issued by banks, represent a specific number of shares of a foreign company, and trade and pay dividends in dollars

American depositary receipts (ADRs)

Under which of the following circumstances is an investor in a position to acquire stock?

Buy a call, sell a call (The holder of a call has the right to buy stock at the strike price if exercised. The seller of a put is obligated to buy stock at the strike price if exercised)

A customer believes that ABC's price will go up but does not have the money to buy 100 shares right now. How could the customer use options to profit from an increase in the stock's price?

buy calls, write puts (both are bullish)

A corporation's offer to current stockholders of the ability to purchase a proportionate number of new shares at a specific price for a limited time is called a

right (they usually expire in 30-45 days)

What institutions serve as depository and clearing facilities?

Depository Trust Company and National Securities Clearing Corporation (most specifically) then carrying and clearing firms can act as these as well.

What is a transfer agent?

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

What is the function of the clearing corporation?

Acting as an intermediary in a trade, examples of these can be a commercial bank, can be a broker-dealer but doesn't have to be

Who is considered a control person (security)

those owned by directors, officers, or persons (which include corporations, trusts, etc.) who own or control 10% or more of the issuer's equity securities (an unaffiliated person would have to own 10% or more of the outstanding shares)

To expand the overall economy, we want to

buy securities via open-market operations, pushing interest rates down

To meet a Regulation T margin call, a customer would have how long?

settlement plus 2 additional business days (or S + 2)

What is A fully disclosed broker-dealer

one that introduces its business to a carrying firm to clear transactions

A deficit in the U.S. balance of payments can occur if

interest rates in foreign countries are higher than U.S. domestic rates and U.S. consumers are purchasing (importing) foreign goods

The general partner of a limited partnership has responsibility of

Organizing and managing the partnership, assumes unlimited liability, and is responsible for paying all partnership debts

To grow or expand the economy, U.S. fiscal policy should be to

cut taxes (so consumers have more money to spend) and increase government spending for programs and development (to create more jobs)

What is the federal funds rate

the rate commercial money center banks charge each other for an overnight, unsecured loan

The Federal Open Market Committee (FOMC)

buy or sell Treasury securities in the open market. Purchases add money to the economy, making the money available to lend more plentiful, and sales take money out of the economy, making money available to lend less plentiful.

Reports of rising inventories generally occur during which period of the business cycle?

Contraction, due to a lack of consumer demand

Who is exempt from registering with SIPC?

Those who deal exclusively with US Government securities (i.e.-Treasury bonds), exclusively municipality securities, and in redeemable investment company securities

Retail investorRetail investor

An individual who makes investments such as the purchase of securities for his or her account rather than for an organization

Any entity, individual or organization, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security

When the Federal Reserve Board wants to expand (loosen) the money supply, it will

buy Treasury securities from banks in the open market

encourage growth and stimulate the economy

The rate the FRB charges member banks

The rate commercial banks charges their most creditworthy investors. Prime rate decreases when banks sell securities because there's money money in the market and don't need to charge as much. Raise the rate when they buy securities.

4 stages of the business cycle

expansion (recovery), peak (prosperity), contraction (decline), trough, and then expansion (recovery) again

Securities Act of 1933Securities Act of 1933

Requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.

To contract or slow economic growth U.S. fiscal policy should be to

raise taxes and cut government spending for programs and development

Out of the federal funds rate, discount rate, prime rate and broker call loan rate, which is the most volatile?

Federal funds rate because of the overnight offerings (short-term)

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.

Types of direct participation programs (DPPs)

real estate, gas and oil, and leasing programs

a debt obligation of a corporation backed only by its word and general creditworthiness, written promises of the corporation to pay the principal at its due date and interest on a regular basis.

Municipal revenue bonds

bonds issued to finance a project or facility with the bonds' debt service backed by the facility's revenue stream. The revenue might come from rents, tolls, or admission fees, among other sources.

Build America Bonds (BABs)

Taxable municipal securities. Two types: Direct Payment ( provide the municipal issuer with payments from the U.S. Treasury) and Tax Credit, or Issuer (provide the bondholder with a federal income tax credit)

Long 1 XYZ January 50, put at 2. What is the max. potential gain?

Maximum gain for a long put is calculated by subtracting the premium from the strike price (50 − 2 = 48 per share). One contract represents 100 shares, so the buyer's maximum gain is $4,800 (this occurs if the stock becomes worthless).

When must a suspicious activity report (SAR) be filed with FinCEN after noticing suspicious activity in an account?

within 30 calendar days, the client may not know he is subject to an SAR.

When can corporate accounts trade on margin?

Only when it is not listed as being restricted for doing so.

When securities are held in street name, who is the beneficial owner?

The security is put in the broker-dealers name, but the customer is still the beneficial owner.

What are the requirements of a business continuity plan (BCP) if there is a major business disruption in the firm?

Data backup and recovery (hard and electronic copies), alternate business location for employees, and prompt customer access to funds and securities

What securities can be purchased on margin?

Equities, bonds and warrants. Mutual funds cannot be purchased on margin, but can be used as collateral after being held for 30 days.

