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Question 1 of 10
1. Question
Which of the following statements is true regarding diversification?
Correct
Over the past several years, diversification has come to the forefront of investor education as a fundamental principle of wise investing. Nearly everyone is familiar with the phrase “don’t put all of your eggs in one basket.” Those who would advocate for diversification would make a similar argument. By investing in several different securities, investors are able to minimize expected risk as measured by the standard deviation of expected returns while maintaining the same level of expected return.
Incorrect
Over the past several years, diversification has come to the forefront of investor education as a fundamental principle of wise investing. Nearly everyone is familiar with the phrase “don’t put all of your eggs in one basket.” Those who would advocate for diversification would make a similar argument. By investing in several different securities, investors are able to minimize expected risk as measured by the standard deviation of expected returns while maintaining the same level of expected return.
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Question 2 of 10
2. Question
Which of the following statements is true regarding Impact of increase in market interest rates?
Correct
Impact of increase in market interest rates
An increase in interest rates would result in a decrease in price of a debt security. Future cash flows expected from the debt security would be discounted back to the present date at a higher rate, making the security less valuable compared to other alternatives now available in the marketplace. An increase in interest rates would have no impact on the par value of a debt security. The par value of a debt security is set at the date of issue and does not change over the life of the security. An increase in market interest rates would decrease the duration of a debt security, which is a measure of the average time to receive all cash flows from a debt security.Incorrect
Impact of increase in market interest rates
An increase in interest rates would result in a decrease in price of a debt security. Future cash flows expected from the debt security would be discounted back to the present date at a higher rate, making the security less valuable compared to other alternatives now available in the marketplace. An increase in interest rates would have no impact on the par value of a debt security. The par value of a debt security is set at the date of issue and does not change over the life of the security. An increase in market interest rates would decrease the duration of a debt security, which is a measure of the average time to receive all cash flows from a debt security. -
Question 3 of 10
3. Question
Which of the following statements is true regarding Federal Reserve and monetary policy?
Correct
Federal Reserve and monetary policy
The role of the Federal Reserve is to set monetary policy by impacting the money supply and credit available to banks, which in turn influences the market interest rates. The goal of the Federal Reserve is to manage the interest rates and achieve a balance between rates that are too high, which would stifle economic growth and lead to higher unemployment, and rates that are too low, which would lead to economic growth that is too rapid and would eventually lead to an overheated economy and rapid inflation.Incorrect
Federal Reserve and monetary policy
The role of the Federal Reserve is to set monetary policy by impacting the money supply and credit available to banks, which in turn influences the market interest rates. The goal of the Federal Reserve is to manage the interest rates and achieve a balance between rates that are too high, which would stifle economic growth and lead to higher unemployment, and rates that are too low, which would lead to economic growth that is too rapid and would eventually lead to an overheated economy and rapid inflation. -
Question 4 of 10
4. Question
Which of the following statements is false regarding Fiscal policy?
Correct
Fiscal policy
The House of Representatives, Senate, and President are all responsible for enacting the fiscal policy of the United States. The primary tools that the government can use to enact fiscal policy include changing taxes, interest rates, and government spending. By increasing taxes, the US government can contract the growth of the economy and displace private spending with government spending. The degree to which taxes slow the growth of the economy is dependent both upon the method in which the taxes are levied (how much and upon who), as well as how that additional revenue is spent by the government, which is another tool of the government in setting fiscal policy.Incorrect
Fiscal policy
The House of Representatives, Senate, and President are all responsible for enacting the fiscal policy of the United States. The primary tools that the government can use to enact fiscal policy include changing taxes, interest rates, and government spending. By increasing taxes, the US government can contract the growth of the economy and displace private spending with government spending. The degree to which taxes slow the growth of the economy is dependent both upon the method in which the taxes are levied (how much and upon who), as well as how that additional revenue is spent by the government, which is another tool of the government in setting fiscal policy. -
Question 5 of 10
5. Question
Which of the following statements is false regarding Individual registration and joint tenants with rights of survivorship?
Correct
Individual registration and joint tenants with rights of survivorship
An individual registration ownership of mutual fund shares means that there is only one individual owner and beneficial recipient of the securities in the account. Only this individual may authorize transactions on behalf of the account. When the owner of the account dies, the owner’s will dictates the distribution of the account’s assets. If no will exists, state and federal laws dictating estate distribution and beneficiaries will dictate the distributions. The other most common form of ownership for mutual fund shares is joint tenants with rights of survivorship. In this instance, the account has two or more owners who all share equally in the gains and losses of the account. Upon the death of one account owner, that portion is redistributed equally among all remaining owners.Incorrect
Individual registration and joint tenants with rights of survivorship
An individual registration ownership of mutual fund shares means that there is only one individual owner and beneficial recipient of the securities in the account. Only this individual may authorize transactions on behalf of the account. When the owner of the account dies, the owner’s will dictates the distribution of the account’s assets. If no will exists, state and federal laws dictating estate distribution and beneficiaries will dictate the distributions. The other most common form of ownership for mutual fund shares is joint tenants with rights of survivorship. In this instance, the account has two or more owners who all share equally in the gains and losses of the account. Upon the death of one account owner, that portion is redistributed equally among all remaining owners. -
Question 6 of 10
6. Question
Which of the following statements is true regarding Uniform Gift to Minors Account?
