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Question 1 of 10
1. Question
Which of the following statements is true regarding derivative securities?
I. A derivative is a security that derives its value from another security
II. The value of the derivative fluctuates based on the value of the underlying security
III. Derivatives range from high-risk loss-producing securities to low-risk speculative bets on the movements of a single security
IV. A retiree seeking current income with a low tolerance for risk and loss may sell a covered call to produce risk-free income via a derivativeCorrect
Derivative securities
A derivative is a security that derives its value from another security. The security itself is a contract between two or more investors. The value of the derivative fluctuates based on the value of the underlying security. Investors use derivatives to meet multiple and varied goals. Derivatives range from low-risk income-producing securities to high-risk speculative bets on the movements of a single security or an entire section of the market. They are also used as a hedge against certain types of risk. A retiree seeking current income with a low tolerance for risk and loss may sell a covered call (an option on a security he or she already owns) to produce risk-free income via a derivative. Alternatively, a sophisticated investor may try to produce large gains by trading in currency-based derivatives.Incorrect
Derivative securities
A derivative is a security that derives its value from another security. The security itself is a contract between two or more investors. The value of the derivative fluctuates based on the value of the underlying security. Investors use derivatives to meet multiple and varied goals. Derivatives range from low-risk income-producing securities to high-risk speculative bets on the movements of a single security or an entire section of the market. They are also used as a hedge against certain types of risk. A retiree seeking current income with a low tolerance for risk and loss may sell a covered call (an option on a security he or she already owns) to produce risk-free income via a derivative. Alternatively, a sophisticated investor may try to produce large gains by trading in currency-based derivatives. -
Question 2 of 10
2. Question
Which of the following statements is true regarding hedge funds?
I. Hedge funds are alternative investments that seek high returns through the use of sophisticated investment management strategies
II. They tend to be very mildly managed and use some combination of leverage, long/short strategies, and derivative contracts to hamper the lowest returns possible
III. This strategy also leads to higher-than- normal risk, and limits their investor pool to high-net-worth individuals and institutional investors
IV. Since those who invest in hedge funds are typically sophisticated and experienced investors, there is little regulation of hedge fundsCorrect
Hedge funds
Hedge funds are alternative investments that seek high returns through the use of sophisticated investment management strategies. They tend to be very aggressively managed and use some combination of leverage, long/short strategies, and derivative contracts to generate the highest returns possible. This strategy also leads to higher-than- normal risk, and limits their investor pool to high-net-worth individuals and institutional investors. Since those who invest in hedge funds are typically sophisticated and experienced investors, there is little regulation of hedge funds. High minimum investments also limit their investors to higher-net-worth individuals as well.Incorrect
Hedge funds
Hedge funds are alternative investments that seek high returns through the use of sophisticated investment management strategies. They tend to be very aggressively managed and use some combination of leverage, long/short strategies, and derivative contracts to generate the highest returns possible. This strategy also leads to higher-than- normal risk, and limits their investor pool to high-net-worth individuals and institutional investors. Since those who invest in hedge funds are typically sophisticated and experienced investors, there is little regulation of hedge funds. High minimum investments also limit their investors to higher-net-worth individuals as well. -
Question 3 of 10
3. Question
Which of the following statements is true regarding whole life insurance?
I. Life insurance is a contract between an insurance company and the government in which the insurance company guarantees a payment to the beneficiaries of the insured
II. Whole life insurance provides life insurance for the entirety of the purchaser’s life as long as premiums are maintained; thus it is called whole life
III. Whole life insurance will accrue a cash balance that increases each year the policy is in force
IV. It is generally less expensive to the government than term life insurance, term life insurance does not provide a cash balanceCorrect
Whole life insurance
Life insurance is a contract between an insurance company and an investor in which the insurance company guarantees a payment to the beneficiaries of the insured upon the death of the insured in exchange for premiums paid. Whole life insurance provides life insurance for the entirety of the purchaser’s life as long as premiums are maintained; thus it is called whole life. Whole life insurance will accrue a cash balance that increases each year the policy is in force. The insured may take loans against the cash value of the whole life policy should the need arise. While it is generally more expensive to the investor than term life insurance, term life insurance does not provide a cash balance and will expire according to the terms of the contract where whole life insurance will not.Incorrect
Whole life insurance
Life insurance is a contract between an insurance company and an investor in which the insurance company guarantees a payment to the beneficiaries of the insured upon the death of the insured in exchange for premiums paid. Whole life insurance provides life insurance for the entirety of the purchaser’s life as long as premiums are maintained; thus it is called whole life. Whole life insurance will accrue a cash balance that increases each year the policy is in force. The insured may take loans against the cash value of the whole life policy should the need arise. While it is generally more expensive to the investor than term life insurance, term life insurance does not provide a cash balance and will expire according to the terms of the contract where whole life insurance will not. -
Question 4 of 10
4. Question
Which of the following statements is true regarding origins of early federal securities regulations?