When one company sells all of the shares of another it own

When inflation and stagnation occur simultaneously: a period of high unemployment and lack of growth and business activity (stagnation) and high unemployment and lack of growth and business activity (inflation)

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SIE EXAM

Question	Answer
the cost of an option contract, expressed in dollars per share of the underlying stock	Options- a premium
issued by banks, represent a specific number of shares of a foreign company, and trade and pay dividends in dollars	American depositary receipts (ADRs)
Under which of the following circumstances is an investor in a position to acquire stock?	Buy a call, sell a call (The holder of a call has the right to buy stock at the strike price if exercised. The seller of a put is obligated to buy stock at the strike price if exercised)
The price at which the stock will be bought or sold if the contract is exercised, expressed in dollars per share	Options- strike price
A customer believes that ABC's price will go up but does not have the money to buy 100 shares right now. How could the customer use options to profit from an increase in the stock's price?	buy calls, write puts (both are bullish)
A corporation's offer to current stockholders of the ability to purchase a proportionate number of new shares at a specific price for a limited time is called a	right (they usually expire in 30-45 days)
Which of the following records must be maintained for 6 years?	Customer ledgers (statements)
What institutions serve as depository and clearing facilities?	Depository Trust Company and National Securities Clearing Corporation (most specifically) then carrying and clearing firms can act as these as well.
What is a transfer agent?	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
What type of risk is unique to a specific industry, business enterprise, or investment type?	Nonsystematic risk
While underwriters can assist with preparation and filing, the accuracy and adequacy of these documents is the responsibility of the	Issuing corporation
What is the function of the clearing corporation?	Acting as an intermediary in a trade, examples of these can be a commercial bank, can be a broker-dealer but doesn't have to be
Who is considered a control person (security)	those owned by directors, officers, or persons (which include corporations, trusts, etc.) who own or control 10% or more of the issuer's equity securities (an unaffiliated person would have to own 10% or more of the outstanding shares)
What are the two components of Return on Investment?	Capital gains and income
To expand the overall economy, we want to	buy securities via open-market operations, pushing interest rates down
To meet a Regulation T margin call, a customer would have how long?	settlement plus 2 additional business days (or S + 2)
What is A fully disclosed broker-dealer	one that introduces its business to a carrying firm to clear transactions
The regulation enacted by the SEC to protect the privacy of customer information is known as	Regulation S-P
A market maker that does not honor its firm quote is said to be	"backing away"
A deficit in the U.S. balance of payments can occur if	interest rates in foreign countries are higher than U.S. domestic rates and U.S. consumers are purchasing (importing) foreign goods
The general partner of a limited partnership has responsibility of	Organizing and managing the partnership, assumes unlimited liability, and is responsible for paying all partnership debts
To grow or expand the economy, U.S. fiscal policy should be to	cut taxes (so consumers have more money to spend) and increase government spending for programs and development (to create more jobs)
What is the federal funds rate	the rate commercial money center banks charge each other for an overnight, unsecured loan
The Federal Open Market Committee (FOMC)	buy or sell Treasury securities in the open market. Purchases add money to the economy, making the money available to lend more plentiful, and sales take money out of the economy, making money available to lend less plentiful.
Reports of rising inventories generally occur during which period of the business cycle?	Contraction, due to a lack of consumer demand
Who is exempt from registering with SIPC?	Those who deal exclusively with US Government securities (i.e.-Treasury bonds), exclusively municipality securities, and in redeemable investment company securities
Retail investorRetail investor	An individual who makes investments such as the purchase of securities for his or her account rather than for an organization
Market maker	Any entity, individual or organization, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security
When the Federal Reserve Board wants to expand (loosen) the money supply, it will	buy Treasury securities from banks in the open market
SROs functioning under the SEC include...	FINRA, MSRB and CBOE
Mild inflation can	encourage growth and stimulate the economy
Discount rate	The rate the FRB charges member banks
Prime rate	The rate commercial banks charges their most creditworthy investors. Prime rate decreases when banks sell securities because there's money money in the market and don't need to charge as much. Raise the rate when they buy securities.
4 stages of the business cycle	expansion (recovery), peak (prosperity), contraction (decline), trough, and then expansion (recovery) again
Securities Act of 1933Securities Act of 1933	Requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.
To contract or slow economic growth U.S. fiscal policy should be to	raise taxes and cut government spending for programs and development
Out of the federal funds rate, discount rate, prime rate and broker call loan rate, which is the most volatile?	Federal funds rate because of the overnight offerings (short-term)
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.
Types of direct participation programs (DPPs)	real estate, gas and oil, and leasing programs
Long vs short investor	Long (buy), short (sell)
Debenture	a debt obligation of a corporation backed only by its word and general creditworthiness, written promises of the corporation to pay the principal at its due date and interest on a regular basis.
Municipal revenue bonds	bonds issued to finance a project or facility with the bonds' debt service backed by the facility's revenue stream. The revenue might come from rents, tolls, or admission fees, among other sources.
Build America Bonds (BABs)	Taxable municipal securities. Two types: Direct Payment ( provide the municipal issuer with payments from the U.S. Treasury) and Tax Credit, or Issuer (provide the bondholder with a federal income tax credit)
Long 1 XYZ January 50, put at 2. What is the max. potential gain?	Maximum gain for a long put is calculated by subtracting the premium from the strike price (50 − 2 = 48 per share). One contract represents 100 shares, so the buyer's maximum gain is $4,800 (this occurs if the stock becomes worthless).
When must a suspicious activity report (SAR) be filed with FinCEN after noticing suspicious activity in an account?	within 30 calendar days, the client may not know he is subject to an SAR.
