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Question 1 of 10
1. Question
What is not true regarding sharing a client’s profits or losses?
Correct
As a general rule, agents cannot share a client’s profits or losses; however there are certain circumstances where this is permitted. If an agent obtains prior approval from a client in writing and shares ownership of an account with a client, the agent may share profits and losses associated with the joint account with the client. In this situation, profits and losses for the joint account are shared based on the percentage of account owned by each party. For example, if the agent owns fifteen percent of the account and the client owns eighty-five percent of the account, the account’s profits and loss will be split according to these percentages. Although agents are permitted to have joint accounts with their clients under the circumstances described above, broker-dealers are not. Broker-dealers are prohibited from establishing joint accounts with their clients.
Incorrect
As a general rule, agents cannot share a client’s profits or losses; however there are certain circumstances where this is permitted. If an agent obtains prior approval from a client in writing and shares ownership of an account with a client, the agent may share profits and losses associated with the joint account with the client. In this situation, profits and losses for the joint account are shared based on the percentage of account owned by each party. For example, if the agent owns fifteen percent of the account and the client owns eighty-five percent of the account, the account’s profits and loss will be split according to these percentages. Although agents are permitted to have joint accounts with their clients under the circumstances described above, broker-dealers are not. Broker-dealers are prohibited from establishing joint accounts with their clients.
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Question 2 of 10
2. Question
Which of the following is not regulated by The Uniform Securities Act?
I. Certificates of deposit (CDs) insured by the FDIC.
II. Fixed annuity offerings.
III. Various forms of life insurance.
IV. Commodities that trade on a futures market.
Correct
The Uniform Securities Act does not regulate transactions that do not involve securities. Investment options offered by banks, such as certificates of deposit (CDs) insured by the FDIC, are not securities. Insurance companies also offer a number of investment options that are not considered securities, including fixed annuity offerings and various forms of life insurance (including term life insurance, whole life insurance, endowment life insurance and universal life insurance). Commodities such as gold or wheat that trade on a futures market are also excluded from the definition of securities. As such, the business practices associated with the purchase and sale of these types of investments are not governed by the Uniform Securities Act and are not subject to the authority of the state Administrator.
Incorrect
The Uniform Securities Act does not regulate transactions that do not involve securities. Investment options offered by banks, such as certificates of deposit (CDs) insured by the FDIC, are not securities. Insurance companies also offer a number of investment options that are not considered securities, including fixed annuity offerings and various forms of life insurance (including term life insurance, whole life insurance, endowment life insurance and universal life insurance). Commodities such as gold or wheat that trade on a futures market are also excluded from the definition of securities. As such, the business practices associated with the purchase and sale of these types of investments are not governed by the Uniform Securities Act and are not subject to the authority of the state Administrator.
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Question 3 of 10
3. Question
Which of the following cannot be referred as broker-dealer?
I. Agent
II. Issuer
III. International banking institutions
IV. Domestic banks or savings institutions
Correct
The term broker-dealer does not include agents (representatives of broker-dealers or the issuer of a security); issuers (an entity that makes its own securities available for purchase); international banking institutions; or any other person or entity specifically excluded by the Uniform Security Act. The term broker- dealer does not generally include domestic banks or savings institutions; however, banks and savings institutions may be designated as broker-dealers depending upon the types of activities and transactions it handles. All persons that fall under the definition of broker- dealer must be registered with the Administrator.
Incorrect
The term broker-dealer does not include agents (representatives of broker-dealers or the issuer of a security); issuers (an entity that makes its own securities available for purchase); international banking institutions; or any other person or entity specifically excluded by the Uniform Security Act. The term broker- dealer does not generally include domestic banks or savings institutions; however, banks and savings institutions may be designated as broker-dealers depending upon the types of activities and transactions it handles. All persons that fall under the definition of broker- dealer must be registered with the Administrator.
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Question 4 of 10
4. Question
Which are the professions for which individuals may provide such incidental investment advice without being considered an investment adviser?
I. Teacher
II. Attorney
III. Engineer
IV. Accountant
Correct
The Uniform Securities Act recognizes that individuals in certain professions will need to provide incidental investment advice as part of their day-to-day job duties. The Uniform Securities Act identifies four such professions for which individuals may provide such incidental investment advice without being considered an investment adviser. These four professions are teacher, attorney, engineer, and accountant.
Incorrect
The Uniform Securities Act recognizes that individuals in certain professions will need to provide incidental investment advice as part of their day-to-day job duties. The Uniform Securities Act identifies four such professions for which individuals may provide such incidental investment advice without being considered an investment adviser. These four professions are teacher, attorney, engineer, and accountant.