I. State laws governing securities transactions were enacted well before any federal securities legislation became effective
II. By the time the Great Depression began in 1929, all of the states had adopted some form of legislation that regulated securities transactions
III. The stock market crash of 1929 changed this In response to the crisis, after the stock market crash, the the Federal Reserve Bank developed the first national securities regulations
IV. Early directives adopted by the federal government included the Securities Act of 1933 and the Securities Exchange Act of 1934Correct
Origins of early federal securities regulations
State laws governing securities transactions were enacted well before any federal securities legislation became effective. By the time the Great Depression began in 1929, all of the states had adopted some form of legislation that regulated securities transactions; however, no federal laws governing securities had been implemented. The stock market crash of 1929 changed this In response to the crisis, after the stock market crash, the United States government developed the first national securities regulations. Early directives adopted by the federal government included the Securities Act of 1933 and the Securities Exchange Act of 1934. Since that time, both federal and state governments have remained involved in the regulation of securities.Incorrect
Origins of early federal securities regulations
State laws governing securities transactions were enacted well before any federal securities legislation became effective. By the time the Great Depression began in 1929, all of the states had adopted some form of legislation that regulated securities transactions; however, no federal laws governing securities had been implemented. The stock market crash of 1929 changed this In response to the crisis, after the stock market crash, the United States government developed the first national securities regulations. Early directives adopted by the federal government included the Securities Act of 1933 and the Securities Exchange Act of 1934. Since that time, both federal and state governments have remained involved in the regulation of securities. -
Question 5 of 10
5. Question
Which of the following statements is true regarding development of early state-specific securities regulations?
I. The development of state laws concerning securities followed the development of industry in the United States
II. The growth of industry spawned the development of the supporting many companies
III. Corporations made offerings of securities available to the public in order to raise the capital necessary to back expansion and innovation
IV. As this practice became prevalent across the country, states began to reject laws regulating securities transactionsCorrect
Development of early state-specific securities regulations
The development of state laws concerning securities followed the development of industry in the United States. The growth of industry spawned the development of the supporting financial markets. In the United States, corporations have historically offered securities as a means of raising funds. Corporations made offerings of securities available to the public in order to raise the capital necessary to back expansion and innovation. As this practice became prevalent across the country, states began to adopt laws regulating securities transactions. While this practice was often beneficial for both the offering corporation and the public investors, unethical parties began using securities transactions to trick others into paying money for virtually worthless securities. Individual states responded by drafting laws addressing securities transactions. These state laws were designed to protect investors from fraudulent and/or unethical securities schemes.Incorrect
Development of early state-specific securities regulations
The development of state laws concerning securities followed the development of industry in the United States. The growth of industry spawned the development of the supporting financial markets. In the United States, corporations have historically offered securities as a means of raising funds. Corporations made offerings of securities available to the public in order to raise the capital necessary to back expansion and innovation. As this practice became prevalent across the country, states began to adopt laws regulating securities transactions. While this practice was often beneficial for both the offering corporation and the public investors, unethical parties began using securities transactions to trick others into paying money for virtually worthless securities. Individual states responded by drafting laws addressing securities transactions. These state laws were designed to protect investors from fraudulent and/or unethical securities schemes. -
Question 6 of 10
6. Question
Which of the following statements is true regarding Uniform Securities Act?
