SIE CHECKPOINT QUESTIONS

The nation is experiencing a rapid increase in the cost of living, but wages are not keeping pace with the increase in cost. The nation is experiencing
A) inflation.
B) stagflation.
C) disinflation.
D) stagnation.

B. stagflation
When prices are increasing but the economy is not growing, it is stagflation.

All of these are leading economic indicators except
A) manufacturer's new orders.
B) the stock market as measured by the S&P 500.
C) duration of unemployment.
D) building permits.

C. duration of unemployment
Duration of unemployment (i.e., how long unemployed people stay unemployed) is a lagging indicator. All of the others tend to change direction before the economy changes direction.

An extended period of little or no growth in GDP, wages, and prices is a period of
A) stagnation.
B) indignation.
C) stagflation.
D) inflation.

A. stagnation
An extended period of little or no growth period is normally referred to as stagnation. Inflation simply refers to rising prices and normally accompanies an expanding economy. Stagflation occurs when prices are rising but the economy is not

An economic indicator that tends to change direction following a change in the direction of GDP is a
A) lagging indicator.
B) leading indicator.
C) coincident indicator.
D) flagging indicator.

A. lagging indicator
Lagging indicators tend to change direction after a change in the overall economy. GDP is the most common indicator for economic activity. When you have studied for eight hours straight and can not keep your eyes open; that is a flagg

The most commonly referenced indicator of economic activity is
A) Dow.
B) GDP.
C) GNP.
D) CPI.

B. GDP
The most commonly referenced economic indicator that measures overall economic activity is gross domestic product. Gross national product is not covered with anywhere near the frequency of GDP. CPI is a measure of inflation, not activity. Dow is a

The economic indicator that reflects activity of U.S. entities without regard to where the activity takes place is
A) CPI.
B) FUN.
C) GDP.
D) GNP.

D. GNP
This is a description of gross national product. GDP measures activity within the U.S., regardless if it is domestic entity or not. CPI is the primary inflation measure. FUN is just a word. Do not pick something you do not recognize just because it

An economic event where consumers experience an extreme increase in the cost of goods in a short period is
A) stagnation.
B) suprainflation.
C) hyperinflation.
D) deflation.

C. hyperinflation
This describes hyperinflation. This is most likely experienced in nations that have dramatically increased the money supply beyond what the economy can absorb

The most common way of measuring purchasing power risk is
A) the DND.
B) the GNP.
C) the CPI.
D) the GDP.

C. the CPI
The Consumer Price Index measures the increase or decrease in consumer prices. GDP and GNP are both measures of economic activity. DND is a fictional acronym, which has nothing to do with this test. Do not pick things you do not recognize just

The monthly unemployment figure is considered a
A) coincident indicator.
B) lagging indicator.
C) leading indicator.
D) dragging indicator.

A. coincident indicator
Unemployment is a coincident indicator. There is no dragging indicator.

When consumer prices are increasing at a steady but reasonable rate this is considered a healthy level of
A) wage increases.
B) inflation.
C) growth.
D) stagnation.

B. inflation
Some level of inflation is considered inevitable in a healthy economy. If inflation becomes extreme, and is out of line with economic growth, it becomes a concern.

The nation has passed through very trying economic times. Many have lost jobs and are tapping into savings to maintain their lifestyles. The economy is not weakening and shows a few signs of growth, but the damage from the downturn is very visible. The na

D. recovery
Recovery is the best answer. A recovery occurs when the economy begins to show some signs of growth after a period of contraction. The period of the trough (bottom) along with deflation and economic disaster are hopefully behind the nation.

Producers would generally report rising inventories during which period of the business cycle?
A) Peak
B) Expansion
C) Recovery
D) Contraction

D. contraction
Downturns in the business cycle (a contraction) tend to be characterized by rising inventories (a sign of slackening consumer demand). During expansion (recovery is a synonym) and peak, goods are usually moving as fast as they can be produc

Which of these places the phases of the business cycle in the correct order?
A) Contraction, trough, expansion, and peak
B) Trough, recovery, contraction, and prosperity
C) Expansion, contraction, trough, and recovery
D) Peak, contraction, recovery, and p

A. contraction, trough, expansion, and peak
The order should be peak (or prosperity), contraction, trough, recovery or expansion. For the test, the business cycle may begin with any of these four phases. Officially, business cycles begin with a recovery,

Inflation is most closely associated with which phase of the business cycle?
A) Recovery
B) Contraction
C) Expansion
D) Prosperity

C. expansion
Inflation is most associated with the expansion phase of the economy. During this phase, consumer demand has outstripped the economy's ability to produce more goods. The result is too few goods and too many buyers.

GDP turned negative in the first quarter of the year, and was negative again in the second quarter. It is now August and numbers have not improved. The economy is experiencing
A) stagflation.
B) depression.
C) denial.
D) recession.

D. recession
The contraction has continued for at least six months; a recession. A depression occurs for a longer period than what is described here. Stagflation, though not good, does not mean a contraction. Denial is not a term associated with the econo

It is generally agreed upon that the most volatile interest rate in the U.S. economy is
A) the federal funds rate.
B) the prime rate.
C) the call money rate.
D) the discount rate.

A. federal funds rate
The federal funds rate is the rate the commercial-money-center banks charge each other for overnight loans of $1 million or more. It is considered a barometer of the direction of short-term interest rates, which fluctuate constantly.

First Amalgamated Bank of Buffalo, a large commercial bank, is a member of the Federal Reserve System. Should the bank need to increase its reserves, it could do which of these?
I. Borrow from the FRB and pay the discount rate.
II. Borrow from the FRB and

A. I and IV
When a bank needs to borrow money to increase its reserves, it can borrow from the Federal Reserve Bank or it can borrow from another member bank like itself. When borrowing from the FRB, the banks pay the discount rate. When borrowing from an

M1 is a measure of the value of
A) M2 plus retail CDs and money markets.
B) retail CDs and money markets.
C) cash and funds held in DDAs.
D) cash, cash equivalents, and DDAs.

C. cash and funds held in DDAs
M1 is the tightest of the money supply measures, including only actual cash in circulation and funds in demand deposit accounts (DDAs) (e.g., checking and savings accounts).

The Federal Reserve pursues its dual mandate through
A) monetary policy.
B) fiscal policy.
C) economic policy.
D) trade policy.

A. monetary policy
The Federal Reserve is tasked with using monetary policy to manage the economy. Fiscal policy�taxation and spending�is managed by the legislative and the executive branch. Trade policy is driven primarily by the executive branch, and al

The Federal Reserve is concerned that the economy is slowing. With this in mind, which of these actions would the Federal Reserve most likely engage in?
A) Raise the margin requirements under Regulation T
B) Engage in open market sales of T-bills
C) Doubl

D. pursue an easy-money policy to lower interest rates
Monetary policy is implemented by the FRB. Monetary policy attempts to control the supply of money to influence the level of interest rates which, in turn, will either stimulate or dampen the U.S. eco

Which of these is not a tool used by the Federal Reserve Board (FRB) to impact the money supply?
A) Changing the prime rate
B) Open market operations of the FOMC
C) Changing the reserve requirements
D) Changing the discount rate

A. changing the prime rate
The prime rate is set by money-center banks, not the FRB. The remaining answer choices are the tools available to the FRB, which affects the money supply.

Which of these does M2 measure?
I. M1
II. M3
III. Term repos and jumbo CDs
IV. Retail CDs and money markets
A) I and IV
B) II and III
C) I and III
D) II and IV

A. I and IV
M1 is a component of M2 and adds retail CDs and money markets. M2 is a component of M3, plus term repos and jumbo CDs.

Under the dual mandate, the Federal Reserve is most concerned with achieving
A) minimum unemployment and maximum money supply.
B) federal spending and debt.
C) maximum employment and managing taxation.
D) maximum employment and controlling inflation.

D. maximum employment and controlling inflation
The dual mandate is designed to give this independent government agency two goals: maintain a healthy economy that supplies jobs enough for job seekers and keep prices from fluctuating aggressively. Some inf

The Federal Reserve's dual mandate includes which of these?
I. Maintaining maximum employment
II. Enforcement of price controls
III. Control the value of the dollar versus other currencies
IV. Price stability
A) I and IV
B) I and II
C) II and III
D) III a

A. I and IV
The dual mandate is to maintain maximum employment while keeping inflation in check (price stability). They do not enforce price controls. They may takes steps to manage the value of the dollar, but this is not a part of the dual mandate.

Seacoast Securities, a FINRA member firm and a large corporation, needs to secure funds to cover customers' margin purchases. Seacoast reaches an agreement to borrow from a large money-center bank for a loan that the bank can terminate with 24 hours' noti

C. broker call loan rate
A broker-dealer borrows funds to use in margin purchases at the broker call loan rate, and these loans may be called with a one-day notice. The use of the funds classifies this as a broker call loan. Seacoast may borrow for other

Of the standard Federal Reserve tools, which of these is considered the most powerful and used infrequently?
A) Quantitative easing
B) FOMC activities
C) Discount rate
D) Reserve rate

D. reserve rate
The reserve rate (i.e., the amount member banks keep on deposit at the Federal Reserve for liquidity) has the most dramatic impact when changed. It is rarely changed.

The principles of demand-side theory were laid out in the 1936 book, The General Theory of Employment, Interest, and Money written by who?
A) Arthur Laffer
B) John Keynes
C) Milton Friedman
D) Adam Smith

B. John Keynes
John Maynard Keynes (later the first Baron Keynes) wrote the Magnum Opus of demand-side theory. All of the others listed here are great economists as well, and all had varying concerns with Keynesian theory. (Smith predates Keynes by a bit,

In regards to fiscal policy, which of these statements is correct?
I. Fiscal policy is considered the most efficient means to solve short-term economic problems.
II. Fiscal policy is not considered the most efficient means to solve short-term economic pro

C. II and III
Because the political process determines fiscal policy, it takes time for conditions and solutions to be identified and implemented. Therefore, it is not considered an efficient way to solve short-term economic problems. Fiscal policy is the

A supply-side approach to fiscal policy will use all of these tools except
A) personal income tax rebates.
B) decreasing government regulatory costs.
C) providing tax credits to small business.
D) decreasing tax rates on business entities.

A. personal income tax rebates
Supply-side fiscal policy seeks to create a better environment for business to thrive. The end goal is a growing economy that creates jobs. Sometimes called trickle-downeconomics, the emphasis is on the business side much mo

Your client, Ann Porter, likes fast cars and has been saving for a high-end Italian sports car. She recently saw a report that said the dollar was likely to drop in the near future. She is concerned that this might affect her plans to buy her dream car ne

A. yes, it will likely cost her more to buy the car if the dollar drops
A weakening dollar will likely cause the cost of her foreign made car to increase in dollar terms.

Demand-side economics call on the federal government to do which of the following to encourage economic activity?
A) Decrease government spending
B) Lower personal income tax rates
C) Decrease regulation
D) Increase tax rates

B. lower personal income tax rates
A demand-side approach would call for lower taxes on consumers and increased government spending. Little emphasis is placed on the regulatory burden.

Fiscal policy seeks to encourage or discourage economic activity through the
A) management of money supply and taxation.
B) management of money supply and government spending.
C) use of government spending and taxation.
D) use of government spending and i

C. use of government spending and taxation
Fiscal policy is the use of government spending and taxation to smooth out the business cycle. Interest rates and money supply are elements of monetary policy.

It would be reasonable to expect an increase in exports from the United States if which of these occurred?
I. The dollar strengthened against the euro
II. The yen strengthened against the dollar
III. The Swiss franc weakened against the dollar
IV. The dol

B. II and IV
U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar.

All of the following would decrease the U.S. balance of payments deficit except
A) a decrease in purchases of U.S. securities by foreign investors.
B) an increase in exports of domestic goods from the United States.
C) a decrease in dividend payments by U

A. decrease in purchase of U.S. securities by foreign investors
Anything that will bring foreign money to the U.S. will decrease the balance of payments. Foreign investors pulling their money out of the U.S., or investing less in the U.S. will increase th

You should expect which of these to occur when the dollar strengthens against other currencies?
I. Imports will become more expensive
II. Imports will become less expensive
III. Inflation will go down
IV. Inflation will rise
A) II and III
B) I and IV
C) I

A. II and III
As the dollar gains strength against other currencies, the cost of imports goes down in dollar terms. Domestic producers will need to compete with the less expensive imports. That keeps prices overall from rising, reducing inflationary press

Sparkly florescent earbuds made in the U.S. by Irksome, Inc., are suddenly popular in Asia. People from Canton to Calcutta are buying them in huge numbers. This is mostlikely to cause
A) the trade surplus to decrease, or deficit to increase .
B) the trade

B. the trade deficit to decrease, or surplus to increase
The increased demand for a U.S. produced good will increase what is exported, causing a deficit to shrink, or a surplus to grow.

Irksome Inc., makes components and peripherals for smart phones. Their line of bright florescent sparkly earbuds has taken off in Asia and is starting to gain popularity in the Americas and Europe, even in countries experiencing harder economic times. Irk

C. growth company
Irksome is considered a growth company because its products are selling well and steadily everywhere, even in contracting economies. The company's future looks bright

Where on a balance sheet would you find the estimated value of a retail company's inventory?
A) Net worth
B) Current assets
C) Current liabilities
D) Fixed assets

B. current assets
Inventory is reported in the current assets of a company's balance sheet.

Which of the following is an example of a company in a defensive industry?
A) Major Mills Grain Company, a grain and cereal producer
B) Pan American Aircraft, an airplane producer
C) National Motors, an automobile manufacturer
D) Centipede Equipment, a he

A. Major Mills Grain Company, a grain and cereal producer
Food manufacturers are examples of companies that maintain sales even in down-cycles; defensive industries. The others all represent industries whose sales fluctuate with economic activity; cyclica

Assets = liabilities + net worth is the
A) price to book ratio.
B) working capital formula.
C) basic balance sheet equation.
D) fully diluted earnings ratio.

C. basic balance sheet equation
This is the basic balance sheet equation: assets = liabilities + net worth.

Seabird Coffee Company has just reported an unexpected increase in EBITDA this past quarter. This means they experience an increase in
A) earnings available to common shareholders.
B) employee benefit costs.
C) earnings before interest, taxes, depreciatio

C. earnings before interest, taxes, deprecation, and amortization
EBITDA is an acronym referring to earnings before interest, taxes, depreciation, and amortization.

The economy appears to be moving into a strong expansion. Which of the following companies will likely benefit the most from this expansion?
A) Hinckley Gold and Silver Corp.
B) Dino Oil and Gas, Co.
C) Daisy Dairy Company
D) Old Bess Steel, Inc.

D. Old Bess Steel, Inc
The steel plant is an example of a cyclical industry and will likely do well in the upcoming expansion. Daisy and Dino are both producers of consumable goods and the defensive industry; the gold miner is countercyclical.

In order to calculate the earnings per share you would need information from
A) the balance sheet and current market value.
B) just the balance sheet.
C) just the income statement.
D) both the balance sheet and the income statement.

D. both the balance sheet and the income statement
Earnings per share (EPS) is earning available to the common shareholder (from the income statement) divided by the number of outstanding shares (found in the net worth section of the balance sheet). The s

Which of the following would likely be classified as a countercyclical industry?
A) Auto manufacturing
B) Home building
C) Gold mining
D) Food production

C. gold mining
Precious metals and the companies that produce them are countercyclical (i.e., going up when the economy is shrinking, and down as the economy grows).

Which of the following is not a measure of a company's short-term liquidity?
A) Debt ratio
B) Acid test ratio
C) Working capital
D) Current ratio

A. debt ratio
Debt ratio is the measure of a company's long-term debt as a percentage of net worth. The others are derived from current asset and current liabilities, focusing on a company's short-term liquidity and cash demands.

An industry whose products stay in high demand, and whose companies grow, without regard to the business cycle are called
A) defense industries.
B) growth industries.
C) cycling industries.
D) emerging industries.

B. growth industries
Growth industries do just that, grow. The business cycle has less impact on these growing businesses.

Narcissus, Inc., a social media company, has shares selling at $50. Your customer is bearish. He would like to sell the stock short, but not until it retreats at least 10% from its current price. In order to catch the drop he could
A)enter a sell short at

A) enter a sell short at stop 45.
The uncovered call does not help. If exercised he would have to buy the shares before he delivers them, leaving him flat (no position). The buy stop at 45 would trigger immediately and would become a market order to buy.

