STC Chs 16-20

D The rules apply to all securities and broker-dealers.

Which of the following statements is TRUE regarding the SEC's anti-manipulation rules?

QID:6207793

Mark For Review

A The rules do not apply to U.S. government securities.

B The rules do not apply to broker-dealers.

C The rules do not apply to municipal securities.

D The rules apply to all securities and broker-dealers.

D Pump-and-dump scheme

• When a large investor or group of investors owns stock and spreads false positive rumors about the stock with a goal of selling the stock at an appreciated value, it's engaging in a pump-and-dump scheme

A group of investors who spread positive rumors about a stock with the ultimate goal of selling the stock at an elevated price is involved in a:

QID:6207796

Mark For Review

A Front-running scheme

B Free-riding scheme

C Churning scheme

D Pump-and-dump scheme

A Cannot share any commissions with the CPA

• Payments of any form are prohibited when they’re being paid to unregistered persons. A CPA is not considered a registered person; therefore, the CPA cannot be compensated for the referrals

A CPA has indicated his willingness to instruct some of his clients to open accounts with a registered representative of a broker-dealer in return for a portion of the commissions generated in these accounts. The registered representative:

QID:6207791

Mark For Review

A Cannot share any commissions with the CPA

B Is permitted to share commissions if a bona fide contract is in place

C Is permitted to share commissions in proportion to the business generated in the accounts

D Cannot share commissions, but can agree to a fee for the referrals

C When a third-party is inserted between a broker-dealer and the best available market price

• ypically to the customer's detriment. A transaction in which a securities professional represents both parties is referred to as an agency cross transaction. Selling away is the prohibited practice of a representative selling securities outside his firm's knowledge and control. Finally, painting the tape is the practice of buying and selling a security in a series of transactions at roughly the same price with the intent of influencing its price either up or down.

Which of the following BEST describes interpositioning?

QID:6207785

Mark For Review

A When an agent buys and sells a security with the intent of driving up its price

B When a professional acts as agent to both parties in a transaction

C When a third-party is inserted between a broker-dealer and the best available market price

D When an agent sells securities outside of his firm

C "The SEC has registered the firm as a broker-dealer."

• SEC prohibits any statements implying that it approves of the broker-dealer, the registered representatives, or the activities of the firm

Which of the following statements is acceptable?

QID:6207794

Mark For Review

A "The SEC has approved of the broker-dealer."

B "The SEC has approved of the registered representatives of the broker-dealer."

C "The SEC has registered the firm as a broker-dealer."

D "The SEC has approved of the activities of the broker-dealer."

B Guilty of backing away

• The broker-dealer is guilty of backing away, which represents the failure to honor a firm quote

A broker-dealer is quoting a security and, rather than filing a customer's order, it decides to change its quote. The broker-dealer is:

QID:6207779

Mark For Review

A Permitted to change the quote

B Guilty of backing away

C Engaging in competitive pricing

D Guilty of marking-the-close

B Churning

• Churning is defined as excessive trading in client accounts for the purpose of generating additional commissions. Although the trades may be suitable, it's the frequency of trading that makes this a violation

To increase her monthly commissions, a registered representative has created a list of suitable investments for some of her clients and has recommended that they make unnecessary changes to their accounts with a series of trades. This activity is considered:

QID:6207784

Mark For Review

A Freeriding

B Churning

C Front-running

D Insider trading

D Not permitted

• The action described is referred to as trading ahead of a research report and is considered a violation of FINRA rules. Firms must implement information barriers to prevent information from their research departments being shared with trading departments

A broker-dealer is preparing to issue a research report with several strong buy recommendations. If a trading desk begins to purchase shares in some of these companies prior to releasing the report to the public, the firm is:

QID:6207787

Mark For Review

A Permitted to do so in order to build inventory for customer purchases

B Permitted to do so to prevent the stock from moving to significantly higher prices

C Not permitted if information barriers are in place

D Not permitted

B Trading on the basis of material, non-public information

• Insider trading requires a person to actually trade on the material, non-public information. In addition, the information must be material information that, when released, is likely to affect a security's price

Which of the following BEST describes insider trading?

QID:6207786

Mark For Review

A Sharing material, non-public information with a client.

B Trading on the basis of material, non-public information.

C Trading on the basis of material, public information.

D Trading on any information that has not been publicly disseminated

D She must obtain her employing firm's written permission to maintain the account.

• If an individual is hired by a member firm and has an existing account with another member firm, she must obtain her employing firm's written permission within 30 days of being hired. Additionally, she must provide written notification to the firm that's carrying her account regarding her new employment

An individual has been hired as an assistant at a brokerage firm. Prior to being hired, the individual had opened an account with another firm. What must the individual do regarding this account?

QID:6207789

Mark For Review

A Nothing since it was opened prior to her hiring.

B The account must be closed.

C The account must be transferred to her new employer.

D She must obtain her employing firm's written permission to maintain the account.

C Engaging in trading with other market makers

• FINRA has established Anti-Intimidation/Coordination rules to promote just and equitable principles of trade. Coordinating pricing, requesting quotes to be changed, and refusing to do business with market makers based on their quotes are all inconsistent with this rule. However, trading with other market makers is acceptable and helps maintain an orderly market

Which of the following actions is an acceptable practice?

QID:6207798

Mark For Review

A Several market makers coordinating their pricing on specific stocks

B Requesting that another market maker increase its quote

C Engaging in trading with other market makers

D Refusing to do business with a market maker that has reduced its quote

A Front-running

Trading on the knowledge of a large impending order that has yet to be executed is a violation that's referred to as front-running. This prohibited action is often confused with insider trading

An institutional client of a registered representative (RR) has entered a large order, but it's still pending. Prior to the order being executed, the RR executes an order for the same stock in her personal account. The RR has violated a rule that prohibits:

QID:6207797

Mark For Review

A Front-running

B Free-riding

C Trading ahead of a research report

D Insider trading

B Marking-the-close

• Marking-the-close occurs when a trader is gradually increasing the firm's quote for a security within minutes of the close to influence the security's market price and is considered a violation. Pattern day trading is an acceptable practice of buying and selling securities on the same day. Matched trades reflect matching offsetting orders with different parties. Churning is defined as excessive trading in an account to generate commissions

A trader at a brokerage firm has gradually increased her firm's quote for a security at the end of the trading day. This is referred to as:

QID:6207788

Mark For Review

A Pattern day trading

B Marking-the-close

C Matched trades

D Churning

A The representative must share in profits that are in proportion to his contributions, but the contributions are not required to be equal.

• If an RR is sharing in a client's account, he must provide notice to and receive approval from his employer. In addition, the RR must only take profits in proportion to his contributions. For example, if he contributes 10% of the funds, he's only permitted to take 10% of the gains. The RR doesn't need to contribute an equal amount into the account. If the RR is sharing in a family member's account, the sharing is not required to be proportionate

What are the requirements if a registered representative intends to contribute to and share in the profits in an account with an unrelated client?

