SIE Exam Prep: CH 9-11 Quiz Review 2022

The cyclical and constantly fluctuating nature of interest rate has the most direct impact on Market values of fixed income securities. (Interest rates fluctuate constantly and directly affect the market value of fixed income securities. The threat of suffering a loss due to a change in the interest rate is called interest rate risk. All fixed income securities are subject to interest rate risk.) OF the following examples, which would be exempt from liability under insider trading laws? - printers of financial periodicals - clerical employees of corporations - there are not exceptions from liability under insider trading laws - accountants for publicly traded companies There are no exemptions under the insider trading laws for the misuse of nonpublic information. 01:00 01:36 The cyclical and constantly fluctuating nature of interest rates has the most direct impact on market values of fixed income securities A customer wants to give her daughter all the shares in her growth mutual fund. Since the initial purchase of shares, the value of the shares has increased steadily over the life of the investment. When the shares are gifted, the daughter's cost basis will be The same cost basis that Rhonda had for the shares An order for a security trade that directs the broker to buy or sell "at the market' but only when a certain price level has been reached is known as A stop order In June, a beneficiary inherited stock from his grandmother. She paid $35 per share in April; fair market value at the time of her death was $38 per share. The beneficiary has A cost basis of $38 The type of risk that includes influences such as competitive pressures, market share and competence of management and is usually managed with a long-term focus is called Business risk (risk associated with the specific circumstances of any particular company. it includes many influences associated with business success or failure, such as competitive pressures, market share and competence of management.) A customer instructs his broker/dealer to purchase 200 shares of Dunham Corporation. Two days after trade date, the customer decides that he no longer wants the shares. The customer has entered.... The customer has entered into a legally binding contract and is obligated to pay for the stock. (On trade date, the terms of the trade are set, and the customer has entered into a legally binding contract) ABC Corporation announces that it will be acquiring XYZ Corporation. XYZ shareholders will receive one share of ABC stock for every two shares of XYZ they own. This corporation action is a(n) Acquisition Who is exempt from liability under insider trading laws? There are no exceptions from liability under insider trading laws. A registered representative with verbal authority from the customer can decide... Time and price (Time and price are non-discretionary elements of an order. Quantity (amount), security (asset), and action (buy or sell) require discretionary authority. An investor owns 1,000 shares of XYZ Corporation, which just declared a stock dividend of 6%. The stock was selling for $10 just before the dividend was declared. The dividend announcement will have what effect? Increase the number of shares the investor owns to 1,060 shares, but will not impact the total value of the stock holding. All of the following investments are subject to currency exchange risk EXCEPT - International Growth Fund. - Foreign stocks. - U.S. Treasury Bonds. - ADRs (American Depository Receipts) U.S. Treasury Bonds (T-bonds are not subject to currency risk because they have no foreign exposure.) An investor is having difficulty selling a security due to lack of demand in the secondary market. What does that say about his investment? It has liquidity risk. When a customer buys a security in the secondary market, he or she will pay the Ask price (The lowest price a dealer will sell a security is the ask price, which is the price the buyer (customer) will pay when purchasing securities in a secondary market trade.) Internal procedures which limit and control the passing of sensitive, potentially nonpublic information between the departments of a corporation or firm to aid in protecting investors against violation of insider trading laws are known as Chinese walls. ("Chinese walls' are internal procedures which limit and control the passing of sensitive, potentially nonpublic information between the departments of a firm.) Which of the following factors will most likely create reinvestment risk? - Decreasing asset values - Opportunity Cost - Falling interest rates - Short-term investments Falling interest rates (Reinvestment risk is the risk that, upon maturity, if interest rates have fallen, the income produced by the currently available bond yields may be much less.) A registered representative (RR) has acquired a new customer with an existing portfolio that has five holdings that are equally weighted in the portfolio: technology, pharmaceuticals, energy, S&P 500 index fund, and money market fund. The RR notes that in addition to market risk, this portfolio is subject to which of the following risks? -credit -nonsystematic - political - liquidity nonsystematic (Nonsystematic risks affect particular companies or sectors of the economy and can be reduced through further diversification. The RR could further reduce the risk in this portfolio by adding stocks that are in other industry sectors or investing in other asset classes, like bonds.) Realized appreciation is the net appreciated value in a security that has been sold. What is the timeframe for filing relevant Suspicious Activity Reports? within 30 days of initial discovery (Filed with FinCEN) Failing to respond to a regulatory request in a reasonable amount of time will be considered an additional violation. (Regulators are entitled to access. If a member firm does not respond to a regulator, it is considered an additional violation. ) For how long are member firms required to keep a customer's written authorization to withdraw money from their account after the expiration date? 3 years (Member firms must keep a written authorization that is separate from the negotiable paper for 3 years from its expiration date. Firms do not have to keep a copy of negotiable paper that is signed by the customer (such as a check). ) A client requested that his registered representative call his brother who is interested in investing. The client's brother is on the National Do-Not-Call registry. The registered representative should Tell the client he cannot call his brother without the brother's written permission. (To call someone on the National Do-Not-Call Registry, a registered representative must have written consent from the party to be called, unless there is an established business or personal relationship. A client cannot consent on behalf of another person.) When is okay for a broker/dealer to share nonpublic information of customers with non-affiliated third parties? The customer has not elected to opt out of the disclosed. Which of the following joint accounts is designed specifically for married couples? Tenancy by Entirety (Tenancy by the Entirety is a type of joint account specifically designed for legally married couples and contains the right of survivorship.) You client is 78 years old and has recently shown signs of memory lapses when he meets with you. It has been about 3 months since you have spoken with this client when you notice a significant amount of activity in the account, including the sale of securities and requests for funds to be removed. You are concerned about fraud in the account. What action can you take to address your concerns? While you cannot transact without the proper trading authority, you have an obligation to contact the client. Whether successful or not, you can place a hold on trading and funds transfers. (In addition, with written authorization from the client, the registered representative may contact a previously designated trusted contact person to discuss the account.) Which of the following is FALSE regarding a client's risk tolerance? - A person who is planning to buy a house within the next year likely has a low risk tolerance. - The risk tolerance associated with the investment is non-financial consideration of an investment risk. - A 65 yr old retiree will have a higher risk tolerance than a 40-year-old professional. -It determines the investor's degree of tolerance for negative changes in the portfolio. A 65 year-old retiree will have a higher risk tolerance than a 40-year-old professional. (Risk tolerance is the degree of uncertainty that investors can tolerate with regard to a negative change in the value of their portfolio. An investor's risk tolerance varies accounting to age, investment experience, income requirements, and financial goals