Chapter 8 Customer Accounts Flashcards
Customer Account Info:
Must be sent within 30 days
Must be furnished at least every 36 months
Must be updated within 30 days after receiving notice of change in investment objectives
Customer Account must be maintained for SIX years after the account has been closed
Capital risk
is the risk of loss of the principal value of an asset.
Interest rate Risk
is the loss of market value on fixed income securities because of a rise in competitive interest rates, especially on securities with long term maturities .
Inflationary Risk or Purchasing power Risk
is the risk of loss of buying power, especially on fixed income securities with long term maturities ( Treasury Bonds) . If an investment value decreases and the income increases, the investors purchasing power would also decrease.
Liquidity risk
is the risk that an investor will not be able to sell or liquidate a security at fair market value.
Systematic Risk
is a securities market risk common to all securities of the same general class and therefore cannot be eliminated with diversification.
Non-Systematic Risk
is company specific risk, meaning that the value of a single investment choice will decline. Non- Systematic risk can be minimized with diversification.
Examples are: management risk, litigation risk, succession risk.
Credit Risk
is the risk that a company will declare bankruptcy or financial obligations wont be met.
Economic and Social Risk
generally refers to how domestic and world affairs affect investments as well as fiscal and monetary policies.
Risk/Reward Relationship
the greater the risk, the greater the reward/ the less risk the less the reward.
Reinvestment Risk-
is the risk that interest rates will decline and income ( dividends and interest) received from existing investments will earn less when reinvested than the original investment ( Treasury bills do not have reinvestment risk until maturity)
Call Risk
the risk that a bondholder will have their bond called or redeemed prior to maturity. The bonds would be redeemed by the issuer if interest rates declined. This would leave the bondholder reinvesting their money at a lower return.
Currency Risk
risk that changes in the exchange rate will adversely affect your investment.
Regulatory or Legislative Risk
risk that legislative changes may adversely affect your investments, legislation that significantly curbs the sale of tobacco or delays in FDA approval of a new drug or perhaps the favorable tax treatment of an investment product has been withdrawn.
Market Timing Risk- ( timing Risk)
risk incurred trying to time the market, or a particular investment. Investors may enter the market too soon or too late and that would negatively impact their portfolios.
