sie exam part 2 Flashcards

Question

What is the purpose of a stop order in securities trading? a. To buy or sell a security at the current market price b. To execute a trade at a specific price or better c. To limit potential losses by buying or selling at a specific price d. To freeze the price of a security temporarily

Answer 1

c. To limit potential losses by buying or selling at a specific price The purpose of a stop order in securities trading is to limit potential losses by buying or selling at a specific price.

Answer 2

b. Payments that are guaranteed for a specific period, regardless of market conditions A fixed annuity provides payments that are guaranteed for a specific period, regardless of market conditions.

Answer 3

b. The investor borrows funds to buy securities, using the securities as collateral A key feature of a margin account in securities trading is that the investor borrows funds to buy securities, using the securities as collateral.

Answer 4

b. inimizing interest rate risk The primary goal of a bond ladder investment strategy is to minimize interest rate risk.

Answer 5

c. To protect investors and ensure fair and efficient markets The primary function of the Financial Industry Regulatory Authority (FINRA) is to protect investors and ensure fair and efficient markets.

Answer 6

c. systematic risk. systematic risk affects all securities in the market to some degree and includes factors such as economic downturns, interest rate changes, political events, and other broad market influences.

Answer 7

b. Employer contributions The main advantage of a 401(k) retirement account includes employer contributions.

Answer 8

b. To sell a call option To write a call option means to sell a call option.

Answer 9

a. Disclosing information about the company's financial performance to potential investors The primary function of a securities exchange commission (SEC) filing, such as a Form 10-K, is to disclose information about the company's financial performance to potential investors.

Answer 10

c. To assess the issuer's creditworthiness and default risk The purpose of a credit rating for a bond is to assess the issuer's creditworthiness and default risk.

Answer 11

d. Specific use for qualified education expenses A characteristic of a 529 college savings plan is its specific use for qualified education expenses.

Answer 12

c. To protect investors in the event of a brokerage firm failure The primary function of the Securities Investor Protection Corporation (SIPC) is to protect investors in the event of a brokerage firm failure.

Answer 13

b. Tax-free withdrawals in retirement A key feature of a Roth IRA is tax-free withdrawals in retirement.

Answer 14

B. Matching customers with investments that align with their investment objectives and risk tolerance The primary purpose of "suitability" in the context of securities transactions is to match customers with investments that align with their investment objectives and risk tolerance.

Answer 15

b. The minimum equity level that must be maintained in a margin account The maintenance margin in margin trading is the minimum equity level that must be maintained in a margin account.

Answer 16

b. Executing trades on behalf of clients The primary responsibility of a registered representative (RR) in a brokerage firm is to execute trades on behalf of clients.

Answer 17

c. To ensure that securities transactions are suitable for customers The main function of FINRA Rule 2111 regarding suitability is to ensure that securities transactions are suitable for customers.

Answer 18

b. To prevent and detect money laundering activities The primary purpose of Anti-Money Laundering (AML) regulations in the securities industry is to prevent and detect money laundering activities.

Answer 19

b. The registered representative (RR) makes trading decisions on behalf of the client without prior approval A discretionary account in securities trading allows the registered representative (RR) to make trading decisions on behalf of the client without prior approval.

Answer 20

d. To gather information about customers and assess their suitability for investments The "know your customer" (KYC) rule in the securities industry is in place to gather information about customers and assess their suitability for investments.

Answer 21

b. To report trade data and disseminate it to the public The primary function of the Consolidated Tape Association (CTA) in securities trading is to report trade data and disseminate it to the public.

Answer 22

b. To prevent fraud and manipulation in securities trading The main purpose of the Securities Exchange Act of 1934 is to prevent fraud and manipulation in securities trading

Answer 23

b. To facilitate trading by maintaining an orderly market and acting as a buyer or seller for assigned securities The role of a designated market maker (DMM) on the New York Stock Exchange (NYSE) is to facilitate trading by maintaining an orderly market and acting as a buyer or seller for assigned securities.

Answer 24

b. To protect investors in the event of a brokerage firm failure The primary goal of the Securities Investor Protection Corporation (SIPC) is to protect investors in the event of a brokerage firm failure.

Answer 25

a. excessive trading in a customer's account to generate commissions without regard to the customer's investment goals "Churning" in the context of securities regulation refers to excessive trading in a customer's account to generate commissions without regard to the customer's investment goals.

Answer 26

b. To prevent fraud in the issuance of securities and provide full and fair disclosure to investors The main purpose of the Securities Act of 1933 is to prevent fraud in the issuance of securities and provide full and fair disclosure to investors.