I. The Uniform Securities Act provides specific criteria that establish the parties that are subject to regulation by a state Administrator under the Act
II. The Uniform Securities Act governs securities transactions as well as many of the various individuals and firms involved in rejecting securities transactions and providing security-related investment loan
III. The Uniform Securities Act specifically defines the characteristics of the individuals and entities that are subject to regulation under the Act
IV. The Uniform Securities Act was developed as a means to provide consistent regulation across a number of states and was designed to protect investors and promote the public interestsCorrect
Uniform Securities Act
The Uniform Securities Act provides specific criteria that establish the parties that are subject to regulation by a state Administrator under the Act. The Uniform Securities Act governs securities transactions as well as many of the various individuals and firms involved in conducting securities transactions or providing security-related investment advice. The Uniform Securities Act specifically defines the characteristics of the individuals and entities that are subject to regulation under the Act. The Uniform Securities Act is applicable in any jurisdiction where it has been adopted as legislation. The Uniform Securities Act was developed as a means to provide consistent regulation across a number of states and was designed to protect investors and promote the public interests.Incorrect
Uniform Securities Act
The Uniform Securities Act provides specific criteria that establish the parties that are subject to regulation by a state Administrator under the Act. The Uniform Securities Act governs securities transactions as well as many of the various individuals and firms involved in conducting securities transactions or providing security-related investment advice. The Uniform Securities Act specifically defines the characteristics of the individuals and entities that are subject to regulation under the Act. The Uniform Securities Act is applicable in any jurisdiction where it has been adopted as legislation. The Uniform Securities Act was developed as a means to provide consistent regulation across a number of states and was designed to protect investors and promote the public interests. -
Question 7 of 10
7. Question
Which of the following statements is true regarding denial, suspension, or revocation of registration?
I. Securities must be registered with the Administrator; however, the Administrator may deny, suspend, revoke, or cancel registration for a security under certain circumstances
II. The circumstances in which a security’s registration may not be approved or may be revoked all involve instances in which the party registering the security is engaged in unethical
III. The registration for a security may be revoked if the Administrator determines that the registrant is charging fees that are unjustifiably high or that the registrant is involved in any fraudulent security offering
IV. This power of the Administrator is similar to the Administrator’s power to accept, receive , or revoke the registration of a broker-dealer, investment adviser, agent, or investment adviser representativeCorrect
Denial, suspension, or revocation of registration
Securities must be registered with the Administrator; however, the Administrator may deny, suspend, revoke, or cancel registration for a security under certain circumstances. With the exception of instances in which a security’s registration is incomplete or inaccurate, the circumstances in which a security’s registration may not be approved or may be revoked all involve instances in which the party registering the security is engaged in unethical, fraudulent, and/or inappropriate business practices. For example, the registration for a security may be revoked if the Administrator determines that the registrant is charging fees that are unjustifiably high or that the registrant is involved in any fraudulent security offering. This power of the Administrator is separate from the Administrator’s power to deny, suspend, or revoke the registration of a broker-dealer, investment adviser, agent, or investment adviser representative. Both of these powers help the Administrator protect investors.Incorrect
Denial, suspension, or revocation of registration
Securities must be registered with the Administrator; however, the Administrator may deny, suspend, revoke, or cancel registration for a security under certain circumstances. With the exception of instances in which a security’s registration is incomplete or inaccurate, the circumstances in which a security’s registration may not be approved or may be revoked all involve instances in which the party registering the security is engaged in unethical, fraudulent, and/or inappropriate business practices. For example, the registration for a security may be revoked if the Administrator determines that the registrant is charging fees that are unjustifiably high or that the registrant is involved in any fraudulent security offering. This power of the Administrator is separate from the Administrator’s power to deny, suspend, or revoke the registration of a broker-dealer, investment adviser, agent, or investment adviser representative. Both of these powers help the Administrator protect investors. -
Question 8 of 10
8. Question
Which of the following statements is true regarding sale and offer of sale of a security?