Narcissus, Inc., a social media company, has shares selling at $52. Your customer likes the company but thinks it is currently a bit too high and would like to buy the stock if the price declines to $50 per share. Which of the following orders meets this

A. buy limit @ 50
This order instructs the broker to buy at a price of $50 or better. Entering a buy stop at 50 would trigger the order immediately, becoming a market order to buy at the current price. The stop limit would not trigger until the stock rose

A bearish sentiment means that a person believes
A) the firm appears to be slow and lumbering.
B) the security will decline in value.
C) the company will devour its competition.
D) the security will increase in value.

B. the security will decline in value

An order that when triggered becomes a market order is called a
A) stop order.
B) market order.
C) limit order.
D) stop limit order.

A. stop order

An investor has her registered representative enter a sell stop limit order at 50. Following the order entry, trades occur at 52, 50, 49, 51, and 53. The investor would receive
A) 49
B) 53
C) 50
D) 51

D. 51
This is really two orders. The first is to stop at 50. That is, once the stock trades at 50 or lower, the order is elected (triggered) and becomes a live working order. That order is to sell at 50 or better. Therefore, the first time the stock hits

The market for Dizzy Rides Inc., is at $52 per share. Your customer would like to sell his shares for $55, and believes the stock will climb to that level in the next two to three weeks. What order should he place?
A) Sell limit 55 AON
B) Sell limit 55
C)

C. sell limit 55 GTC
Only the good-til-canceled (GTC) order will live past today. All the others will cancel if unexecuted by the end of the day. If there is no qualifier then it is a day order. Fill-or-dill (FOK) orders that cannot be filled immediately

A client entering a sell limit order at 43 would accept which of these trades?
A) 42
B) 42.90
C) 42.50
D) 44

D. 44
A sell limit at 43 means the investor will only accept a price of 43 or better (higher). Certainly, if the client is willing to sell at 43, she would be even happier to receive 44.

Your customer, Ellesha, places a sell stop at 50 on DEZ stock while it is trading at $53 per share. After the order is elected, Ellesha may sell her shares at which of the following prices?
I. $48
II. $49
III. $50
IV. $51
A) III and IV
B) I, II, and III
C

D. I, II, III, IV
Once triggered (i.e., elected), this becomes a market order to sell. Market orders may sell at any price.

Your customer is quite nervous about the stock market but expresses his belief that equities are still the place to save for retirement over the long term. He places a trade for 500 shares of an equity index fund. Overall your customer is likely
A) unsure

D. a bull
This customer has expressed confidence in stocks and has invested money to back up his belief. He is not confused at all. He recognizes that the equities can produce nerve-wracking consequences but have the best record of long-term growth, He is

Your customer places an order to buy 500 shares of Narcissus, Inc., (the ticker is NCS) at $50 per share fill-or-kill (FOK). When the order is entered, there are 450 shares available at $50 per share. What happens to the order?
A) The order will be cancel

A. the order will be cancelled and nothing is done
A fill-or-kill order (FOK) instructs that the order be filled in its entirety and immediately. As there are insufficient shares available to fill this order, it will be canceled and nothing is done.

An investor receives a quote of 32-32.15 for XYZ common stock. Which of these is correct?
I. Purchasing the stock will cost $32 per share.
II. Purchasing the stock will cost $32.15 per share.
III. The spread is $.15.
IV. The investor will receive $32.15 p

B. II and III
A quote always represents the bid and the ask (offer) price. Investors pay the current ask price when purchasing and receive the current bid price when selling. The spread is the difference between the bid and the ask.

The current quote for Generic Motors stock is bid 32-ask 32.05 5 � 2. Your customer places an order to sell 300 shares. How much will they likely receive, before commission?
A) Cannot be determined because only 200 shares are available on this side of the

D. $9,6000
Your customer will sell at the bid (32), or likely very close to it. The bid size is 500 shares so the market can absorb the entire order. 32 � 300 = $9,600. Customers who are selling receive the bid. Those who are buying pay the ask. The size

An investor receives a quote of 48.70�48.75 for XYZ common stock. Which of these is true?
Purchasing the stock will cost $48.70 per share.
Purchasing the stock will cost $48.75 per share.
The spread is $.05.
The investor will receive $48.75 per share if s

D. II and III
Quotes are provided in bid-ask form. The first number, the bid, is the price an investor can sell a security. The second number, the ask, is the price an investor will need to pay to buy the security. The spread is the difference between the

Seabird Airlines common stock is listed on the NYSE. Appalachia Securities is an over-the-counter market maker and has a posted quote for Seabird of 55.25-55.50. If Appalachia wants to enter a new quote, the smallest incremental change is
A) $ 0.05.
B) $

B. $0.01
The correct answer is $0.01. This stock is quoted in increments of no less than one cent ($0.01). Sub-penny pricing is only allowed on stocks trading below a dollar.

To fill a customer buy order, over-the-counter, your broker-dealer requests a quote from a market maker for 800 shares. The response is 15 bid, and ask 15.25. If the order is placed, the market maker must sell
A) 800 shares at $15.25 per share.
B) 800 sha

A. 800 shares at $15.25 per share
This is a buy order. The quote was for 800 shares, and the dealer did not place any qualifiers on the quote. The dealer is committed to selling 800 shares at the ask.

Two weeks ago representative Pete introduced his customer Neil to the Windmill Growth Fund in response to Neil's interest in growth funds. Today the customer calls Pete to place a trade to invest $10,000 in the Windmill Growth Fund. This is
A) an unsolici

D. solicited trade
As the representative introduced the security to the customer, this is a solicited trade. The customer provided the three key elements of the order (action, asset, amount) it is not a discretionary trade

Before executing a short sale the broker-dealer must first
A) have the customer deposit funds sufficient the cover the potential loss.
B) locate the shares to be borrowed.
C) do all of these.
D) check to see if the customer already owns the shares.

B. locate the shares to be borrowed
The locate requirement mandates that the broker-dealer have located the share to be borrowed before the order is executed. If the customer already owns the shares then this would be a short against the box, and still re

Your customer purchased 300 shares of XYZ stocks six months ago and sold the shares last week. The actions your customer took in relation to XYZ were to
A) buy short and sell long.
B) buy long and sell long.
C) buy long and sell short.
D) buy short and se

B. buy long and sell short
The purchase of the stock is a long buy. The subsequent sale of the long position is a long sale.

Two months ago your customer sold short 200 shares of Seabird Airlines at $15 a share. Today, the stock is trading at $10 a share. In order to close out the position your customer would
A) buy 200 shares of Seabird.
B) borrow 200 shares of Seabird.
C) buy

A. buy 200 shares of Seabird
A customer would need to buy the shares in order to close this short position. Borrowing the shares does not close the short, nor does buying the call. They could buy the call and then exercise, but the buy, alone, does not cl

A customer is long 400 shares of BuyStuff Inc., a big-box retailer. He borrows 400 shares to sell while maintaining his long position. This sale is called
A) short against the box.
B) an effective tax strategy.
C) a closing transaction.
D) short against t

A. short against the box
This is called a short against the box. It was a popular way of locking in a capital gain and deferring the tax consequences into another year. However, this practice was restricted by the Tax Relief Act of 1997; it was so restric

Rep. Pete receives a call from his client, Neil, to place a trade. He wants to buy 200 shares of the Starshine Entertainment Company. Pete asks Neil a few questions about the trade before placing it. This is
A) an unclassified trade
B) an unsolicited trad

b. an unsolicited trade
As the representative did not introduce the trade to the customer this is an unsolicited trade. The customer provide the three key elements of the order (Action, Asset, Amount) it is not a discretionary trade.

A customer has an account with a broker-dealer who provides a group of services, such as asset allocation, portfolio management, trade executions, and administration, for a single fee. This is known as a
A) margin account.
B) commission-based account.
C)

D. wrap account
Wrap accounts are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee rather than charging commissions for individual transactions. Wrap acc

Your client, Bill Hearst, inherited several thousand shares of his grandfather's auto parts manufacturer, National Autoparts. He sells a portion of the position in order to raise some cash to buy a new boat. Which of these is true?
I. This is a secondary

B. I and III
The issuer has no part of this transaction; it is considered a secondary market transaction. It does not matter that Bill did not buy the shares; it matters that he owned them. This is a long sale.

A registered representative placing trades in a customer account must have discretionary authority if they choose which of the following aspects of the trade?
A) The asset to be traded and the amount of the trade.
B) The action to be taken, the asset to b

D. the action to be taken, the asset to be traded, or the amount of the trade
In order for a trade to be considered discretionary the representative needs to choose any one or more of the three aspects of the trade (asset, action, or amount). It does not

Who must grant permission for a representative to have discretionary trading authority on an account?
A) The customer and the representative
B) The customer and a principal of the broker-dealer
C) The customer, the principal, and the representative
D) The

B. the customer and a principal of the broker-dealer
Authorization for discretionary trading must come from both the customer and the firm (represented by a principal). The representative's authorization is not a requirement.

A trade of an equity option settles in ( ) days, while an exercise of an equity option must be completed in ( ) days.
A) 2,2
B) 2,1
C) 1,2
D) 1,1

C. 1,2
An option trade settles next business day (T+1); the exercise of an equity option settles in two days from exercise.

A cash settlement trade settles
A) the regular way, but no margin borrowing is permitted.
B) in two business days.
C) the next day.
D) the same day as the trade.

d. the same day as the trade

Shares held in electronic form at a clearing house under a broker-dealers account are
A) in trust name.
B) held in street name.
C) held in safe keeping.
D) are in custodial name.

b. held in street name
Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client at the broker-dealers clearing firm.

On Tuesday, December 10 your customer Bought 5 OEX (S&P 100 Index) 230 March calls at four. On Tuesday, March 10 the calls are in-the-money and your customer issues exercise instructions. On what days did the trade and the exercise settle?
A) December 12

C. December 11 and March 11
All option trades settle next business days. The exercise of an Index option settles the next business day.

Your customer buys 300 shares of Steel Tools common stock on Tuesday and will be an owner of record as of the close of business that same Tuesday. This must be
A) a mutual fund.
B) not possible.
C) a quick settlement trade.0
D) a cash settlement trade.

d. a cash settlement trade
This is called a cash settlement trade. It states that the trade is a common stock, so not a mutual fund. There is no formal quick settlement trade.

On Friday, July 1 your customer purchased 10 3% T-bonds maturing in 15 years. This trade will settle on
A) July 6
B) July 3
C) July 2
D) July 5

D. July 5
Treasuries settle T+1 (next business day after the trade). A trade on Friday would normally settle on Monday, but this Monday is a holiday (Independence Day). Remember the July 4 and December 25 are not settlement days.

Ron buys 522 shares of Narcissus Inc., common stock in a cash account on Monday, March 19. He deposits cash in the account sufficient to cover the trade on March 20. How soon would he be able to withdraw those shares?
A) Thursday, March 22
B) Friday, Marc

D. Wednesday, March 21
This is a regular way settlement of a corporate security (T+2). The trade is fully paid for so the customer may request the shares be moved on or after settlement on Wednesday, March 21.

Good delivery of a stock certificate requires all of the following except
A) the correct number of shares are delivered.
B) proper endorsement by all owners.
C) proper signatures of a firm principal on the certificate.
D) certificates in good condition.

C. proper signatures of a firm principal on the certificate
The broker-dealer does not sign the certificate. All the rest of these are requirements.

A signature endorsement on a stock certificate would not be required for good delivery if the shares were
A) are in custodial name.
B) held in street name.
C) in trust name.
D) held in safe keeping.

B. held in street name
Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client. As these shares are likely only in electronic form no signature is required to transfer them.

A document that substitutes for the owners signatures on the back of a stock or bond certificate is called a
A) signature substitution letter.
B) security substitution letter.
C) certificate power.
D) stock or bond power.

D. stock or bond power
A stock (or bond) power signed by the owners may be used in lieu of the customer's signature on the back of the certificate.

Skye purchased 100 shares of Moreno, Inc., for $20 a share. One year later, she sold the shares for $21 dollars. Over the year, Moreno paid a $0.25 quarterly dividend. What was Skye's gain or loss and how much investment income did he earn?
A)$2 total gai

C)$1 gain and $1 in income
Gains are derived from opening and closing trades buy and sell in this example). She bought at $20 and sold for $21, so there is $1 in gain. She collected four quarterly dividends for $0.25 each, so a total in $1 in investment i

An investor has a long position in ABC Chemical Corp. (ABCCC), with a substantial unrealized loss. Wishing to use that loss to offset realized gains, the investor sells the stock. In reinvesting the proceeds of the sale, the investor could avoid violating

B)ABCCC put options.
In order to avoid violations of the wash-sale rule, investors selling a stock at a loss cannot purchase that same, or substantially identical, security within a 30-day period prior to or following the sale incurring the loss. Substant

Drew purchased 100 shares of Moreno, Inc., for $20 a share. One year later, he sold the shares for $21 dollars. Over the year, Moreno paid a $0.25 quarterly dividend. What is Drew's total return?
A)$2.00.
B)10.00%.
C)$1.00.
D)5.00%.

B)10.00%.
Total return includes any income the investment return produces; it is also expressed as a percentage, not dollars. The formula is as follows: ((sales proceeds - cost basis) + income) / cost basis.
Using the formula here, the calculation is as f

All of these dates are set by the board of directors of a corporation except
A)the ex-dividend date.
B)the payable date.
C)the declaration date.
D)the record date.

A)the ex-dividend date.
The ex-date is set by the market center (i.e., an exchange), or is set by FINRA if it is an over-the-counter traded security.

Which of these is correct regarding the ex-date for a common stock?
I. It is set by the board of directors.
II. It is set by FINRA or the exchange.
II. It is the first date an investor can purchase a security and not be entitled to the dividend.
IV. It is

B)II and III
Ex-dates, for securities that trade in the secondary markets, are set by the market center where the trade occurs. It represents the day the new owner of a security will no longer receive the dividend if the trade settles regular way.

Your customer purchased 1,000 shares of SmallCo Stock at $10 a share. SmallCo pays no dividends. Exactly one year later, the customer sold the shares for $12 a share. They realized a
A)$2,000 short-term capital gain.
B)$2,000 short-term capital loss.
C)$2

A)$2,000 short-term capital gain.
They bought the shares for $10, and sold for $12, so a $2,000 gain. To be a long-term gain the position must be held for more than one year.

Four of the best-known indices and averages are listed as follows. How do they rank from most to fewest issues in the index?
I. Dow Jones Industrial Average
II. NYSE Composite Index
III. Standard & Poor's 500
IV. Wilshire 5000
A)IV, II, III, I
B)II, III,

A)IV, II, III, I
The Wilshire actually had about 3,800 stocks, but still the most on this list. The NYSE composite is around 1,900. The S&P 500 is actually about 500, and the Dow Jones industrials in 30.

Your customer has performed the following trades
- Bought 200 shares of ABC at $40
- Bought 400 shares of ABC at 50
- Sold 600 shares of ABC at 55
What is the result of these trades?
A) A $6,000 gain
B) A $5,000 loss
C) A $6,000 loss
D) A $5,000 gain

D) A $5,000 gain
They bought 200 at 40 for $8,000; then 400 at 50 for $20,000; then sold 600 at 55 for $33,000. $33k - $28k = profit of $5,000.

The Windmill Growth Fund is composed of many stocks from a variety of large companies. It has a stated objective of capital appreciation from holding the stock of the large companies. If you wanted to compare the performance of the fund to the market, whi

A)S&P 500
The S&P 500 is the standard benchmark for large cap stocks. The S&P 400 is for midcap stocks. The Wilshire 5000 is a broad-based-U.S. equity index that includes large, mid, and small cap stocks. The EAFE is an index for international equities.

On March 3, the board of directors of Seabird Airlines declares a $0.20 a share dividend payable to holders of record, as of March 30. Seabird stock jumps on the news from $35 a share to $40 a share on the news. The current yield of Seabird stock is
A)5.0

D)2.00%.
The formula is (quarterly dividend x 4) / current market value. (0.2 x 4) / 40 = (.8) / 40 = .02 (2%)

BigTel Inc., has been the only provider of telephone service for over a century. The courts have declared BigTel is an unlawful monopoly and orders the company to break into smaller, competing companies. Owners of BigTel stock will retain their shares of

A)There is no taxable consequence
This spinoff is not a taxable event. Each new share will have a new cost basis based on a percentage of the original cast basis. There is no taxable event until shares are sold.