Answer 27

c. to protect bondholders by requiring disclosure and adherence to specified terms in bond indentures The main purpose of the Trust Indenture Act of 1939 is to protect bondholders by requiring disclosure and adherence to specified terms in bond indentures

Answer 28

b. To supervise and regulate national banks and federal savings associations The role of the Office of the Comptroller of the Currency (OCC) in the U.S. financial system is to supervise and regulate national banks and federal savings associations.

Answer 29

b. To promote fair and efficient financial markets and represent the interests of securities firms The main function of the Securities Industry and Financial Markets Association (SIFMA) is to promote fair and efficient financial markets and represent the interests of securities firms.

Answer 30

d. To prevent abusive short-selling practices The primary purpose of Regulation SHO in the securities industry is to prevent abusive short-selling practices.

Answer 31

d. To regulate access to securities markets by broker-dealers The main function of the Market Access Rule (Rule 15c3-5) under the Securities Exchange Act of 1934 is to regulate access to securities markets by broker-dealers.

Answer 32

a. executing customer orders ahead of large block transactions "Front-running" in securities transactions refers to executing customer orders ahead of large block transactions.

Answer 33

c. To protect investors from fraudulent securities offerings at the state level The primary purpose of the Blue Sky Laws in the United States is to protect investors from fraudulent securities offerings at the state level.

Answer 34

c. To issue government securities and manage the country's finances The role of the U.S. Department of the Treasury in the securities industry is to issue government securities and manage the country's finances.

Answer 35

b. To prevent money laundering activities The primary goal of the Bank Secrecy Act (BSA) in the securities industry is to prevent money laundering activities

Answer 36

c. To report trade data and disseminate it to the public The function of the Securities Information Processor (SIP) in the U.S. securities markets is to report trade data and disseminate it to the public.

Answer 37

D. Protecting investors and maintain fair and efficient markets The primary function of the Securities and Exchange Commission (SEC) in the U.S. capital markets is protecting investors and ensuring fair and efficient markets.

Answer 38

c. To supervise and regulate national banks and federal savings associations The main function of the Office of the Comptroller of the Currency (OCC) in the U.S. financial system is to supervise and regulate national banks and federal savings associations.

Answer 39

d. To protect investors in the event of a brokerage firm failure is to protect investors in the United States in the event that a brokerage firm fails, by providing limited coverage for their brokerage accounts, ensuring the return of certain securities and cash held by the firm

Answer 40

c. To prevent money laundering activities to prevent and detect money laundering and other financial crimes. It imposes certain recordkeeping and reporting requirements on financial institutions

Answer 41

b. To protect consumers and enhance financial stability

Answer 42

D. $38 Breakeven point = Strike price of put + Premium paid for the put Breakeven point = $35 + $3 = $38

Answer 43

A. prohibited as fraudulent and manipulative These agreements can create a misleading appearance of market demand, and regulators prohibit such practices to maintain the integrity of the market.

Answer 44

C. qualified institutional buyers (QIBs) Qualified Institutional Buyers (QIBs) are institutions that meet specific criteria allowing them to participate in certain securities transactions, including those involving restricted securities.

Answer 45

D. lower management fees due to passive management of the fund. Index funds typically have lower management fees compared to actively managed funds because they aim to replicate the performance of a specific market index rather than relying on active management strategies. This cost efficiency is often considered an advantage for investors.

Answer 46

B. they are exempt from registration under the Securities Act of 1933. U.S. government agency issues are typically exempt from registration under the Securities Act of 1933. These agencies may issue securities to raise funds, and while they are not direct obligations of the federal government, they may carry an implicit or explicit government guarantee.

Answer 47

D. qualified distributions are excluded from federal income tax. One of the key features of Roth 401(k) and Roth IRA plans is that qualified distributions, which meet certain criteria, are excluded from federal income tax. Contributions to Roth accounts are made with after-tax dollars, and as a result, qualified withdrawals, including earnings, can be tax-free.

Answer 48

B. an accredited investor. Accredited investors, as defined by the U.S. Securities and Exchange Commission (SEC), include individuals who have earned income exceeding $200,000 in each of the two most recent years (or $300,000 combined income with a spouse) and expect to reach the same income level in the current year.

Answer 49

C. NAV computed after the order is received. The redemption value of an open-end investment company's shares is typically based on the Net Asset Value (NAV) computed after the order is received. The NAV is calculated by taking the total value of the fund's assets, subtracting liabilities, and dividing by the number of outstanding shares.

