for approval of a new rule.
When the economy shows high unemployment and is failing to expand as measured by a lack of consumer demand and business activity, but prices for goods and services are still rising, this could be described as what?
= Stagflation *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 is not growing and there is a lack of consumer demand and business activity, yet prices for goods continue to rise. Reference: 1.3.2
Which of the following refers to prolonged periods of slow or little economic growth, unusually accompanied by high unemployment?
= Stagnation *Economic "stagnation" refers to prolonged periods of slow or little economic growth, unusually accompanied by high unemployment. Reference: 1.3.2
Joe Jonas, a registered representative with Foxtail Advisors, has received an adverse ruling from a FINRA Department of Enforcement Hearing. He believes the DOE has misapplied a rule and wants to appeal the decision. He would file his appeal with?
= The National Adjudicatory Council (NAC) *The National Adjudicatory Council (NAC) is a FINRA committee that reviews initial decisions rendered in FINRA disciplinary and membership proceedings.
A customer of a FINRA member firm buys securities on margin. The customer is expected to pay a rate of interest on the margin loan based on which of the following?
= The broker call loan rate *The broker call loan rate is the interest rate banks charge broker-dealers on money they borrow to lend to margin account customers. Margin accounts permit customers to purchase eligible securities without paying in full. Typically, an investor is required to deposit only 50% of the purchase price of eligible common stock with the balance being borrowed. The amount borrowed, as with any loan, is subject to interest payments.
Which benchmark interest rate indicates the direction of the Federal Reserve Board's monetary policy?
= The discount rate *The discount rate, being the rate the Federal Reserve Bank charges for short-term loans to its member banks, is generally considered a good indication of the FRBs policy to either tighten or loosen its hold on the amount of money available to banks for lending to consumers. Reference: 1.3.1
The Securities Act of 1933 requires that all of the following be offered by a prospectus EXCEPT?
= Treasury bonds. *Treasury securities are exempt from registration requirements, and therefore do not require a prospectus.
An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as?
= a secondary offering *A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.
To expand the overall economy, the Federal Reserve Board, acting as agent for the U.S. Treasury department, will?
= buy securities via open-market operations, pushing interest rates down *To expand the overall economy, we want to push interest rates down by increasing the money supply. Lower interest rates make borrowing and spending easier for consumers. To increase the money supply, the FRB will buy securities via open-market operations, taking securities out of the banking system and putting money into the banking system.
The best characterization of how economists view the money supply is?
= cash, loans, different forms of credit, and other liquid instruments *Economists take a broad view of the money supply and include within it all cash (paper money and coins), loans, credit, and other liquid instruments, such as savings and checking accounts. Reference: 1.3.1
U.S. consumers are increasing their imports of foreign-made goods. On this data alone, one might expect gross domestic product (GDP) to?
= decrease *GDP is the measure of good and services produced. If U.S. consumers are importing more foreign goods, it is likely that production of U.S. goods will fall off, leading to a decrease in the GDP.
Laws increasing or decreasing taxation would be best associated with?
= fiscal policy enacted by the president and Congress *Tax laws are fiscal (not monetary) policy and are enacted by the president and Congress. Reference: 1.3.1
If the U.S. dollar is weak against foreign currency?
= foreign currency buys more U.S. goods; therefore, U.S. exports will increase *When the U.S. dollar is weak against foreign currencies, U.S goods are more affordable for foreign buyers; therefore, U.S. exports will increase. At the same time, foreign goods are less affordable for U.S. consumers; therefore, U.S. imports will decrease.
A preliminary prospectus is used to solicit?
= indications of interest before the effective date *A preliminary prospectus cannot be distributed before the registration date. Between the registration and effective dates, it is used to solicit or gauge indications of interest. After the effective date, sales can be solicited and a final prospectus would be available and must be used to do so. Reference: 1.4.4
The cost of doing business is closely linked to the cost of money, which is known as?