An investor purchased 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of these statements is correct?
I. Th

D)II and IV
When a company declares a stock dividend, the cost basis per share is always reduced. The computation is the original total cost ($4,000) divided by the new number of shares. 100 � .25 = 25 additional shares for a total of 125. $4000 / 125 sha

Harry's Burgers has announced a tender offer for 20 million shares of Jim's Junkfood Corner at $30 a share. If Harry's secures all the shares then they will control Jim's. The shareholders of Jim's, that submit their shares to the tender offer, will reali

B)I and III
Shareholders who tender their shares effectively sell the shares at the tender price ($30) and realize a gain or a loss depending on what their cost was for the shares tendered.

Issuers are not required by the Securities Exchange Commission (SEC) to give notice of corporate actions to shareholders for actions such as
A)interest on the issuer's bonds.
B)issuance of warrants.
C)a reverse split.
D)dividends on the issuer's common st

A)interest on the issuer's bonds.
Because the payment of bond interest is an obligation of a stated amount (i.e., the coupon rate) on a stated date (the two semiannual payment dates), notice to the markets is not required. Reverse splits and warrants are

RJN common stock is currently listed on the New York Stock Exchange. Poor operating results over the past several years have led to a sharp decline in RJN's stock price, putting the company at risk for failing to meet the minimum price requirements to rem

A)a reverse split.
Reverse splits are a favored way of increasing a company's share price. If, for example, the stock price had fallen to $2 per share, a 1 for 10 reverse split would immediately increase the stock's price to approximately $20 per share, a

An investor owns 300 shares of a Silicon Valley high tech firm whose shares are quoted on the Nasdaq Stock Market. A month prior to the company's annual meeting, the broker-dealer holding the stock in street name forwarded the voting proxy to the client.

A)the voting proxy would be revoked and only the vote at the meeting would count.
A proxy is automatically revoked if the stockholder attends the shareholder meeting and votes.

Which of these is considered a standard corporate action where adjustments made to cost basis, for outstanding shares, are standardized?
A)Takeover
B)Stock split
C)Buyback
D)Merger

B)Stock split
The most common corporate actions�dividend declarations (both cash and stock), stock splits (both forward and reverse), and the issuance of rights and warrants�are standardized regarding any adjustments to cost basis for outstanding shares.

Snowflake Resorts, Inc., has announced their intention to repurchase 5 million of the companies outstand shares from the secondary markets. This is called a
A)tender offer.
B)primary offering.
C)repurchase agreement.
D)buy back.

D)buy back.
This is an example of a buy back. If the company were buying the shares directly from shareholders at a preset price, it would be a tender offer. A repurchase agreement is a type of money market instrument. If Snowflake Resorts were selling, i

On August 20 of last year, when the stock was trading at $42 dollars, Seabird Airlines declared a 15% stock dividend, payable on September 15. On the close of trading, on the pay date, the stock was trading at $40. What would a customer who owned the stoc

D)Nothing
There are no tax implications for a stock dividend.

A company's board of directors has voted to divest of all shares of a subsidiary to create a new company. This is a type of corporate action best characterized as
A)a buyback.
B)an acquisition.
C)a spinoff.
D)a tender offer.

C)a spinoff.
A type of divestiture where a parent company sells all of the shares of a subsidiary, or distributes new shares of a company or division it owns, to create a new company is known as a spinoff.

Which of these business structures would pass through the results of the business to the owners and protect the owners from the liabilities of the company?
A) A General partnership
B) A C Corporation
C) A Sole proprietorship
D) An LLC

D. An LLC
The LLC is the only one of these that both passes the income and losses through while providing liability protection. C Corps protect but do not pass through losses. General partnerships and sole proprietorships passes results through, but offer

Many investors like to put a transfer on death (TOD) designation on their brokerage accounts. Which of these are benefits of doing so?
I. The TOD designation avoids estate taxes.
II. The TOD designation avoids probate.
III. The account holder is relieved

D. II and IV
The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although th

One difference between an UTMA account and an UGMA account is
A) an UTMA account has a wider set of allowed investments.
B) an UGMA account is tax deferred and a UTMA account is not.
C) UTMA assets are considered an irrevocable gift, an UGMA account allow

A.an UTMA account has a wider set of allowed investments
UTMA accounts allow real estate holdings, an UGMA account does not. Neither accounts are tax deferred and both accounts are irrevocable. The UGMA transfers at the age of majority, the UTMA may trans

Your customer, Jim, wants to deposit money into a 529 College Savings plan for his great-niece Penelope. He states four reasons why he likes the 529 plan. Unfortunately, you need to tell him he is incorrect on one point. Which of his following points is n

D. she has to use the money by the time she turns 30, so she will not be able to put if off too long
529 plans grow tax deferred and the funds may be withdrawn tax-free if used for qualified education expenses. These plans may be used to fund secondary ed

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He wants to set up his estate in a way that he will control the assets until he passes away or becomes incapacitated.

A. establish a revocable living trust
A revocable living trust will accomplish his goals for his estate. An irrevocable trust takes away his control of his assets. The business cannot be placed in a transfer on death account. A will must go through probat

Marsha, Jane, Cynthia, Craig, Jim, and Robert are owners of an account JTWROS. If Craig, Jim, and Robert pass away then their interest in the account
A) is identified and distributed with the decedent's estate.
B) is divided in half and one half of the ac

D. remains in the account and is now the property of the surviving tenants
In a joint tenants with rights of survivorship (JTWROS), the assets of the decedent simply remain in the account and are property of the survivors. There is no probate process for

A client and his spouse own shares in the KAPCO Fund as tenants in common. He has a 60% ownership interest in the account and the spouse has the balance. If the client dies, what happens to the shares in the account?
A) 50% of the shares would belong to h

B.40% of the shares would belong to his spouse and the remaining balance would be distributed to his estate
In a TIC account, securities owned by the decedent pass to the deceased owner's estate�in this case, 60% of the assets. The 40% belonging to the sp

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He would like to begin to move assets out of his estate in a way that will allow him to benefit from the assets, but

D. establish an irrevocable living trust
An irrevocable living trust will accomplish his goals. The assets in a revocable trust remain part of his estate as do the assets in a TOD account and a will. Also, a will must be probated.

Alan and Barbara Collins have three minor children; Dan, Ellen, and Frank. Which of the following UTMA accounts could be opened?
A) Barbara Collins as custodian for Ellen Collins
B) Frank Collins as custodian for Dan Collins
C) Alan Collins as custodian f

A. Barbra Collins as custodian for Ellen Collins
In an UTMA account, one adult is custodian for one minor. There is no such thing as joint custodians or joint beneficiaries.

Which of these is not correct?
A) There are no earnings limits for those contributing to a 529 plan.
B) There is no annual contribution limit for a 529 plan.
C) Both a 529 College Savings Plan and an ESA may be used to pay for pre-college education expens

D. A 529 plan's assets must be used by age 30, an ESA does not
An education savings account (ESA) must be used by age 30, a 529 plan has no such limit. As of January 1, 2018, both plans may be used for pre-college education costs.

Another term for a defined benefit plan is
A)
an annuity.
B)
a pension plan.
C)
a traditional term plan.
D)
a defined withdrawal plan.

B. a pension plan
Though an annuity acts much like a defined benefit plan, it does not require sponsorship by an employer. The other two responses are just made up.

Individual retirement accounts allow a catch-up contribution of $1,000 to be made into the account for those who are
A) 59� years old or over.
B) over 72 years old.
C) 50 years old or over.
D) over 50 years old.

C. 50 years old or over
Catch-up contributions are for those ages 50 and over (not over 50).

Andrea recently began working for the Seabird Coffee Company as a barista. She tells you that her company has two retirement plans she can participate in. In one plan, she contributes a portion of her salary into an account where she can choose from a set

A. a defined contribution plan and a defined benefit plan
The plan she contributes into on a pretax basis is a defined contribution plan. The other plan promises an income for and is a defined benefit plan. Both are types of qualified plans.

Which of these features does the Roth IRA include?
I. There are no minimum required distributions after age 70� with a Roth IRA.
II. There are higher contribution limits to a Roth IRA than to a traditional IRA.
III. Withdrawal of earnings in the Roth IRA

C. I and IV
One of the primary benefits to the Roth IRA is that reaching age 70� does not trigger the required minimum distributions found in other retirement plans. Probably the biggest benefit is that all earnings grow tax deferred, and may be withdrawn

A 73-year old client in the 25% income tax bracket withdraws $20,000 from her traditional IRA. Based on her life expectancy, the withdrawal should have been $30,000. How much tax will she owe?
A) $10,000
B) $5,000
C) $7,500
D) $12,500

D. $12,500
Failure to meet the required minimum distribution results in a 50% penalty on the shortfall. In this case, she took $20,000 when she should have taken $30,000 so there will be a 50% tax on the $10,000 difference ($5,000 penalty). In addition to

A broker-dealer may extend credit under Regulation T for which of these transactions?
A) A mutual fund purchase
B) The purchase of an IPO that went public 25 days ago
C) A variable annuity purchase
D) A closed-end investment company purchased on the NYSE

D. a closed-end investment company purchased on the NYSE
Regulation T governs customer payment and the extension of credit to clients in margin accounts. A closed-end fund is an existing listed security and is eligible for purchase on credit. IPOs and oth

A customer of a broker-dealer sells 300 shares of stock at $50 per share and leaves the proceeds in the account. The proceeds are
I. A free credit balance
II. A debit balance
III. available to the customer on demand
IV. available for withdrawal after 30 d

D. I and III
Proceeds from a sale that are not reinvested and held in the account at the broker-dealer are considered a free credit balance. The free means that the funds are available to the customer on demand (freely available).

Margin Maintenance requirements are set by
A) the FRB.
B) the SEC.
C) FINRA.
D) the FBI.

C. FINRA
Maintenance requirements are set by the governing SRO. FINRA is the best answer of this set. FRB sets the initial margin requirement along with the SRO minimum. The FRB does not set maintenance requirements.

An account that charges a set fee on a monthly or quarterly basis, which covers all trading activity, is called a
A) set commission account.
B) schedule account.
C) fee-based account.
D) wrap account.

C. fee-based account
A wrap account charges a fee that includes all costs, including management and advice. An account that charged a set fee for trading costs is a fee-based account. The other choices are not actual account types.

A margin account allows a customer to borrow a portion of the funds needed to complete a trade. Currently, the required minimum is 50%. Which regulator sets the requirement?
A) The FRB
B) The OCC
C) The SEC
D) FINRA

A. the FRB
The Federal Reserve Board sets the Regulation T requirement.

When opening a new account with margin, all of the following documents are required except
A) credit agreement.
B) hypothecation agreement.
C) account agreement.
D) consent to loan agreement.

D. consent to loan agreement
The consent to a loan agreement is not a regulatory requirement. Note this is a new account, so the regular account agreement is required in addition to the margin documents

Your customer purchases 200 shares of Seabird Airlines (the ticker is SBRD) at $30 a share in a cash account. Under Regulation T, the Federal Reserve has set the initial margin requirement at 50%. How much does your customer need to deposit for this trade

D. $6,000
This is a cash account. There is no margin borrowing, so 100% of the trade's value must be deposited. 200 shares at $30 = $6,000.

Minimum maintenance requirements in a long margin account is
A) 50%.
B) 30%.
C) 75%.
D) 25%.

D. 25%
Minimum maintenance for long margin is 25%. In a short account the minimum maintenance requirement is 30%. Initial requirement under Regulation T is 50%.

A new client of the member firm has just opened a margin account. After account approval, the client's initial trade is an order to purchase 100 shares of LMN common stock at $25. With Regulation T at 50%, in order to be in compliance with all regulations

C. $2,000
No borrowing can take place in a margin account without at least $2,000 in equity. It is only necessary to pay in full when the purchase is less than $2,000. It is only necessary to deposit more than $2,000 when the trade exceeds $4,000.

Fee-based accounts are appropriate for investors that
A) covered call writing.
B) trade actively.
C) asset allocators with quarterly rebalancing.
D) pursue a buy and hold strategy.

B. trade actively
Fee-based accounts are best for active traders, not individuals that hold position and trade infrequently.

What government organization maintains the Specially Designated Nationals List?
A) FINRA
B) The FBI
C) The OFAC
D) FinCEN

C. The OFAC
This is one of the functions of the Office of Foreign Asset Control (OFAC), a division of the Treasury that enforces economic and trade sanctions.

The final phase of money laundering, when the money moves into the legal economy, is called
A) layering.
B) insertion.
C) integration.
D) placement.

C. integration
The phases of money laundering are placement (i.e., where the cash enters of process), layering (i.e., multiple transactions through multiple institutions to hide the original source of the funds), and finally integration (i.e., where the m

The Bank Secrecy Act requires that all financial services firm must appoint
A) an anti-money laundering officer.
B) a privacy officer.
C) a chief compliance officer.
D) a bank security associate.

A. anti-money laundering officer
The BSA requires that all financial institutions appoint and empower an officer to create and implement anti-money laundering procedures.

The Office of Foreign Asset Control maintains a list of people and organizations with whom U.S. citizens and companies are not allowed to do business. This list is called the
A) Persona Non Grata List.
B) Known Criminal and Terrorist List.
C) Banned and B

D. Specially Designated Nationals List
This list of prohibited organizations and individuals is called the Specially Designated Nationals List.

Shortly after the branch opens, a customer, Martin, deposits $4,000 in cash into a business account. About midday, his spouse Cindy deposits another $4,000 in cash into the same account. Just before closing, Martin returns and makes another identical $4,0

C. structuring, and a CTR should be filed
It appears that Martin is structuring deposits to avoid attention being drawn to the amount of cash he and his spouse are depositing. This activity is called structuring. As the transactions exceed $10,000 in a da

The federal agency charged with the collection and analysis of financial transactions in order to detect illegal activity is
A) the Department of Justice.
B) the Financial Crimes Enforcement Network (FinCEN).
C) the Internal Revenue Service (IRS).
D) the

B. the Financial Crimes Enforcement Network (FinCEN)
This is the job of FinCEN, a division of the Treasury Department. FinCEN disseminates the intelligence it collects to other government agencies, particularly to the Justice Department.

One characteristic of large criminal enterprises is that they often generate significant sums of cash. The process of obscuring the source of this cash so that it can be used for legitimate purposes is
A) money cleaning.
B) money laundering.
C) cash clean

B. money laundering
The term for this activity is money laundering. Money laundering is an illegal activity, and the source of the initial funds are acquired illegally.

A Suspicious Activity Report would be triggered if the broker-dealer suspects a transaction involves funds derived from illegal activity and
A) involves at least $5,000 in funds or other assets.
B) involves at least $10,000 in funds or other assets.
C) in

A. involves at least $5,000 in funds or other assets
The triggering amount for a Suspicious Activity Report (SAR) is at least $5,000. Do not confuse this with a Currency Transaction Report (CTR), which is triggered by an amount greater than $10,000.

The three stage of money laundering include
A) insertion, processing, and integration.
B) soak, rinse, and spin.
C) placement, layering, and insertion.
D) placement, layering, and integration.

d. placement, layering, and integration
Placement is the first part of the process where the money is moved from its illegal source. The money is then moved through multiple financial transactions to obscure its origins, called layering. Last, the money m

Your clients, spouses Jared and Joaquim, are both 33 years old. They are concerned about saving money for a down payment on a home. Currently they have $120,000 set aside for that purpose. They plan to start a family in about a year and would like to buy

D. The Benji Money Market Fund
The money market and the T-Bill are safe investments for this short time frame. However, the money market provides the couple with flexibility to withdraw early or leave it in longer should their needs change. Variable annui

Which of the following is a financial consideration?
A) Is their child interested in college?
B) Where would they like to retire?
C) How concerned are they about carrying debt?
D) Monthly interest costs of consumer debt loans.

D. Monthly interest costs of consumer debt loans
Financial considerations are those issues that may be defined by a dollar amount (i.e., either a cash flow [$X per month] or a lump sum [$X once]). If the answer isn't a dollar amount, it is probably nonfin

Which of these would be considered a recommendation?
I. You suggest that the client consider adding the Windmill Growth Fund to their portfolio.
II. You explain to a customer how a sell stop limit order works.
III. When speaking to a client you notice the

B. I and III
Any suggestion to a client to invest funds in a security is a recommendation, including the suggestion to move a free credit into a money market fund. Explaining how a trade limit works is not a recommendation. A trade may be the result of a

Gerald is 78 years old. He approaches you to help him invest $150,000. He would like the money to generate some income to help pay for his new hobby, massive, multi-player, online role-playing games. He is rather risk adverse outside the digital world and

C. Benji U.S. Treasury income fund
The U.S. Treasury fund is most aligned with Gerald's objectives of income with capital preservation. The other funds have varying degrees of exposure to stocks, which are not in line with the Gerald's stated objectives f

All of the following are elements of a customer's suitability except
A) their alma mater.
B) their current profession.
C) their objectives.
D) their liquid net worth.