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Question 5 of 10
5. Question
In which of the following scenarios the registration of a security will be granted?
I. If the current or planned business practices of the security’s issuer are illegal.
II. If there has been an intentional violation of the Administrator’s rules or orders or the provisions of the Uniform Securities Act in association with the offering of the security.
III. If the offering of the security has been or will be fraudulent.
IV. If the compensation mechanisms for the underwriters and/or promoters are not consistent with ethical business practices.
Correct
The Administrator will suspend, revoke or deny the registration of a security if there are significant concerns regarding the offering. For example, registration will not be granted if the current or planned business practices of the security’s issuer are illegal. Registration will not be granted if there has been an intentional violation of the Administrator’s rules or orders or the provisions of the Uniform Securities Act in association with the offering of the security. The Administrator will also consider any court injunction or Administrator’s stop order issued by another state or federal jurisdiction. The Administrator will also consider the terms of the offering. Registration will not be granted if the offering of the security has been or will be fraudulent. Finally, the Administrator will not grant registration if the compensation mechanisms for the underwriters and/or promoters are not consistent with ethical business practices.
Incorrect
The Administrator will suspend, revoke or deny the registration of a security if there are significant concerns regarding the offering. For example, registration will not be granted if the current or planned business practices of the security’s issuer are illegal. Registration will not be granted if there has been an intentional violation of the Administrator’s rules or orders or the provisions of the Uniform Securities Act in association with the offering of the security. The Administrator will also consider any court injunction or Administrator’s stop order issued by another state or federal jurisdiction. The Administrator will also consider the terms of the offering. Registration will not be granted if the offering of the security has been or will be fraudulent. Finally, the Administrator will not grant registration if the compensation mechanisms for the underwriters and/or promoters are not consistent with ethical business practices.
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Question 6 of 10
6. Question
What are the features of Registration by qualification?
I. It is the process that must be followed if the security in question must be registered with the state Administrator.
II. Issuers seeking to register a security by qualification must provide a significant amount of detailed information with the registration statement in addition to the standard filing requirements for securities.
III. The registration of securities registered under the registration by qualification process does not become effective automatically.
IV. The registration only becomes effective if and when ordered by the Administrator.
Correct
Registration by qualification is the most difficult method of registering a security with a state Administrator. Registration by qualification is the process that must be followed if the security in question must be registered with the state Administrator, but the security (or issuer) does not qualify for registration under either the registration by coordination process or the registration by filing (also known as the registration by notification process). Issuers seeking to register a security by qualification must provide a significant amount of detailed information with the registration statement in addition to the standard filing requirements for securities (including the consent to service of process). The registration of securities registered under the registration by qualification process does not become effective automatically. The registration only becomes effective if and when ordered by the Administrator.
Incorrect
Registration by qualification is the most difficult method of registering a security with a state Administrator. Registration by qualification is the process that must be followed if the security in question must be registered with the state Administrator, but the security (or issuer) does not qualify for registration under either the registration by coordination process or the registration by filing (also known as the registration by notification process). Issuers seeking to register a security by qualification must provide a significant amount of detailed information with the registration statement in addition to the standard filing requirements for securities (including the consent to service of process). The registration of securities registered under the registration by qualification process does not become effective automatically. The registration only becomes effective if and when ordered by the Administrator.
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Question 7 of 10
7. Question
Which if the following types of securities are not exempted from registration with the state?
I. Securities that are issued, guaranteed, or otherwise insured by the government of the United States.
II. Securities that are issued, guaranteed, or otherwise insured by state or municipal governments.
III. Securities that are issued, guaranteed, or otherwise insured by any governmental body in Canada.
IV. Securities that are issued, guaranteed, or otherwise insured by the federal government of any country with which the United States maintains diplomatic relations.
Correct
A number of the securities that are considered exempt from registration with the state Administrator are exempt due to the fact that another governing body is responsible for the security in question. The following types of securities are exempt from registration with the state: securities that are issued, guaranteed, or otherwise insured by the government of the United States (including securities issued by the United States Treasury); securities that are issued, guaranteed, or otherwise insured by state or municipal governments; securities that are issued, guaranteed, or otherwise insured by any governmental body in Canada (whether local or federal); and securities that are issued, guaranteed, or otherwise insured by the federal government of any country with which the United States maintains diplomatic relations. Although these securities are exempt from registration, state Administrators may require the issuer to pay filing fees normally associated with registration.