QID:6207780

Mark For Review

A The representative must share in profits that are in proportion to his contributions, but the contributions are not required to be equal.

B Representatives cannot contribute to or share in the profits in an account with an unrelated client.

C The representative must share profits in proportion to his contributions and the contributions must be equal.

D The representative must take profits that exceed his contributions and the contributions are not required to be equal.

B 15 business days

• The initial temporary hold will expire in 15 business days. However, if a firm's review supports the reasonable belief that financial exploitation has occurred, is occurring, or may occur, it may extend the temporary hold for an additional 10 business days. Once the first extension ends and if the firm still believes the customer is being exploited, the firm may extend the hold for another 30 days

The account of a specified adult has been placed on a temporary hold due to a concern of financial exploitation. For how long will the hold generally remain in effect?

QID:6207782

Mark For Review

A Two business days

B 15 business days

C 90 business days

D Indefinitely

B Place a stabilizing bid at the public offering price.

• Under these circumstances, the managing underwriter may enter a stabilizing bid up to, but never above, the offering price of the new issue

A new stock issue for XYZ Corporation is in its initial offering period and is selling very slowly. Due to fears that the price may fall below the initial offering price, what option is available to the managing underwriter?

QID:6207783

Mark For Review

A Place a stabilizing bid above the public offering price.

B Place a stabilizing bid at the public offering price.

C Place a stabilizing bid when the issue is at a value of 50% or less than its initial offering price.

D Placing a stabilizing bid is not allowed.

B The opening and closing of a position in the same stock in a cash account without paying for the stock in full

• A customer who buys stock in a cash account is required to deposit the full purchase price by no later than the second business day following settlement (i.e., by the Reg. T payment date). If the customer sells the same stock on the same day as the purchase, the sales proceeds will arrive before he's required to pay for the purchase. However, if the customer has not paid for the purchase, he will have engaged in a prohibited practice that's referred to as freeriding. Customers who are guilty of this practice are subject to a 90-day restricted (frozen) period during which they must pay for all of their transactions in advance

A 90-day restriction is imposed under the Federal Reserve Board's Regulation T requirement for which of the following client transactions?

QID:6207781

Mark For Review

A The buying and selling of the same stock in different accounts in the same household

B The opening and closing of a position in the same stock in a cash account without paying for the stock in full

C The buying and selling of the same stock on the same day in a margin account

D The opening and closing of a position in the same stock in different accounts on the same day

B Use reasonable diligence to obtain the best price possible

• Broker-dealers must use reasonable diligence to enable customers to obtain the best price possible on purchases and sales. However, this doesn't mean that a firm has violated its best execution obligation if it fails to obtain the best price since this can be difficult to determine in some markets. Instead, a firm must be able to show that it made a reasonable effort to find such a price

When executing customer orders, best execution rules require the broker-dealer to:

QID:6207792

Mark For Review

A Obtain the lowest price available in the market at the time

B Use reasonable diligence to obtain the best price possible

C Obtain a price that balances the customer's interests with the firm's need to make a profit

D Always use an automated execution system

B Secondary market sales by all broker-dealers

• Regulation M focusses on the new issue market and the activities of underwriters during the underwriting period. Reg M is only concerned with the secondary market trading of securities that are associated with a new issue

Regulation M addresses each of the following activities, EXCEPT:

QID:6207795

Mark For Review

A Sales of new issues by underwriters

B Secondary market sales by all broker-dealers

C Market making and new issues

D Supporting the price of new issues

C They're permitted, but limited to business from the existing accounts.

• Industry rules permit continuing commissions to be paid to retiring representatives if a bona fide contract exists and the commissions are limited to business in existing accounts

A 70-year-old registered representative has recently retired and wants to continue receiving commissions on his accounts to supplement his retirement. Which of the following statements is TRUE regarding continuing commission payments?

QID:6207790

Mark For Review

A They're permitted only if the individual remains registered.

B They're permitted based on business generated in existing as well as new accounts.

C They're permitted, but limited to business from the existing accounts.

D Continuing commissions are never permitted.

C On solicited and unsolicited transaction

• According to the MSRB's Time of Trade Disclosures Rule, all material information that's known or reasonably accessible to the market must be disclosed to customers at or prior to the trade. This is required for both solicited and unsolicited transactions, both primary and secondary market trades, and both principal or agency trades

All material information that's known about a municipal security must be disclosed to a customer in which of the following situations?

QID:6207799

Mark For Review

A Only on solicited transactions

B Only on unsolicited transactions

C On solicited and unsolicited transaction

D Neither on solicited nor unsolicited transactions

C Two business days after the hold was placed on the account

A broker-dealer must provide notification that a temporary hold has been placed on a specified adult's account by no later than:

QID:6207815

Mark For Review

A The day the hold was placed on the account

B The next business day after the hold was placed on the account

C Two business days after the hold was placed on the account

D Five business days after the hold was placed on the account

B In a format that's acceptable to the SEC

• The original records maintained by a broker-dealer may be in paper or an electronic format that's acceptable to the SEC or an SRO. Any duplicates must be kept separate from the original records. The location of the records is not required to be approved by the SEC, but must be available upon request

According to the SEC, the original records maintained by a broker-dealer must be:

QID:6207817

Mark For Review

A In paper format only

B In a format that's acceptable to the SEC

C At an approved location that's supervised by the SEC

D Maintained at the same location as any duplicates

D Firms that engage in investment banking, research, and arbitrage

Which of the following firms are required to maintain restricted and watch lists?

QID:6207803

Mark For Review

A Only firms that engage in investment banking

B Only firms that engage in research

C Only firms that engage in investment banking and research

D Firms that engage in investment banking, research, and arbitrage

B A bounty may be paid that ranges between 10% to 30% of the money collected.

If an individual provides information that leads to a payment for penalties associated with violations of the insider trading rules, which of the following statements is TRUE?

QID:6207806

Mark For Review

A A bounty may be paid that ranges from 5% to 10% of the money collected.

B A bounty may be paid that ranges between 10% to 30% of the money collected.

C A bounty may be paid that ranges between 25% to 50% of the money collected.

D An individual cannot be paid a bounty.

A This is an insider trading violation.

• The CEO has provided the RR with material, non-public information and this is a violation of the insider trading rules. In general, a person is prohibited from trading a security based on material, non-public information until it's been widely disseminated

One of an RR's friends is the CEO of a publicly traded company. She tells the RR that the next quarter’s profits are going to be lower than expected. If the RR sells his shares of the company based on this conversation, which of the following is TRUE?

QID:6207818

Mark For Review

A This is an insider trading violation.

B This is an example of trading ahead.

C This is considered pegging and is a form of market manipulation.

D The RR has churned the market.