A. their alma mater
A customer's school is not an element of suitability, though it is a good thing to know. The other responses are mandatory elements of suitability.

For institutional communication the rule allows for either preapproval or review. However, if the firm allows the communication to go out before approval by a principal then
A) the principal must preapprove the topic of the communication.
B) the associate

D. the associate must have training on these communications
The rule allows the firm to require pre-use approval or allow for postuse review. If the firm allows postuse review then the associates must receive education and training on communications with

Which broker-dealers or investment advisers are obligated to maintain a business continuity plan?
A) State registered investment advisers only
B) Federally registered investment advisers only
C) Broker-dealers only
D) All broker-dealers and investment adv

D. all broker-dealers and investment advisors
All securities firms, both B-Ds and IAs, must have a business continuity plan (BCP).

Regulation S-P requires that financial institutions provide information to customers and consumers concerning
A) their policies on the protection of nonpublic personal information.
B) the categories of nonpublic personal information that a broker-dealer,

D. all of these

An institutional customer has requested that you provide an article that they can use in their quarterly retail client newsletter. Rule 2210 states that you must
A) obtain preapproval from a principal and file a copy with FINRA.
B) have a principal review

A. obtain preapproval from a principal and file a copy with FINRA
Even though this is going to an institutional customer, you have good reason to believe it will be sent to retail customers; as such, this must be treated as retail communication.

All of these are true regarding correspondence except correspondence
A) must be filed with FINRA within 10 business days.
B) may be reviewed after use (postreview).
C) must be in good faith.
D) must be to 25 or fewer retail customers or prospects within 3

A. must be filed with FINRA within 10 business days
Correspondence may be either pre-use approval or postuse review; it is the firm's decision. All communication with the public must be in good faith. Correspondence may go to 25 or fewer persons within 30

Regulation S-P defines consumers and customers correctly in which of these statements?
I. A customer has an ongoing relationship with the company.
II. A consumer performs a onetime transaction with the company.
III. A consumer has an ongoing relationship

B. I and II
Customers have an ongoing relationship and should receive an annual Regulation S-P notice. Consumers are entitled to receive the notice once.

FINRA rule 2210 on communications with the public would apply for all of the following except
A) A voicemail left for a customer
B) A text message
C) A flyer sent to 20 prospects
D) A website

A. a voicemail let for a customer
Rule 2210 applies to written communication. Written communication does not require paper, just words made up from letters. If they can read it, it is considered written communication.

The Telephone Consumer Protection Act of 1991 exempts all of these entities except
A) survey takers.
B) booking services for commercial enterprises.
C) debt collectors.
D) not-for-profit companies.

B. booking services for commercial enterprises
If the cold caller is looking to book appointments for a commercial entity, it must abide by the rules. Legitimate efforts made to collect a debt, those taking polling surveys, and charities are exempt from t

A client phones his registered representative in September and informs the representative that he will be studying abroad in Europe for the remainder of the year. The client wants the firm to hold his mail. What action should the representative take?
A) T

D. the representative must instruct the client that the request must be made in writing
FINRA rules require that all requests to hold mail must be made through written instruction from the customer. The instruction must include the period during which the

Communicating the information in a firm's BCP to customers occurs at all of the following times except
A) when requested.
B) ongoing on the firm's website.
C) annually.
D) at account opening.

C. annually
There is no annual communication requirement for a business continuity plan (BCP).

The TCPA requires that businesses that solicit by phone maintain a do-not-call registry that must be republished every
A) year.
B) 3 months.
C) quarter.
D) 30 days.

D. 30 days
Do-not-call registries are republished every 30 days. Numbers do not age out of the do-not-call list. If a number is on the list, do not call.

The TCPA only restricts solicitations that are delivered via
A) the telephone lines.
B) email.
C) facsimile.
D) voice telephone calls.

A. the telephone lines
The Telephone Consumer Protection Act of 1991 restricts any solicitation that uses a telephone line

The Telephone Consumer Protection Act mandates that unsolicited sales calls must occur
A) no earlier than 9:00 am and no later than 9:00 pm recipient's time.
B) no earlier than 8:00 am and no later than 9:00 pm recipient's time.
C) no earlier than 8:00 am

B. no earlier than 8:00am and no later than 9:00PM recipients time
The rule is that calls may only occur between 8:00 am and 9:00 am prospect's time. Though 9:00 am to 8:00 am and 9:00 am to 9:00 am fits within the time allowed, that is not the rule.

There are rules regarding customer statements. All of the following statements reflect those rules except
A) customer statements containing penny stocks must be sent monthly, even if no activity occurred in the account.
B) activity limited to only stock s

B. activity limited to only stock splits or stock dividends do no require monthly statements be sent
Any activity in an account such as purchases and sales, dividends and interest, and stock splits and stock dividends will trigger the requirement to send

All of the following are classifications of communication under Rule 2210 except
A) wholesale.
B) institutional.
C) correspondence.
D) retail.

A. wholesale
There is no wholesale class of written communication.

Sennacherib Partners, a broker-dealer partnership, maintains its records to meet or exceed regulatory requirements. Once a year, the partners gather for the annual partnership meeting. In order to meet the regulatory requirement, how long must Sennacherib

D. For the life of the partnership
The partnership agreement and records of partnership meetings are kept indefinitely.

Schmidt, a customer, has sent a written complaint to a firm principal. After a conversation with the customer, the principal was able to resolve the customer's concerns. How long must the complaint be held on file after the resolution?
A) Four years
B) Th

A. four years
Any record of written complaints must be kept for four years.

Stock ledgers, a record of stocks owned by the firm, are maintained for at least
A) 10 years.
B) four years.
C) six years.
D) three years.

C. six years
Financial and holding's records are normally retained for six years.

Dwight was appointed a principal for Seacoast Securities in June of 1996. He continued in the position until 2012, when he left to start his own firm. How long did Seacoast need to maintain the record of his principal designation?
A) Until 2002
B) Until 2

C. until 2018
Principal designations are retained for six years after the designation ends. Six years after Dwight left is 2018.

FOCUS reports, U-4 forms, and order tickets are examples of records that must be kept for
A) six years.
B) 10 years.
C) three years.
D) four years.

C. three years
These documents must be kept on record for three years.

Tony was fired for cause from Great Plains Investments. A U-5 Form was promptly filed stating that the cause was rude treatment of coworkers creating a hostile work environment. Great Plains will keep the U-5 record for a minimum of
A) indefinitely.
B) th

B. three years
U-5s have a three-year retention requirement.

Written complaints are kept for
A) 10 years.
B) none of these.
C) six years.
D) three years.

B. none of these
Complaints are kept for four years after resolution.

All of the following are records that are kept for the life of the firm except
A) stock book.
B) trade blotters.
C) articles of incorporation.
D) board meeting minutes.

B. trade blotters
Trade blotters are maintained for six years. Documents that are related to the creation of the firm and its basic organizational structure are normally kept for the life of the firm.

People who enter trades at or near the same time, in the same security as a person who has inside information, are known as
A) informers.
B) tippers.
C) contemporaneous traders.
D) tippees.

C. contemporaneous traders
The simple definition of contemporaneous is existing, occurring, or originating during the same time. Contemporaneous traders may sue persons that have violated insider trading regulations, and suits may be initiated up to five

All of these are steps that firms take to protect the interests of their senior customers except
A) place a hold on a customer account if exploitation is suspected.
B) refuse to open an account for senior citizens.
C) make reasonable efforts to obtain the

B. refuse to open an account for senior citizens
Refusing to do business with senior citizens is not only inappropriate, it is a bad business plan. All of the other actions may be allowed in order to protect a customer.

The use of information that is material to a company's prospects, and is not yet public, in order to make a profit or avoid a loss on a security is
A) informed trading.
B) insider trading.
C) day trading.
D) wise investing.

B. insider trading
The definition of insider trading is the use of material, nonpublic, information to make a profit or avoid a loss.

Which of these customers are considered most susceptible to exploitation by others?
I. Individuals age 65 and over
II. Individuals age 62 and over
III. Individuals with significant physical or mental impairment
IV. Individuals who are legally retired rega

A. I and III
Firms should take special precautions to protect customers over age 65 and individuals suffering from an impairment that may impair their ability to care for their own interests.

Brad is the brother of Chester. Chester is the CFO of Seabird Airlines. Over Sunday dinner, Chester mentions that Seabird is planning to raise its dividend payment significantly. He also tells Brad that the news will not be announced until this coming Tue

A. I and III
The criminal penalties are up to 20 years and the greater of $1,000,000 or three times the profit made or loss avoided. Note that he may be subject to substantial civil penalties as well.

Seacoast Securities is underwriting the IPO of WearTech Technology. Which of these may purchase the IPO at the POP?
A) Patricia, a portfolio manager for an investment adviser that custodies at Seacoast Securities
B) Pete, a representative of Seacoast Secu

D. Bob, a customer of Seacoast Securities
There are no restrictions against customers. Associates of the firms and portfolio managers are restricted persons.

Pete, a registered representative, is discussing his work as an investment banker with is family during his grandfather's birthday party. He was particularly excited about an upcoming IPO for Narcissus, a social media company. Several of his family member

C. his grandfather
Pete's grandfather is not a restricted person under Rule 5130. Parents, siblings, and in-laws are all prohibited from participating in the IPO.

When responding to regulatory requests for documents a broker-dealer
A) need not comply unless they are convinced of good cause.
B) may request a court hearing.
C) must comply with the request within three months.
D) must comply with the request promptly.

D. must comply with the request promptly
Prompt compliance with regulatory requests is required. By becoming a member, or registering with regulators, a broker-dealer agrees to provide documents and other evidence on request.

Buzz the broker has a radio show where he discusses penny stocks. In a recent show, Buzz told his audience that he just bought into stock in the Dipper Diaper company at $0.05 a share. He continues to talk about the strength and great growth potential of

D. pump and dump
This is a classic pump and dump. Buzz abused his position as a public figure to perpetuate positive news about a company he owns. Shortly after closing his position, he stopped talking up the stock.

All of these would be seen as reasons to investigate activity in a customer account except
A) trading activity in an account owned by a deceased person.
B) elements of the account information (i.e., an address) are not consistent.
C) transfers between cus

D. setting up and RMD in January for a customer that is only 72 years old
Setting up aRequired Minimum Distribution (RMD) for someone required to take an RMD is not suspicious. Funds should never travel between a customer and employee account. Deceased in

The SEC implemented which of these requirements to lessen the possibility that a broker-dealer applicant may not disclose their criminal past during registration to potential employers?
A) filing of a fingerprint card with the SEC.
B) filing of a fingerpr

B. filing finger print card with the U.S. Attorney General
Because certain crimes result in statutory disqualification from association with a member firm, sometimes applicants do not disclose everything on their applications. If there is a criminal recor

Patrick the intern, who has passed the SIE but is not yet registered, is sitting at the front desk greeting customers and answering the phone. During the course of an hour, he interacts with several customers and prospective customers. Which of these acti

C. providing current quote information on a stock in response to a customers request
Activity directly related to investment sales and solicitations, including quotes, is the activity of a registered person. The other activities are acceptable for a nonre

Five years ago, Tom, a resident of State A, was convicted of driving under the influence (DUI). At the time, the conviction was considered a misdemeanor. Last year, State A's legislature made DUIs a felony. Which of these is true for Tom when filing his F

A. II and IV
Nonsecurities-related misdemeanors do not have to be reported on the applicant's Form U4. Even though the DUI violation is now a felony, Tom's record shows he was convicted of a misdemeanor. If it had been a felony five years ago, it would ha

An applicant completing Form U4 would not be required to list their
A) legal name and any aliases used.
B) residential history for the past 10 years.
C) employment history for the past 10 years.
D) date of birth.

B. residential history for the past 10 years
The Form U4 requires residential history for the past 5 years only. Employment history for the past 10 years, legal names and any aliases used, and the date of birth are all examples of required information on

Sam has decided to change careers and become a financial services professional. While reading about the Form U-4 she discovers which of these are true?
I. Completion of Form U4 is not required for taking the SIE.
II. Completion of Form U4 is required for

D. I and IV
The Form U4 is not required before sitting for the SIE. The form is filed when associating with a member firm and must be updated promptly when U4 requires information changes. Note that the phrasing in option III states "only required when ta

Which of these is the most appropriate action for a registered representative to take after receiving a written complaint letter from a client?
A) Forward the complaint to FINRA and maintain a copy in the representative's records.
B) Place a telephone cal

D. turn the letter over t the representatives supervisor
Representatives receiving a written customer complaint are required to turn the complaint over to their supervisor immediately.

A broker-dealer has hired an individual for the position of a registered representative. The individual is struggling to pass the necessary qualification exam and has failed four times. After that fourth failure, the applicant faces a waiting period of
A)

A. 180 days
If an individual fails the qualification exam, the waiting period before the next attempt is 30 days following the first two unsuccessful tries. Once failing a third time, each successive attempt requires a 180-day waiting period.

Which of these would not make Nikki subject to a statutory disqualification?
A) Nikki made a false statement on the U4 Form.
B) Eight years ago, Nikki was convicted of felony assault in a fight.
C) Eight years ago, Nikki was charged with a misdemeanor inv

C. eight years ago, Nikki was charged with a misdemeanor involving securities fraud
A charge does not mean a conviction. A conviction of any felony is disqualifying, as is being barred by a state or federal authority. FINRA does not take well to lying on

A FINRA member broker-dealer has a new hire with the sole responsibility of training associated persons. She will not have any dealings with the firm's customers. In order to hold this position, the new hire
A) does not need to be registered as this job i

D. must register as a principal
An individual who trains people to supervise, solicit, or conduct business in securities must be registered as a representative. However, an individual must be registered as a principal with FINRA when they are involved sol

Which of these is not information requested on Form U4?
I. Education
II. Professional designations
III. Marital status
IV. Current residence
A) II and III
B) I and II
C) I and IV
D) I and III

D. I and III
Form U4 does not ask about marital status or education. Current residence is a required field, as are any industry related professional designations like CFP, CPA, or CFA.

After terminating from a securities firm and leaving the industry, regulators retain jurisdiction for a former representative for a period of
A) 5 years.
B) 180 days.
C) 2 years.
D) 1 year.

C. 2 years
Regulators retain jurisdiction for a period of two years from termination. A regulator may investigate and hold hearings for actions taken while employed during this period.

Rihanna resigns from her position as a Series 7 registered representative with Princeton Securities, a FINRA member firm, where she has worked for five years. After completing an accelerated graduate studies program, and receiving a Ph.D. in 30 months, sh

D. must retake and pass both the SIE and the Series 7 exam
The time limit to return is within two years. There is no education exemption.

When a registered person terminates from a FINRA member firm, filing Form U-5 is the responsibility of
A) the member firm.
B) the depository trust company.
C) the registered person.
D) FINRA.

A. the member firm
Should a person registered with a member resign or be terminated, the member must file Form U-5 with the Central Registration Depository (CRD) within 30 days of termination date.

Josephine takes and passes the Securities Industry Essentials exam while employed as an intern at Seacoast Securities, Inc. She then returns to school full time to complete her undergraduate degree in Business Administration at the University of San Franc

D. four years
Once an individual passes the SIE, a person must also take and pass a top-off exam within four years. After four years have passed they will need to requalify by taking and passing the SIE again before passing a top-off exam.

On Form U-5 all of the reasons for termination listed here require an additional explanation except
A) other.
B) discharged.
C) permitted to resign.
D) voluntary.

D. voluntary
Of the five reasons for termination on the form, only voluntary and deceased do not require further explanation. In a voluntary termination, the representative may not have stated the reasons for leaving. If deceased, that explains itself.

If a registered person fails to complete the regulatory element within the prescribed period,
A) FINRA will deactivate that person's registration until the requirements of the program are met.
B) the person must not be present on the firm's premises until

A. FINRA will deactivate that persons registration until the requirements of the program are met
Failure to complete the regulatory element within the prescribed time period will lead to FINRA deactivating that person's registration until the requirements

After working for several years as a retail sales manager, Marsha decided to seek employment at a FINRA member firm. Marsha was successful on her first attempt on the qualification exam and during her first three years as a registered representative she o

C. provide prior written notice to the employing member firm
Under FINRA's rules regarding outside business activity (OBA) prior written notice to, but not the permission of, the member firm Marsha represents is required.

