SIE section 1: Knowledge of Capital Markets

1. Which of the following is NOT one of the three parts of the SEC's stated mission?

1. Facilitate capital formation
2. Maintain fair, orderly, and efficient markets
3. Protect investors
4. Guarantee investors against investment losses

2. Which federal law created the Securities and Exchange Commission?

1. Securities Exchange Act of 1934
2. Securities Investor Protection Act of 1970
3. Securities Act of 1933
4. Investment Company Act of 1940

3. A registration statement for a new stock offering is in effect. A representative tells a prospect the SEC has approved the stock as a sound investment. Under Securities Act Section 23, this statement is:

1. Permitted, because the SEC reviewed and declared the filing effective
2. Unlawful only if the stock later declines in price
3. Unlawful, because effectiveness is not a finding on the merits
4. Permitted if the prospectus has been delivered

4. Unless the SEC sets an earlier date, a Securities Act registration statement generally becomes effective on which day after filing?

1. The twentieth day
2. The thirtieth day
3. The tenth day
4. The forty-fifth day

5. An issuer files a pre-effective amendment to its registration statement without the SEC's consent. Under Section 8(a), the statement is treated as filed:

1. Thirty days after the amendment
2. On the original filing date
3. On the date of the first sale
4. When the amendment was filed

6. Which statement best describes FINRA?

1. A division of the SEC staffed by federal employees
2. A federal agency inside the Department of the Treasury that licenses banks
3. A state agency that enforces blue-sky laws
4. A private not-for-profit membership organization supervised by the SEC

7. Which statement about the MSRB's authority is accurate?

1. It writes rules for the municipal market but does not enforce them
2. It regulates the issuers of municipal bonds
3. It examines municipal dealers and enforces its own rules through fines and bars
4. It insures municipal bond interest payments

8. The MSRB was established by Congress through which legislation?

1. The Maloney Act amendments of 1938
2. The Securities Acts Amendments of 1975
3. The Dodd-Frank Act of 2010
4. The Securities Act of 1933

9. State securities regulators enforce which body of law?

1. Federal Reserve Regulation T
2. Blue-sky laws
3. The Bank Secrecy Act
4. The Investment Company Act

10. An investment adviser manages $60 million and has its principal place of business in Ohio. With which regulator does it generally register?

1. The Ohio state securities regulator
2. The MSRB
3. The SEC, because it is a registered adviser
4. FINRA, as the SRO for advisers

11. An investor wants to find the contact for a state securities regulator. Which organization does Investor.gov point to?

1. SIPC
2. The FDIC
3. NASAA
4. The Options Clearing Corporation

12. Which body specifies the short-term objective for the Federal Reserve's open market operations?

1. The SEC
2. The board of each member commercial bank
3. The Federal Open Market Committee
4. The Secretary of the Treasury

13. Open market operations are best defined as:

1. Treasury auctions of new savings bonds
2. Changes to federal income tax rates
3. Direct loans from Reserve Banks to individual consumers and businesses
4. The central bank's purchase and sale of securities in the open market

14. Which of the following is a monetary policy tool rather than a fiscal policy action?

1. A change in Social Security benefit formulas
2. A new federal highway spending bill
3. A change in federal tax rates
4. Federal Reserve open market operations

15. Who establishes the discount rate charged at a Federal Reserve Bank's discount window?

1. The Reserve Bank's board, subject to Board of Governors review
2. The FOMC by majority vote alone
3. The Secretary of the Treasury
4. Commercial banks bidding in a weekly Treasury auction

16. Who may borrow at the Federal Reserve's discount window?

1. Depository institutions
2. State governments
3. Registered investment advisers
4. Individual retail investors

17. Congress directed the Federal Reserve to conduct monetary policy to support which goals?

1. Rising stock prices and steadily rising home values
2. A fixed dollar exchange rate
3. Balanced budgets and low taxes
4. Maximum employment and stable prices

18. The FOMC's longer-run inflation objective of 2 percent is measured with which index?

1. The S&P 500 index
2. The personal consumption expenditures price index
3. The Producer Price Index
4. The Consumer Confidence Index published each month

19. What is the maximum SIPC protection for one customer, and how much of it may be cash?

1. $250,000 total, including up to $100,000 in cash
2. $1,000,000 total, with no cash limit
3. $500,000 total, including up to $250,000 in cash
4. $500,000 in securities plus $500,000 in cash

20. A customer of a failed broker-dealer has $400,000 of securities and $300,000 of cash in one account. What is the most SIPC protects?