B Registered representatives of a broker-dealer that only sells mutual fund shares

• FINRA's New Issue Rule prohibits IPO sales to its own employees, employees of other broker-dealers, and accounts of restricted persons in which a restricted person has a beneficial interest. Shares of IPOs can be sold to registered representatives who working for limited broker-dealers

Shares of an initial public offering (IPO) may be sold to:

QID:6207807

Mark For Review

A Registered representatives of the underwriter

B Registered representatives of a broker-dealer that only sells mutual fund shares

C Registered representatives of other general securities broker-dealers

D The joint account for the spouse and a registered representative

B The firm can purchase 500 shares of ABC for its own account at $24 and purchase 500 shares of ABC for the customer at $24

• The Limit Order Protection Rule (e.g., Trading Ahead of Customer Orders) prohibits a broker-dealer that's holding a customer order for an equity security from executing an order for the same security at the same or better price without executing the customer order. The broker-dealer is permitted to purchase the same security at a higher price without executing the customer order

Which of the following statements is TRUE if a firm is holding an order from a customer to purchase 500 shares of ABC at $24 per share?

QID:6207800

Mark For Review

A The firm can purchase 500 shares of ABC for its own account at $24 without executing the customer's order.

B The firm can purchase 500 shares of ABC for its own account at $24 and purchase 500 shares of ABC for the customer at $24.

C The firm can purchase 500 shares of ABC for its own account at $23.75 without executing the customer's order.

D The firm is not allowed to purchase 500 shares of ABC at any price without executing the customer's order.

A The portfolio manager of an investment company purchases shares for her own account

• The are several exemptions from the New Issue Rule, including portfolio managers purchasing for the fund's portfolio, new issues that are directed by the issuer to its employees and their family members, and accounts in which restricted persons have less than a combined 10% interest. Portfolio managers purchasing shares for their personal accounts is not permitted

According to the New Issue Rule, which of the following is considered a restricted person?

QID:6207810

Mark For Review

A The portfolio manager of an investment company purchases shares for her own account

B The portfolio manager of an investment company purchases shares for the fund's account

C The spouse of an employee of a company who's directing a new issue to its employees and family members

D An account in which restricted persons have less than a combined 10% interest

D $25 million fine

What's the maximum criminal penalty for a firm that violates the insider trading rules?

QID:6207805

Mark For Review

A $5 million fine

B $10 million fine

C $20 million fine

D $25 million fine

B A 16-year old individual with an impairment that renders her unable to protect her own interests

• Specified adults are defined as individuals who are age 65 or older, and any persons who are age 18 or older and have a mental or physical impairment that renders them unable to protect their own interests

As it relates to financial exploitation, which of the following is NOT considered a specified adult?

QID:6207812

Mark For Review

A A 70-year-old individual

B A 16-year old individual with an impairment that renders her unable to protect her own interests

C A 66-year-old individual with no physical or mental impairments

D A 25-year-old individual with a mental impairment that renders him unable to protect his own interests

C The other individual is in danger of failing to make payment on a transaction

• A registered representative is generally prohibited from lending money to another individual. However, lending is permitted in the following situations:

• Both individuals are registered with the same firm

• Both individuals are immediate family members

• The registered representative and the other individual have an outside business relationship

• The loan is based on a personal relationship between the two

• The other person is an institution that's in the business of lending money

A registered representative is not permitted to lend money to a customer to satisfy payment on a transaction.

A registered representative may lend money to another individual in each of the following situations, EXCEPT:

QID:6207811

Mark For Review

A The other individual is a registered representative with the same firm

B The other individual is an immediate family member

C The other individual is in danger of failing to make payment on a transaction

D The registered representative and the other individual have an outside business relationship

C The disbursement of funds or securities, and the execution of transactions

A temporary hold as the result of the financial exploitation of a specified adult's account may include:

QID:6207814

Mark For Review

A The disbursement of funds or securities only

B The execution of transactions only

C The disbursement of funds or securities, and the execution of transactions

D The transfer of assets with a court order

C The quotes must be the same in both markets.

A broker-dealer has entered a quote to sell stock at $34 per share in one market, and wants to enter a quote to sell the same stock in different market. Which of the following statements is TRUE concerning entering these two quotes?

QID:6207801

Mark For Review

A The quote must be higher in the second market.

B The quote must be lower in the second market.

C The quotes must be the same in both markets.

D The broker-dealer is prohibited from entering quotes in multiple markets for the same security.

B 12 months

An affirmative statement which indicates that an account is eligible to purchase IPOs must be verified every:

QID:6207808

Mark For Review

A Six months

B 12 months

C 18 months

D Affirmative statements need not be verified

C $5 million fine and/or 20 years in prison

What's the maximum criminal penalty for individuals who violate the insider trading rules?

QID:6207804

Mark For Review

A $1 million fine and/or 10 years in prison

B $5 million fine and/or 10 years in prison

C $5 million fine and/or 20 years in prison

D $25 million fine and/or 20 years in prison

D Both the employee's firm and the other brokerage firm must be notified.

Which of the following statements is TRUE if the employee of a brokerage firm and his spouse are opening a joint account at another brokerage firm?

QID:6207816

Mark For Review

A The account cannot be opened at another firm.

B The account can be opened without any restrictions.

C FINRA must be notified of the outside account.

D Both the employee's firm and the other brokerage firm must be notified.

D No other person

After taking a qualification exam, an individual may share the contents with:

QID:6207833

Mark For Review

A Another individual who's planning to take the exam

B Another registered representative

C A principal of his firm

D No other person

B A non-registered person who processes orders for a firm that sells only mutual fund shares

• Most employees of a broker-dealer are required to be fingerprinted, which includes all registered personnel. However, this requirement doesn't include: 1) non-registered personnel who process orders for non-certificate securities (e.g., mutual funds and annuities); 2) associated persons who don't sell securities, don't have access to funds, securities, or books and records, and don't supervised persons who sell securities or have access to the above

Which of the following individuals is NOT required to be fingerprinted?

QID:6207824

Mark For Review

A A non-registered employee who maintains the records of a firm

B A non-registered person who processes orders for a firm that sells only mutual fund shares

C A back office employee who's responsible for depositing customer funds and/or securities

D The supervisor of the employees who are responsible for maintaining the records of a firm

A Complete Form U4

• After passing the SIE Exam, the first step in becoming a registered representative is to complete Form U4. Form U4 is the registration application that must be completed before sitting for a qualification exam. Form U5 describes the reason that an individual's previous registration had been terminated by another firm

After passing the SIE Exam, the first step in becoming a registered representative is to:

QID:6207834

Mark For Review

A Complete Form U4

B Sit for the registered representative exam

C Become approved by FINRA to apply as a registered representative

D Complete Form U5

C Submit her registration in each state in which she intends to have clients.