From a regulator's standpoint, a complaint refers to which of these?
I. Verbal or written
II. Any aspect of customer service
III. Written
IV. Any issue arising from a securities transaction
A) I and II
B) III and IV
C) I and IV
D) II and III

B. III and IV
Regulations only recognize written complaints that are related to securities transactions. Firms likely have different rules, but the regulators only see writing and do not see rudeness or things unrelated to a transaction as a complaint.

Which of these are considered violations to the FINRA Conduct Rules?
I. Engaging in a private securities transaction without compensation with an immediate family member without notification to the employing broker-dealer
II. Parking a license for a forme

B. II and III
Parking a license, regardless of the registration level, is a prohibited practice. Receiving a complimentary registration to a seminar produced by a mutual fund sponsor could be permitted, but it would have to be in a location that is consid

Hudson is a representative for Saguaro Securities in Scottsdale, Arizona. During the months of May through September, Hudson operates his business from a summer home in Flagstaff. Which of these statements about his home office is false?
A) The home offic

B. the office must be separated from the residence and have its own entrance
There is no specific physical requirements for a home office. The home office is in every way treated as a branch, including regulatory and firm examinations.

Harold, a representative for Seacoast Securities, is soliciting candy sales for his kid's band camp fundraiser. What permissions does Harold need to do this?
A) No permission is needed unless his firm has rules on this activity.
B) No permission is needed

A. no permission is needed, unless his firm has rules on this activity
The regulators do not care about this activity, but Seacoast may. This behavior may be annoying, but it is not illegal.

Under rules found in the Investment Advisers Act of 1940, if a political contribution to certain elected officials or candidates is made then an adviser may
A) have to suspend the providing of advisory services to any government they represent until it is

B. not provide advisory services to any government they represent for a fee for 2 years
The rule makes it unlawful for an adviser to receive compensation (i.e., fees) when providing advisory services to a government entity for a two-year period after the

A municipal finance professional (MFP) would have duties
A) limited to giving financial advice regarding a new issue of municipal bonds.
B) including underwriting, sales, and trading of municipal bonds.
C) including issuing and underwriting of municipal b

B. including underwriting, sales, and trading of municipal bonds
An MFP is an associated person of a FINRA member firm engaged in municipal securities underwriting, trading, sales, financial advisory, research, investment advice, or any other activities t

Seacoast Securities, Inc., a broker-dealer firm, has developed a series of ongoing education courses for its registered personnel. These courses cover various developments in the industry that are pertinent to Seacoast's business. Employees must complete

C. firm-element continuing education
This is an example of the required firm-element CE. It is administered by the firm annually and is relevant to the firm's business. The regulatory element is administered by FINRA. The other names are fictional example

Representatives are required to take CE courses provided by their employer annually, and CE courses administered by FINRA on the
A) third anniversary of licensing and every two years thereafter.
B) first anniversary of licensing and every three years ther

D. second anniversary of licensing and every three years thereafter
Regulatory element CE, administered by FINRA, begins on the second anniversary from passing a top-off exam, and then every three years. A 120-day window opens on the anniversary date of p

The portfolio manager of a pension plan is a well-known fan of the local football team. The branch manager of a FINRA member firm who has been trying to secure a portion of the plan's investment account owns a luxury box at the stadium. FINRA's Conduct Ru

C. the branch manager to invite the portfolio manager to accompany him to a game of his choice
A gift of tickets to a single game, even in a luxury box, would be permitted under the Conduct Rules; a gift of tickets for the season would not be. Any gift co

Ron the representative is opening the branch's mail and finds a letter of complaint about a trade he entered. What should Ron do next?
A) Forward the complaint to a principal.
B) Reverse the trade.
C) Drop the letter in a shredder accidentally.
D) Contact

A. forward the complaint to a principal
Ron must forward any complaints to principals. There are no alternate steps here. Make the boss aware just as quick as you can.

Joey, a registered representative for Seacoast Securities, Inc., has been approached by his close friend, Ross (who is a customer), to help him raise money for his anthropological research project. Ross wants Joey to introduce the program to his customers

A. selling away and is a rules violation
This is selling away, which is always considered a violation. The fact that the money is being raised for science is not relevant; the intent is to make a profit with the sale of the research. Receiving payment dir

Which of these statements regarding home-based offices is true?
I. Home-based offices would not require FINRA approval.
II. Home-based offices would require FINRA approval.
III. Home-based offices would be subject to site visits by FINRA auditors.
IV. Hom

A. II and III
It does not matter if the office is home-based, also acting as the representative's personal residence; it is subject to the same approval and inspection requirements of a normal branch.

Eddy is a representative for Saguaro Securities in Scottsdale, Arizona and wants to join the Maricopa County Sheriff's Department as a part-time reserve deputy. For his community service, he will receive a small payment to help defer the cost of his equip

D. provide Saguaro with a written notice
He must provide written notification, but does not need permission to proceed. Note that his employer may have stricter rules. Though this work is mostly volunteer, the small payment makes it a paid position. There

If a registered person fails to complete the regulatory element within the prescribed period,
A) FINRA will deactivate that person's registration until the requirements of the program are met.
B) the person must not be present on the firm's premises until

A. FINRA will deactivate that persons registration until the requirements of the program are met
Failure to complete the regulatory element within the prescribed time period will lead to FINRA deactivating that person's registration until the requirements

After working for several years as a retail sales manager, Marsha decided to seek employment at a FINRA member firm. Marsha was successful on her first attempt on the qualification exam and during her first three years as a registered representative she o

C. provide prior written notice to the employing member firm
Under FINRA's rules regarding outside business activity (OBA) prior written notice to, but not the permission of, the member firm Marsha represents is required.

From a regulator's standpoint, a complaint refers to which of these?
I. Verbal or written
II. Any aspect of customer service
III. Written
IV. Any issue arising from a securities transaction
A) I and II
B) III and IV
C) I and IV
D) II and III

B. III and IV
Regulations only recognize written complaints that are related to securities transactions. Firms likely have different rules, but the regulators only see writing and do not see rudeness or things unrelated to a transaction as a complaint.

Which of these are considered violations to the FINRA Conduct Rules?
I. Engaging in a private securities transaction without compensation with an immediate family member without notification to the employing broker-dealer
II. Parking a license for a forme

B. II and III
Parking a license, regardless of the registration level, is a prohibited practice. Receiving a complimentary registration to a seminar produced by a mutual fund sponsor could be permitted, but it would have to be in a location that is consid

Hudson is a representative for Saguaro Securities in Scottsdale, Arizona. During the months of May through September, Hudson operates his business from a summer home in Flagstaff. Which of these statements about his home office is false?
A) The home offic

B. the office must be separated from the residence and have its own entrance
There is no specific physical requirements for a home office. The home office is in every way treated as a branch, including regulatory and firm examinations.

Harold, a representative for Seacoast Securities, is soliciting candy sales for his kid's band camp fundraiser. What permissions does Harold need to do this?
A) No permission is needed unless his firm has rules on this activity.
B) No permission is needed

A. no permission is needed, unless his firm has rules on this activity
The regulators do not care about this activity, but Seacoast may. This behavior may be annoying, but it is not illegal.

Under rules found in the Investment Advisers Act of 1940, if a political contribution to certain elected officials or candidates is made then an adviser may
A) have to suspend the providing of advisory services to any government they represent until it is

B. not provide advisory services to any government they represent for a fee for 2 years
The rule makes it unlawful for an adviser to receive compensation (i.e., fees) when providing advisory services to a government entity for a two-year period after the

A municipal finance professional (MFP) would have duties
A) limited to giving financial advice regarding a new issue of municipal bonds.
B) including underwriting, sales, and trading of municipal bonds.
C) including issuing and underwriting of municipal b

B. including underwriting, sales, and trading of municipal bonds
An MFP is an associated person of a FINRA member firm engaged in municipal securities underwriting, trading, sales, financial advisory, research, investment advice, or any other activities t

Seacoast Securities, Inc., a broker-dealer firm, has developed a series of ongoing education courses for its registered personnel. These courses cover various developments in the industry that are pertinent to Seacoast's business. Employees must complete

C. firm-element continuing education
This is an example of the required firm-element CE. It is administered by the firm annually and is relevant to the firm's business. The regulatory element is administered by FINRA. The other names are fictional example

Representatives are required to take CE courses provided by their employer annually, and CE courses administered by FINRA on the
A) third anniversary of licensing and every two years thereafter.
B) first anniversary of licensing and every three years ther

D. second anniversary of licensing and every three years thereafter
Regulatory element CE, administered by FINRA, begins on the second anniversary from passing a top-off exam, and then every three years. A 120-day window opens on the anniversary date of p

The portfolio manager of a pension plan is a well-known fan of the local football team. The branch manager of a FINRA member firm who has been trying to secure a portion of the plan's investment account owns a luxury box at the stadium. FINRA's Conduct Ru

C. the branch manager to invite the portfolio manager to accompany him to a game of his choice
A gift of tickets to a single game, even in a luxury box, would be permitted under the Conduct Rules; a gift of tickets for the season would not be. Any gift co

Ron the representative is opening the branch's mail and finds a letter of complaint about a trade he entered. What should Ron do next?
A) Forward the complaint to a principal.
B) Reverse the trade.
C) Drop the letter in a shredder accidentally.
D) Contact

A. forward the complaint to a principal
Ron must forward any complaints to principals. There are no alternate steps here. Make the boss aware just as quick as you can.

Joey, a registered representative for Seacoast Securities, Inc., has been approached by his close friend, Ross (who is a customer), to help him raise money for his anthropological research project. Ross wants Joey to introduce the program to his customers

A. selling away and is a rules violation
This is selling away, which is always considered a violation. The fact that the money is being raised for science is not relevant; the intent is to make a profit with the sale of the research. Receiving payment dir

Which of these statements regarding home-based offices is true?
I. Home-based offices would not require FINRA approval.
II. Home-based offices would require FINRA approval.
III. Home-based offices would be subject to site visits by FINRA auditors.
IV. Hom

A. II and III
It does not matter if the office is home-based, also acting as the representative's personal residence; it is subject to the same approval and inspection requirements of a normal branch.

Eddy is a representative for Saguaro Securities in Scottsdale, Arizona and wants to join the Maricopa County Sheriff's Department as a part-time reserve deputy. For his community service, he will receive a small payment to help defer the cost of his equip

D. provide Saguaro with a written notice
He must provide written notification, but does not need permission to proceed. Note that his employer may have stricter rules. Though this work is mostly volunteer, the small payment makes it a paid position. There

Squidco, Inc., is issuing 100 million dollars in 4 �% bonds maturing in 20 years. When purchased at issue, the buyers will receive an additional security that allows them to purchase 20 shares of Squidco common stock at $50 a share, anytime in the next 10

B) Warrant
A warrant is normally issued attached to a fixed-income security to attract more interest in the debt issue. Warrants are generally longer term (five or more years) and have an exercise price that is higher than the current stock price.

In 2011, RST Corp. had both common stock and $100 par value 4% noncumulative preferred stock, outstanding. The preferred stock, like the common stock, pays dividends on a quarterly basis. Because of financial difficulties, the company stopped paying divid

D) $1.00.
In the case of a noncumulative preferred stock, skipped dividends are forever lost. So, when the company is able to pay a dividend, which is always the case, it must pay the current preferred dividend prior to paying common. The question states

All of these dates are declared by the board of directors of a corporation except the
A) ex-dividend date.
B) declaration date.
C) payable date.
D) record date.

A) ex-dividend date.
The ex-dividend date is declared by the regulator that controls the trading location (exchange or OTC).

Your client holds ADRs of Daikon Motors, Inc., an automobile manufacturer based in Asia. All of these are true about the position except
A) they have the right to request the underlying common shares be issued to them directly.
B) they have the same votin

B) they have the same voting rights as an owner of the common stock.
It is important to remember that American Depositary Receipts (ADR) are issued by a depositary bank and the bank is the registered owners of the shares. Depository banks are not required

American Liquidators Corporation (the ticker is LQDT) has 100 million outstanding common shares. The company would like to raise capital by selling 100 million new shares. In order to do this they must give their existing shareholders an opportunity to bu

B)offer stock rights to existing shareholders.
LQDT would give the right to purchase a portion of the newly issued shares to existing shareholders sufficient to maintain their current percentage of ownership via a stock rights offering. Warrants are long

Equity is to debt as
A) stock is to preferred stock.
B) stock is to mutual fund.
C) stock is to bond.
D) hedge fund is to mutual fund.

C) stock is to bond.
Stocks are the most common example of equities while bonds are the most common example of debt securities.

Which of these securities would likely provide the greatest potential for capital appreciation?
A) A common stock
B) A U.S. Treasury STRIP
C) A preferred stock
D) A convertible bond

A) A common stock
Common stocks would be the most suitable for investors seeking capital appreciation (growth). Bonds and preferred stocks are better suited for conservative investors since each is primarily an income investment and has limited growth pro

Jon owns 100 shares of the Bayside Fishing Company. Bayside has 1,000,000 shares outstanding and operates under a statutory voting system. At the next election for the board, there are two open seats. All of these are true except
A) Jon owns 1/10000 of th

B) Jon has control of 200 votes, which he can cast any way he likes among the two open seats.
Owners of common stock have a right to vote on several issues (including who sits on the board of directors and the right to transfer their ownership to another

Big Company, Inc., an NYSE listed manufacturer of large objects, has declared a 50-cent-per-share-dividend payable next month. Big Company also has options available for trade. The actual ex-dividend date will be declared by
A) the CBOE.
B) the OTC.
C) FI

D) the NYSE.
Ex-dividend dates are set by the market center where trades will likely take place. In the case of an NYSE listed stock, the New York Stock Exchange will determine the ex-date. The fact that Big Company, Inc., has listed options is not releva

Under Rule 144, which of these sales are subject to volume limitations on the number of shares sold?
Control person selling registered stock held for 1 year
Control person selling restricted stock held for 2 years
Nonaffiliate selling registered stock hel

D)I and II
Control persons are always subject to volume limitations. Nonaffiliates have no volume (or any other restrictions) in the sale of registered stock. If the shares are restricted, the volume limits for nonaffiliates end after 6 months. Registered

Which of these would most likely require shareholder approval?
A) Firing the CEO
B) Hiring a new CFO
C) Changing the corporation's name
D) Declaring a dividend

C) Changing the corporation's name
Changing the corporation's name is a significant matter that will likely need shareholder approval. Declaring a dividend and the hiring and firing of senior executives is well within the board's power.

All of the following are considered securities except
A) 15 British pound put contracts.
B) Treasury bonds.
C) common stock of XYZ corporation.
D) U.S. minted gold coins.

D) U.S. minted gold coins.
Stocks, bonds, and options are all examples of securities. Gold and gold coins are a commodity, not a security.

Another term for stocks and bonds is
A) voting and nonvoting.
B) taxable and tax-free.
C) equity and debt.
D) shares and units.

C) equity and debt.
Equity is a common term for securities that represent ownership interest like stocks. Bonds are the most common type of debt security.

An american depository receipt is a
A) foreign security representing a domestic security in foreign markets.
B) domestic security trading in foreign markets.
C) foreign security trading in U.S. markets.
D) domestic security representing a foreign security

D) domestic security representing a foreign security in U.S. markets.
An ADR is a domestic security issued under U.S. law and registered with the SEC. It represents ownership in a non-U.S. security. It is used to ease ownership and trading of foreign secu

Included under the term, equity security, would be
A) debentures.
B) equipment trust certificates.
C) participating preferred.
D) collateral trust certificates.

C) participating preferred.
Regardless of the adjective used, (e.g., participating, cumulative, convertible) if it is modifying a preferred stock, it is still an equity security. Each of the other choices represents a debt instrument.

The United States Supreme Court decision that provided our current definition of a security is
A) SEC v. Lorenzo
B) County of San Francisco v. State of California
C) Hawkins v. Florida
D) SEC v. Howey

D) SEC v. Howey
The Howey decision (SEC v. Howey, 1946) gives us our current four-prong test, which defines what a security is. SEC v. Lorenzo is a recent case involving fraud. The other cases are made up.

All of the following statements regarding penny stocks are true except
A) the SEC rules require that prospects, before their initial transaction in a penny stock, be given a copy of a risk disclosure document.
B) if an account holds penny stocks, broker/d

C) penny stock rules apply to both solicited and unsolicited transactions.
The special penny stock rules only apply to solicited transactions. Because of the greater perceived risk of investing in penny stocks, it is required that the penny stock disclosu

For this election cycle, Big Trucks, Inc., has three open board seats. Big Trucks operates under a cumulative voting system. Your customer owns 300 participating preferred shares of Big Trucks. He has
A) 300 votes each for the open seats.
B) 300 votes tot

C) no voting rights.
Your customer owns preferred stock. Preferred stock carries no voting rights.