Incorrect
A number of the securities that are considered exempt from registration with the state Administrator are exempt due to the fact that another governing body is responsible for the security in question. The following types of securities are exempt from registration with the state: securities that are issued, guaranteed, or otherwise insured by the government of the United States (including securities issued by the United States Treasury); securities that are issued, guaranteed, or otherwise insured by state or municipal governments; securities that are issued, guaranteed, or otherwise insured by any governmental body in Canada (whether local or federal); and securities that are issued, guaranteed, or otherwise insured by the federal government of any country with which the United States maintains diplomatic relations. Although these securities are exempt from registration, state Administrators may require the issuer to pay filing fees normally associated with registration.
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Question 8 of 10
8. Question
Which of the following statements is true regarding Forward?
Correct
Forward
Forward contracts are contracts between two or more parties based on an underlying asset, usually a commodity. The contract obligates the buyer to pay the current price of the asset for delivery in the future, and obligates the seller to deliver the asset in the future regardless of the change in price. Forward contracts differ from futures in that futures contracts are settled in the future at the future price, where forward contracts are settled at current prices. The fact that the value of the forward contract is derived from the underlying asset makes it a derivative. Investors can use forward contracts to hedge against risk. If the future price of an asset is uncertain and the asset is not needed until the future, a forward contract can help eliminate the uncertainty of the future price.Incorrect
Forward
Forward contracts are contracts between two or more parties based on an underlying asset, usually a commodity. The contract obligates the buyer to pay the current price of the asset for delivery in the future, and obligates the seller to deliver the asset in the future regardless of the change in price. Forward contracts differ from futures in that futures contracts are settled in the future at the future price, where forward contracts are settled at current prices. The fact that the value of the forward contract is derived from the underlying asset makes it a derivative. Investors can use forward contracts to hedge against risk. If the future price of an asset is uncertain and the asset is not needed until the future, a forward contract can help eliminate the uncertainty of the future price. -
Question 9 of 10
9. Question
Which of the following statements is true regarding bids, offers, quotes, and spreads?
Correct
Bids, offers, quotes, and spreads
A quote is the bid and offer on a particular security offered by a market maker to help facilitate trading. The bid price of a security is the highest price at which a dealer is willing to buy a security from a seller. The offer price is the lowest price at which an investor may buy a security from a dealer. The difference in the two prices is called the spread. Usually the offer price is slightly higher than the bid price. This is how the dealer makes money. The market maker makes available the bid and offer prices on a certain security via the quote. The investor may then purchase the security from the dealer at the offer price or sell it to the dealer at the bid price. The dealer then makes money by effectively charging a “spread,” which is the slight difference between the bid and offer price.Incorrect
Bids, offers, quotes, and spreads
A quote is the bid and offer on a particular security offered by a market maker to help facilitate trading. The bid price of a security is the highest price at which a dealer is willing to buy a security from a seller. The offer price is the lowest price at which an investor may buy a security from a dealer. The difference in the two prices is called the spread. Usually the offer price is slightly higher than the bid price. This is how the dealer makes money. The market maker makes available the bid and offer prices on a certain security via the quote. The investor may then purchase the security from the dealer at the offer price or sell it to the dealer at the bid price. The dealer then makes money by effectively charging a “spread,” which is the slight difference between the bid and offer price. -
Question 10 of 10
10. Question
Which of the following statements is false regarding constant ratio plan vs. constant dollar plan?
Correct
Constant ratio plan vs. constant dollar plan
Constant ratio plans and constant dollar plans have similar goals in maintaining asset allocation, but the method by which the plans actually do this is quite different. A constant ratio plan achieves asset allocation through rebalancing based on the ratio percentage of equity securities to bond/cash securities. Thus, a 70 percent equities to 30 percent bonds/cash portfolio that had evolved to an 80 percent/20 percent portfolio through market growth would be rebalanced by selling 10 percent equities securities and reinvesting the proceeds into bond/cash securities. This restores the original asset allocation. In contrast, per the name of the strategy, the constant dollar plan seeks to maintain asset allocation based on a fixed dollar amount of equity investments.Incorrect
Constant ratio plan vs. constant dollar plan
Constant ratio plans and constant dollar plans have similar goals in maintaining asset allocation, but the method by which the plans actually do this is quite different. A constant ratio plan achieves asset allocation through rebalancing based on the ratio percentage of equity securities to bond/cash securities. Thus, a 70 percent equities to 30 percent bonds/cash portfolio that had evolved to an 80 percent/20 percent portfolio through market growth would be rebalanced by selling 10 percent equities securities and reinvesting the proceeds into bond/cash securities. This restores the original asset allocation. In contrast, per the name of the strategy, the constant dollar plan seeks to maintain asset allocation based on a fixed dollar amount of equity investments.