• Firms must ensure that their associated persons are properly registered in all of the states in which they have clients. These rules are referred to as the Blue Sky Rules and generally require registered personnel to take either the Series 63, 65, or 66. These exams are not required to be taken in multiple states; instead, if the exam is passed, the registration fees must be paid in each of the states in which the representative intends to conduct business. Heightened supervision is not required for individuals who intend to conduct business outside of the state in which they currently operate

A registered representative of a broker-dealer is seeking to expand her business by adding clients who reside outside of the state in which she conducts her business. What must her firm do in order to take on clients who reside outside of the state?

QID:6207825

Mark For Review

A Nothing as long as she's properly registered in the state in which she currently operates.

B Require her to take the appropriate state law exam in each state in which she intends to have clients.

C Submit her registration in each state in which she intends to have clients.

D Implement heightened supervision due to her additional business.

D On any individual regardless of whether she's seeking registration as a registered representative or as a principal

When considering hiring an individual as an associated person, a broker-dealer must conduct a background check:

QID:6207836

Mark For Review

A Under no circumstances

B Only if the individual is seeking registration as a registered representative

C Only if the individual is seeking registration as a principal

D On any individual regardless of whether she's seeking registration as a registered representative or as a principal

A Firm Element

• Firm Element component of continuing education is the training that's based on a needs analysis conducted by the firm which all registered representatives are required to complete. Records of the content and completion by covered registered persons must be maintained. This training is designed to enhance a person's securities knowledge

Training which is based on a needs analysis that's conducted by a broker-dealer and given to all registered representatives is referred to as:

QID:6207828

Mark For Review

A Firm Element

B Regulatory Element

C Statutory training

D SEC training

B The individual must retake the registration exam after two years in the service.

• While in active military service, a registered representative is placed on special inactive status. During this period, the individual is not required to satisfy continuing education requirements, may continue receiving compensation based on existing client transactions, but may not contact customers. The individual is not required to retake the exam unless they're no longer in the service and inactive for more than two years

Which of the following statements is NOT TRUE about a registered representative who has entered military service?

QID:6207827

Mark For Review

A The individual is not required to satisfy continuing education requirements.

B The individual must retake the registration exam after two years in the service.

C The individual may continue receiving compensation based on existing client transactions.

D The individual may not contact customers.

A Computer-based training that's required annually

• Regulatory Element of continuing education is a computer-based program that all registered representatives must complete annually by December 31. If a person fails to complete this program by December 31, the registration becomes inactive

For registered representatives, the Regulatory Element of continuing education involves:

QID:6207829

Mark For Review

A Computer-based training that's required annually

B 40 hours of continuing education classroom training every five years

C 20 hours of continuing education classroom training every two years

D Computer-based training that's required every three years

C The SIE Exam, a registered representative exam, and a principal exam

• An individual who's new to the industry and wants to qualify as a supervisor at a broker-dealer must successfully complete the SIE Exam, a registered representative exam, and a principal exam.

An individual who's new to the securities industry wants to qualify as a supervisor of a broker-dealer. To do so, she must successfully complete:

QID:6207831

Mark For Review

A The SIE Exam only

B The SIE Exam and a registered representative exam only

C The SIE Exam, a registered representative exam, and a principal exam

D Be identified as a principal by a broker-dealer

D Able to become an associated person of a broker-dealer after passing a registered representative (qualification) examination

• Passing the SIE Exam doesn't enable a person to begin receiving commissions or discuss products and services of the firm. An individual only becomes an associated person of a broker-dealer after passing the SIE Exam and the appropriate registered representative (qualification) examination

After passing the SIE Exam, an individual is:

QID:6207830

Mark For Review

A An associated person of a broker-dealer

B Now able to contact potential customers and discuss the firm's products and services

C Able to begin receiving commissions

D Able to become an associated person of a broker-dealer after passing a registered representative (qualification) examination

A The person cannot be hired in any registered capacity for 10 years.

• It's not always true that a person who's subject to statutory disqualification cannot be hired in a registered capacity for 10 years. If a firm wants to hire a person who's the subject of statutory disqualification, an appeal may be filed with FINRA. If FINRA allows the person to become registered and is ultimately hired, he's subject to heightened supervision

A member firm wants to hire a person who's subject to statutory disqualification. Which of the following statements is NOT TRUE?

QID:6207826

Mark For Review

A The person cannot be hired in any registered capacity for 10 years.

B The firm can file an appeal for permission to hire the person.

C If hired, the person is subject to heightened supervision.

D Any appeal to hire the person is filed with FINRA.

D 180 days

If a person fails a registered representative exam for a third time, he must wait how long before retaking the exam?

QID:6207832

Mark For Review

A 30 days

B 60 days

C 90 days

D 180 days

B Registered principal

• The activities of a registered principal involve supervision and management. To perform these duties, a person is required to pass an appropriate principal exam

Any person who supervises employees or manages a member firm's investment activities must be a:

QID:6207820

Mark For Review

A Registered representative

B Registered principal

C Registered associated person

D Registered broker

D FINRA is reviewing a case against a person.

• a firm or individual can be statutorily disqualified as a result of certain events. These events will prevent the person or member firm from continuing to work or operate in the securities industry. Among others, statutory disqualification events include all felony (and certain misdemeanor) convictions with the last 10 years, expulsions or bans from membership in a self-regulatory organization (SRO), bars and current suspensions ordered by the SEC, and willful violations of federal securities or commodities laws or MSRB rules

Which of the following is LEAST likely to result in statutory disqualification?

QID:6207821

Mark For Review

A A person committed felony fraud within the last 10 years.

B A person willfully violated an MSRB rule.

C A person is under current SEC suspension.

D FINRA is reviewing a case against a person.

B Two years of becoming inactive

• A person whose registration has been inactive may re-register with another member firm without having to requalify be exam if he does so within two years of becoming inactive. However, if a person enrolls in the Maintaining Qualifications Program (MQP), he may re-register without examination within five years. Since this question made no reference to the MQP, the correct answer is within two years of becoming inactive

After four years in the industry, a person's registration became inactive. This person may re-register with a member firm without having to requalify if he does so within:

QID:6207838

Mark For Review

A One year of becoming inactive

B Two years of becoming inactive

C Three years of becoming inactive

D Five years of becoming inactive

D Must disclose it on Form U4

When applying for a registered position at a broker-dealer, a person who was convicted of a felony and later pardoned:

QID:6207835

Mark For Review

A Need not disclose that on Form U4

B Only needs to disclose the felony if it involved securities

C Only needs to disclose the felony on Form U4 if it occurred in the last 10 years

D Must disclose it on Form U4

D No, not under any circumstances.