When can corporate accounts trade on margin?	Only when it is not listed as being restricted for doing so.
When securities are held in street name, who is the beneficial owner?	The security is put in the broker-dealers name, but the customer is still the beneficial owner.
What are the requirements of a business continuity plan (BCP) if there is a major business disruption in the firm?	Data backup and recovery (hard and electronic copies), alternate business location for employees, and prompt customer access to funds and securities
What securities can be purchased on margin?	Equities, bonds and warrants. Mutual funds cannot be purchased on margin, but can be used as collateral after being held for 30 days.
Spin-off	When one company sells all of the shares of another it own
Stagflation	When inflation and stagnation occur simultaneously: a period of high unemployment and lack of growth and business activity (stagnation) and high unemployment and lack of growth and business activity (inflation)
Keynesian theory	Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.
Deflation	a general decline in prices occurring during severe recessions and the unemployment rate is rising.
Fourth market	market for institutional investors in which blocks of stock trade through electronic communications networks (ECNs) that are open 24 hours a day acting as agents
bullish position are...	long (owning/buying a security in hopes that they can resell it at a higher price later & owning securities that can be converted into rights, warrants and long calls)
bearish positions are...	short
An investor purchased 100 shares of Acme Shoelace stock for $20 per share. Four years later, the investor sold the stock for $28 per share. This investor would report these transactions, on a per share basis, as	$20 cost base, $8 capital gains (cost base: the price paid for the security, capital gain/loss: difference between the cost base and price security sold for later)
A member firm holding stock in street name may vote the shares as it sees fit if	the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting, and if the matters to be voted on are of minor importance.
What records have to be maintained for 6 years?	Blotters, general ledger, stock ledger, customer ledger, and customer account records
Churning	Excess trading in a customer's account, can happen in discretionary and nondiscretionary accounts
What will be found in a trade confirmation?	trade date, account number, description of the security, CUSIP number, commissions (not markups or markdowns), RR's ID number, BOT (bought) or SLD (sold) position, number of shares, yield, price per share, amount paid, and net amount
DERP	Declarate BOD approves the dividend payment Ex-Dividend one business day before the record date, or two business days after the trade date, stock must be purchased before Ex Record stockholders receive dividend distribution Payable when the shareholders
Interest payments for securities	corporate bond: pay semiannually
inflation	Rising employment due to an increase in demand for goods and services
best efforts underwriting types:	All or none: underwriter sells all of the shares or cancels the underwriting Mini-max: fixing a minimum/maxiumum (floor or ceiling) dollar amount to be sold in order to move forward with the entire offering
market maker	A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security
Prime rate	the rate charged to their most credit worthy corporate customers for unsecured loans, set by individual commercial banks
balance of payments	the flow of money between the US and other countries
trustee	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
custodian	An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another (i.e.-Custodian of an account of a minor)
Cooling-off period lasts...	20 CALENDAR days, not business, since the SEC has received it
When the FOMC buys treasury securities, interest rates will...	be lowered since the money supply is loosening and there is more money being pumped into the economy
What investment products are NOT covered by the FDIC?	Mutual funds, annuities, life insurance policies, and stocks/bonds.(An annuity with a self-directed IRA or mutual fund with a certificate of deposit are covered)
Types of interest rates charged	Discount rate- FRB Prime Rate- Large commercial banks charge to credit worthy investors Broker Loan Rate- banks charge broker dealers on money they borrowed to lend to margin account customers
Shelf offering registration	when issuers can raise money quickly when needed or when market conditions are just right by selling shares, the transaction does not have to happen immediately, can occur in the primary and secondary offerings
Supply-side theory	Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.
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
A strong US dollar leads to..	more affordablility for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit.
prime brokerage account	a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.
Depository trust company (DTC)	serves the custody needs of securities industry participants in the US and a number of foreign countries as well.
carrying firm	clearing broker-dealers, can execute trades, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks,
introducing/fully disclosed	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, it introduces its customers to a clearing firm
Main purpose of issuer/primary market transactions	hopes of raising capital by selling securities to the investing public
Secondary market transactions are where...	investors buy and sell securities to and from one another
Primary market transactions are where...	Issuers, or someone acting as an issuer, sells securities to the investing public
U.S. consumers are increasing their imports of foreign-made goods, what will likely happen to the GDP?	The GDP will decrease (it is a measure of goods and services produced), so if there are more foreign goods being shipped in, there are less US goods being produced domestically
What is the only form of advertising permitted before the effective date?	Tombstone ads
What is the primary regulatory body for the securities industry?	the SEC, not FINRA
The cost of doing business is closely linked to the cost of money, which is known as	interest
Firm commitment underwriting is when...	Underwriters acting as principals and committing to purchase any unsold shares for the syndicate account
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
Syndicate	two or more broker-dealers which work with an issuer through, the registration process in the case of corporate securities and bring the issuer's securities to the market by selling them to investors. Syndicates specialize underwriting municipal bonds.
A depository	A business entity that performs the function of receiving and delivering payments and securities on behalf of both parties to a securities transaction
What type of risk can be reduced through diversification?	Nonsystematic risk (i.e.-business, capital, financial, call, prepayment, currency, liquidity, regulatory, legislative, and political risk)
