SIE Exam

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ABC Inc. has purchased some of its own common shares in the open market. These shares are now considered
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Terms in this set (50)
that the commission house broker will not be held responsible if he does not get an immediate execution of the market order

A "market, not-held" order means that the customer is letting the RR use her own best judgment as to the price and time at which the transaction will be executed, and will not hold the RR responsible if she misses the market for a security.
Order that specifies the size of the security but leaves the choice of price and time up to the account executive

Discretionary trades are trades where the customer does not specify the type of security, type of transaction or quantity. For a discretionary trade, a registered rep must have discretionary authority. An order that leaves the time and price open is not considered discretionary.
$500,000, with cash not to exceed $250,000

The Securities Investors Protection Corporation (SIPC) protects each separate customer account for up to $500,000, with a maximum of $250,000 in cash. Note that an individual with a cash account and a margin account is one customer, but an individual with a cash account, a joint account and a UGMA account would be considered 3 different customers under SIPC.
An investor concerned about rising prices would most likely invest in avariable annuity, as its equity exposure provides a hedge against inflation. Investments in equities generally serve as a hedge against inflation. Fixed income investments, such as fixed annuities will lose purchasing power as prices increase. The tax consequence of an investment is not relevant when considering how to hedge against rising prices.Edgar is about to receive his first distribution from a non-qualified variable annuity that he began funding several years ago. He asks you if he will have to pay any taxes on this distribution. You should tell Edgar thathe will have to pay taxes on all funds received in excess of his original contribution Distributions from non-qualified variable annuities are subject to tax liability on the amount in excess of the original contribution (which was funded with after-tax dollars).A variable annuity would be considered most appropriate forA 50 year old executive well positioned in his company pension plan and looking for additional benefits The best candidate for a variable annuity is someone in middle age who is fully funding their retirement benefits and is looking for supplemental retirement income.All of the following would result in a statutory disqualification excepta conviction for a securities related felony 11 years ago A statutory disqualifcation will occur if a registered representative is conviction of any felony or a securities or fraud related misdemeanor in the past 10 years. Once statutory disqualified, the individual cannot be associated with a FINRA member firm unless they receive a waiver from FINRA.Transactions with individuals on the Specially Designated Nationals listAre specifically prohibited by federal law The Specially Designated National List must be created pursuant to the USA Patriot Act, and transactions with parties on this list are strictly prohibited.Prior to accepting a part-time job at a day-care center, RR Anna mustNotify her Firm A registered representative (RR) must provide advance written notification to her employer prior to accepting a part-time position outside of her firm.MSRB rules concerning gifts would treat as "material"vintage wine valued at $125 The MSRB prohibits gifts of over $100 in value; however this rule does not apply for 'normal business dealings' such as a rep taking a client out to a meal for over $100.Becky has been approached by her client Tom, who is also a personal friend, for a loan to cover some expenses that Tom needs help with. Becky may lend funds to TomWith advance written consent from her firm This activity would be permitted, with advance notification to, and pre-approval from, the broker-dealer. FINRA does not need to be notified.A customer who bought 10 Ogden 5's at 93 corporate bonds would receive annual interest of500 The "5's" represents interest of 5% of par value, or .05 x 1,000 = $50 annual interest per bond x 10 bonds = $500 in annual interest.A bond with a high coupon rate is selling at a premium and is called at par. The party that benefits from the call provision is theissuer The issuer benefits from any call provisions on a bond because when interest rates decrease, the issuer can call the bonds with a higher coupon, reissue bonds with a lower coupon and decrease its interest expense.Bonds with long maturity offer I. stability of income II. stability of market value III. fluctuation of income IV. fluctuation of market valueI and IV Bonds with long maturities offer stability of income due to the constant, semi-annual interest payments made to the bondholder. They also fluctuate more in market value with a change in underlying interest rates than comparable short-term debt.Credit risk is best defined as the risk thatScheduled debt service payments will not be made Credit risk is the risk that the borrower will be unable to make the required payments on the loan to the lender, including interest