• The amount of interaction that non-registered employees can have with existing and potential customers is limited. The non-registered employees are permitted to send invitations to firm-sponsored events, call potential customers to determine whether they want to receive investment literature, and ask whether they want to speak with a registered representative. However, they cannot prequalify potential customers as it relates to the customers' financial status, investment history, or objectives. Also, they cannot discuss general or specific characteristics of investments

A non-registered assistant to a registered representative has been helping generate leads by calling potential customers and discussing the basic characteristics of some the investment products offered by the firm. Is this acceptable?

QID:6207822

Mark For Review

A Yes, as long as no sales occur.

B Yes, as long as the discussion focuses on the general characteristics of the products.

C Yes, as long as the assistant discloses that he's not registered.

D No, not under any circumstances.

C Record the details of the order and provide them to the registered representative when she returns.

• A non-registered employee is not permitted to accept orders from customers. However, in the absence of a registered representative, a non-registered assistant is permitted to record the details of an order as long as the registered representative confirms the order with the customer before it's submitted

A registered representative left her office just before a client called to place an order. If the representative's non-registered assistant takes the call, what is the assistant able to do with the customer's order?

QID:6207823

Mark For Review

A Take the order and submit it for execution since it's unsolicited.

B Take the order, submit it, and share in the commissions.

C Record the details of the order and provide them to the registered representative when she returns.

D Do nothing until the representative returns.

C Must review the person's Form U5

• When hiring a person who was previously registered with another firm, the broker-dealer must have the individual complete Form U4, must conduct a background check, and must review the person's Form U5. Form U5 discloses the reasons why the person's previous registration was terminated

If a broker-dealer is considering hiring an individual who was previous registered with another broker-dealer, the firm:

QID:6207837

Mark For Review

A Is not required to have the individual complete Form U4

B Is not required to conduct a background check on the individual

C Must review the person's Form U5

D Can hire the person without additional requirements

D Five years of becoming inactive

• A person whose registration has been inactive may re-register with another member firm without having to requalify be exam if he does so within two years of becoming inactive. However, if a person enrolls in the Maintaining Qualifications Program (MQP), he may re-register without examination within five years

After four years in the industry, a person's registration has become inactive. If the person is enrolled in the Maintaining Qualifications Program (MQP), she may be re-registered with a member firm without having to requalify if she does so within:

QID:6207839

Mark For Review

A One year of becoming inactive

B Two years of becoming inactive

C Three years of becoming inactive

D Five years of becoming inactive

C It's considered an outside business activity and the RR is required to update his Form U4.

• All persons who file Form U4 are required to disclose any other outside business activity for which they serve as employees, owners, directors, trustees, or agents. If a registered representative obtains a real estate or insurance license (or engages in any other non-securities-related activity), he's required to file an updated Form U4 within 30 days

Which of the following statements is TRUE if a registered representative (RR) obtains a real estate license?

QID:6207848

Mark For Review

A It's not considered an outside business activity, but the RR is required to update his Form U4.

B It's considered an outside business activity, but the RR is not required to update his Form U4.

C It's considered an outside business activity and the RR is required to update his Form U4.

D It's not considered an outside business activity and the RR is required to notify the state securities Administrator of the state from which he obtained the license.

A Notify his member firm and update his Form U4

• According to SRO rules, before an employee of a member firm (including a registered representative) may begin outside employment, notification of the activity must be provided to his employing member firm. An RR is also required to update his Form U4 within 30 days to meet the disclosure requirements of the form. However, obtaining approval from the SEC, FINRA, or any other SRO is not required for outside business activities

A registered representative (RR) intends to begin a part-time job working as a server in the evenings at a restaurant. In this case, the RR must:

QID:6207845

Mark For Review

A Notify his member firm and update his Form U4

B Notify the NYSE and obtain its approval

C Notify the SEC and obtain its approval

D Notify FINRA and obtain its approval

D The firm that employs the RR

• FINRA requires an RR to provide prior written notice to his employing firm before engaging in any outside business activity. Many firms require the RR to receive prior written approval, but this is not required under FINRA rules. This activity must be reported to FINRA when the RR's Form U4 is filed or amended, and is also disclosed on BrokerCheck®. This is not required to be filed in advance; therefore, the answer is The firm employing the RR

Which of the following needs to be notified in advance before a registered representative is permitted to engage in an outside business activity?

QID:6207860

Mark For Review

A The SEC only

B Both the SEC and FINRA

C FINRA only

D The firm that employs the RR

D Coaching a recreational youth soccer team

• Registered representatives (RRs) must disclose outside business activities for which they receive compensation. This includes part-time work and working for a family business. The fact that an RR maintains a brokerage account at another FINRA member firm must be disclosed to, and approved by, the RR's employer. Coaching a recreational youth soccer team on a volunteer basis (i.e., receiving no compensation) doesn't require employer notification. Although some youth sports coaches are paid, in this question, it's the only answer choice that may not require notification

A registered representative is NOT required to provide written notification to her employing broker-dealer to be involved in which of the following activities?

QID:6207857

Mark For Review

A Purchasing 3% of a publicly traded company in an outside brokerage account

B Driving for a ride-sharing company on a part-time basis

C Acting as a managing partner in a family business

D Coaching a recreational youth soccer team

B This must be disclosed on the person's Form U4.

• Disclosure or updating a Form U4 is required if a person has been charged with, indicted or convicted of, or pleaded guilty to, or pleaded no contest to, any felony, or misdemeanor involving investments or an investment-related business, or any fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses. If a person has been indicted, he has been charged with a crime. This is a reporting event and requires that an updated Form U4 be filed within 30 days

A broker-dealer intends to hire a salesperson who has never worked for a member firm. During the interview, the candidate discloses that he was arrested and charged with a misdemeanor for forgery. Which of the following statements is TRUE?

QID:6207854

Mark For Review

A This is not required to be disclosed on the person's Form U4.

B This must be disclosed on the person's Form U4.

C This only needs to be disclosed on the person's Form U4 if he's convicted.

D This only needs to be disclosed to the person's firm; it's not required to be disclosed on his Form U4.

C A registered principal wants to act as a consultant for a private placement of a security that's not being offered by her broker-

• Registered personnel who pursue outside business interests and who will be compensated, or who participate in private securities transactions, must provide their employers with prior written notification. The employer may then approve or disapprove the participation. A registered person who has an existing account at her firm is not required to provide written notification to her employer for each transaction.

Which of the following situations requires written notification to an employer?

QID:6207859

Mark For Review

A A registered person is leaving the country on a business trip for more than three months

B A registered principal is volunteering at a homeless shelter

C A registered principal wants to act as a consultant for a private placement of a security that's not being offered by her broker-dealer

D A registered principal intends to purchase corporate securities in a personal account that's established at her employing broker-dealer

B Form U4

• Disciplinary actions against an RR are reported by the employing firm as an amendment to the RR's Form U4. Form U4 is originally processed when an RR joins a firm and updated thereafter. Form U5 is processed when an RR terminates his employment with a firm and also contains information regarding the RR's disciplinary history. Form U6 is filed by an SRO (e.g., FINRA), but not by a member firm, to report disciplinary actions against broker-dealers and RRs. All three of these forms feed information into the Central Registration Depository (CRD) system. Some of the information that's found in the CRD system may be accessed by the public through FINRA's BrokerCheck system

A firm reports a disciplinary action against one of its registered representatives (RRs) through which of the following?