What type of risk cannot be reduced through diversification?	Systematic risk (i.e.-market, interest rate, reinvestment, and inflation/purchasing power)
Limited partnerships	An investment that allows for a share in the income, gains, losses, deductions, and tax credits of the business entity to pass through to investors
The effect of continually rising retail prices on the investment returns of one's portfolio is best described as	Inflation risk
Long call and long put	call buyer owns the right to buy shares (bullish), while the put buyer has the right to sell the shares (bearish)
Short call and short put	call writer has the obligation to sell the shares (bearish), while the put writer has the obligation to buy the shares (bullish)
What does it mean when a fund is highly leveraged?	It means they are borrowing to purchase, or buying on margin. (i.e.- a hedge fund is highly leveraged)
Penny stock	a non-Nasdaq listed (therefore, Bulletin Board or "OTC Pink") stock trading under $5 per share. If a stock is listed on an exchange or listed on Nasdaq, it is not a penny stock, regardless of price.
T-bonds and T-notes pay interest....	semiannually
Why is a fixed security not considered a security?	because the annuity buyer assumes no investment risk, the insurance company does. They do, however, assume inflation risk.
A convertible feature for a corporate bond allows	a bondholder to convert a debt instrument into securities that give the investor ownership rights
What causes a mutual fund's NAV per share to fall?	when the fund pays a dividend to shareholders and when the market value of the portfolio declines
American-style vs. European-style option	American: call or put buyers can exercise a contract any time BEFORE expiration European: call or put buyers can exercise a contract on the expiration day only (last day of trading)
Where do tax deductions for real estate programs derive from?	mortgage interest paid and depreciation
When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as	Treasury STRIPS
What are the three yields used for debt instruments that all mean the same thing?	Nominal, stated and coupon yield, they are all fixed at the time the bond is issued
Sovereign risk is...	a type of political risk, the risk of default by a country on its debt instruments.
Legislative vs Regulatory risk	Legislative: the changing of laws Regulatory: the changing of regulations
Liquid vs illiquid investments	Investments in stocks and bonds are considered liquid (i.e.-common stock), while investments in assets (works of art, real estate, automobiles) are considered illiquid
A registered representative speaks to a customer about a particular 6% municipal bond quoted on a 6.5% basis. What does this mean?	6% is the bond's coupon, while 6.5% is the bond's yield to maturity
Money market instruments guaranteed by a bank that are used to provide capital for international trade/ provide short-term financing for importers and exporters are called	bankers' acceptances (BAs)
If an investor is long an option contract and wishes to exercise the contract, the investor notifies the broker-dealer, who then notifies...	the OCC (Options Clearing Corporation) who's duty is to standardize, guarantee the performance and issue options contracts
If the buyer exercises the contract, then the seller...	is obligated to fulfill the terms of the contract
What does a bond certificate represent?	The borrower's obligation to repay the amount it borrowed plus interest
What happens in repo (reverse repurchase) agreement	a dealer agrees to buy securities from an investor and sell them back later at a higher price.
A preemptive right for existing shareholders is best described as	the right to purchase shares in an amount that would keep a shareholder's proportionate ownership in the corporation unchanged when a company issues additional shares
When is settlement for options trading?	The next business day, the day after the trade date, T + 1 (i.e.-If someone purchased a call on Tuesday, December 5, the settlement for that trade would be on Wednesday, December 6.)
capital market vs money market instruments	capital market: intermediate to long-term, equity or debt securities with maturities of one year or more money market: short-term, highly liquid, high-yielding debt securities, to corporations, banks, broker-dealers, government municipalities.
Types of money market instruments	Certificates of deposit (CDs), Bankers' Acceptances (BAs), Commercial paper, US Treasury bills, Repurchase Agreements (REPOs), and Federal Funds
What are ad valorem taxes?	real estate taxes issued by local municipalities (towns, cities, or counties -- never states)
What is capital risk?	the potential for an investor to lose some or all of their money (the invested capital) under circumstances unrelated to an issuer's financial stability.
What are depletion allowances?	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
Limited partnerships consist of...	a large group of investors contributing a small sum
While options accounts are initially approved by the branch office manager (BOM), they must ultimately be approved by the...	Reigistered options principal (ROP) in a promptly manner
When the current yield is higher than the coupon, what does this mean?	The bond was purchased at a discount
When a bond is being sold with current interest rates lower than coupon, what does this mean?	The bond was sold at a premium
How are ETFs priced?	by supply and demand where transactions prices may be higher or lower than the fund's NAV
What is market timing?	Short-term purchases and sales of a mutual fund to take advantage of price fluctuation
What is the most common form of direct participation programs (DPPs)?	Limited partnerships (LPs): business entities allowing for the economic consequences of the business to flow through to the individual investors (partners).
What is the one option contract with unlimited loss potential?	A short call, it is bearish and wants to see the price of the stock rise
What do federal funds represent?	the amount by which a bank exceeds its required deposits to be held on reserve at the FRB
What are the steps for opening a new options account?	Obtain essential facts from the customer, get approval from the branch manager, enter the initial order, then obtain a signed options agreement
What are anticipation notes?	Short-term municipal obligations that generate funds for a municipality that expects alternate longer-term financing (i.e.-TANs, RANs, TRANs, BANs, CLNs, GANs)
What are the 3 types of investment companies under the Investment Act of 1940?	Face-amount certificates, unit investment trusts, and management companies (both open- and closed-end)
The declaration, record and payment dates are all set by ___________, while the ex-dividend date is set by _________.	DRP are set by the BOD, while E is set by FINRA or the exchange
Exception reports are filed when...	There is suspicious activity in a customer account or when there is improper use of a customers' securities or funds