Your customer, MJ, has a strong preference for investing in equity securities; however, she is hoping to increase the amount of current income her portfolio generates. Which of these is the least suitable for her?
A) Generic Motors, Inc., 4 � % preferred

C) Duratech common stock, an exciting new tech manufacturer
New, rapidly growing companies tend to pay little or no dividends. The others all sound like decent sources of dividend payments

Mary owns 8% of Doyle Inc., a publically traded publishing company. She has recently married John, a doctor who owns 3% of Doyle. John wants to sell some of his shares to pay off the debt from the wedding and honeymoon. When he does so he will need to
A)

D) file Form 144 because he is a control person.
Because married couples aggregate their position, and collectively the Mary and John own 11% of the company, John is a control person and will need to file Form 144 to sell his shares of Doyle. There is no

Which of these Treasury securities is in correct order of shortest to longest maturities?
A) Notes, bonds, bills
B) Bills, notes, bonds
C) Bonds, notes, bills
D) Notes, bills, bonds

B) Bills, notes, bonds
Bills have the shortest maturities with a maximum of one year (52 weeks), notes are from two to ten years, and bonds have maturities of more than ten years.

Your customer, Shea, has a large portfolio of bonds and dividend paying stocks. Her primary interest is generating current income. She is trying to understand how taxes work for her T-bonds. You explain that
A) the interest from her T-bonds is exempt at t

B) the interest from her T-bonds is exempt at the state and local level, but she will still owe taxes at the federal level.
Securities issued by the federal government produce interest that is not taxed at the state or local level. It is taxed at the fede

Your customer is in the 30% federal tax bracket. They consider purchasing a 7% corporate bond. Their after-tax yield would be
A) 2.1%.
B) 7%.
C) 10%.
D) 4.9%.

D) 4.9%.
The formula for the calculation is 7% (corporate rate) � (100% � 30% (tax bracket)).
7 � (1 - 0.3) =
= 7 � 0.7
= 4.9%

Your customer is a resident of the state of Utah. She owns bonds issued by Puerto Rico. The interest from these bonds is
A) taxable at the state level only.
B) taxable at the state and local level because she is not a resident of Puerto Rico, but still ta

D) tax free at all levels for U.S. citizens.
Bonds issued by or from a territory of the United States have tax-free income at all levels to U.S. citizens.

A 6% corporate bond trading on a 7% basis is trading
A) a premium.
B) with a coupon rate below 6%.
C) with a current yield above 7%.
D) a discount.

D) a discount.
The term a 7% basis means that the YTM is 7%. YTM is higher than the coupon rate (6%), so the bond trades at a discount. Current yield must be between the coupon rate and the YTM.

A customer says they have a diversified portfolio of notes and bonds. This means their portfolio consists primarily of
A) limited partnerships.
B) debt instruments.
C) equity securities.
D) hedge funds.

B) debt instruments.
Notes and bonds are types of debt and the term is often used generically to represent a debt securities.

Which of these is in correct order of priority for a corporate liquidation?
A) Guaranteed bond, secured bond, debenture, common stock
B) Secured bond, debenture, subordinated debenture, common stock
C) Convertible bonds, participating preferred stock, com

B) Secured bond, debenture, subordinated debenture, common stock
Any debt issue is superior to any equity issue. Any preferred stock is senior to any common stock. A guaranteed bond is unsecured debt, or a debenture.

Which of these is not backed by the full faith and credit of the U.S. government?
A) Treasury receipts
B) Treasury bills
C) Treasury STRIPS
D) Treasury bonds

A) Treasury receipts
Treasury bills, bonds, and notes are backed in full by the U.S. government. Treasury STRIPS are also backed in full by the U.S. government but Treasury receipts are not because they are issued by broker-dealers. Therefore the governme

Which of these statements regarding Treasury bills is correct?
A) They have the highest interest rate risk of all Treasury securities.
B) Treasury bills are the only type of Treasury security issued without a stated interest rate.
C) They are issued with

B) Treasury bills are the only type of Treasury security issued without a stated interest rate.
Treasury bills are always issued at a discount, without a stated interest rate. Receiving par value back at maturity represents the interest income to the inve

A bond's rating is used primarily as a measure of its
A) volatility risk.
B) interest rate risk.
C) purchasing power risk.
D) default risk.

D) default risk.
Bond ratings from credit rating agencies are used to compare the relative risk of default. None of the others are issues of default.

All of the following characteristics are true of securities issued by the Government National Mortgage Association except
A) they are backed by the federal government.
B) they are called pass-through securities because the payments are made up of both int

C) they generate tax-free interest.
GNMA interest is fully taxable. All the other statements are true.

Evan is a 75 year old customer with $100,000 to invest. He would like the money to generate additional income. He relates that he intensely hates paying taxes and dislikes the government in general. He is, however, interested in tax-free municipal bonds.

C) why he hates the government.
Though it might be interesting to find out why he hates the government, the others are all basic points of suitab

An investor who is seeking income might choose a corporate bond because
A) a corporate bond pays a steady income and are generally reliable.
B) bonds pay a higher dividend than stocks.
C) bonds can grow faster than the rate of inflation.
D) corporate bond

A) a corporate bond pays a steady income and are generally reliable.
Corporate bonds are, depending on rating, generally reliable producers of income through interest payments. Bonds do not pay dividends, nor do they grow in value with inflation. Corporat

Your customer, Eleanor, purchased an InDebt Inc., 5% debenture at a price of 94. It matures in 12 years. What is the yield to maturity?
A) 5.32
B) 4.69
C) 5
D) 5.73

D) 5.73
You do not have to calculate YTM for this problem. You could if you really wanted to, but it is not necessary for the question. You do need to recall the bond inverse relationship chart. The bond is trading at a discount so the YTM must be higher

Five years ago your client purchased at par $100,000 of New Brunswick City GO bonds maturing in 20 years from now and callable in six months. Interest rates have gone down over the last five years. Which of these should your client do?
I) Your client shou

A) I and IV
If rates have declined the bonds are likely trading at a premium and very likely to be called at the first call date in six months. The proximity of the call date means the bonds premium will be small.

All of these are debt-security-maturity schedules except
A) balloon.
B) term.
C) series.
D) serial.

C) series.
The three types of debt-security-maturity schedules are term, serial, and balloon. There is no series maturity schedule.

Your customer asks to buy a bond that carries a very attractive yield. When checking the bond you see that it has a B rating from the major credit rating agencies. When communicating this information to the customer, all of these terms might be used to de

A) lower grade
Though a B rating is certainly a lower investment grade rating, that is not a typical term used in the industry. All of the other terms are terms normally associated with these bonds carrying a greater risk of default.

Lando Entertainment, Inc., issues a bond collateralized by a trust holding the company's Las Vegas headquarters. This type of bond is called a
A) guaranteed bond.
B) mortgage bond.
C) headquarters debenture.
D) collateral trust bond.

B) mortgage bond.
A secured bond backed by real estate is called a mortgage bond. Collateral trust bonds hold other securities in trust as collateral. A guaranteed bond is an unsecured bond backed by a third party. A headquarters debenture is a fictional

A zero-coupon bond interest pays
A) at maturity and is taxed annually.
B) annually and is taxed at maturity.
C) and is taxed at maturity.
D) and is taxed annually.

A) at maturity and is taxed annually.
A zero-coupon bond interest is purchased at a deep discount and pays no interest until it matures; however, the interest is taxed on an annual basis, called phantom income.

Which of the following is a money market security?
A) A 30-year T-bond issued by the Treasury 29 years ago
B) A TAN maturing in 14 months
C) A short-term T-bond mutual fund
D) A newly issued T-note

A) A 30-year T-bond issued by the Treasury 29 years ago
A money market security is a high quality and highly liquid security with one year, or less, left to maturity. Both the T-note and the Tax Anticipation Note are more than a year form maturity. The mu

The Alta Loma High School District is asking voters to approve a bond to fund the purchase of new computers and software. The bond will mature in 40 years and the interest and principal payments will be funded from real estate taxes. This is an example of

B) GO bond.
If a municipal bond requires a vote it is most likely a GO bond. Generally revenue bonds do not require a vote (note that there is no revenue generating source here). Debentures and equipment trust certificates are issued by corporations, not

Which of these risks are not normally associated with bonds?
A) Default risk
B) Business risk
C) Interest rate risk
D) Purchasing power risk

B) Business risk
Business risk is related to the growth prospects of a business and is most closely associated with common stock. Bond prices are subject to changes in interest rates. Default occurs when a company fails to meet its obligations to the bond

A CMO consists of
A) bonds and money market instruments.
B) an FNMA, FHLMC, and other mortgage backed securities.
C) various government backed mortgages.
D) different sorts of nonmortgage debt.

B) an FNMA, FHLMC, and other mortgage backed securities.
A Collateralized Mortgage Obligation is made up of different mortgage backed securities (including FNAM and FHLMC), not the mortgages directly.

Which of these reasons would allow for a municipality to issue revenue bonds easier instead of general obligation bonds?
I) Revenue bonds do not require voter approval.
II) Revenue bonds generally have a higher rating than GO bonds from the same issuer.
I

A) I and III
Because revenue bonds are designed to be self-supporting from the revenue derived from the project funded by the bonds, voter approval is not required. On the other hand, because GO bonds are backed by taxes, such as ad valorem taxes, voter a

Your customer calls you with a question. They tell you that they received a phone call from the bond desk telling them that they bought 20 bonds at 100. They want to know how much they paid for the bonds before any commission or other charges. You tell th

D) $20,000.
100 means they paid 100% of par ($1,000) per bond. They purchased 20 bonds, so the total amounts to $20,000. Note that the question asked how much they paid for the bonds, not the price per bond.

CDC Pharmaceutical stock is currently trading at $50 a share. The CDC Nov 55 put is trading at $7. Which of the following is true?
I) The time value is $2.
II) The intrinsic value is $5.
III) The time value is $5.
IV) The intrinsic value is $2.
A) III and

C) I and II
With the stock at $50 a 55 put is $5 in-the-money, or has $5 of intrinsic value. Using the (IV + TV = Pr) formula the time value must be $2 (5 + 2 = 7).

The price that the buyer of a contract pays, or the writer receives, on a per share basis for an option contract is called the
A) time value.
B) intrinsic value.
C) premium.
D) strike price.

C) premium.
Intrinsic value and time value are components of the premium. The strike price is needed to compute the intrinsic value.

Your client, Mickey, just purchased 10 July EuroDollar Put contracts at 1.10. She notices that they are European Style contracts and asks you what the means. You tell her
A) she may only exercise the contacts in the last week before expiration.
B) she may

B) she may only exercise the contracts on the last day of trading before expiration.
European style contracts may only be exercised on the last day the contract trades before expiration. American style may be exercised by the owners at any time. American

The Options Clearing Corporation (OCC) assigns exercise notices to broker-dealers with short positions
A) using a random selection method.
B) using any method that is considered fair and reasonable.
C) on a FIFO basis.
D) on a LIFO basis.

A) using a random selection method.
The OCC assigns exercise notices to short broker-dealers (those with customers who are short) on a random basis. It is the broker-dealers who may then assign exercise notices to their short customers on a random basis;

The exercise of an equity option requires that stock must be delivered
A) two business days after the exercise.
B) three business days after the exercise.
C) the next business day.
D) that day.

A) two business days after the exercise.
If an equity option is exercised one side of the contract will need to deliver the shares. If they do not already own those shares then they will go into the market to buy them. The two business days to deliver the

Which of the following positions or actions would cover a client who has shorted a call?
A) Buying a put with a higher strike price
B) A long stock position
C) A short stock position
D) Buying a call that expires sooner

B) A long stock position
A short call (call writer) is a bearish position, which requires the client to deliver stock at the strike regardless of how far the share price rises. A long stock position would hedge the call since the client would already own

The first step in the process of adding options trading to a customer account is
A) the customer reads and understands the option risk disclosure you provided.
B) the customer signs the option agreement.
C) the customer account is approved for option trad

D) the representative determines, based on reasonable grounds, the customer can understand and afford the risks of the recommendations the representative provides.
Until this step is determined, the other steps should not be happening.

Pedro dislikes Seabird Coffee and thinks the company's stock is overvalued. He is currently short 1,000 shares of the company. He is concerned with the potentially unlimited risk he is exposed to and would like to use options to hedge that risk. His best

D) buy 10 Seabird Coffee calls.
Long calls provide the best protection against a short stock position. The calls give the owner the right to exercise and buy the stock at the exercise price, thereby locking in the cost to replace the shares.

Your customer, Ford, wrote 5 SPX (S&P 500 equity index) 2990 call options. Today, Tuesday, he received word that his options have been exercised. The SPX closed at 3000. He will have to deliver
A) 500 shares tomorrow.
B) cash tomorrow.
C) 500 shares in tw

B) cash tomorrow.
This is an exercise of an index option. This exercise will require the seller of the option, to deliver cash equal to the in-the-money amount, on the next business day

Darcy owns 5,000 shares of English Manor Properties. It is her belief that the company is unlikely to grow much over the next year. She is curious how he might generate some additional income from the position as English Manor pays a paltry dividend and a

A) writing calls against her stock position is a conservative strategy for generating income.
Only selling an option will generate income. Selling covered calls is an effective and very conservative way to do so.

Which of the following securities would be least likely to be issued by a corporation?
A) Call and put options
B) Common stock
C) Preferred stock
D) Debentures
Corporations issue equity securities (stock) and debt securities (bonds and debentures), but th

A) Call and put options

Mikayla is a big fan of Seabird Coffee and is an enthusiastic investor. She currently owns 1,000 shares of the company stock and 10 call contracts on the stock as well. What is her maximum gain for this position?
A) Limited gain on both the option and sto

C) Unlimited gain on the stock and the option position
Both long stock and a long call are unlimited gain positions.

The strike price is
A) the price that will be paid for the shares if the option is exercised.
B) the cost per share of the contract.
C) the amount the writer of a call pays the seller of the call for the shares.
D) the amount the buyer of a call must pay

A) the price that will be paid for the shares if the option is exercised.
This is the basic definition of strike price. The cost per share of the contract is the premium. The terms writer and seller are the same person in an option transaction. The buyer

A security that is a contractual obligation between two parties and whose value is based on the specifics of the contract in relation to a different security is a
A) hedge fund.
B) investment company.
C) contractual plan.
D) derivative.

D) derivative.
A contract that derives its value from its relationship to another security is a derivative. A contractual plan is a type of investment company that is no longer issued.

Which of these statements regarding options are true?
I) Investors who are bullish on a stock should buy calls.
II) Investors who are bullish on a stock should buy puts.
III) Investors who are bearish on a stock should sell puts.
IV) Investors who are bea

D) I and IV
Buying calls is bullish and buying puts is bearish. Selling puts is bullish.

Your customer, Leo, recently purchased one put contract on Napa Valley Spirits, Inc., stock. The strike price is $50.00 and the premium was $4.50. He later executed the contract. How much did he pay for the contract?
A) $4,550.00
B) $500.00
C) $5000.00
D)

D) $450.00
The question asks what he paid for the contract, not what he received when he executed it, or the breakeven price. One contract of 100 shares at $4.50 a shares is $450.00.

Before an option trade may be entered for a customer, that customer's account must be approved for option trading by
A) a Registered Options Principal.
B) a branch manager.
C) a firm principal.
D) an executive officer.

A) a Registered Options Principal.
Only an ROP may approve option trading for an account.

If a customer had a large cash position and was interested in purchasing stock at prices below where they are today, and possibly generating some income in the process, an option strategy would be to
A) buy out-of-the-money calls.
B) write covered puts th

B) write covered puts that are currently out-of-the-money.
Writing the puts would generate premium income. If the stock declines in value and the option is exercised the customer will buy the stock at a price lower than where the market is at this moment.