QID:6207852

Mark For Review

A CRD

B Form U4

C Form U5

D BrokerCheck

B Form U4

• To apply for securities registration, an individual must file Form U4 with FINRA. Form U5 is filed when a registration is terminated. Form U6 is filed by an SRO (e.g., FINRA), but not by a member firm, to report disciplinary actions against broker-dealers and RRs. Form BD is filed by brokerage firms to register with FINRA, the SEC, and states

To apply for securities registration, a previously unregistered individual must complete:

QID:6207853

Mark For Review

A Form U5

B Form U4

C Form U6

D Form BD

C Annually

• According to FINRA's Investor Education and Protection Rule, at least once per year, firms are required to provide written (which may be electronic) instructions regarding FINRA's website address and how to access the BrokerCheck® system

FINRA's website address must be provided to each customer:

QID:6207856

Mark For Review

A Quarterly

B Initially upon opening the account and quarterly thereafter

C Annually

D With each confirmation

B Without the prior written notification to her employing broker-dealer, this activity is prohibited

• This form of outside business activity requires the employee to provide prior written notification to her employer

A registered representative (RR) of a broker-dealer just informed her branch office manager that she intends to begin part-time employment in her friend's landscaping business. The RR explains that the work is seasonal and should not interfere with her full-time job. According to SRO regulations:

QID:6207844

Mark For Review

A The RR must notify her employer at least one month before initiating any outside employment

B Without the prior written notification to her employing broker-dealer, this activity is prohibited

C The firm must record this activity on its books; however, if the business is unrelated to the securities industry, employer consent is NOT required

D This type of activity is strictly prohibited

C Annually

• At least once per year, FINRA's Investor Education and Protection Rule requires firms to provide its customers with written notification regarding the process of accessing BrokerCheck®. In addition, firms must also provide clients with FINRA's website address

How frequently is a member firm required to notify its customers regarding the process of accessing BrokerCheck®?

QID:6207842

Mark For Review

A Only at the time of the account being opened

B Semiannually

C Annually

D Each time an account statement is sent

C It's not considered an outside business activity, and the RR is not required to update her Form U4

• A registered person who receives income from a passive investment (e.g., real estate) is not considered to be engaged in an outside business activity. On the other hand, if the RR is actively involved in the rental property that she owns, then the rental income being received would be reportable as an outside business activity

A registered representative (RR) owns real estate from which she receives rental income. If the income received by the RR is classified as passive income:

QID:6207849

Mark For Review

A It's not considered an outside business activity, but the RR is required to update her Form U4

B It's considered an outside business activity, but the RR is not required to update her Form U4

C It's not considered an outside business activity, and the RR is not required to update her Form U4

D It's considered an outside business activity and the RR is required to update her Form U4

C A $250 contribution to the reelection committee for the mayor of her hometown

• Municipal finance professionals are limited to a maximum contribution of $250 per official, per election in which they are entitled to vote. An MFP is prohibited from making contributions in localities in which she's not eligible to vote

A municipal finance professional (MFP) who resides in New Jersey is permitted to make which of the following political contributions?

QID:6207858

Mark For Review

A A $350 contribution to a New Jersey gubernatorial candidate

B A $200 contribution to a Philadelphia, PA mayoral fund raiser

C A $250 contribution to the reelection committee for the mayor of her hometown

D An MFP cannot make a political contribution

A Access to the Central Registration Depository (CRD)

• At least once per year, FINRA's Investor Education and Protection Rule requires firms to provide customers with written notification as to how to access BrokerCheck, the BrokerCheck hotline number, FINRA's website address, and the availability of an investor brochure which describes BrokerCheck. Providing access to the CRD system, which is a database of members and registered personnel, is not required

Under FINRA's Investor Education and Protection Rule, which of the following is NOT required to be provided to a customer?

QID:6207841

Mark For Review

A Access to the Central Registration Depository (CRD)

B The BrokerCheck hotline number

C FINRA's website address

D The availability of an investor brochure which describes BrokerCheck

B Form U5

• Form U5 is the form that's used to terminate a representative's association with a broker-dealer. Form U4 is used when an individual first becomes associated with a broker-dealer. Form ADV is used for the registration of an investment adviser. Form 144 is a form that's filed with the SEC if an executive officer or director intends to sell shares of the company's stock

A registered representative leaves her employing brokerage firm for a different job. Which form must the brokerage firm file to terminate its association with the representative?

QID:6207855

Mark For Review

A Form U4

B Form U5

C Form ADV

D Form 144

C Entering triathlons

• A FINRA member firm must be notified if a registered representative is engaged in any outside business activity. For the majority of individuals, a triathlon is a hobby and is not pursued for monetary gain. The other choices are clearly business interests

A FINRA member firm must be notified if a registered representative is engaged in all of the following activities, EXCEPT:

QID:6207850

Mark For Review

A Starting a landscaping service

B Selling commercial real estate

C Entering triathlons

D Acting as a marketing consultant for a trade organization

A Two years

• According to the MRSB's Political Contribution Rule, a municipal finance professional (MFP) is permitted to make a maximum contribution of $250 per election to an individual for whom she can vote. If the MFP is unable to vote for the candidate, she cannot make any contribution. If a violation occurs, the MFP's firm is prohibited from underwriting debt offerings on a negotiated basis for that municipality for a two-year period. The $450 contribution is a violation of this rule

A close friend of an MFP is running for election as treasurer in the MFP's city. If the MFP contributes $450 to his friend's election campaign, for how long is the MFP's broker-dealer restricted from engaging in negotiated underwritings with the city?

QID:6207851

Mark For Review

A Two years

B Three years

C Five years

D There's no restriction

C Must provide the representative with a copy of the termination notification (Form U5) that it files with FINRA

• When a registered representative terminates his employment with a member firm, the member firm is required to notify FINRA within 30 days by filing Form U5 which includes the applicable details. The firm must also provide the former employee with a copy of the form. The other answer choices may be common in-house rules, but they're not required by FINRA. The registered representative is not required to sign the Form U5

A broker-dealer just received notification that a registered representative of the firm is terminating his employment. As a result, the firm:

QID:6207846

Mark For Review

A Must promptly notify the representative's clients that his accounts will be handled by another registered representative of the firm who will be contacting them

B Must notify FINRA within 10 days with the details of the representative's employment termination

C Must provide the representative with a copy of the termination notification (Form U5) that it files with FINRA

D Should have the representative sign the Form U5 attesting to the accuracy of the details regarding his resignation from the firm, which will then be filed with FINRA

D The note is considered a complaint and the RR must forward it to his supervisor.