and principal. Notice that a borrower does not collect required payments from a lender, rather, lenders collect payments from borrowers.Which statement about industrial development revenue bonds is false?They are based on the municipality's credit quality Industrial development revenue bonds are a type of taxable municipal security that is issued by a municipality on behalf of a corporation. Specifically, the municipality will issue to debt to build a facility on behalf of a corporation and then lease that facility to the corporation. Because the bonds are backed by lease payments made by the corporation, the debt is the responsibility and credit quality of the corporation.The interest income on federal agency securities istaxed at all levels The interest income on federal agency securities (GNMA, FNMA) is taxed at the federal, state, and local level. As a reminder, the interest income on treasury securities is taxed at the federal level only.Money market funds typically invest inShort term debt Money market funds invest in short term debt instruments of corporations and banks.When describing the features of a closed-end fund to a client you would not say that theyare redeemed by the issuer at close of the business day Closed-end investment companies are not redeemable securities. They are trading in the secondary market amongst investors. The other statements are correct.The net asset value (NAV) of Investment Company X is 23.00. A recent trade occurred at 21.50. This is most likely an example of aclosed end fund A closed end investment company may trade at a premium or a discount to its net asset value.Losses from direct participation programs can be used to offsetincome from limited partnerships Losses from DPP's can be used to offset passive gains, such as income from limited partnerships.On the third Friday of the month, the strike price of an option contract is above the market price of the underlying common stock. In this scenarioA put option would be exercised A put option would be exercised when the market price of the underlying security is lower than the strike price of the option contract.Your client Jessica will be making a down payment on an apartment in the next six months and will need $75,000 at that time. She currently has the full $75,000 in cash in her savings account and would like to invest it now, but be able to access these funds when needed. Which of the following investments should Jessica avoid?A variable annuity The least liquid investment listed is the variable annuity. When investors need liquidity and have a short investment horizon, suitable products include money-market funds and investments in US Treasury securities - both are very safe and very liquid. By investing in these types of securities Jessica can be confident she will still have $75,000 in principal and will be able to easily and readily access it when she needs the funds. This one is about choosing the "best" answer. Even though REITs can be very volatile, because they are exchange-traded they do have liquidity whereas variable annuities do not.Which of the following best characterizes a Regulation D offering?An unregistered offering of securities made primarily to accredited investors. Regulation D is a private offering of securities, which can include an unlimited number of accredited investors and generally a maximum of 35 non-accredited investors.Which of the following are types of underwritings? I. Firm commitment II. All or none III. Standby IV. Best effortsI, II, III and IV All choices are types of underwritings. Under a firm commitment underwriting, the underwriter purchases the securities from the issuer and resells them to the public, marking up the securities and earning a spread. A standby offering is one where the underwriter is prepared to act as a principal and sell all shares that remain unsold from a preemptive rights offering or another secondary offering. A best efforts underwriting is one where the underwriter acts as agent and sells securities on behalf of the issuer, but is not financially responsible for any unsold shares. An all or none underwriting is a type of best efforts underwriting whereby the underwriter will attempt to sell all the shares being offered. If the entire allotment is not sold, the entire issue is cancelled.With knowledge of an order for the purchase of a block of ABC for an institutional client of the firm, a registered rep places an order to purchase 100 shares of ABC for his own account. This orderViolates FINRA regulations governing front-running. This is an example of front running, and is a violation of FINRA rules.In a period of stable interest rates, which of the following securities is MOST likely to fluctuate in value?Convertible preferred stock The price of the convertible preferred stock is most likely to fluctuate in value because the price of the underlying common stock to which the preferred can be converted will influence the value of the preferred stock itself. Namely, if the price of the common stock increases, the price of the convertible preferred will also increase.In which of the following ways may a company declare dividends? I. Cash II. Stock III. Stock of a subsidiary companyI, II and III A company may pay a dividend in cash, stock or stock of a subsidiary company.A tax deferred retirement account is one in