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Question 1 of 10
1. Question
What is one difference between an auction market and a negotiated market?
Correct
One primary difference between an auction market and an over-the-counter or negotiated market is that an auction market typically has a physical location where buyers and sellers must converge to set prices. A negotiated market, however, need not have a centralized physical location as most of the buying and selling is done through dealers.
As mentioned above, prices in a negotiated market are largely set by dealers, who are primarily responsible for buying and selling securities in these markets. This is in stark contrast to an auction market, in which the buying and selling is performed by the traders or agents working on their behalf. Dealers in negotiated markets differ from brokers, market makers, or specialists in auction markets because instead of working to buy and sell on behalf of their clients (the investors) the dealers are buying and selling at their own risk for their own accounts.Incorrect
One primary difference between an auction market and an over-the-counter or negotiated market is that an auction market typically has a physical location where buyers and sellers must converge to set prices. A negotiated market, however, need not have a centralized physical location as most of the buying and selling is done through dealers.
As mentioned above, prices in a negotiated market are largely set by dealers, who are primarily responsible for buying and selling securities in these markets. This is in stark contrast to an auction market, in which the buying and selling is performed by the traders or agents working on their behalf. Dealers in negotiated markets differ from brokers, market makers, or specialists in auction markets because instead of working to buy and sell on behalf of their clients (the investors) the dealers are buying and selling at their own risk for their own accounts. -
Question 2 of 10
2. Question
Which of the following statements is NOT true regarding new issue markets?
Correct
Most investors are familiar with secondary market transactions, in which a corporation’s securities are purchased from another investor or a dealer. The primary market, or new issue market, is of critical importance to corporations as they raise money to finance their operations. When a corporation issues new securities (debt or equity), it can choose to issue through either a public offering or a private placement. In a new issue market, the investment bank will set the initial price for the securities and generate interest in the transactions to appropriately size the new issue.
Incorrect
Most investors are familiar with secondary market transactions, in which a corporation’s securities are purchased from another investor or a dealer. The primary market, or new issue market, is of critical importance to corporations as they raise money to finance their operations. When a corporation issues new securities (debt or equity), it can choose to issue through either a public offering or a private placement. In a new issue market, the investment bank will set the initial price for the securities and generate interest in the transactions to appropriately size the new issue.
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Question 3 of 10
3. Question
What is material information?
Correct
Material information is that which is likely to impact an investor’s decision to invest in a security or the price that the investor is willing to pay to invest in a given security. Nonpublic information is information that has not been communicated to the general public or made available in public financial statements or press releases.
Incorrect
Material information is that which is likely to impact an investor’s decision to invest in a security or the price that the investor is willing to pay to invest in a given security. Nonpublic information is information that has not been communicated to the general public or made available in public financial statements or press releases.
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Question 4 of 10
4. Question
Who are Contemporaneous traders?
Correct
Contemporaneous traders are those who purchased the security in question (where the violation included a sale of security) or sold the security in question (where the violation included the purchase of a security).
Incorrect
Contemporaneous traders are those who purchased the security in question (where the violation included a sale of security) or sold the security in question (where the violation included the purchase of a security).
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Question 5 of 10
5. Question
Which of the following statements is true regarding the definition of a controlling person?
Correct
A controlling person is defined as “every person who, directly or indirectly, controls any person liable under any provision of this title or of any rule or regulation thereunder.” While this broad definition will be determined on a case-by-case basis, it will often include not only employers but also any other person with power to influence the activities of another person. The Insider Trading and Securities Fraud Enforcement Act of 1988 broadened the civil penalties that can be imposed upon controlling persons, including damages of up to three times the profit gained or loss avoided, up to a maximum of $1,000,000.
Incorrect
A controlling person is defined as “every person who, directly or indirectly, controls any person liable under any provision of this title or of any rule or regulation thereunder.” While this broad definition will be determined on a case-by-case basis, it will often include not only employers but also any other person with power to influence the activities of another person. The Insider Trading and Securities Fraud Enforcement Act of 1988 broadened the civil penalties that can be imposed upon controlling persons, including damages of up to three times the profit gained or loss avoided, up to a maximum of $1,000,000.
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Question 6 of 10
6. Question
Which of the following statements is NOT one of common stocks’ features?