An investor shorts 2 DEF January 55 puts, at a premium of two each, when the market price of DEF is 56.25. What is the investor's maximum potential loss?
A) $5,300
B) $10,600
C) $5,425
D) Unlimited

B) $10,600
When short a put, the risk is that the stock falls. The maximum risk occurs if the stock falls to zero. The maximum potential loss therefore is the strike price less the premium received for the put (55 - 2 = 53). The maximum loss per contract

CDC Pharmaceutical stock is currently trading at $50 a share. The CDC Nov 45 PUT is trading at one. Based on this information, which of the following is true?
I) Time value is $1.
II) Intrinsic value is $1.
III) The premium must be greater than $1.
IV) In

A) I and IV
The basic formula is intrinsic value plus time value equals the premium (IV + TV = Pr). The intrinsic value of an out-of-the-money option, like this example, is zero. If the premium is one and the intrinsic value is 0, then the time value must

Which of these would not affect the NAV per share of a mutual fund share?
A) The portfolio's market value undergoes a large increase
B) The fund pays its monthly operating expenses like utility bills
C) The fund receives a dividend from one of the portfol

D) Portfolio securities that had to be sold for a big capital loss
Selling securities out of the portfolio, whether for a gain or a loss, simply replaces the securities with an equivalent amount of cash, leaving the NAV per share unchanged. The other choi

Under the IRC Subchapter M, if the WWF Fund only distributes 85% of its net investment income to its shareholders, then which of these is true?
I) The fund must pay taxes on the undistributed 15% of net investment income.
II) The fund must pay taxes on 10

C) II and IV
To avoid triple taxation according to the IRC Subchapter M, an investment company must distribute at least 90% of its net investment income. Since WWF Fund only distributed 85% of its net investment income, it must pay taxes on 100% of the ne

An investor can take advantage of intraday price changes due to normal market forces when investing in which of these?
I) Closed-end funds
II) Exchange-traded funds
III) Hedge funds
IV) Open-end funds

D) I and II
Both closed-end funds and ETFs trade in the marketplace based upon supply and demand. Open-end funds use forward pricing and generally price only once per day (usually at the end of the trading day). Most hedge funds are organized as private i

A mutual fund's public offering price is $10.50. An investor who wishes to invest $1,000.00 in the fund is able to purchase
A) Partial shares are not allowed.
B) 95 shares with $2.50 left.
C) 96 and owe $8.00.
D) 95.238 shares.

D) 95.238 shares.
Mutual funds may be purchased in even dollar amounts and partial shares may be issued.

If a fund sponsor allows an investor to move funds from one fund to another within its fund family, this is called
A) a reinvestment right.
B) a 12b-1 waiver.
C) an exchange privilege
D) a right of accumulation.

C) an exchange privilege
This is an example of an exchange (or conversion) privilege.

All of these are part of the expense ratio of a mutual fund except
A) a 12b-1 fee.
B) legal and accounting costs.
C) management fees.
D) CDSC.

D) CDSC.
The Contingent Deferred Sales Charge (CDSC) is charged against the proceeds of a sale of the fund's shares, not against the fund's assets.

A letter of intent may be backdated to include a prior purchase up to
A) 90 days.
B) 13 months.
C) indefinitely.
D) 6 months.

A) 90 days.
LOIs may be backdated up to 90 days. The obligation under the LOI must be met within 13 months from the date of the letter.

Class B mutual fund shares are also called
A) reverse load shares.
B) deferred-load shares.
C) back-end load shares.
D) CDSC shares.

C) back-end load shares.
Class B mutual fund shares are bought with no sales charge at the time of purchase. The sales charge is paid instead at the time of redemption, or at the back end. Hence, they are known as back-end load shares. For this type of sh

Under the Investment Company Act of 1940 all of these are examples of management companies except
A) A Windmill Income UIT.
B) An S&P 500 Index Trust ETF.
C) A growth fund option for a VA.
D) A Windmill Income Fund, an exchange-listed:closed-end fund.

A) A Windmill Income UIT.
Unit investment trusts are investment companies, but not management companies under the act. Closed-end funds, ETF's, and separate accounts are all types of management companies.

One characteristic of an open-end investment company that distinguishes it from a closed-end one is that
A) it may be either diversified or nondiversified.
B) it may avoid taxation by distributing all of its net investment income to shareholders.
C) there

C) there is a continuous public offering.
The key difference between open-end investment companies and closed-end investment companies is the fact that new shares are continuously being offered for open-end companies. In the case of the closed-end, once t

When a customer chooses to annuitize a variable annuity, all of these are factors the insurance company will use in calculating the initial payout amount except
A) gender of the annuitant.
B) balance of the separate account.
C) historic inflation rate.
D)

C) historic inflation rate.
Insurance companies do not consider inflation when making this calculation. The components are GAAPI: gender, age, account balance, payout option, and interest rate (AIR).

The investment return of a variable annuity comes from
A) the insurance company's general account.
B) computing the excess of the premiums received over the mortality experience.
C) the performance of the selected subaccounts within a separate account.
D)

C) the performance of the selected subaccounts within a separate account.
A key feature of the variable annuity is that most of the premium is invested into the insurance company's separate account rather than the general account. Within the separate acco

Which of these would not be included in a mutual fund's list of expenses?
I) Shareholder records and service
II) Investment adviser's fee
III) Broker-dealer sales charges
IV) Underwriter's sales loads
A) I and II
B) II and IV
C) III and IV
D) I and III

C) III and IV
Costs to maintain shareholder records, costs to provide services to shareholders, and the investment adviser's fees are all expenses to the fund. The costs paid in the form of sales charges (loads) to an underwriter, or broker-dealers sellin

Which of these would cause a change in the net asset value of a mutual fund share?
A) Securities in the portfolio are sold for a capital gain
B) Many shares are redeemed
C) The market value of the portfolio declines
D) The fund takes a new position

C) The market value of the portfolio declines
A decline in the market value of the portfolio would reduce the assets of the fund without changing the number of outstanding shares. Sales and redemptions of shares change the net assets but also change the n

All of these are true regarding no-load shares except they
A) are sold by the fund with no sales charges or fees of any kind.
B) offer more return-per-dollar invested versus load funds if investing results are the same.
C) are redeemed with no charges or

D) have fees associated with sales and redemptions.
No-load shares have expenses that are not considered sales charges. Some broker-dealers may charge fees for transactions, but these fees are not from the fund.

The Windmill Growth Fund has breakpoints at $10,000, $25,000, and $50,000. Your customer places an unsolicited purchase through you for $47,000. You place the trade as requested without question or comment. This action is
A) a rules violation.
B) acceptab

A) a rules violation.
This trade, though unsolicited, would still require the representative to disclose the existence of the breakpoint. Unsolicited trades are allowed in mutual funds. The representative's duty is to disclose the existence of the breakpo

ACE, an open-end investment company, operates under the conduit, or pipeline, tax theory. Last year, it distributed 91% of all net investment income as a dividend to shareholders. Therefore, which of the following statements is true?
A) ACE paid taxes on

C) ACE paid taxes on 9% of its net investment income last year.
ACE pays taxes on any portion of income it does not distribute, as long as it distributes at least 90%; ACE paid taxes on 9%.

A mutual fund has been in existence for 15 years. The prospectus must disclose the fund's performance
A) for each year over the last 10 years.
B) broken out as an average over the last 10 years.
C) over the last 1, 5, 10, 15, 20, and 25 years.
D) over the

D) over the last 1, 5, and 10 years.
The prospectus of a mutual fund must show the fund's performance over the last 10 years or the life of the fund, whichever is shorter. The data must be shown as the last year's performance, the performance over the las

Under the Investment Company Act of 1940, which of the following is not considered an investment company?
A) Hedge fund
B) Separate account within a variable annuity
C) Unit investment trust
D) Face-amount certificate company

A) Hedge fund
Investment companies include face-amount certificates, unit investment trusts, and management companies (both open- and closed-end). The separate account within a VA is a type of open-end management company. Hedge funds are organized as priv

Which of these would be unlawful regarding the use of a mutual fund prospectus?
A) Failing to highlight a small section the customer has specifically asked about
B) Sending a prospectus to someone who has shown no interest in the fund
C) Calling an invest

C)Calling an investor's attention to a section that may be interesting
A prospectus for any security, not just for a mutual fund, may not be marked; highlighted; or otherwise altered in any way; nor may steps be taken to call an investor's attention to so

All of these are risks associated with limited partnerships except
A) limited liability risk.
B) business risk.
C) audit and recapture risk.
D) liquidity risk.

A. limited liability risk
One of the primary benefits to an investor is the limited liability of an LP. An audit by the IRA may result in a recapture of prior tax benefits. All businesses are subject to business risk, and limited partnerships are famous f

The primary risk associated with ETNs is
A) call risk.
B) risk of default.
C) reinvestment risk.
D) business risk.

B. risk of default
Exchange-traded notes (ETN) are debt instruments (that is what note means) and subject to default. Business risk is not a significant concern as these notes are not normally based on the cash flow of a business. They are not callable no

Which of these trading strategies are employed by hedge funds but are generally prohibited to mutual funds?
I. The act of limiting investments to a narrow group of securities
II. The use of borrowed money to purchase portfolio securities
III. The act of t

C. II and IV
Under most conditions, mutual funds are prohibited from purchasing securities on margin (i.e., using leverage�borrowed money) and from selling short. However, both of those strategies are commonly employed by hedge funds.

Which of these statements regarding a general partnership is correct?
A) Partners participate in the gains and losses of the business and are partially shielded from the businesses liabilities.
B) Partners participate in the gains and losses of the busine

B. partners participate in the gains and losses of the business and are fully liable for the business actions
In a general partnership, the results of the business flow through to the partners and there is no liability protection in this type of organizat

All of these are potential risks of private, nontraded, REITS except
A) tax treatment.
B) liquidity.
C) reliability of valuations.
D) transparency.

A. tax treatment
Nontraded REITs are taxed the same way as public (traded) REITs. There are concerns about the private REITs lack of liquidity, transparency in operations, and the difficulty of valuing the programs.

Last year Brownstone Properties, LP distributed $200 per unit to investors and reported a $500 business loss per unit on the K-1. For tax purposes the investors received
A) a $500 reduction in ordinary income.
B) a $500 per unit passive loss.
C) a net $30

B. a $500 per unit passive loss
Income and losses in an LP are always treated as passive and are reported to the investor via the K-1. The tax results for the year are included in that document.

A REIT that owns and operates an office building in the Dallas Metroplex is an example of
A) an equity REIT.
B) a hybrid REIT.
C) a mortgage REIT.
D) a leasing REIT.

A. an equity REIT
A real estate investment trust that owns properties but does not hold mortgages is an equity REIT. One that holds mortgages but not the property is a mortgage REIT. One that does both is a hybrid REIT. There is no such thing as a leasing

Yusef would like to save money for his 10-year-old daughter's college tuition costs. She has her heart set on a small liberal arts school with a growing reputation in the arts. His biggest concern is the potential increase in cost over the next several ye

B. 529 prepaid tuition program
The 529 prepaid tuition plan is designed to pay tuition costs, at today's rate, to be used later. It is the best-suited option to cover tuition inflation. Both the college savings and ESA accounts allow for investing that ha

All of these are true for an Achieving a Better Life Experience account except that
A) the account owner and beneficiary must be disabled.
B) the account must be opened before the beneficiary turns 26.
C) the income is tax-free.
D) the onset of the disabi

B. the account must be opened before the beneficiary turns 26
The account does not need to be opened before the owner turns 26, but the qualifying disability does need to have begun before that age. Income from an ABLE account is received tax-free.

Your customer, Amelia, is excited about an investment she recently purchased from another firm. At maturity, in five years, she will receive her principal back plus an interest payment based upon the returns of five well-known technology companies. It pay

C. an ETN
It appears Amelia has purchased an exchange-traded note (ETN). ETFs, VAs, and mutual funds do not have set maturity dates. ETFs and mutual funds may pay dividends, not interest.

Which of these is not considered an advantage of owning an exchange-traded fund?
A) Liquidity
B) Intraday pricing
C) Pass through of losses
D) Tax efficiency

C. pass through losses
ETFs are taxed using pipeline theory and do not pass losses through to investors. The others all considered advantages of ETFs.

Which type of DPP would be most likely to enable the investor to claim a deduction for depletion?
A) Equipment leasing
B) Oil and gas exploratory program
C) Oil and gas income program
D) Real estate limited partnership

C. oil and gas income program
The depletion allowance is a tax benefit to compensate the program for the decreasing supply of oil or gas (or any other natural resource or mineral) after it is taken and sold. Exploratory programs have a low expectation of

Which of these statements regarding a 529 plan is correct?
A) One person can be both the beneficiary and owner
B) Contributions are limited to $2,000 annually
C) The beneficiary must be below age 18
D) The assets in the plan belong to the beneficiary

A. one person can be both the beneficiary and the owner
Anyone can establish and contribute to a 529 plan. This means parents, other family members, friends, and even the designated beneficiary can establish a 529 plan. A Section 529 College Savings Plan

An investor considering the differences between purchasing open-end investment company shares or ETFs with a similar objective should understand which of these?
I. Each time an investor purchases and sells ETFs there is a commission.
II. The operating exp

B. I and III
Because ETFs usually track an index, the operating expense ratios are generally lower than that of open-end companies. That advantage can be canceled out by the commission charges when purchasing and selling an ETF. An open-end investment com

A state sponsored investment pool designed for municipalities with short-term cash investment needs is called
A) an LGIP.
B) a 457 plan.
C) a city and county money plan.
D) a tax-free money market.

A. an LGIP

Risk that prevails despite diversification within an asset class is
A) systematic risk.
B) business risk.
C) unsystematic risk.
D) call risk.

A. systematic risk
Risk that prevails despite diversification is one of the defining characteristics of systematic risk.

The inverse relationship between interest rates and bond prices helps in understanding that interest rate fluctuations are
A) the difference between credit and financial risk.
B) an unsystematic risk for bonds.
C) a systematic risk for bonds.
D) an exampl

C. a systematic risk for bonds
The inverse relationship illustrates a significant systematic risk for bonds and other fixed-income investments. When rates move up all bonds move down. Credit and financial risk are largely synonymous terms. Interest rate r

Five years ago Thompson, an investor, ran across a board game that he enjoyed and believed the game would become very popular. He purchased 1,000 shares of the corporation that publishes the game. Unfortunately, the game was too complex for most casual ga

C. business risk
The failure of the game is an example of business risk. As a business venture the publisher did not do well. Timing and regulation had nothing to do with the failure. Social risk assumes a change in societal attitudes, in this case, there

Systematic risk is
A) associated with equity investments.
B) associated with debt instruments.
C) not reduced by diversification within an asset class.
D) may be significantly reduced by diversification within an asset class.

C. not reduced by diversification within an asset class
Systematic risk is risk that remains despite diversification. Examples include market risk and interest rate risk.

A risk that is specific to a particular issue or issuer is
A) a nonsystematic risk.
B) cannot be reduced by diversification.
C) is a systematic risk.
D) impacts a broad group of securities equally.

A. a nonsystematic risk
A risk that is specific to a particular issue or issuer is part of the definition of nonsystematic risk. It may be mitigated by diversification.

Kamron owns a diversified portfolio of stocks. The portfolio holds 58 different stocks that are diversified by market capitalization and sector as well as industry. When the stock market entered a significant downward correction Kamron's portfolio also dr

A. I and III

New Haven Farms is a producer of specialty foods. They recently received a notice that the Wetlands Maintenance and Drainages Act (The WMD Act) passed indicates that a significant portion of their current land used in food production falls under the act's

C. legislative risk
The best answer is legislative risk, as this was caused by a change in the law. Regulatory risk is a change in the application of existing rules, while political risk is normally associated with a change in leadership. Business risk wo

The risk that a stock will not appreciate in value due to poor cash flow is an example of
A) market risk.
B) nonsystematic risk.
C) sales risk.
D) systematic risk.

B. nonsystematic risk
This is an issue that applies to just this issuer; a nonsystematic risk.

A strategy that blends various types of investment in an effort to reduce nonsystematic risk is called
A) sector rotation.
B) dollar cost averaging.
C) capital preservation.
D) diversification.

D. diversification
Nonsystematic risk occurs based on circumstances or events that are unique to a specific security. This risk can be managed by diversifying the assets in a portfolio by selecting securities that possess different risk and/or return char

Your customer, Ivan, owns a diversified portfolio of large cap stocks. He would like to find a way to hedge the market risk in his portfolio. Which of these actions might you recommend to accomplish his goal?
A) Tell him to do nothing because there is no

D. Buy S&P 500 index puts to hedge market risk
Your customer is worried about market risk, a systematic risk. Further diversifying his portfolio will not help. Selling everything is likely not helping, and means he may miss any upward moves while he is wa

A corporation seeking to raise funds in order to expand its manufacturing capacity would do so in
A) the secondary market.
B)the funding market.
C) the currency market.
D) the capital market.

