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Self-regulatory organizations (SROs) include each of the following except:
All of these are SROs
Question 1 Explanation:
Self-regulatory organizations (SROs) regulate an industry or profession. They are non-governmental organizations that create and enforce industry regulations and standards. Examples of SROs include FINRA, the New York Stock Exchange, the Chicago Board of Trade, and the Options Clearing Corporation. The SEC is an agency of the U.S. federal government.
The Securities Investor Protection Corporation (SIPC) protects securities investors by providing:
Insurance protection in the event of a brokerage firm bankruptcy.
Fidelity bonding to brokerage firms and their employees and agents.
Investment insurance to individual but not institutional customers of brokerage firms.
Account insurance for those customers who elect to pay a small premium for it.
Question 2 Explanation:
SIPC is a federally-mandated nonprofit organization that was created under the Securities Investor Protection Act (SIPA) of 1970. It provides investors with insurance coverage of up to $500,000 in cash and securities, per account, though the cash portion is limited to $250,000. SIPC also works to expedite the recovery of customer assets during the liquidation of a failed investment firm.
The term ‘Issuer’ may refer to:
The U.S. Government
All of the above
Question 3 Explanation:
An issuer is a legal entity that develops, registers, distributes, and sells securities on the primary market. Issuers can be corporations, investment trusts, domestic governments, or foreign governments.
The principal difference between a broker-dealer and an investment adviser is:
Broker-dealers are transaction-based businesses that manage portfolios for clients whereas investment advisers advise clients on which stocks to purchase.
Broker-dealers are commission-based businesses whereas investment advisers charge fees for their investment advisory and portfolio management services.
Broker-dealers engage in investment banking whereas investment advisers buy and sell securities as requested by clients.
None of the above
Question 4 Explanation:
Brokers are paid commissions when executing trades (buying/selling assets) for clients. Investment advisers advise their clients on securities and/or manage their portfolios. They are either paid a flat fee or a percentage of assets under management.
Comparing the primary market versus the secondary market for securities:
The primary market is for the selling of IPOs while the secondary market is for the re-selling of existing shares.
The primary market is for the selling of newly-issued shares while the secondary market is for the re-selling of existing shares.
The primary market is for the selling of publicly-registered shares while the secondary market is for selling by corporate insiders.
The primary market facilitates new private placement offerings while the secondary market facilitates resales of such shares under Rule 144.
Question 5 Explanation:
The primary market is where securities are created and sold directly by issuers while the secondary market is where investors trade existing securities. IPOs are just one example of a primary offering. Other types include rights offerings, private placements, and preferential allotments.
The ADR is an investment vehicle best known for:
Enabling domestic corporations to offer their shares abroad.
Enabling foreign investors to receive dividends and interest denominated in U.S. dollars.
Facilitating trading in foreign shares by investors in the U.S.
Its place as a liquid short-term investment in money market portfolios.
Question 6 Explanation:
American Depositary Receipts (ADRs) are negotiable securities issued by U.S. banks that represent a specific number of shares in a foreign company’s stock. ADRs allow American investors a more convenient way to buy securities of foreign companies, eliminating cross-border and cross-currency transactions. Shares of many foreign companies trade on U.S. stock exchanges through ADRs, which pay dividends in U.S. dollars and are traded like regular shares of stock.
Is stock issued by the U.S. Treasury.
Is stock re-issued by the U.S. Treasury.
Is stock repurchased in the secondary market by the corporate issuer.
Is stock held back by corporate issuers as part of an IPO for use in stock options, warrants, convertible securities, and other purposes.
Question 7 Explanation:
Treasury stock is stock that has been bought back by the issuing company, thereby reducing the number of outstanding shares on the open market. Stock repurchases can provide a more tax efficient method for putting cash in the hands of shareholders than paying higher dividends. Companies may also decide to repurchase shares when they feel that their stock is currently being undervalued on the open market.
NYSE-listed stock transactions generally take place on the floor of the NYSE. However, when they occur off the floor, this is referred to as a:
Question 8 Explanation:
Brokerage firms often transact in exchange-listed securities directly with their institutional customers, without the involvement of a formal exchange. This is known as a third-market transaction and is often done for trading efficiency, better execution, and/or better price, though the transaction is still reported to the NYSE ticker tape as promptly as if it had taken place on the floor.
The underlying equation of a corporation’s balance sheet is commonly expressed as:
Total Assets - Total Liabilities = Capital Structure
Total Assets - Total Liabilities = Net Worth
Net Worth + Total Assets = Total Liabilities
Current Assets - Current Liabilities = Net Working Capital
Question 9 Explanation:
Everything owned by a corporation (Total Assets) minus everything owed by the corporation (Total Liabilities) shows what the corporation is worth (Net Worth).
When investment securities are referred to as exempt, this generally refers to exemption from what?
Blue Sky Laws
Question 10 Explanation:
Securities such as U.S. Government bonds and bonds issued by states, counties, and cities, otherwise called municipal bonds, do not have to be registered with the Securities & Exchange Commission (SEC). They are thus referred to as exempt securities.
The U.S. bureau responsible for detecting and preventing money laundering attempts is:
The Federal Reserve
Financial Crimes Enforcement Network
North American Securities Administrators Association
Securities Investor Protection Corporation
Question 11 Explanation:
The Financial Crimes Enforcement Network (FinCEN) was established as a bureau within the U.S. Treasury in 2014. They are mandated to enforce the Currency and Foreign Transactions Reporting Act of 1970, which requires U.S. financial institutions to assist U.S. government agencies with detecting and preventing money laundering.
Hedge funds and mutual funds are two examples of which type of investor?
Question 12 Explanation:
institutional investors are large investors that are considered sophisticated enough to make their own investment decisions. They can only be legal entities, such as real estate investment trusts, venture capital funds, insurance companies, credit unions, banks, pension funds, hedge funds, and mutual funds.
Investor A holds 100 shares of Company XYZ in his personal brokerage account. He decides to sell these shares for a profit. This transaction will take place on the:
Question 13 Explanation:
The secondary market is what most people know as the “stock market.” It facilitates transactions in existing securities that are not sold directly by the issuer. Investors purchase these securities from other investors through accounts held by brokerage firms like Fidelity or Charles Schwab.
When The Federal Reserve decreases the federal funds rate, this action is known as:
None of the above
Question 14 Explanation:
Fiscal policy and monetary policy are two important actions for maintaining the health of the economy. Fiscal policy refers to actions taken by Congress and the President in setting tax rates and policies, such as making retirement savings advantageous, whereas monetary policy refers to actions taken by the Fed. The most common monetary policy change is an increase or decrease in the federal funds rate which will in turn affect interest rates on credit cards, bank loans, mortgages, and more.
Under this rule, securities offerings confined to one state are exempt from SEC registration:
Question 15 Explanation:
Also known as single state offerings, intrastate offerings are when corporations go public but the sales are confined to residents of one state. Under Rule 147, SEC registration is not required for these offerings. Rule 144 governs sales of restricted securities, Regulation D governs sales of private placements, and Regulation A governs sales of public offerings up to $20 million (Tier 1) or $50M (Tier 2) in any 12-month period.
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