Answer 50

B. market risk The greatest risk in a variable life insurance policy is market risk, as the policyholder's cash value is invested in underlying assets, subjecting it to fluctuations in the financial markets. Changes in market conditions can impact the policy's cash value and, subsequently, the death benefit.

Answer 51

B. The kind of annuity selected partly determines the payment amounts to the annuitant. Different types of annuities (such as fixed, variable, or indexed annuities) have varying methods for determining payment amounts to the annuitant, depending on the terms of the contract.

Answer 52

B. exchange. Exchange rate risk, or currency risk, is specific to foreign debt instruments and does not apply to domestic debt instruments.

Answer 53

B. semiannually Treasury notes have fixed interest rates, and investors receive interest payments every six months until the maturity date of the note.

Answer 54

B. a closing purchase. When an investor or trader covers a position by purchasing an option, it is referred to as a "closing purchase" transaction. This action effectively closes out the existing position in the options market.

Answer 55

A. registration is effective. A broker-dealer is permitted to accept payment for a new issue from a new customer when the registration of the securities is effective. This means that the securities have been registered with the Securities and Exchange Commission (SEC), and the offering is ready to proceed

Answer 56

B. build an order book and allocate the stock. The syndicate desk is responsible for managing the distribution of shares to investors, coordinating orders, and ensuring a smooth process for the offering.

Answer 57

A. file a currency transaction report (CTR)

Answer 58

C. American depositary receipts (adrs)

Answer 59

C. Treasury bonds are exposed to inflationary risk because the fixed interest payments they provide can lose purchasing power in an inflationary environment.

Answer 60

B. The ownership of the decedent's share is governed by their will or state law. In a tenants-in-common arrangement, each owner has a distinct share, and upon the death of one owner, their share doesn't automatically pass to the other owner(s). Instead, it is typically transferred according to the decedent's will or state laws governing inheritance

Answer 61

C. variable rate demand note This put feature gives investors liquidity and flexibility in the short term.

Answer 62

D. Transfer agent the transfer agent is responsible for maintaining a record of the shareholders eligible to receive the additional shares. The transfer agent handles the administrative tasks related to changes in the company's shareholder records, including stock splits and issuing additional shares to eligible shareholders.

Answer 63

A. an independent securities analyst explains to the employee why the earnings for the company next quarter could be markedly poorer than expected the information is coming from an independent analyst, not an insider of the company, and the employee is not in possession of material nonpublic information obtained through their position within the company.

Answer 64

C. a market maker. A market maker is a member of a stock exchange who plays a crucial role in providing liquidity to a security. Market makers facilitate trading by being willing to buy and sell a particular security at all times, helping to maintain an orderly market.

Answer 65

A. profit limited and loss unlimited. For the writer of a covered call option, the potential profit is limited to the premium received from selling the call option, while the potential loss is unlimited if the price of the underlying asset rises significantly. The writer is covered because they own the underlying asset, but they forgo potential gains beyond the strike price of the call option.

Answer 66

B. exposure to non-correlated assets with steady returns. Direct Participation Programs (DPPs) typically involve investments in non-correlated assets, such as real estate or energy projects, and are structured to provide investors with steady returns. They may not offer the same level of liquidity and transparency as publicly traded securities, but they are designed to provide diversification and income potential.

Answer 67

A. an agent When a broker-dealer charges a commission on a securities transaction, it has acted as an agent. An agent facilitates the trade on behalf of the client, charging a fee (commission) for the service. In contrast, a principal trade involves the broker-dealer buying or selling securities for its own account.

Answer 68

D. Exchange-traded notes (ETNS) If the issuer's credit rating is downgraded, Exchange-Traded Notes (ETNs) can indeed be adversely impacted. ETNs are unsecured debt securities, and their value is linked to the creditworthiness of the issuer. A downgrade in the issuer's credit rating can lead to a decline in the ETN's value.

Answer 69

A. The net asset value (NAV) of the shares when the owner dies. The cost basis of an inherited mutual fund is generally the fair market value of the shares at the time of the original owner's death.

Answer 70

C. 1200 shares at $41.67 After the dividend, the total number of shares becomes 1,000 + 200 = 1,200 shares. The new price per share is calculated by dividing the original investment amount by the new total number of shares: $50 / 1,200 shares = $41.67 per share (rounded).

Answer 71

B. a premium When a bond is selling at a price higher than its face value, it is considered to be trading at a premium. In this case, with the last transaction at 102, the bond is selling at 102% of its face value, indicating a premium.