What is capping?	A form of market manipulation, often used by those who have written (Short) call option contracts, in which they enter sell orders in a stock for the purpose of keeping the stock from rising above the strike price.
What is backing away?	The failure to honor a firm quote on a security
What is a contemporaneous trader?	Someone who enters into a transaction at the same time as someone else who has and may be acting on inside information; they can sue the other person for up to 5 years after the violation has occurred
What are the three stages of money laundering?	Placement, layering, then integration
Regulation T	set by the FRB, the initial margin requirement is 50% of sale proceeds to be deposited in the customer's margin account
Standard corporate actions	cash and stock dividends, even and uneven stock splits (both forward and reverse) and the issuance of warrants and rights
Nonstandard/unique corporate actions	mergers and acquisitions, takeovers, spinoffs, tender offers and buy-back or repurchases of stock
What must happen in order to sell short?	The shares must be borrowed, or located in order to borrow.
What does Regulation S-P consider nonpublic information?	a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie (a home address is not included as nonpublic information)
What is the threshold for triggered suspicious activity and is grounds for filing an SAR (as compared to a CTR)?	At least $5,000 in funds or assets. A CTR is triggered by amounts greater than $10,000 in funds or assets
What is a tender offer?	When a company offers to buy outstanding securities for cash or for cash plus other securities from its stockholders or bondholders
What is a buy-back?	Sometimes referred to as a repurchase, is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors.
What information is contained on the trade confirmation sent to the investor at or on the settlement date?	The commission charged on the agency transaction and the CUSIP number
What would require a loan consent form?	A customer has given permission for securities in an investment account to be used for the purpose of other customers who want to borrow them in order to sell those securities short
What is a municipal financial professional (MFP)?	an employee of a FINRA member engaged in municipal security representative activities such as underwriting and trading
What dose the NAC (National Adjudicatory Council) do?	establishes the rules, regulations, and membership eligibility standards for registration with the SEC.
Prospectus vs. official document	Prospectus : the full disclosure document for nonexempt securities Official document: the full disclosure document for exempt securities
What are considered investment companies under the Investment Act of 1940?	Face amount certificates, unit investment trusts, and management companies (both open and closed)
What can you do in hedge funds that you can't in mutual funds?	Use borrowed money to purchase securities (purchasing on margin) and take short positions in NYSE listed stocks (selling short)
What does it mean when an option is at "parity"	When the premium equals intrinsic value (i.e.-"XYZ stock is traded on the NYSE. An investor notices that the XYZ October 45 puts are selling for 2½ when the XYZ stock is quoted at $42.50.)
Investors who are bullish on a stock should buy....	Calls (look at chart)
Investors who are bearish on a stock should buy....	Puts (look at chart)
Out of the following, which are not backed by the full faith of the government? : Treasury bonds, bill, STRIPS, or receipts?	Treasury receipts because they are issued by the broker-dealer, therefore their backing is only as good as the credit rating of the broker-dealer that issued them
Why is it easier for municipalities to issue revenue bonds, as opposed to general obligation (GO) bonds?	Voter approval is not required because revenue bonds are designed to be self-supporting from the revenue derived from the project funded by the fund and they are not constrained by a statutory debt limit since they are not backed by taxes like GO bonds.
What is a debenture?	An unsecured debt (not backed by corporate assets) obligated of a corporation, backed only by its word and general creditworthiness. Written promises from a corporation to pay its principal at the due date and pay interest on a regular basis.
How can an investor take advantage of intraday price changes due to normal market factors?	By investing in closed-end and exchange-traded funds because they trade in markets based solely off supply and demand. Open-end funds use forward pricing, causing the price to be calculated after the market closes
Under Rule 144, what sales are subject to volume limitation shares?	Control persons selling stock after the minimum 6 month holding period, regardless of how many years they sell them for. As long as they are registered stock (control) sold by an affiliate, volume restrictions always apply
What are Jumbo CDs	Issued in denominations of $100,000 to $1 million and trade in the secondary market, issued with maturities of one year or less, negotiable with no prepayment penalty, they are promissory notes.
Who is the only entity allowed to issue options?	The OCC (Options Clearing Corporation). Corporations would not issue calls and puts, but they would issue debt and equity securities like preferred stock, common stock and debentures.
Why do corporations issue promissory notes?	(aka commercial paper) they are short-term, unsecured commercial paper, issued by corporations to raise cash in order to finance accounts receivable seasonal inventory gluts
What are the three debt maturity schedules that can be used?	Serial: Term: Balloon:
What are Treasury bills?	Only Treasury security issued without a stated interest so the investor receives the value of par at maturity, always issued at a discount, lowest interest rate risk because they are short-term, and their maturities are 4, 13, 26 and 52 weeks.
What are the rules for penny stocks?	Solicited transactions, prospective investors always give stock disclosure document before transactions take place due to perceived risk, a signed statement is NOT required customers account activity required monthly when an account holds a penny stock
What constitutes an established customer?	They have held an account with the broker-dealer for at least one year (and has made a deposit of funds or securities) OR has made at least 3 penny stock purchases of different issuers on different days
What is the maximum potential loss for a short put?	The risk is if the stock falls....so if an investor shorts 2 DEF January 55 puts at a premium of 2 each when the market price of DEF is 56.25, the max potential loss is 55-2 = 53 x 100 shares = 5,300 x 2 contracts = $10,600
What is the maximum gain for any short position (call or put)	The premium (i.e.-An investor short a January 30 call at 4 has a maximum gain potential of 4 points at $400 - This would occur if, at expiration, the contract was at or out of the money and, therefore, left unexercised)
What do tax credits do for real estate program partners?	They reduce tax liability dollar for dollar, which makes them more beneficial than tax deductions, which only reduce taxable income