Correct
The acronym UGMA stands for a Uniform Gift to Minors Account. UGMA accounts allow adults to open and manage a trade account for the benefit of an underage
individual. The adult who manages the UGMA is called a custodian. All assets within a UGMA are held in the custodian’s name until the minor reaches the age of majority. The age of majority depends on the laws of each state. The custodian of the account has full rights over that account until the minor reaches the age of majority.Incorrect
The acronym UGMA stands for a Uniform Gift to Minors Account. UGMA accounts allow adults to open and manage a trade account for the benefit of an underage
individual. The adult who manages the UGMA is called a custodian. All assets within a UGMA are held in the custodian’s name until the minor reaches the age of majority. The age of majority depends on the laws of each state. The custodian of the account has full rights over that account until the minor reaches the age of majority. -
Question 7 of 10
7. Question
Which of the following statements is true regarding Customer account transfer contracts?
Correct
Customer account transfer contracts
Customers who wish to transfer securities from one FINRA member to another may submit an automated customer account transfer form, or ACAT. Per FINRA Rule
11870, each FINRA member must “expedite and coordinate activities” to comply with the customer’s request. Rule 11870 also provides for non-ACAT transfers via non-ACAT forms. ACAT forms will vary from member to member, but will generally contain the same information. The member that receives the instructions must validate (declare valid) the request or claim that the request is not valid (take issue) within one business day. After that, they must act in a reasonably speedy manner to facilitate the request. If the ACAT requests that the securities be liquidated first, it will generally take longer to process.Incorrect
Customer account transfer contracts
Customers who wish to transfer securities from one FINRA member to another may submit an automated customer account transfer form, or ACAT. Per FINRA Rule
11870, each FINRA member must “expedite and coordinate activities” to comply with the customer’s request. Rule 11870 also provides for non-ACAT transfers via non-ACAT forms. ACAT forms will vary from member to member, but will generally contain the same information. The member that receives the instructions must validate (declare valid) the request or claim that the request is not valid (take issue) within one business day. After that, they must act in a reasonably speedy manner to facilitate the request. If the ACAT requests that the securities be liquidated first, it will generally take longer to process. -
Question 8 of 10
8. Question
Which of the following statements is not in the Regulation S-P (Privacy of Consumer Financial Information)?
Correct
Regulation S-P (Privacy of Consumer Financial Information) contains at its core three main purposes or functions:
1. The regulation requires financial institutions to notify its customers of its privacy practices
2. The regulation prohibits financial institutions from disclosing nonpublic personal customer information to third parties, unless the institution has
disclosed its practices to the customer and the customer has failed to opt out of such disclosure
3. The regulation provides certain industry standards for financial institutions regarding privacy practices and disclosure of customer information.Incorrect
Regulation S-P (Privacy of Consumer Financial Information) contains at its core three main purposes or functions:
1. The regulation requires financial institutions to notify its customers of its privacy practices
2. The regulation prohibits financial institutions from disclosing nonpublic personal customer information to third parties, unless the institution has
disclosed its practices to the customer and the customer has failed to opt out of such disclosure
3. The regulation provides certain industry standards for financial institutions regarding privacy practices and disclosure of customer information. -
Question 9 of 10
9. Question
Which of the following statements is true regarding USA Patriot Act?
Correct
USA Patriot Act
The PATRIOT Act was established for all forms of business following the terrorist attacks of September 11, 2001. The PATRIOT act was established to help
businesses, especially financial institutions, prevent funneling of funds to terrorist organizations. The PATRIOT Act requires that financial institutions establish and maintain a customer information program (or CIP).Incorrect
USA Patriot Act
The PATRIOT Act was established for all forms of business following the terrorist attacks of September 11, 2001. The PATRIOT act was established to help
businesses, especially financial institutions, prevent funneling of funds to terrorist organizations. The PATRIOT Act requires that financial institutions establish and maintain a customer information program (or CIP). -
Question 10 of 10
10. Question
Which of the following statements is in the information to be retained by the sender’s financial institution?
Correct
Required information on the sender and recipient of funds
Under the Bank Secrecy Act, which is designed to prevent and detect money laundering and other illegal financial activities, financial institutions are required to collect certain data on the sender and recipient of funds for certain transactions. The information to be retained by the sender’s financial institution includes:
1. Name and address of the sender
2. Amount that was sent
3. Execution date of the transaction
4. Payment instructions provided by sender
5. Identity of recipient’s financial institutionIncorrect
Required information on the sender and recipient of funds
Under the Bank Secrecy Act, which is designed to prevent and detect money laundering and other illegal financial activities, financial institutions are required to collect certain data on the sender and recipient of funds for certain transactions. The information to be retained by the sender’s financial institution includes:
1. Name and address of the sender
2. Amount that was sent
3. Execution date of the transaction
4. Payment instructions provided by sender
5. Identity of recipient’s financial institution