1. $400,000
2. $700,000
3. $500,000
4. $650,000

21. Which loss does SIPC protect against?

1. A drop in the market value of a customer's stock
2. Losses on commodity futures held in a regular cash account
3. Missing customer securities when a member firm fails
4. Losses on an unregistered fixed annuity

22. Under FINRA Rule 2266, how often must a member give customers SIPC's website address and phone number?

1. At account opening and at least once each year
2. Only when the customer requests it
3. On every trade confirmation
4. Once, in writing, when the account is finally closed

23. A bank customer has $300,000 in a single individual savings account at one FDIC-insured bank. How much is covered by FDIC insurance?

1. $500,000
2. $100,000
3. $300,000
4. $250,000

24. A customer buys a mutual fund through an FDIC-insured bank. What does FDIC insurance cover on that purchase?

1. Nothing, because mutual funds are not deposits
2. Losses on the fund only if the bank itself fails
3. Up to $500,000 of fund value
4. Up to $250,000 of fund value

25. Under the Securities Exchange Act, a person engaged in the business of effecting securities transactions for the account of others is a:

1. Broker
2. Transfer agent
3. Issuer
4. Dealer

26. A firm buys securities into its own inventory and sells them to customers from that inventory. Under the Exchange Act, it is acting as a:

1. Municipal advisor
2. Dealer
3. Broker
4. Custodian

27. Which market participant records changes of security ownership and maintains the issuer's security holder records?

1. Transfer agent
2. Market maker
3. Underwriter
4. Introducing broker

28. Which statement about transfer agents is accurate?

1. Only national stock exchanges may act as transfer agents
2. They must register only with FINRA
3. They are exempt from all federal registration
4. They must register with the SEC or, if a bank, with a bank regulator

29. The Depository Trust Company (DTC) is best described as a:

1. Government fund that insures customers' cash deposits
2. Depository that holds securities for its participants
3. Regulator of municipal advisors
4. Stock exchange that lists and trades new issues

30. Which statement about clearing agencies is accurate?

1. They are regulated only by the states
2. They are SROs that must register with the SEC
3. They may not hold or transfer securities for others
4. They are units of the Federal Reserve

31. An alternative trading system (ATS) meets the definition of an exchange. How does Investor.gov say an ATS is registered?

1. As an investment adviser
2. As a transfer agent
3. As a broker-dealer
4. As a national securities exchange

32. A firm is in the business of providing investment advice to investors for compensation. This firm is best described as a(n):

1. Transfer agent
2. Clearing agency
3. Registered securities exchange
4. Investment adviser

33. A firm advises a city on the structure and timing of a new bond issue. Unless an exclusion applies, the firm must register as a:

1. Commodity pool operator
2. Clearing agency
3. Transfer agent
4. Municipal advisor

34. What duty does a municipal advisor owe to a municipal entity client?

1. A federal statutory fiduciary duty
2. A duty owed only to the bondholders of the issue
3. Only a best-efforts duty
4. No duty beyond contract terms

35. For the Rule 501(a) net worth test, an individual must have net worth over $1 million. How is the primary residence treated?

1. It counts at half its value
2. It is not included as an asset
3. It counts at its full market value
4. It counts only if fully paid off

36. Which individual meets the Rule 501(a) income test for an accredited investor?

1. Earned over $200,000 last year only and expects less this year
2. Earned over $200,000 in each of the last two years and expects the same this year
3. Earned $150,000 a year, with a spouse earning $100,000, in the last year only
4. Earned over $100,000 a year for five years

37. Which person is an accredited investor in a private offering regardless of income or net worth?

1. A shareholder of a public company
2. A long-time customer of the underwriter
3. A director of the issuer
4. A relative of the issuer's lawyer

38. In a Rule 506(b) offering, how are accredited investors treated when counting purchasers?

1. Only accredited investors are counted
2. They count the same as anyone else
3. Each counts as two purchasers
4. They are excluded from the count

39. Rule 506(b) limits an offering to how many purchasers, after the Rule 501(e) exclusions?

1. 100
2. 35
3. 25
4. 50

40. In a Rule 506(c) offering that is not limited in its manner of offering, who may purchase?

1. Only accredited investors, after reasonable verification steps
2. Up to 35 non-accredited investors who are sophisticated
3. Only qualified institutional buyers
4. Anyone, with no limits on investor type or number

41. Under Rule 506(b), what is required of each non-accredited purchaser?

1. A securities license
2. Knowledge and experience in financial and business matters
3. A net worth of at least $500,000, excluding the home
4. Residence in the same state as the issuer's main office

42. Shares bought directly from an issuer in a transaction not involving a public offering are classified under Rule 144 as:

1. Restricted securities
2. Control securities
3. Exempt securities
4. Registered securities

43. An investor holds restricted stock of a company that has been an SEC reporting company for several years. What minimum holding period applies before a Rule 144 resale?