• FINRA defines a complaint as "any written statement by a customer which alleges a grievance involving the activities of a member firm or its employees in connection with any transaction involving that customer." The note is considered a complaint and the RR must forward it to his supervisor. The broker-dealer must keep the complaint in its records and also record what, if anything, was done about it. Of course, copies may be sent to other parties (e.g., a clearing firm or sponsor) in an attempt to fix the problem, but the RR is still required to forward the complaint to his supervisor

During a meeting with a customer outside of the offices of the broker dealer, a customer hands a registered representative (RR) a handwritten note that objects to the price she received when she redeemed some of her mutual fund shares. The customer believes that she submitted her redemption request early enough to receive the NAV which was calculated on the same day. However, she instead received the NAV that was calculated on the next business day, which was lower. Which of the following statements is TRUE?

QID:6207847

Mark For Review

A The RR should keep a record in his personal file, but the letter is about an action for which the mutual fund is responsible and should be forwarded directly to the fund.

B The note is a complaint about a back office issue and it's not required to be given to a principal, but must be forwarded directly to the broker-dealer's clearing firm for review and resolution.

C Since the note was received away from the broker-dealer's office, it's not considered official business and the RR may ignore the note.

D The note is considered a complaint and the RR must forward it to his supervisor.

D Quarterly

• FINRA members are required to provide FINRA with statistical and summary information about customer complaints on a quarterly basis. Certain complaints (e.g., allegations of theft) must be filed promptly after the broker-dealer receives them, but no later than 30 calendar days

When is a firm required to file customer complaints with FINRA?

QID:6207843

Mark For Review

A Annually

B Weekly

C Daily

D Quarterly

D A mobile home manufacturer

• A cyclical company is one whose sales move in line with the business cycle and, therefore, will be affected by a recession. Defensive stocks are associated with companies that are not as heavily affected by changes in the business cycle (e.g., health care, tobacco, utilities, and supermarkets). Real estate, mobile home manufacturers, household appliances, steel, and construction companies are examples of cyclical industries

Which of the following companies is MOST affected by a recession?

QID:6207914

Mark For Review

A A health management organization

B A utility

C A brewery

D A mobile home manufacturer

B The sale of securities in the open market

• The sale of securities by the Federal Reserve Board results in the withdrawal of reserves from the banking system, thereby decreasing the money supply and increasing interest rates. All the other actions by the FRB result in an increase in the money supply and a decrease in interest rates

Which of the following actions by the Federal Reserve Board results in a decrease in the money supply?

QID:6207908

Mark For Review

A The purchase of securities in the open market

B The sale of securities in the open market

C A decrease in the discount rate

D A decrease in the reserve requirements

C The prime rate

Which of the following is NOT a leading economic indicator?

QID:6207903

Mark For Review

A Building permits

B The money supply

C The prime rate

D Stock prices

D Brewery

• Leisure (e.g., resorts, airlines), industrial equipment, and auto industries are all cyclical. Cyclical stocks tend to rise and fall rapidly with changes in the economy. Defensive stocks, such as stocks of brewery, tobacco, and utility companies, are not as directly influenced by changes in the economy.

Which of the following industries is LEAST influenced by cyclical changes in the economy?

QID:6207912

Mark For Review

A Leisure

B Industrial equipment

C Automotive

D Brewery

C Stop an inflationary trend

• Inflation represents the rise in prices of goods and services. To combat inflation, the Federal Reserve will decrease the money supply and raise interest rates. When the Fed sells securities to financial institutions, the money the Fed receives is removed from the economy, thereby decreasing the money supply and slowing both economic growth and inflation

The FRB will most likely sell securities if it's attempting to:

QID:6207915

Mark For Review

A Ease credit

B Increase the money supply

C Stop an inflationary trend

D Reduce interest rates

C The discount rate

• The federal funds rate is the rate that one bank charges another bank when loaning excess reserves and is the most sensitive of all interest rates. The federal funds rate affects bond prices and other market interest rates. Unlike most interest rates, the discount rate is directly set by the Federal Reserve Board rather than in the lending markets. The discount rate only changes when the Fed's Governors vote to change it.

A 1% increase in the federal funds rate will NOT have an effect on:

QID:6207901

Mark For Review

A Short-term bond prices

B Long-term bond prices

C The discount rate

D Treasury bill prices

D Foreign investment in the U.S.

• Foreign investments in the U.S. will direct money into the United States, thereby helping the U.S. balance of payments. Any investment by a U.S. person outside of the U.S. hurts the United States' balance of payments

Which of the following helps the U.S. balance of payments?

QID:6207899

Mark For Review

A U.S. corporations building plants overseas

B Lending money to foreigner investors at high interest rates

C U.S. investment in foreign securities

D Foreign investment in the U.S.

C Recession

• Gross Domestic Product (GDP) is the total value of goods and services produced by the U.S. economy over a given period and is one of the most significant measures of economic activity. Traditionally, recessions are defined by a decline in Real GDP for two consecutive quarters. Real GDP is the Gross Domestic Product adjusted for inflation, while nominal GDP is not adjusted for inflation

Historically, a decline in the Real GDP for two consecutive quarters is an indication that the economy is in a(n):

QID:6207911

Mark For Review

A Expansion

B Depression

C Recession

D Recovery

C Keynesian theory

• Keynesian economic theory states that government intervention (e.g., decreasing taxes, creating stimulus programs) is necessary for bringing an economy out of a recession. Supply-side economics states that the government should reduce marginal tax rates and the size of government in order to promote economic growth. Monetary theory argues that the money supply is the best way to influence the economy. The Dow Theory, which is followed by some technical analysts, states that a major reversal in the market has occurred when both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) break their trends.

What economic theory states that government intervention in the marketplace is necessary for controlling economic growth?

QID:6207904

Mark For Review

A Supply-side economics

B Monetary theory

C Keynesian theory

D The Dow Theory

A A household appliance company

• When personal income is decreasing, consumers still require electricity, heating oil, and food; therefore, these companies are considered defensive. However, the purchase of a household appliances, which economists refer to as durable goods, could be delayed and the stocks of these companies are considered cyclical. These non-essential purchases are most affected during an economic downturn

If personal income is decreasing, which of the following companies will be MOST affected?

QID:6207910

Mark For Review

A A household appliance company

B A utility company

C An oil company

D A food retailer

A Open market operations

• Of all of the FRB tools listed, the one most commonly used is open market operations. This is the most flexible tool and can be changed or fine-tuned very easily by buying or selling more or fewer U.S. government securities in the open market.

