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Question 1 of 10
1. Question
Which of the following statements is not true regarding Currency exchange risk?
Correct
Currency exchange risk
Currency exchange risk is defined as the possibility that fluctuations in exchange rates will negatively impact an investor’s return on a foreign equity or fixed income investment when translated back to home currency terms. An equity investor from the United States who makes an investment in an equity security of a Chinese firm must consider not only the return that the company will generate, but how fluctuations in the exchange rate will increase or decrease that return over time.Incorrect
Currency exchange risk
Currency exchange risk is defined as the possibility that fluctuations in exchange rates will negatively impact an investor’s return on a foreign equity or fixed income investment when translated back to home currency terms. An equity investor from the United States who makes an investment in an equity security of a Chinese firm must consider not only the return that the company will generate, but how fluctuations in the exchange rate will increase or decrease that return over time. -
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.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. -
Question 3 of 10
3. Question
Which of the following statements is true regarding Role of inflation in price of equity and debt securities?
Correct
Role of inflation in price of equity and debt securities
For equity securities, inflation can have varying degrees of impact on valuations depending upon the ability of the issuing company to pass through rising costs to customers through increased prices. If companies are able to pass through all of the increasing costs to customers, then increases in inflation should not have a material impact on the price of the equity securities because the underlying financials and margins will remain essentially unchanged. For debt securities, unexpected changes in inflation levels can have a significant impact in valuations. When a debt security is issued, market interest rates consist of the real rate and an adjustment for inflation.Incorrect
Role of inflation in price of equity and debt securities
For equity securities, inflation can have varying degrees of impact on valuations depending upon the ability of the issuing company to pass through rising costs to customers through increased prices. If companies are able to pass through all of the increasing costs to customers, then increases in inflation should not have a material impact on the price of the equity securities because the underlying financials and margins will remain essentially unchanged. For debt securities, unexpected changes in inflation levels can have a significant impact in valuations. When a debt security is issued, market interest rates consist of the real rate and an adjustment for inflation. -
Question 4 of 10
4. 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 5 of 10
5. Question
Which of the following statements is true regarding Impact of monetary policy on securities?
Correct
Impact of monetary policy on securities
An appropriate monetary policy is critically important in allowing debt and equity securities to achieve their maximum potential values. A monetary policy that is too expansionary, with extremely low rates and a huge supply of credit, will lead to increased equity prices and increased prices of debt securities as currently issued securities will have significantly lower interest rates. While everyone loves increasing security prices, the Federal Reserve must be careful to not hold rates for too long or else the rising prices may turn into a bubble and an overheated economy.Incorrect
Impact of monetary policy on securities
An appropriate monetary policy is critically important in allowing debt and equity securities to achieve their maximum potential values. A monetary policy that is too expansionary, with extremely low rates and a huge supply of credit, will lead to increased equity prices and increased prices of debt securities as currently issued securities will have significantly lower interest rates. While everyone loves increasing security prices, the Federal Reserve must be careful to not hold rates for too long or else the rising prices may turn into a bubble and an overheated economy. -
Question 6 of 10
6. Question
Which of the following statements is true 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 7 of 10
7. Question
Which of the following statements is false regarding Tenants in common?
Correct
Tenants in common is another form of mutual fund account ownership (in addition to joint tenants with rights of survivorship); however, these two forms differ from each other in a number of key features. For instance, whereas the account is owned in equal proportions by each owner within the joint tenants with rights of survivorship, the account can be divided into specific ownership proportions under tenants in common. The ownership proportions will determine the allocation of income among owners.
Incorrect
Tenants in common is another form of mutual fund account ownership (in addition to joint tenants with rights of survivorship); however, these two forms differ from each other in a number of key features. For instance, whereas the account is owned in equal proportions by each owner within the joint tenants with rights of survivorship, the account can be divided into specific ownership proportions under tenants in common. The ownership proportions will determine the allocation of income among owners.
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Question 8 of 10
8. Question
Which of the following statements is not true regarding Account authorizations?
Correct
Account authorizations
One means of account authorization is power of attorney (POA), where the authority to represent someone in legal, private, or business matters is held by
another person; these must be formalized in writing.
Another means is by corporate resolution, where a corporation as a unit performs some action. This is usually accomplished with a legal document, voted upon by the corporation’s board of directors.Incorrect
Account authorizations
One means of account authorization is power of attorney (POA), where the authority to represent someone in legal, private, or business matters is held by
another person; these must be formalized in writing.
Another means is by corporate resolution, where a corporation as a unit performs some action. This is usually accomplished with a legal document, voted upon by the corporation’s board of directors. -
Question 9 of 10
9. Question
Which of the following statements is true regarding Memorandum of each brokerage order given or received for the purchase or sale of securities?
Correct
SEC Rule 17a-3
Memorandum of each brokerage order given or received for the purchase or sale of securities (for customer and firm accounts) – whether executed or
unexecuted. The memorandum is to show the terms and conditions; the account for which entered; the time the order was received; the time of entry; the price it was executed; the identity of any associated persons responsible for the account; the identity of the person who entered or accepted the order; and the time of execution or cancellation.Incorrect
SEC Rule 17a-3
Memorandum of each brokerage order given or received for the purchase or sale of securities (for customer and firm accounts) – whether executed or
unexecuted. The memorandum is to show the terms and conditions; the account for which entered; the time the order was received; the time of entry; the price it was executed; the identity of any associated persons responsible for the account; the identity of the person who entered or accepted the order; and the time of execution or cancellation. -
Question 10 of 10
10. Question
Which of the following statements is true regarding the Automated Customer Account Transfer Service (ACATS)?
Correct
ACATS
The Automated Customer Account Transfer Service allows broker/dealers to transfer funds and securities to other broker/dealers electronically. The receiving firm will provide an ACAT form to the sending firm that requests the funds and/or securities. The holding firm must respond to the request in one business day after they receive the request. They must fulfill the request unless the account does not contain transferable assets, the customer’s social is incorrect, the registration of the account requested does not match their records, or there is no signature (or an irregular customer signature) on the form.Incorrect
ACATS
The Automated Customer Account Transfer Service allows broker/dealers to transfer funds and securities to other broker/dealers electronically. The receiving firm will provide an ACAT form to the sending firm that requests the funds and/or securities. The holding firm must respond to the request in one business day after they receive the request. They must fulfill the request unless the account does not contain transferable assets, the customer’s social is incorrect, the registration of the account requested does not match their records, or there is no signature (or an irregular customer signature) on the form.