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Each member broker-dealer is required to have a principal executive monitoring the firm’s adherence to SRO as well as State and Federal laws and regulations, known as the firm’s
Business Continuity contact person
Question 1 Explanation:
CCO = Chief Compliance Officer.
In the industry, the term ‘Blue Chip’ most often is associated with:
stocks that outperform the CPI
stocks that outperform GDP
stocks that consistently produce income and modest growth over long periods of time
none of the above
Question 2 Explanation:
When the term blue chip stocks is used, think of the long-establish most well-known companies that consistently perform well and have done so for a very long time. Most if not all of these are listed on the NYSE.
When a customer places a purchase order for an NYSE stock and the trade is reported at a price which is different than the actual transaction price,
the client is given the better price
the client pays the price at which the trade was executed
the client pays the price initially reported
the trade goes through at a price approved by FINRA
Question 3 Explanation:
Occasionally, a client will be told that a trade was done at a transaction price which turns out to be incorrect. This can happen for a number of reasons, usually clerical, not intentional. Federal law and FINRA rules state clearly that the client will be told about the erroneous report, and the transaction will be done at the actual price at which it took place, not at the erroneous price. Since every transaction is a legal contract, the actual price at which the trade was executed is the legally binding price.
ETPs (exchange-traded products) generally include:
any of the above fit this category
Question 4 Explanation:
Exchange traded funds; Exchange traded Notes; Equity Linked Notes are all traded on the NYSE.
Under what conditions, if any, may an agent of a broker-dealer share in the profits and losses of a customer’s account?
under no circumstances
only with permission from an SRO such as FINRA
only if the sharing is in direct proportion to the financial contribution made by the agent to the account
only if it is a discretionary account
Question 5 Explanation:
A customer can open a joint account with their registered rep. In that event, sharing in the performance of the account is permitted, in proportion to the contribution made by each party.
Under the Internal Revenue Code as it pertains to traditional individual retirement accounts (IRA),
required minimum distributions must begin upon reaching age 62 years of age.
required minimum distributions may begin upon reaching age 62 years of age.
required minimum distributions may begin upon reaching age 72 years of age.
required minimum distributions must begin upon reaching age 72 years of age.
Question 6 Explanation:
You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72. Roth IRAs do not require withdrawals until after the death of the owner.
The agency in charge of maintaining a list of individuals and institutions for which opening a brokerage account may be prohibited or restricted is known as:
Question 7 Explanation:
The Office of Financial Asset Control (OFAC) maintains the list.
In order for a registered representative to maintain their securities license on an ongoing basis, which of the following properly states the CE requirements?
passing a regulatory element CE exam within 3 years of their anniversary date.
passing a regulatory element CE exam within 2 years of their anniversary date.
passing a firm element CE exam every 3 years after their anniversary date.
passing a firm element CE exam within 1 year of their anniversary date.
Question 8 Explanation:
Once a person passes their RR exam, within 2 years from that anniversary date, a FINRA required continuing education test must be taken and passed. Then the CE tests are every three years thereafter.
When an agent engages in securities activities outside the scope of their broker-dealer,
the agent must disclose this activity to their principal within 24 hours.
the agent is in violation of FINRA rules prohibiting selling away.
the agent must update their Form U-4 within 30 days.
the agent must show they understand the suitability requirements of the securities being sold.
Question 9 Explanation:
Selling away is a violation. It means selling securities which are not authorized to be sold by the employing broker-dealer.
A large institutional client of yours has discussed their imminent intent to place a very large purchase order for the stock of XYZ. As the agent of record, you place an order immediately in your own account prior to placing the client’s order.
this is a manipulative act
this is only permitted with written authorization from the client
this is known as front-running
this is only permitted with permission of your principal
Question 10 Explanation:
Front running is the illegal placing of an order just prior to placing a client’s order so as to take advantage of the anticipated market price move.
That most basic tenet of a suitability determination is the:
written supervisory procedures of your firm
follow the customer’s instructions
know your customer rule
only recommend that which is suitable for yourself
Question 11 Explanation:
Knowing your customer is the single most important step in the suitability of recommendations.