What debt instrument pays no periodic interest?	Treasury STRIPS because they are sold at a deep discount and mature at par
What is inflation risk?	When prices are continually rising, reducing purchasing power that one's investment returns will have
How is the coupon rate for a bond calculated?	As a percentage of par, usually $1,000 for a bond
Automatic exercise will occur at expiration for any equity option contract that is in the money by at least	0.01
What are the 3 types of real estate direct participation programs?	raw land, new construction and existing properties
What is financial risk?	relates to those companies that use debt financing (leverage), Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company's debt obligations.
U.S. consumers are increasing their imports of foreign-made goods. On this data alone, one might expect gross domestic product (GDP) to	decrease because you have to assume that when foreign imports are coming in, it is likely that production of U.S. goods will fall off, leading to a decrease in the GDP.
Limited partnerships sold publicly via a prospectus offering would be expected to have	a large group of investors, each contributing a small sum
A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares?	25 additional shares. This investor must thus go from owning 100 shares out of 1,000,000 to 125 shares out of 1,250,000.
An investor holds a 6% callable bond purchased at 105. If the issuer calls the bond before maturity, the yield to call realized by the investor would be	less than the coupon because they purchased the bond at a premium (105, bonds sell at 100)
Political risk is more associated with	emerging economies, but could occur even in highly developed ones
Records relating to a currency transaction report must be retained for	5 years
An investor has a long position in OMQ stock. After selling the stock at a loss, the investor could purchase which of the following and not violate the wash sale rule?	Purchasing the put options would not violate the wash sale rule because these can be exercised to sell the stock, not purchase it.
An investor is long 1 July 40 call at 2. This investor	has paid $200 for the call contract and has the right to exercise the contract to purchase 100 shares of stock at the strike price ($40).
If a customer's account has been frozen, can new orders be issued?	Yes, if paid in full. The funds must be in the account before the order to buy new securities can be issued
If a customer wants to be in a position to buy while taking in the premium, they should....	Be in a selling position (writer) so short put.
Which of the following securities is exempt from the Regulation T margin requirements but still subject to an initial margin requirement as determined by the broker-dealer?	T-notes
What is naked short selling?	Selling shares that are not yet borrowed or located in order to be borrowed, which is prohibited
What does it mean when a security is held in "street name"?	the BD is the named or nominal owner, but the customer is still the beneficial owner retaining all rights of ownership.
An investor in a direct participation program wishes to divest of a partnership interest purchased some time ago. You would correctly advise that	There is no secondary market making them highly illiquid
Short-term purchases and sales of a mutual fund to take advantage of price fluctuation is known as	Market timing
When would producers report periods of rising inventories?	During contraction
When would producers report periods of falling inventories?	Expansion (recovery)
What is and who performs proprietary trading?	Proprietary trading is buying and selling securities for one's own account. Market makers tend to do this as the major portion of their business.
What is a prime account?	A type of broker-dealer account where the institutional customer utilizes the services of a broker-dealer who provides custody of securities as well as other back-office functions, while also allowing the customer to establish relationships with brokers.
What are the rules for prospectus delivery for IPOs and APOs	An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days, and an APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days
To be an individual accredited investor, one must have a net worth of....	$1 million or more, or has had an annual income of $200,000 or more in each of the 2 most recent years. For joint accounts, income level must be $300,000
What is fiscal policy?	Fiscal policy refers to governmental budget decisions enacted by our president and Congress and it is NOT the most efficient way to solve short-term economic problems because politics drives Fiscal policy, making the process longer.
While private placement securities can be sold to accredited investors, the vast majority of these sales are for....	institutional investors
What typically do we see during periods of inflation?	Rising prices and rising employment.
What tools do the FRB use to impact the money supply?	Change the discount rate, open market operation from the FOMC, and changing the reserve requirements. Changing the prime rate is set by money center banks.
What are mutual funds typically prohibited from that hedge funds are able to utilize?	Purchasing on margin and selling short (i.e.-taking short positions on NYSE listed stocks)
Persons who enter trades at or near the same time in the same security as a person who has inside information are known as	contemporaneous traders; the simple definition of contemporaneous is: existing, occurring, or originating during the same time. Contemporaneous traders may sue persons
What does "investment strategy" include under the Know your customer (KYC) rule	Applies to recommendations to invest in, hold, or sell specific securities as well as suggestions pertaining to market sectors, day trading, or divesting of an asset or other investments to make funds available to purchase securities.
All GTC orders are automatically cancelled if gone unexecuted on...	The last day business day of April and the last business day of October. They are valid until they are cancelled and must be reentered on these days if they don't want them to be cancelled
What are the primary benefits of having a Roth IRA, as opposed to a traditional IRA?	Reaching age 70½ does not trigger the required minimum distributions found in other retirement plans, all earnings grow and may be withdrawn free of any tax, as long as there has been an open Roth IRA
A client of a member broker-dealer has just found a new job requiring relocation with a salary paying 50% more than the old job. The client should	should notify the broker-dealer of the change within 30 days
The Securities Exchange Act of 1934 required the registration of	Broker-dealers and stock exchanges. The 1934 Securities Exchange Act authorized the FRB to set margin rules, but does not register margin accounts. Registration of IPOs is a requirement of the Securities Act of 1933.
