Review Flashcards
Which of the following statements is TRUE concerning electronic communication networks (ECNs)
Electronic communication networks (ECNs) are trading systems designed to match buyers with sellers of securities. They can be used by both institutional and retail investors. One of the benefits of their use is immediate automatic execution if a matching buy or sell order can be found on the system. ECNs do not allow investors to trade directly with one another, but allow subscribers such as broker-dealers to use these systems to execute the orders sent to them by their clients.
For a new municipal issue, which of the following choices is the responsibility of the underwriting syndicate?
Municipal securities are exempt from the registration and filing requirements of the SEC. However, the underwriting syndicate must submit the official statement to the MSRB’s Electronic Municipal Market Access (EMMA) system and must also provide the official statement to customers. It is the responsibility of the issuer to hire the bond counsel.
A municipal bond will be accepted for delivery without a legal opinion if it is identified as:
A municipal bond is expected to be delivered with a legal opinion unless the bond is identified as ex-legal at the time of the purchase
A municipal securities representative does an analysis of an official statement and prepares a summary report. The report must be approved by:
The preliminary and final official statements are not considered advertising since they are prepared by or for the issuer. However, a summary of an official statement is considered advertising since it is prepared by the municipal representative and, therefore, must be approved by a municipal principal.
If an investor sells his shares in Sentry fund, he will receive:
When an investor sells shares in a mutual fund, he will receive the bid price or net asset value. The Sentry fund’s net asset value is listed as being $13.42. Therefore, the investor will receive $13.42 per share
Which TWO of the following events may be reasons for a revenue bond issue to be called?
Destruction by fire would be included in a catastrophe call provision and permit the issue to be called. If surplus funds are available (choice [II] states they are not available), the monies may be used to retire a portion of the outstanding bonds. If the tax status of an issuer is in doubt at the time of issuance, there is usually a provision requiring that the issue be called if the tax status of the issuer changes and the bonds become taxable. An issuer may refund an outstanding issue if interest rates are declining, not rising.
(72921)
What information would NOT need to be disclosed by a broker-dealer in a research report?
A broker-dealer is required to make certain disclosures in its research reports. Any investment banking compensation paid during the last 12 months, the anticipated price target, and the fact that the analyst is a director of the company are all required disclosures. In addition, any ownership in the company held by the analyst or a member of the analyst’s immediate family at the time the report is issued must be disclosed. The fact that the analyst formerly owned shares that were sold does not need to be disclosed.
A broker’s broker is a broker-dealer that engages in transactions for the account of
A broker’s broker is a broker-dealer that engages in transactions for the account of another broker-dealer.
A Web site is being designed for a registered representative of a member firm. Which TWO of the following statements are TRUE regarding the design of this Web site?
Care should be taken in the design of Web sites. The name of the member firm with whom the registered representative is associated must be displayed. While the use of the FINRA logo is NOT permitted, the registered representative’s association with a FINRA member firm is allowed. However, when a reference to FINRA membership is used, the Web site must provide a hyperlink to FINRA’s home page. Links to other Web sites are allowed but care should be taken that these sites do not provide fraudulent or misleading information.
An investor has been following XYZ Corporation for several years and believes that the company is poised for some very profitable years. Since she wants to purchase a security that offers a consistent annual distribution and one that benefits from XYZ deciding to pay a significant cash dividend to its stockholders, she should consider purchasing
Participating preferred stock allows the owners to share in the extraordinary earnings of a company. Essentially, participating preferred has a stated dividend, but these shareholders may receive more than the stated amount based on the profits of the issuing company. In contrast, the benefit of cumulative preferred stock is that it allows the owner to add up all of the unpaid dividends to a future payment if the issuer intends to pay a cash dividend to its common shareholders. Cumulative preferred stock may be beneficial during a period of time where the company is unable to pay the full dividend since the holder is able to accrue the missing payments. A collateral secured bond is one that provides the holder with safety based on it being backed by a specific asset of the issuer; however, the issuer will pay no more than the bond’s stated rate of interest. Common stock will pay cash dividends, but only if they are declared by the company’s board of directors.
Which of the following securities is LEAST suitable for an investor seeking income as a primary investment objective?
Exchange-traded notes (ETNs) are a type of unsecured debt security. ETNs carry issuer risk that is tied to the creditworthiness of the financial institution backing the note. These securities are not like traditional fixed-income securities since they typically do not make interest payments to investors. The returns are linked to the performance of an index, currency, or commodity and would be suitable for investors who want to speculate on the value of an index. An investor seeking income as a primary investment objective would not be a suitable candidate for an ETN. The other investment choices carry some type of risk but would still typically pay interest.
(73604)
A client contacts an RR after reviewing the financial statements of the S-Works Carbon Company. The client is confused since the company paid a cash dividend but had a loss for the last fiscal year. Which of the following statements is TRUE?
A company is permitted to pay cash dividends in excess of its net income even if it had a loss. In terms of financial accounting, cash dividends are paid out of retained earnings that are part of shareholders’ equity. Therefore, cash dividends paid will reduce shareholders’ equity. The company could have paid the cash dividend easily based on retained earnings from previous years
An investor with an investment objective of speculation wants to purchase a security that will increase by the same percentage as a decline in the S&P 500 Index. Which of the following securities would you recommend?
An inverse ETF is designed to deliver the opposite of the performance of an index or other benchmark. An inverse ETF based on the S&P 500 Index seeks to deliver the opposite performance of that index. For example, if the S&P 500 rises by 1%, an inverse ETF would decrease by 1%, and if the S&P 500 falls by 1%, the inverse ETF would increase by 1% before fees and expenses. Choice (b) would be suitable if the customer anticipated an increase in the S&P 500 and wanted a multiple of that increase. Choice (c) would be suitable if the customer wanted a return that was a multiple or higher return and anticipated a decrease in the S&P 500, and choice (d) would be suitable if the customer only wanted to track the return of the S&P 500.
Which of the following statements is NOT TRUE regarding a SEP-IRA?
In a simplified employee pension plan (SEP-IRA) employees are NOT permitted to make contributions. Instead, SEPs are funded by employer contributions only
A registered representative opens an option account for a customer on October 1 and buys 5 ABC November 30 calls at 4. On October 16, the premium of the calls has decreased to 2 and the registered representative has not received a signed options agreement. The registered representative may:
if the customer does not return the options agreement within 15 days of the approval of the account, the customer is permitted only to close out existing positions. Since the account was approved on October 1, the customer must sign the options agreement and return it to the firm by October 16. As of October 16, the customer may only open new options positions after the signed form is returned to the firm