Making cold calls to prospects in accordance with the telemarketing consumer protection act may only be done:
between 9 am and 8 pm in the prospect's time zone
between 8 am and 9 pm in the prospect's time zone
during trading hours in your time zone
between 8 am and 9 pm in your time zone
Question 12 Explanation:
8 am to 9 pm in the prospect’s time zone is the law.
A customer of a brokerage firm must receive a customer account statement with which of the following frequencies?
I. Monthly if there has been any activity in the account
III. Weekly if there has been any activity in the account
IV. A minimum of at least quarterly
II and IV
III and IV
I and IV
II and III
Question 13 Explanation:
Monthly or quarterly, depending on whether there has been any securities activity in the account.
United States government budgetary and taxation policies are best described as:
Question 14 Explanation:
Government budget, spending and taxation policies are fiscal policies. Federal Reserve policies are monetary.
When one of the individuals in an account opened as Tenants in Common dies, their share of the account:
reverts to the surviving co-tenant
goes to their estate
is subject to distribution in accordance with SEC Rule 15c3-3
Question 15 Explanation:
TIC, tenants in common, holds that each co-tenant in the account will have their % share of the account go to their estate upon death. In joint tenancy with rights of survivorship (JTWROS), the survivor receives the share of the other co-tenant upon death.
Regulation S-P principally deals with:
abuse of senior and elderly clients
protection of privacy and identity information of clients
disclosure of an introducing relationship to a clearing brokerage firm
Question 16 Explanation:
Think of the letters S-P as Security account Privacy.
All states have a securities Administrator whose job it is to enforce the securities laws of their state. All Administrators are part of an organization known as:
Question 17 Explanation:
All State securities Administrators are part of the North American Securities Administrators Association (NASAA).
When a commercial bank elects to borrow short-term, often overnight, loans from another commercial bank, these loans are done at an interest rate known as the:
fed funds rate
call loan rate
Question 18 Explanation:
The federal funds rate of interest is the interbank overnight loan rate.
The US economy has traditionally performed in a way described by economists and analysts as the business cycle. When an economy that has been operating a peak efficiency begins to slow down, which phase of the cycle is the economy entering?
Question 19 Explanation:
Slowdown in the economy implies the economy is contracting, beginning to ‘shrink.’
It is not unusual for a broker-dealer to fill a customer order for an NYSE stock as principal out of inventory in lieu of wiring it to the floor the exchange.
this is a 4th market transaction
this is a 3rd market transaction
this is a second market transaction
this is a 1st market transaction
Question 20 Explanation:
Trades in the 3rd market are trades in stocks which are executed off the floor of the stock exchange on which those stocks are listed.
Though there are numerous business sectors in the US economy, companies generally fall into three distinct categories:
cyclical; defensive; growth
passive; active; tactical
large cap; mid-cap; small-cap
conservative; moderate; speculative
Question 21 Explanation:
Cyclical companies tend to follow the business cycle: defensive companies tend to perform in a consistent stable way regardless of the cycle; growth companies are expected to grow faster than the economy in general.
In the business of underwriting, when a firm adopts a firm commitment, it is acting as a:
Question 22 Explanation:
Firm commitment implies the syndicate is purchasing the new issue from the issuer with a view to retailing it to the investing public….this is acting in a principal/dealer capacity. Best efforts underwritings are being done on an agency/brokerage basis.
Not all corporate securities offerings are required to be registered with the SEC. An offering done under Regulation D is often called:
a limited partnership DPP
a private placement
an intrastate exemption
an emerging growth company offering
Question 23 Explanation:
Regulation D covers Private Placement offerings.
When the US dollar weakens,
exports to foreign countries tend to increase
imports from foreign countries tend to increase
US trade deficit will tend to rise
the FRB will engage in QE policy
Question 24 Explanation:
A ‘weak’ US dollar makes US goods ‘cheaper’ for foreign buyers to buy, since their currency becomes ‘stronger.’ This leads to an increase in the export of US manufactured goods.
One of the primary risks associated with mortgage backed securities is prepayment risk. This tends to present itself when
the Fed reduces interest rates
the dollar is strong
inflation is increasing
none of the above
Question 25 Explanation:
What do many homeowners do when interest rates decline? They refinance their mortgage at the lower interest rate. This means the high-interest mortgages in the portfolio of the mortgage-backed product will vanish…..one term used to describe the risk of this occurring is prepayment risk.
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