Correct
A share of common stock represents fractional ownership in the issuing company. As such, one feature of common stock is a voting right to elect the Board of Directors and other matters such as executive compensation and corporate financial policy. Another feature of common stock is the right to dividends and earnings of the company. Earnings that are reinvested into the company increase the value of the share price and dividends distributed are paid to common stockholders. Thus, common stockholders participate in the income earned by the company in one of those two methods. As a fractional owner in the company, common stockholders would receive a portion of the company’s assets in the event of liquidation. However, common stockholders are at the lowest level of priority and will split only what is left after bondholders and preferred stockholders have collected their more senior debts.
Incorrect
A share of common stock represents fractional ownership in the issuing company. As such, one feature of common stock is a voting right to elect the Board of Directors and other matters such as executive compensation and corporate financial policy. Another feature of common stock is the right to dividends and earnings of the company. Earnings that are reinvested into the company increase the value of the share price and dividends distributed are paid to common stockholders. Thus, common stockholders participate in the income earned by the company in one of those two methods. As a fractional owner in the company, common stockholders would receive a portion of the company’s assets in the event of liquidation. However, common stockholders are at the lowest level of priority and will split only what is left after bondholders and preferred stockholders have collected their more senior debts.
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Question 7 of 10
7. Question
What is true regarding common shares?
Correct
Common stock differs from preferred stock in rights to dividends because preferred shares typically have a fixed, stated dividend while dividends for common shares can vary at the discretion of the company. Also, preferred shares have the first right to dividends and can also often have cumulative rights, so that any funds allocated to dividends will first be used to pay dividends, and any missed prior dividends, to preferred shareholders. Contrary to common stockholders, preferred stockholders typically do not have any voting rights. Finally, preferred shareholders would receive their portion of the liquidation prior to common stockholders in the event of corporate bankruptcy, giving them a greater level of principal protection. However, preferred stockholders still fall behind bondholders in the liquidation structure and would still face a substantial risk of loss.
Incorrect
Common stock differs from preferred stock in rights to dividends because preferred shares typically have a fixed, stated dividend while dividends for common shares can vary at the discretion of the company. Also, preferred shares have the first right to dividends and can also often have cumulative rights, so that any funds allocated to dividends will first be used to pay dividends, and any missed prior dividends, to preferred shareholders. Contrary to common stockholders, preferred stockholders typically do not have any voting rights. Finally, preferred shareholders would receive their portion of the liquidation prior to common stockholders in the event of corporate bankruptcy, giving them a greater level of principal protection. However, preferred stockholders still fall behind bondholders in the liquidation structure and would still face a substantial risk of loss.
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Question 8 of 10
8. Question
Why may an investor choose to invest in preferred stock as compared to a common stock?
Correct
One reason an investor may choose to invest in preferred stock as compared to a common stock is their desire for current income as opposed to capital appreciation. A share of preferred stock will generally pay a higher dividend rate than a share of common stock, but will not have the same possibility for upside capital appreciation through increased share price. Another incentive for investors to invest in preferred stock over common stock is the higher level of principal protection offered with preferred stock due to the order of dividend payments and the order of liquidation in the event of bankruptcy.
Incorrect
One reason an investor may choose to invest in preferred stock as compared to a common stock is their desire for current income as opposed to capital appreciation. A share of preferred stock will generally pay a higher dividend rate than a share of common stock, but will not have the same possibility for upside capital appreciation through increased share price. Another incentive for investors to invest in preferred stock over common stock is the higher level of principal protection offered with preferred stock due to the order of dividend payments and the order of liquidation in the event of bankruptcy.
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Question 9 of 10
9. Question
Which of the following statements is true regarding American Depositary Receipts?
Correct
An American Depositary Receipt, or ADR, is a certificate issued by a US financial institution that represents a given number of shares of the equity securities of a foreign company. ADRs are denominated in US dollars and traded on US exchanges. ADRs simplify the process of investing in foreign companies for US investors by essentially removing the currency translation and international investing requirements.
Incorrect
An American Depositary Receipt, or ADR, is a certificate issued by a US financial institution that represents a given number of shares of the equity securities of a foreign company. ADRs are denominated in US dollars and traded on US exchanges. ADRs simplify the process of investing in foreign companies for US investors by essentially removing the currency translation and international investing requirements.
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Question 10 of 10
10. Question
What is the definition of an option?
Correct
An option is a contract between two parties (not the issuing company) that gives the holder of the option the right, but not the obligation, to purchase a given number of securities from the other party at a specified date at an agreed upon price.
Incorrect
An option is a contract between two parties (not the issuing company) that gives the holder of the option the right, but not the obligation, to purchase a given number of securities from the other party at a specified date at an agreed upon price.