What is a split offering?	when the offering is a combination of a primary and secondary offering and the issuer receives half the proceeds and the existing shareholders receive the rest of the proceeds
What details of the underwriter must be included in the prospectus?	A description of the underwriting that will be taken place, including a list of the underwriters provided in the preliminary, but the actual underwriting contract is not required.
How does the Securities Act of 1933 protect investors who buy new issues?	By regulating registration of new issues, underwriting, full disclosure, the potential for fraud in the issuance of securities, and more. They do NOT require the licensing of persons affiliated with broker-dealers (1934 Act)
What are official statements (disclosure documents) used in connection with?	The selling of municipal bonds since they are exempt from registration under the Securities Act of 1933
Who protects from and provides criminal penalties for fraud in the issuance of new securities?	The Securities Act of 1933
Assets offered and traded in the securities markets can include.....	equities, currencies, derivative products (options), and bonds can all be traded. Life insurance is NOT an asset that can be traded in the financial markets
How long is the cooling-off period?	At least 20 calendar days after the date the SEC has received it
Public offerings of securities are regulated under	The Securities Act of 1933
During the cooling-off period, what is permitted regarding deficiency letters and solicitations?	Solicitations of sales may not be made during the cooling-off period and if a deficiency letter is issued by the SEC halting the review of the registration, it is sent to the issuer who is responsible for correcting the deficiency.
A select pair or group of companies organized to underwrite corporate or municipal securities is BEST known as a(n)	A syndicate: Two or more broker-dealers (investment bankers) which work with an issuer through, for example, the registration process in the case of corporate securities and bring the issuer's securities to the market by selling them to investors
The law that provides the legal framework for state registration of securities is the	Uniform Securities Act
When is the Securities and Exchange Disclaimer mandated to be shown?	On the final prospectus. It states: "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information"
What is another name of an option?	A derivative security
What is the prospectus delivery requirement for listed, nonlisted and non-NASDAQ securities?	For nonlisted and non-Nasdaq securities, the delivery requirement is 40 days, 25 days for NASDAQ or exchange listed, and 90 days for issues quoted OCTBB or the electronic OTC Pink sheets.
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 committment
The access equals delivery rule applies to	final prospectus and aftermarket prospectus delivery requirements
Examples of exempt securities include...	U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational.
Securities issued by the U.S. government are backed by	its full faith and credit, based on its power to tax the people
For Treasury receipts, how is interest paid and how are they sold?	They are sold at a discount and pay interest at maturity
When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as	Treasury STRIPS
Treasury receipts are backed by	the issuing broker-dealer, even though they are held in a trust at a bank and collateralize, they cannot be backed by the full faith and credit of the US Government, only by the issuer
What are Local Government Investment Pools (LGIPs)?	Securities that are established by states to provide other government entities such as cities, towns, school districts or state agencies with a short-term investment vehicle to invest funds
Partners in direct participation leasing programs can receive write-offs (deductions) for	Interest expenses for on the loans to purchase equipment, operating expenses, and depreciation of equipment owned and leased. NOT depletion. (Depletion is associated with natural resources programs, like oil and gas.
An investor is convinced that CDT stock will soon decline in value for a number of reasons. What investment strategy will allow the investor to take advantage of the anticipated decline in share value with the smallest cash investment?	purchasing a put option because the investor is bearish on the stock. If the stock declines as anticipated, the investor could exercise the right to sell the stock at the strike price and then repurchase it at its lower current market price for a profit
Characteristics of revenue municipal bonds include...	That they are not subject to statutory debt limits (unlike GO bonds) and are backed by a facilities ability to generate revenue (not secured by a specific pledge of property)
Costs to maintain shareholder records, costs to provide services to shareholders, and the investment adviser's fees are all what?	Expenses to the fund
The costs paid in the form of sales charges (loads) to an underwriter or broker-dealers selling mutual funds to the public are all what?	Expenses to the investor
Limited partnerships sold publicly via a prospectus offering would be expected to have	a large group of investors, each contributing a small sum
Direct participation programs (DPPs) are set up	having the owners of the business liable for any taxes due. 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.
When a company is reorganizing, what type of security would they typically issue?	Income (adjustable) bond: They allow the issuer to only pay interest if the corporation has enough income to meet the interest payment obligations and allows the corporation some flexibility while attempting to reorganize and emerge from bankruptcy.
When an investor purchases a corporate bond, the investor is	lending money to and becoming a creditor of the corporation
Puttable bonds (bonds with put features) are likely to be put back to the issuer, for the benefit of the bondholder, when...	interest rates are rising: nothing to do with bond prices, the bondholder wants the higher interest rate now to get the highest return (6% instead of 4%)
Leasing participation programs	when DPPs purchase equipment being leased to other companies, this allows it to deduct over the life of the program any interest costs and depreciation. This then creates tax-sheltered income from the lease payments
What are no-load shares?	They are not considered sales charges, but rather services fees, purchase fees, redemption fees, etc.
How do REITs differentiate from limited partnerships (& DPPs in general)?	They pay dividends and pass gains through their investors, but not losses (like limited partnerships do)
To expand the economy during a recession to stimulate the economy, the FRB would...	Lower the discount rate, lower the reserve requirements, and buy securities in the open market
To tighten the economy during expansion and prevent inflation, the FRB would....	Raise the discount rate, raise the reserve requirements, and sell securities in the open market
