SIE Preparation Flashcards

A set of vocabulary-style flashcards based on SIE (Securities Industry Essentials) lecture notes covering risk types, options, orders, bonds, and industry regulations.

Business (non-systematic) risk

The type of risk reduced by diversification because it minimizes the impact of problems affecting any one company.

Systematic (market) risk

The risk that remains in a portfolio containing hundreds of stocks because diversification cannot eliminate market-wide declines.

Index Options

Financial instruments used by portfolio managers to hedge systematic market risk affecting a diversified portfolio.

Revenue bond

A type of bond where repayment depends on revenues from a specific project, such as tolls generated from a bridge.

General Obligation (GO) bond

A municipal bond backed by the taxing power of the issuer.

EMMA

The platform where an investor should look for municipal bond disclosures and trade information.

Buying a call option

A strategy recommended for a customer who expects a significant rise in a stock but wants limited risk exposure.

Buying a put option

A strategy that acts like insurance for a customer who owns stock and wants downside protection.

Premium paid

The maximum loss for an option buyer.

Cash settlement

The method by which stock index options are settled rather than the delivery of shares.

Long put

The specific option used to protect a long stock position.

Long call

The specific option used to protect a short stock position.

Buy limit order

An appropriate order for a customer who wants to buy a stock only if it falls to a particular price.

Sell-stop order

An order designed to protect a profitable long stock position from a major market decline.

Discount Bond Yield Mechanics

For a $4\%$ bond trading at $950$, the yield is greater than $4\%$ because the investor receives the same $40$ annual interest while paying less than par value.

Interest-rate risk (Long-term)

The risk that is greater for long-term bonds because their prices are more sensitive to changes in interest rates over time.

Index Fund Operating Expenses

Typically lower than actively managed funds because they require less research and portfolio management.

Sales charge (load)

The factor that causes the difference between the Net Asset Value (NAV) and Public Offering Price (POP).

Separate account

The account whose investment performance determines the cash value of a variable life insurance policy.

529 plans

Education savings vehicles where qualified withdrawals are federally tax-free.

Hypothecation agreement

An agreement that allows a broker-dealer to pledge customer securities to a bank.

SIPC protection

Coverage provided for customer securities and cash at a failed broker-dealer.

Front-running

The prohibited practice of trading based on knowledge of a pending customer order before it is executed.

Selling away

Participating in private securities transactions without receiving approval from the firm.

Phases of the Business Cycle

The four stages consisting of Expansion, Peak, Contraction, and Trough.

Recession

Defined as two consecutive quarters of declining GDP.