D. capital market
Raising new capital is generally accomplished through the issuance of stock (equity capital) or bonds (debt capital). This is done in the capital market. When an issuer offers stock and the proceeds from the sale are added to the company

The Big Shoe Sneaker Company is a small manufacturer of athletic shoes. It is selling $100 million of its stock. This will be its first public offering. It will use the money to enhance both marketing and production with a plan to grow the business and ob

A. 90
This is the initial public offering of an unlisted, non-Nasdaq, security. The requirement is that the prospectus be made available to buyers in the secondary market for 90 days after the release date.

GEMCO Oil and Gas, a non-NMS stock, wishing to sell up to $100 million of convertible debt as market conditions permit, files a shelf registration statement with the SEC. Which of these statements are true?
I. For securities offered via a shelf registrati

C. I and III
Section 415 of the Securities Act of 1933 allows publicly traded issuers to register an offering for sale at times to be determined by the issuer. In essence, the issuer is taking the securities off the shelf and selling them when needed; hen

The ABC Chemical Corporation wishes to advertise its upcoming offering of common stock in a tombstone advertisement that they, the issuer, will place. When placing the tombstone advertisement, which of the following would be least likely to appear?
A) The

A. the names of the investment bankers underwriting the issue
In most cases, the names of the firms underwriting the issue only appear in the tombstone ad when they, rather than the issuer, have placed the ad. In this instance, with the tombstone advertis

Cypress Care Nurseries, Inc., owns and operates a chain of nurseries and is headquartered in Cypress, California. The company is considering selling shares of the company to the public in California. In order to be exempt from registration with the SEC, u

B. 80% of the issuers customers must be located in the state of California
The 80% rule is that the company must meet at least one of the three 80% rules: 80% of revenue from the state, 80% of the proceeds earmarked for the state, or 80% of company assets

Seacoast Securities is a syndicate member for the initial public offering of WeariTech, Inc., WeariTech is a hot new issue in the wearable technology space. The S-1 registration statement has been filed but the effective date has not yet been released. Th

A. the cooling-off period
The period of time after the offering is filed, but before the SEC releases the security for sale, is called the cooling-off period.

Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seac

B. an investment banker
In this example, Seacoast is acting as an investment banker, assisting a person (Clarence) in a secondary offering.

Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seac

B. secondary offering
The shares that are to be sold belong to a person (Clarence Mod), not the issuer. This is a secondary offering. An APO or an IPO are both issuer transactions. A charitable remainder unitrust (CRUT) is an estate planning tool often us

During the cooling-off period the disclosure document that may be delivered to interested parties is called the
A) summary prospectus.
B) preliminary prospectus.
C) final prospectus.
D) cool off period prospectus.

B. preliminary prospectus
The document available during the cooling-off period in the preliminary prospectus, also called a red herring.

Which of these may be found in the final prospectus that is not in the preliminary prospectus?
I. Next year's sales
II. Public offer price
III. Release date
IV. Planned use of the proceeds
A) II and III
B) I and IV
C) II and IV
D) I and II

A. II and III
The public offer price may vary up until the release date. The SEC determines the release date, not the issuer. Next year's sales are counted next year, and could not be in the prospectus. Planned use of the proceeds is in both documents.

The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of these comply with those rules for initial (IPO) and additional (APO) public offerings?
I. An IPO of a stock to b

D. I and IV
The prospectus delivery rules include the following:
IPO for listed or Nasdaq�25 days
APO for listed or Nasdaq�none
IPO for non-Nasdaq�90 days
APO for non-Nasdaq�40 day

The Mod Family Foundation is a $500,000,000 charitable foundation headed by Clarence Mod. The foundation is seeking to purchase a large block of WeariTech, Inc., a Nasdaq listed company, for the foundation's portfolio. Seacoast Securities is assisting wit

A. an institutional investor
With half a billion in assets, the foundation is an institutional investor. We know that they are not acting as a venture capitalist because the company is already trading, and these shares are to be purchased in the secondary

Modulux, Inc., a NYSE listed manufacturer, is offering 5,000,000 shares to the public, which will raise capital to build a new plant. The new technology and design should allow Modulux to increase market share significantly in the modular home business. T

D. an APO
There are two important points to consider (1) This is an offering of stock to raise money for the issuer, which is (2) a primary transaction. The company's stock is actively trading in the secondary markets so this must be additional shares. Th

The preliminary prospectus for the IPO of the Big Shoes Sneaker Company indicates that the number of shares sold may be increased as much as 15% if market demand is sufficient. This is called a
A) Green Shoe option
B) Flex offering
C) Secondary IPO offeri

A. Green Shoe Option
This is a Green Shoe offering, based on a rule first used in the IPO, for the Green Shoe Manufacturing Company (now known as Stride-Rite). A shelf offering occurs when the shares may be held and sold later under Rule 415. The other na

All of the following are exempt issuers except
A) Modulux, Inc., a home manufacturer.
B) the City of Alta Loma.
C) the Southwest Railroad Co.
D) Alta Loma Community Foundation.

A. Modulux, Inc. a home manufacturer
Common carriers (e.g., railroads), municipalities, and charities are all examples of exempt issuers under the Securities Act of 1933. A for-profit corporation is not exempt.

Which of these broker-dealers would most likely have correspondent firms?
A)A fully disclosed broker-dealer
B)A self-clearing firm
C)An introducing broker-dealer
D)A market maker

B)A self-clearing firm
A self-clearing (or carrying) firm holds funds and securities of the fully-disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms, for whom the ca

A central, physical, marketplace where securities are traded through a designated market maker is
A)the third market.
B)the pit.
C)an exchange.
D)the OTC.

C)an exchange.
This description most aligns with the exchange model where securities are traded in a central location through a designated market maker.

Electronic market centers designed primarily for institutional investors describes
A)the exchanges.
B)the OTC market.
C)the third market.
D)the fourth market.

D)the fourth market.
The market centers that operate through electronic communication networks are known as the fourth market. These centers were created to serve large institutional investors like mutual funds and pension plans. The fourth market reduces

An institutional customer, such as a hedge fund, utilizes the services of a broker-dealer who provides custody of securities, as well as other back-office functions, while allowing the customer to establish relationships with other broker-dealers for the

B)prime account.
A broker-dealer that provides custody of securities and other back-office functions but allows the customer to maintain relationships with other broker-dealers who will provide execution services is known as a prime broker-dealer. The acc

Both the individual and institutional investor are able to easily buy and sell securities to meet their objectives through
A)biennial markets.
B)secondary market.
C)outdoor malls.
D)primary markets.

B)secondary market.
This is the primary purpose of the secondary markets.

Which of the following is not part of the secondary markets?
A)Over-the-counter market
B)Mutual fund market
C)Third market
D)The exchanges

B)Mutual fund market
Mutual funds, as open-end investment companies, do not trade in the secondary markets.

A business entity that performs the function of receiving and delivering payments and securities on behalf of both parties to a securities transaction is called a
A)clearing agency.
B)broker-dealer.
C)transfer agent.
D)depository.

A)clearing agency.
This is the function of a clearing agency. Although there are some broker-dealers that do act as clearing agents, being a broker-dealer does not always include providing the services of a clearing agent. The broker-dealer would need to

A broker-dealer that concentrated its business efforts on proprietary trading would most likely be functioning as
A)an investment adviser.
B)an underwriter.
C)an investment banker.
D)a market maker.

D)a market maker.
When a broker-dealer buys and sells securities for its own account as the major portion of its business model (e.g., proprietary trading), it is functioning primarily as a market maker (i.e., making markets in those securities). Investme

Great Plains Securities, an OTC market maker, holds inventory and provides liquidity for Modulux Homes, an NYSE listed company. This is an example of
A)the force market.
B)the primary market.
C)the fourth market.
D)the third market.

D)the third market.
When an exchange-listed security trades in the OTC market, it is being traded in the third market. The fourth market is composed of electronic communication networks and is primarily used by institutional investors. Primary markets are

Secondary markets exist to do all of these except
A)decrease liquidity in the national markets.
B)support the existence of primary markets.
C)allow investors to easily liquidate securities.
D)allow individual investors easy access to investment vehicles.

A)decrease liquidity in the national markets.
Secondary markets are focused on providing, not decreasing liquidity. Ultimately, a fair and orderly secondary market makes securities more attractive, supporting the functioning of the primary markets.

The Securities Exchange Commission was authorized by
A) the Securities Act of 1934.
B) the Securities Act of 1933.
C) the Securities Exchange Act of 1933.
D) the Securities Exchange Act of 1934.

D. the Securities Exchange Act of 1934
Though the Securities Act of 1933 required registration for new securities with the SEC, the SEC was not authorized until passage of the Securities Exchange Act of 1934.

Which of these would not be fully covered by SIPC insurance?
A) Holding $400,000 in junk bonds and $100,000 in cash
B) Holding $250,000 in cash and $250,000 in the Windmill Commodity ETF
C) Holding $250,000 in index funds, $200,000 in Treasury bonds, and

C. holding $250,000 in index funds, $200,000 in Treasury bonds, and $50,000 in gold
Gold is not a security and is not covered by SIPC. Money markets, ETFs, mutual funds, and junk bonds are all types of securities.

The part of the federal government that acts as an independent central bank in order to manage monetary policy is the
A) Comptroller of the Currency.
B) Treasury Department.
C) Department of the Interior.
D) Federal Reserve.

D. the Federal Reserve

The Securities Investors Protection Corporation protects investors from the financial failure of
A) the stock market.
B) banks.
C) broker-dealers.
D) the third market.

C. broker-dealers
The SIPC protects investors in the event of a collapse of their broker-dealer firm.

Cooper and Belle, spouses, have a checking account at Gloria City National Bank. The balance is $450,000. What is their protection from FDIC if Gloria City Bank fails?
A) $450,000�$250,000 for Cooper and $200,000 for Belle
B) $250,000�the total maximum co

D. $450,000-split evenly between the two people
FDIC coverage is per person, per account, split evenly. A joint account with two owners would be covered up to $500,000.

Keegan and Drew, spouses, have a checking account at Gloria City National Bank. The balance is $450,000. What is their protection from SIPC if Gloria City fails?
A) $450,000�split evenly between the two people
B) $450,000�$250,000 for Keegan and $200,000

C. there is no coverage for Keegan and Drew
SIPC covers broker-dealers, not banks.

Dewey Cheatham, a registered representative for Great Plains Securities, was found by the SEC to have committed fraud by stealing from the accounts of several elderly customers of the firm. The SEC has also found that Great Plains was negligent in its sup

D. arrest
A broker-dealer is a business. You can not really arrest a business. You can censure, suspend, or fine a business. Note that the SEC cannot arrest a natural person either (like Dewey Cheatham), but they can contact the Justice Department.

According to the Uniform Securities Act, who is charged with enforcing state securities laws and regulations?
A) NASAA
B) The administrator
C) The SEC
D) FINRA

B. the administrator
The administrator handles state securities laws. NASAA is an association of state administrators. The SEC and FINRA are both national level organizations.

Which of these is not a division of the Treasury Department with some level of oversight for the securities industry?
A) IRS
B) Financial Industry Regulatory Authority
C) Financial Crimes Enforcement Network
D) Office of the Comptroller of the Currency

B. the Financial Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority (FINRA) is not a government agency, so it is not part of the Treasury Department. FINRA is a nongovernmental organization that has received significant delegated aut

FinCEN is a bureau of what department within the federal government?
A) Treasury
B) Defense
C) Justice
D) Interior

A. Treasury
Though it is an intelligence-gathering organization that watches for suspected criminal activity, FinCEN is part of the Treasury Department

Deanfield and Chatham Investments, LLC has recently registered as a broker-dealer with the SEC and been accepted as a FINRA member firm. They update their website to prominently display this fact at the top of their site and include large images of both o

C. not allowed because it is a misrepresentaiton
This is a misrepresentation. Even if only stating a fact, the prominence suggests some greater affiliation or approval. Deanfield and Chatham is about to get a rather terse letter from these regulators, or

The SEC has regulatory authority over all of these entities except
A) FINRA.
B) Securities Information Providers (SIPs).
C) municipalities.
D) exchanges.

C. municipalities
Though the SEC does oversee the MSRB, neither the SEC nor the MSRB regulates municipalities in the U.S. The SEC does oversee FINRA and the exchanges.

The Hoffman Equipment company of Anaheim, California is preparing to sell share to the public in an IPO. They plan to sell exclusively to residents of the state of California and use the proceeds to build a new showroom in Long Beach, California. This off

B. the administrator of the state
This offer would be exempt from registration with the SEC as it meets the criteria under the Intrastate Offer Rule, but would still need to be registered with the state. MSRB makes rules for municipal securities.

Darrell has an individual account at Seacoast Securities, Inc., an SIPC firm that holds $300,000 in cash; $100,000 in various stock; and $100,000 in the Seacoast Money Market Fund. If Seacoast Securities fails how much coverage does Darrell have?
A) $100,

D. $450,000
SIPC covers securities and cash at a broker-dealer up to a maximum of $500,000, but no more than $250,000 in cash. A money market fund is a type of security. Darrell is covered for $200,000 in securities and $250,000 in cash for a total of $45

All of these are rules set down by an exchange except
A) capital requirements for members.
B) order priority.
C) listing and delisting of a security.
D) revoking a corporate charter.

D. revoking a corporate charter
A corporate charter is granted by a government entity, usually the state. An exchange can not revoke it. However, a firm whose corporate charter has been revoked will likely see a delisting shortly thereafter.

The authorities delegated to FINRA by the SEC include all of these except
A) establishing testing and standards for associates of broker-dealers.
B) investigating complaints.
C) establishing initial margin requirements.
D) establishing membership requirem

C. establishing margin requirements
The initial margin requirement is set by the Federal Reserve under Regulation T. FINRA creates and administers securities licensing requirements (e.g., the SIE), sets its own membership requirements, and may investigate

Louise Ripley is a customer of Seacoast Securities, Inc., a FINRA member firm. While she was away on a long trip, several limit and stop orders were executed. She believes that these orders were not executed properly and cost a significant loss. She has r

B. there is no appeal in an arbitration hearing
There is no appeal to an arbitration award. Such awards must be paid within 30 days.

In which circumstances may a FINRA member firm conduct securities business with a nonmember broker-dealer?
A) If the broker-dealer is a Canadian firm without regard to registration
B) Under no circumstances
C) If the broker-dealer is temporarily suspended

D. if the nonmember broker-dealer is a forge in firm an properly register in there home jurisdiction
The properly registered foreign member exception is one of the few exceptions to the rule. A suspended member is also treated as a nonmember

Investigations and hearings into alleged violations of FINRA's Code of Procedure are performed by
A) the Department of Enforcement.
B) the Division of Engagement.
C) the Arbitration Panel.
D) the National Adjudicatory Council.

A. the Department of Enforcement
This is the job of the Department of Enforcement (DOE). DOE decisions may be appealed to the NAC. Code of Procedure violations do not go to the arbitration panel. There is no Division of Engagement.

An exchange has some degree of regulatory authority over all of the following except
A) floor traders.
B) exchange members.
C) dealers in the third market.
D) designated market makers.

C. dealers in the third market
Firms that make a market, in listed stocks in the OTC market, are under FINRA oversight. Those who do transactions on the floor are under the exchanges regulations.

FINRA is the primary regulator in the United States for
I. broker-dealers
II. registered representatives
III. bankers
IV. the SEC
A) I and IV
B) I and II
C) I and III
D) II and III

B. I and II
FINRA oversees broker-dealers and their associated persons, like registered representatives. FINRA's authority is delegated from the SEC, and they do not regulate banks, though they do regulate broker-dealers that are owned by banks. Investmen

All of these enforce MSRB rules except
A) the MSRB Enforcement Department.
B) the Federal Reserve Board.
C) FINRA.
D) the Securities Exchange Commission.

A. the MSRB Enforcement Department
MSRB has no enforcement department. FINRA and the SEC enforce MSRB rules for broker-dealers, and the Fed and the Office of the comptroller do so for banks.

MSRB rules apply to all of the following except
A) investment bankers.
B) municipal dealers.
C) FINRA member firms performing trades with municipal bonds.
D) municipalities.

D. municipalities
The MSRB has no authority over municipal governments. They do make rules for underwriters (investment bankers) bringing municipal bonds to market, and municipal bond trading for both dealers and brokers acting on a customer's behalf.

Bob's Discount Brokerage has applied for FINRA membership and was denied. Bob wants to appeal this decision. The first appeal goes to
A) the NAC.
B) the courts.
C) the SEC.
D) the DOE.

A. the NAC
Appeals on FINRA decisions first go to an internal group called the National Adjudicatory Council. NAC decisions may be appealed up to the SEC, and then the courts.