whichAll investment growth is taxed when distributions are received. A tax-deferred retirement account is one in which all investment growth is taxable when it is distributed to the individual. The main benefit of this is that individuals are not responsible for any taxes while the assets are growing in the account.A retirement plan where contributions must be made on an after-tax basis is aNon-qualified plan In a non-qualified retirement plan, participants contribute funds on an after-tax basis. The invested funds then grow on a tax-deferred basis until they are withdrawn by the employee.Which of the following activities would least likely raise a red flag within a broker-dealer of suspicious activity?Frequent orders being placed by a day trading account A day trading account will place numerous orders throughout the trading day, and should not, in and of itself, be a cause for concern. The other listed activities are all potential signs of suspicious activity.A correspondence includes any written communication that is distributed or made available to25 or fewer retail investors within any 30 calendar-day period A correspondence includes any written communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. Examples of correspondences include emails and instant messages. Correspondences do not need principal approval before first use.In a corporate liquidation, preferred stockholders are paidAfter bondholders and before common stockholders In a corporate liquidation, preferred stockholders can recover their investments after all unpaid wages and taxes, and after all secured and unsecured liabilities are paid. After all of these accounts are settled, preferred stockholders are next on the list, followed by common stockholders.All of the following statements are true about STRIPS exceptthe bonds pay semi-annual interest. Note that this is an except question. STRIPS are zero coupon bonds (typically with maturities of at least 10 years) that are backed by the US Treasury. Because they are zero coupon bonds, they have no reinvestment rate risk since there is no cash flows to reinvest each year into the market. Instead of receiving coupon payments, investors buy the bond for a discount and receive the full face value at maturity, which is treated as interest income for the investor and only taxed at the federal level.All of the following debt instruments pay interest semiannually EXCEPTGinnie Mae certificates Ginnie Mae's pay interest monthly because the underlying mortgages that serve as collateral for the bonds also pay interest monthly.The income from all of the following securities is fully taxable at the federal, state and local levels EXCEPTTreasury bonds All government issued securities are taxed only at the federal level. This applies to government agency debt as well. However, Ginnie Mae is an exception and is taxed at all levels.A call is in-the-money when the market price of the underlying stock ismore than the strike price An option is in the money when it will be exercised by the owner. In the case of a call option, the buyer will exercise the option when the market value exceeds the strike price, thus enabling the investor to purchase the stock for less than the current market price.Call options can be beneficial if an investoris trying to protect a short position in an equity position Call options are commonly used to hedge (or protect) a short position in an underlying security. If the value of the security that has been sold short increases (thereby producing a potential loss), the value of the call option would increase, providing an offset to the total position.A customer writes a put option. The customer's maximum loss isThe strike price minus the premium down to zero The maximum loss for an investor who writes a put option is the strike price premium received. If the value of the underlying stock goes down to 0, the writer will be forced to buy the stock at the strike price, sell it for zero, and only earn the premium to recover part of the losses.An investment in a direct participation program would be most appropriate forAn investor with significant savings and high risk tolerance DPPs such as limited partnerships are most appropriate for investors in a strong financial position who have a high risk tolerance. These are often speculative investments that are generally inappropriate for retail investors.When a broker-dealer maintains a firm market in a stock, that broker-dealer is committed tobuying or selling the normal trading unit of that stock at the quoted price When a broker-dealer maintains a firm market in a stock it is committed to trading the stock at the quoted price, and for up to the quoted number of round lots. Any amount greater than that must be negotiated with the broker-dealer. Quotes in the NASDAQ are firm quotes, whereas quotes on the pink sheets are workable indications, and are not binding.Broker-dealers must adhere to best execution standards for their customer ordersUnder all circumstances Broker-dealers must always ensure that its client orders receive best execution.Two market makers may coordinate their quotesUnder no circumstances FINRA rules prohibit market makers, and other market participants, from coordinating prices, quotes, or trade reports. This rule is intended to facilitate fair and equitable markets for all parties.