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Question 1 of 10
1. Question
Who among the following is required to authorize a discretionary transaction?
I. An officer of the advisory firm
II. A client of the advisory firm
III. A principal of the advisory firm
IV. A shareholder of the advisory firmCorrect
All discretionary transactions executed must be clearly labeled as such, records of all discretionary transactions must be kept and an officer or a principal of the advisory firm is required to authorize the transaction in writing.
Incorrect
All discretionary transactions executed must be clearly labeled as such, records of all discretionary transactions must be kept and an officer or a principal of the advisory firm is required to authorize the transaction in writing.
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Question 2 of 10
2. Question
Which of the following statements is true concerning reverse churning?
I. Reverse churning occurs when the client is paying more than necessary for the same benefit received.
II. Reverse churning occurs when a client enters a relationship with an advisor and regular purchases are not made for the advisor.
III. Reverse churning can be practised when an advisor believes a buy-and-hold strategy is best for the client.
IV. Reverse churning occurs when a client enters a fee-based relationship with an advisor but regular purchases are not made for the client.Correct
Reverse churning occurs when a client enters a fee-based relationship with an advisor but regular purchases are not made for the client. An effective reverse churning is when the client is paying more than necessary for the same benefit received, and if the advisor believes a buy-and-hold strategy is best for the client, the advisor may inadvertently practice reverse churning.
Incorrect
Reverse churning occurs when a client enters a fee-based relationship with an advisor but regular purchases are not made for the client. An effective reverse churning is when the client is paying more than necessary for the same benefit received, and if the advisor believes a buy-and-hold strategy is best for the client, the advisor may inadvertently practice reverse churning.
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Question 3 of 10
3. Question
A broker will sell away because of which of the following reasons?
I. The security is not a publicly offered security.
II. The security is a private placement.
III. The security is not profitable.
IV. The security is not backed by court order.Correct
Selling away is the act of a broker soliciting a client or prospective client to buy securities that are not offered by the broker’s employer. The most common reason a broker will sell away is because the security is not a publicly offered security and is a private placement.
Incorrect
Selling away is the act of a broker soliciting a client or prospective client to buy securities that are not offered by the broker’s employer. The most common reason a broker will sell away is because the security is not a publicly offered security and is a private placement.
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Question 4 of 10
4. Question
Who among the following is required by the Bank Secrecy Act (BSA) to report any suspicious activities that indicate a potential attempt to launder money, evade taxes, or engage in other illegal activities?
I. The financial institutions
II. The broker-dealers
III. The security personnel
IV. The family membersCorrect
The BSA requires broker-dealers and financial institutions to report any suspicious activities that indicate a potential attempt to launder money, evade taxes, or engage in other illegal activities.
Incorrect
The BSA requires broker-dealers and financial institutions to report any suspicious activities that indicate a potential attempt to launder money, evade taxes, or engage in other illegal activities.
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Question 5 of 10
5. Question
What is a fee-based account?
I. An advised account in which advisors are not paid on commission
II. An advised account in which advisors are compensated based on a percentage of managed assets
III. An advised account which advisors used for third parties
IV. An advised account in which advisors are compensated based on number of clientsCorrect
The simplest way to avoid churning is for the client to participate in an advised account in which advisors are not paid based on commission but they are compensated based on a percentage of assets under management charged as a fee. These advised accounts are called fee-based accounts.
Incorrect
The simplest way to avoid churning is for the client to participate in an advised account in which advisors are not paid based on commission but they are compensated based on a percentage of assets under management charged as a fee. These advised accounts are called fee-based accounts.
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Question 6 of 10
6. Question
Which of the following is not among the most commonly used financial ratios?
Correct
While there are many types of financial ratios, the most useful and commonly used are the following: Debt to equity ratio, current ratio (or liquidity ratio), quick ratio.
Incorrect
While there are many types of financial ratios, the most useful and commonly used are the following: Debt to equity ratio, current ratio (or liquidity ratio), quick ratio.
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Question 7 of 10
7. Question
The following equations are correct except:
Correct
debt-to-equity ratio = total liabilities/(owners’ or shareholders’ equity)
current ratio = current assets/current liabilities.
quick ratio = (current assets – inventories)/current liabilities.Incorrect
debt-to-equity ratio = total liabilities/(owners’ or shareholders’ equity)
current ratio = current assets/current liabilities.
quick ratio = (current assets – inventories)/current liabilities. -
Question 8 of 10
8. Question
What is the minimum duration of the cooling off period?
Correct
A company wishing to publicly offer a security must undergo to a twenty-day cooling-off period in which the SEC reviews and requires additions or corrections to the registration statement. Twenty days is a minimum; cooling periods can last for many months, while the proper changes are made.
Incorrect
A company wishing to publicly offer a security must undergo to a twenty-day cooling-off period in which the SEC reviews and requires additions or corrections to the registration statement. Twenty days is a minimum; cooling periods can last for many months, while the proper changes are made.
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Question 9 of 10
9. Question
When an investment company files a registration statement with the SEC, it consists of two parts. These parts are:
Correct
When an investment company files a registration statement with the SEC, it consists of two parts. The first part is the prospectus. The second is the statement of additional information (SAI).
Incorrect
When an investment company files a registration statement with the SEC, it consists of two parts. The first part is the prospectus. The second is the statement of additional information (SAI).
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Question 10 of 10
10. Question
Information about the history of a company is included in:
Correct
All information that an investment company is required to provide to investors before they purchase shares in the company is provided in the prospectus. However, some investors and members of the public may desire additional information about the company beyond what’s provided in the prospectus. This additional information, such as the history of the company, or a detailed financial profile, are in the statement of additional information (SAI), and must be provided to potential investors upon request.
Incorrect
All information that an investment company is required to provide to investors before they purchase shares in the company is provided in the prospectus. However, some investors and members of the public may desire additional information about the company beyond what’s provided in the prospectus. This additional information, such as the history of the company, or a detailed financial profile, are in the statement of additional information (SAI), and must be provided to potential investors upon request.