I. The Administrator has jurisdiction over the sale of covered securities and other activities related to the purchase
II. A security sale is any transaction in which the ownership of the security is transferred from government to investor for compensation
III. The compensation in a security contract for sale may be monetary, but the exchange of money is not a requirement
IV. Regulated securities transactions include instances where a party offers a security as an incentive or bonus offering to encourage the sale of a non-securityCorrect
Sale and offer of sale of a security
The Administrator has jurisdiction over the sale of covered securities and other activities related to the sale. A security sale is any transaction in which the ownership of the security is transferred from one party to another party for compensation. The compensation in a security contract for sale may be monetary, but the exchange of money is not a requirement. If a security is transferred for anything of value, the transaction is considered a sale. An offer to sell a security occurs when one party extends an offer to another party to transfer the ownership of a security for compensation of value, whether monetary or otherwise. Regulated securities transactions include instances where a party offers a security as an incentive or bonus offering to encourage the sale of a non-security.Incorrect
Sale and offer of sale of a security
The Administrator has jurisdiction over the sale of covered securities and other activities related to the sale. A security sale is any transaction in which the ownership of the security is transferred from one party to another party for compensation. The compensation in a security contract for sale may be monetary, but the exchange of money is not a requirement. If a security is transferred for anything of value, the transaction is considered a sale. An offer to sell a security occurs when one party extends an offer to another party to transfer the ownership of a security for compensation of value, whether monetary or otherwise. Regulated securities transactions include instances where a party offers a security as an incentive or bonus offering to encourage the sale of a non-security. -
Question 9 of 10
9. Question
Which of the following statements is true regarding Determination of Administrator’s jurisdiction?
I. A state Administrator’s jurisdiction over a particular transaction is determined, in part, by the location in which various activities associated with the transaction have occurred
II. Multiple state Administrators may have jurisdiction over a particular transaction
III. Jurisdiction is determined by the state in which the offer to sell the security expired, the state in which any offer to purchase the security
IV. In instances where an offer is originated in one state, is directed to another state, and is accepted in yet another stateCorrect
Determination of Administrator’s jurisdiction
A state Administrator’s jurisdiction over a particular transaction is determined, in part, by the location in which various activities associated with the transaction have occurred. Multiple state Administrators may have jurisdiction over a particular transaction. Jurisdiction is determined by the state in which the offer to sell the security originated, the state in which any offer to sell the security was directed (for example, the state to which an offer was sent to a potential client through the mail), and the state in which an offer to sell the security is accepted. In instances where an offer is originated in one state, is directed to another state, and is accepted in yet another state, three different state Administrators would have jurisdiction over the transaction.Incorrect
Determination of Administrator’s jurisdiction
A state Administrator’s jurisdiction over a particular transaction is determined, in part, by the location in which various activities associated with the transaction have occurred. Multiple state Administrators may have jurisdiction over a particular transaction. Jurisdiction is determined by the state in which the offer to sell the security originated, the state in which any offer to sell the security was directed (for example, the state to which an offer was sent to a potential client through the mail), and the state in which an offer to sell the security is accepted. In instances where an offer is originated in one state, is directed to another state, and is accepted in yet another state, three different state Administrators would have jurisdiction over the transaction. -
Question 10 of 10
10. Question
Which of the following statements is true regarding assessable stocks?
I. An assessable stock is a stock offered below value in exchange for an assumption of liability
II. The owner of an assessable stock is liable for the price difference between the offered price and the true value of the stock
III. The transfer of non-assessable stock is a regulated transaction even if the stock is transferred as a gift
IV. Gifts of assessable stocks are not considered regulated transactions and do not require the oversight of the AdministratorCorrect
Assessable stocks
An assessable stock is a stock offered below value in exchange for an assumption of liability. The owner of an assessable stock is liable for the price difference between the offered price and the true value of the stock. Because the transfer of an assessable stock involves the transfer of the stock’s associated liability, the transfer of assessable stock is a regulated transaction even if the stock is transferred as a gift. Such transactions fall under the jurisdiction of the Administrator. Assessable stocks no longer exist. Gifts involving non- assessable stocks are handled differently. Gifts of non-assessable stocks are not considered regulated transactions and do not require the oversight of the Administrator.Incorrect
Assessable stocks
An assessable stock is a stock offered below value in exchange for an assumption of liability. The owner of an assessable stock is liable for the price difference between the offered price and the true value of the stock. Because the transfer of an assessable stock involves the transfer of the stock’s associated liability, the transfer of assessable stock is a regulated transaction even if the stock is transferred as a gift. Such transactions fall under the jurisdiction of the Administrator. Assessable stocks no longer exist. Gifts involving non- assessable stocks are handled differently. Gifts of non-assessable stocks are not considered regulated transactions and do not require the oversight of the Administrator.