The tool that's most commonly used by the FRB to regulate the amount of money and credit in the banking system is:

QID:6207900

Mark For Review

A Open market operations

B The discount rate

C Moral suasion

D Reserve requirements

A Slope upward from the shorter to the longer maturities

• During periods of easy money when interest rates are declining, yields on shorter maturities fall faster than those of longer maturities. As a result, short-term yields will be lower than long-term yields. This is referred to as a positive yield curve since it slopes upward from the shorter to longer maturities

During periods of easy money when interest rates are declining, yield curves tend to:

QID:6207898

Mark For Review

A Slope upward from the shorter to the longer maturities

B Slope downward from the shorter to the longer maturities

C Remain flat

D Slope upward from the longer to the shorter maturities

A The average rate charged on overnight loans throughout the country increased

• The effective federal funds rate is the daily average rate that commercial banks charge throughout the country for overnight loans. The fed funds rate is influenced, but not set by, the Federal Reserve Board. An increase in the federal funds rate typically signifies that the Fed has taken money out of the banking system in an attempt to increase interest rates.

An investor is reading a newspaper and sees that Wednesday's effective federal funds rate was 3.47%. On Tuesday, the rate was 3.41%. This information indicates that:

QID:6207907

Mark For Review

A The average rate charged on overnight loans throughout the country increased

B The Federal Reserve took measures to inject money into the banking system

C The Federal Reserve increased the federal funds rate

D Member banks needing to obtain overnight loans from the Federal Reserve paid more than the previous day

A Goods and services produced in the U.S.

• The Gross Domestic Product (GDP) is the total value of goods and services produced in the U.S. during a certain period (e.g., last month). GDP doesn't consider the origin of the producer and a foreign company's goods that were manufactured in the U.S. contribute towards the U.S. GDP

The Gross Domestic Product (GDP) is the total value of:

QID:6207897

Mark For Review

A Goods and services produced in the U.S.

B Minerals produced in the U.S. economy

C Foodstuffs and manufactured products produced in the U.S.

D Goods produced in the U.S. and expected to last at least three years

D A pharmaceutical company

• Changes in the business cycle will have the least effect on a defensive company (e.g., pharmaceuticals or utilities). The demand for the products produced by defensive companies will not be hurt by a downturn in the economy. The other choices are examples of cyclical companies. These companies tend to parallel the economy of the country. If the economy is expected to prosper, then you can expect a cyclical company to prosper. If the economy is expected to decline, then you can expect a cyclical company to be less prosperous

Which of the following companies is LEAST affected by changes in the business cycle?

QID:6207906

Mark For Review

A A construction company

B A machine tool company

C An automobile manufacturer

D A pharmaceutical company

C Matched sale

• A reverse repurchase agreement (reverse repo) is also referred to as a matched sale. Reverse repos occur when the Federal Open Market Committee (FOMC) sells securities to dealers with the intention of buying the securities back at a future date. This has the short-term effect of absorbing (i.e., removing) funds from the money supply

A reverse repurchase agreement may also be referred to as a(n):

QID:6207902

Mark For Review

A Repo

B Arbitrage

C Matched sale

D Treasury sale

A Demand deposits and currency in circulation in the banking system have declined

• M1 is a measure of the money supply and includes demand deposits (e.g., checking accounts), checkable deposits, and currency in circulation in the economy. If M1 (the money supply) has dropped for the week, this means that demand deposits and currency in circulation have declined

An announcement on a financial news website states that the money supply (M1) has dropped for the week. This means that:

QID:6207909

Mark For Review

A Demand deposits and currency in circulation in the banking system have declined

B Savings deposits and currency in circulation in the banking system have declined

C Stock transactions have declined

D U.S. government bond sales have declined

C Discount rate

What rate will a member bank pay to borrow money from the Fed?

QID:6207913

Mark For Review

A Prime rate

B Federal funds

C Discount rate

D Call rate

A Expansion

• Increasing interest rates, along with increased costs and lower unemployment, are frequently associated with an expanding economy in which there's an increase in demand for goods. As demand overtakes supply, prices rise due to the scarcity of goods. This rise in prices is referred to as inflation. The Federal Reserve will decrease the money supply to raise interest rates in an attempt to slow growth and combat inflation

When interest rates are trending upward, the economy will normally be in which phase of the business cycle?

QID:6207916

Mark For Review

A Expansion

B Contraction

C Trough

D Peak

D Congress

• Fiscal policy is created through new laws (e.g., new tax rules) and programs that are created by Congress. Fiscal policy is the government's power to tax and spend. Through fiscal policies, Congress can use government spending and taxation to help boost economic activity during a recession. Monetary policy is carried out by the Federal Reserve Board and focuses on the supply of money and interest rates in the economy

What entity enacts fiscal policy?

QID:6207905

Mark For Review

A The Federal Reserve Board

B The Comptroller of the Currency

C The FDIC

D Congress

A Default

• U.S. Treasury securities are very safe investments that have no default (credit) risk. However, all bonds, including Treasuries, will lose value if interest rates rise (i.e., interest-rate risk). Bond investors will also lose purchasing power if prices of goods and services rise faster than the interest rate paid on their investments (i.e., purchasing power risk). Reinvestment risk is the risk that, if interest rates fall, investors will be unable to compound their interest payments at the rate they're being paid. This type of risk also impacts all types of bonds

All of the following are risks of owning U.S. Treasury securities, EXCEPT:

QID:6207939

Mark For Review

A Default

B Purchasing power risk

C Interest-rate risk

D Reinvestment risk

C Only exchange-traded notes have issuer credit risk.

• ETNs are a type of unsecured debt security. This type of debt security differs from other types of bonds and notes because ETN returns are linked to the performance of a commodity, currency, or index, minus applicable fees. Both ETFs and ETNs have market risk, are traded on an exchange (e.g., the NYSE), and may be purchased on margin or sold short. Only ETNs carry credit risk that's tied to the creditworthiness of the financial institution backing the note. If the issuer's financial condition deteriorates, it can impact the value of the ETN negatively regardless of how its underlying index performs

Which of the following statements is TRUE concerning exchange-traded funds (ETFs) and exchange-traded notes (ETNs)?

QID:6207940

Mark For Review

A Only exchange-traded notes may be purchased on margin.

B Only exchange-traded funds may be sold short.

C Only exchange-traded notes have issuer credit risk.

D Only exchange-traded funds have market risk.

D Buy yen put options

• In this question, the exporter will lose if the yen falls against the U.S. dollar. To hedge, the exporter should buy puts, which will be profitable if the yen declines (i.e., bearish option). U.S. dollar options don't trade on domestic exchanges and are not an appropriate hedge for the U.S. exporter

A U.S. company is exporting its goods to Japan and receives payment in Japanese yen. If the U.S. company is worried about losses caused by the yen falling against the U.S. dollar, what's the MOST appropriate hedge?

QID:6207946

Mark For Review

A Buy U.S. dollar options

B Buy yen call options

C Buy index puts

D Buy yen put options