During times when interest rates are rising, what type of preferred share is likely to pay a higher annual dividend?	adjustable-rate preferred since they follow benchmark interest rates, like Treasury securities, the rates would fluctuate up and down and so would the dividends
Guaranteed bonds	unsecured, backed only by the financial strength of a parent company, or third party (the company making the "guarantee"), not the issuer
Callable preferred stock is advantageous to the issuing company because it allows the company to	replace a higher, fixed-rate issue with a lower issue after the call date
Of the following strategies, which is considered most risky in a strong bull market?	Writing Calls: short (writing) calls are bearish and have an unlimited maximum loss potential. In wanting the price of underlying stock to go down, one's risk is that the underlying stock goes up and, in theory, could go as high as infinity.
In any 90 day period, an investor may sell the greater of...	1% of the outstanding shares of the same class at the time of sale, or the average weekly trading volume in the stock over the past four weeks on all exchanges or as reported through Nasdaq
An affiliate holding unregistered shares can sell under Rule 144	4 times a year, or every 90 days (every 3 months).
How do you determine a bond's yield? What is least likely to impact a yield?	You determine a bond's yield by looking at current market interest rates, the issuer's credit quality, time to maturity, and any features the bond may have. The number of bonds in the issue is LEAST likely to have an impact on the yield.
Which option has unlimited loss potential?	Short calls- They are bearish and want the stock to go down, the risk that the stock price will rise and go to infinity. Therefore, short calls carry unlimited risk.
Sales loads, management fees and operating expenses do what to the fund's return?	All decrease the return because there's less money to invest
Rule 144 imposes volume limitations on whom?	Volume limitations are always on control persons (affiliates) of the firm when selling registered shares, but nonaffiliates are not subject to limitations, there is only a holding period for 6 months will selling restricted shares for nonaffiliates
An investor lending money to an entity receives back the principal amount of the loan on the	maturity date
Exempt from the penny stock rules are	unsolicited transactions are exempt because the rules for cold-calling only apply to solicited transactions
An investor is convinced that CDT stock will soon decline in value for a number of reasons. Which investment strategy will allow the investor to take advantage of the anticipated decline in share value with the smallest cash investment?	Basic option strategy when one is bearish on a stock, if the stock declines as anticipated, the investor can exercise the right to sell the stock then repurchase it later at a lower price for a profit
Purchasing a call or a call spread are what types of options strategies?	Bullish options strategies
All corporations will issue what type of stock?	All corporations will issue common stock, but not all corporations will issue preferred stock.
When is the settlement date for options transactions?	T+1 (if a customer purchased a call on Tuesday, December 4, the settlement date would be Wednesday, December 5.)
What is a limited partnership?	A limited partnership (LP) is the most common form of direct participation program (DPP), NOT a corporate business entity. LPs are business entities allowing for the economic consequences of the business to flow through to the individual investors.
For options, each is a 2-party contract, which allows	the buyer to exercise the contract, with the seller obligated to fulfill the terms of the contract
What do company-issued bonds (debt securities) represent to the investors?	They represent a loan to the issuing company, which the company will repay plus interest
If an investor in a DPP wanted to divest of a partnership, the adviser would be correct in telling him what?	That there is no secondary market for them making them highly illiquid
What options position has unlimited gain potential?	Long calls because they are bullish positions and the investor wants to sell the stock price go up and see the underlying's stock rise (in theory, could go to infinity) and is therefore, unlimited
Regarding options, it should be recognized that the maximum movement for any underlying stocks price could be	as low as zero and as high as infinity
Your customer wants to be in a position to buy CDS stock while taking in premium. What options position would accomplish this?	Short puts or long calls, but only sellers are able to take in the premium (income). So the answer would be short puts
An investment that allows for a share in the income, gains, losses, deductions, and tax credits of the business entity to pass through to investors is known as	limited partnership
An investor purchases a T-bill for $9,925 that will mature at $10,000. The difference between the $9,925 paid and the $10,000 that will be received is	A discount to par and is considered interest to be made at maturity
What is the statute of limitations on fraudulent practices under the Securities Act of 1934?	3 years from the event itself, and 1 year from discovery
What is the penalty for freeriding?	The account is frozen for 90 days and no new transactions may transpire unless there is cash or marginable securities in the account before any other purchase is made
What are the two exceptions to the written notice and approval requirement for lending arrangements between customers and RRs?	When both are immediate family members, or when the customer is a lending institution and the loan is a standard commercial lending transaction.
Mr. Smith enters a trade in a stock at the same time as Mr. Jones, who has inside information regarding that company. Mr. Smith is considered	a contemporaneous trader. They are allowed to sue the person who violated the insider trading regulations and suits may be filed for up to 5 years after the violation has occurred
A market maker owning 70,000 shares of HCHS stock noted that it is down .25 on the day so far. Near the very end of the trading day the market maker enters an order to buy 100 shares at the market. This is an example of	Marking the close - Effecting trades at or near the close of the trading day to influence the closing price of a stock is called marking the close.
A market maker provides a firm quote to another broker/dealer then refuses to buy or sell at the price quoted. This is a violation where the market maker is said to be	backing away- not honoring the quote
Efforts to push up the price of stock one owns by soliciting buy orders from customers so that the stock owned can be sold later at a higher price is a violation commonly known as	Pump and dumb
Regarding the potential financial exploitation of seniors, impacted accounts would be those for individuals	age 65 and older, or age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.
Under what circumstances could a broker-dealer firm share in a financial loss with a customer?	If the loss was due to an error

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