= interest *The cost of doing business is closely linked to the cost of money; the cost of money is called interest. In large measure, the supply and demand of money determines the rate of interest that must be paid to borrow it. Reference: 1.3.1
The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is?
= mandated to be in the final prospectus by the SEC *Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus. Reference: 1.4.4
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(n)?
= 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(n)?
= market maker *Market makers can be individuals or 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.
Indications of interest taken during the cooling-off period are?
= nonbinding on the issuer and underwriters. nonbinding on the investor. *Indications of interest are binding on neither buyers nor sellers. Reference: 1.4.3
In the capital markets, securities such as stocks and bonds can be?
= offered by both public and private sectors *In capital markets, both public and private sectors sell securities in order to raise funds. These securities can be bought and sold (traded) in the capital markets by individuals and institutions alike.
An institutional investor selects a single FINRA/NYSE member firm to provide for financing and custody of securities, while orders to buy or sell are placed with executing brokers. This is an example of a(n)?
= prime brokerage account. *A prime brokerage account is one in which a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers. Reference: 1.1.4
The primary purpose of the Securities Act of 1933 is to?
= require full and fair disclosure in connection with the sale of securities to the public *The primary purpose of the Securities Act of 1933 is to require full and fair disclosure in connection with the sale of securities to the public.
If it finds that the registration statement needs revision, expansion, or to have corrections made, the SEC may suspend the review of the new issue and issue a deficiency letter. Once the issuer submits a corrected registration statement, the 20-day cooling-off period?
= resumes where it had left off *If the SEC issues a deficiency letter suspending its review of the new issue, the 20-day cooling-off period is halted and resumes where it had left off once the corrected registration statement is received.
Notice filing for securities at the state level is for?
= securities that are deemed to be federally covered only *Notice filing at the state level is for securities deemed to be federal covered. The state may require a notice be filed for these securities, such as those listed on national exchanges and those registered under the Investment Company Act of 1940, even though it has no jurisdiction over the registration requirements. Reference: 1.4.3
Carrying firms, those that carry customer accounts, must?
= segregate customer funds and securities from the firms' funds and securities. *Carrying firms, those that carry customer accounts, must segregate customer funds and securities from that of the firm's and because carrying customer accounts entails some inherent risk, maintain net capital higher than that which would be required for non-carrying firms.
Public offerings of securities are regulated under?
= the Securities Act of 1933 *In a public offering, securities are offered and sold to the investing public. Public offerings of securities are regulated under the Securities Act of 1933.
If the U.S. dollar is relatively strong against the Japanese yen, it can be assumed that?
= the U.S. dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods produced in the United States *The strength of one country's currency against another impacts trade in between the two. The stronger currency (in this case the U.S. dollar) will buy more foreign goods, and the weaker currency (in this case the JY) will buy fewer goods produced in other countries. Reference: 1.3.3
Regarding the registration statement filed with the SEC when new securities are to be issued, all of the following are true EXCEPT?
= the accuracy and adequacy of the registration documents is the responsibility of the underwriters *While underwriters (broker-dealers and investment bankers) may assist the issuer in preparing and filing the registration statement, the accuracy and adequacy of the registration documents is the responsibility of the issuer. Full disclosure is also made on a number of issues, including but not limited to names and addresses of company officers and a description of how the sale proceeds will be used. Reference: 1.4.3
The flow of money between the United States and other countries is known as?
= the balance of payments *The balance of payments represents the flow of money between the United States and other countries.
A registered representative has a customer buying securities, but rather than paying in full, the customer wants to borrow some of the money needed for the purchase from the broker-dealer. It is explained to the customer that in order to borrow the money, there will be interest payable based on?
= the broker call loan rate *The broker call loan rate is the interest rate banks charge broker-dealers on money they borrow to relend to margin account customers. Reference: 1.3.1
Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in?
= the capital market *The issuance of stock or bonds by corporations to raise new funds takes place in the capital market. Reference: 1.2.1 in the License Exam Manual
FINRA regulates all matters related to investment banking, including?
= trading in the OTC market *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. Reference: 1.1.2