1. Thirty days
2. Six months
3. One year
4. Two years

44. What minimum Rule 144 holding period applies to restricted stock of a non-reporting issuer?

1. Three years
2. Ninety days
3. One year
4. Six months

45. An affiliate wants to sell under Rule 144. The class has 10,000,000 shares outstanding and averaged 120,000 shares a week over the last four calendar weeks. What is the most the affiliate may sell in three months?

1. 120,000 shares
2. 100,000 shares
3. 50,000 shares
4. 220,000 shares

46. Under Rule 144(h), when must a Form 144 notice be filed for a reporting issuer's shares?

1. If sales in three months exceed 5,000 shares or $50,000
2. For any sale of any size
3. Only if sales in a year exceed 1 percent of the shares outstanding
4. Only if sales exceed $500,000 in a year

47. Under Rule 144A's basic test, a qualified institutional buyer must own and invest on a discretionary basis at least how much in securities of unaffiliated issuers?

1. $5 million
2. $1.5 billion
3. $10 million
4. $100 million

48. A registered dealer can be a qualified institutional buyer under Rule 144A if it owns and invests at least how much in securities of unaffiliated issuers?

1. $10 million
2. $1 million
3. $100 million
4. $25 million

49. An initial public offering generally refers to:

1. Any sale of shares between two investors
2. A private sale of new shares to accredited investors
3. A company's first sale of its shares to the public
4. A company buying back its own shares

50. In which type of underwriting are the underwriters committed to take and pay for all of the securities if any are taken?

1. All-or-none agency
2. Self-underwritten
3. Firm commitment
4. Best efforts

51. In a best efforts underwriting, the underwriter acts mainly as:

1. A transfer agent for the issuer
2. An agent that sells what it can
3. A guarantor of the issuer's debt
4. A principal that buys the whole issue

52. Rule 415 allows securities to be registered now and offered:

1. Only outside the United States under Regulation S
2. Only to accredited investors
3. On a continuous or delayed basis in the future
4. Only on the effective date

53. For an automatic shelf registration, how long after the initial effective date may the registered securities be offered and sold?

1. Not more than one year
2. Without any time limit at all
3. Not more than two years
4. Not more than three years

54. Under the Rule 147 intrastate exemption, to whom may the issuer make offers and sales?

1. Only qualified institutional buyers
2. Only accredited investors in any state
3. Only residents of the issuer's state
4. Any U.S. resident

55. A purchaser in a Rule 147 offering wants to resell. For six months from the issuer's sale, resales may be made only to:

1. Accredited investors
2. Qualified institutional buyers
3. Residents of the issuer's state
4. Anyone, without limit, once paid in full

56. One way an issuer shows it is doing business in-state under Rule 147 is by deriving at least what share of consolidated gross revenues from in-state operations?

1. 100 percent
2. 80 percent
3. 50 percent
4. 66 percent

57. A summary prospectus under Rule 431 must state that:

1. The SEC has approved the offering
2. No other prospectus exists
3. The securities are guaranteed by the issuer and its underwriters
4. A more complete prospectus is available from a named source

58. Under Exchange Act Section 12(g), an issuer must register a class of equity once it has total assets over $10 million and the class is held of record by:

1. 1,000 persons, or 250 who are not accredited
2. 2,000 persons, or 500 who are not accredited
3. 300 persons of any kind
4. 500 persons, or 100 who are not accredited

59. A member firm is participating in a distribution of a security it is selling to a customer. Under FINRA Rule 2269, what must it do?

1. Disclose orally after settlement
2. Obtain the customer's notarized consent before each order
3. Nothing, if the price is fair
4. Give written notice of it at or before completion of the trade

60. An issuer offers a member firm a monthly fee to make a market in the issuer's stock. Under FINRA Rule 5250, the firm:

1. May not accept payment for making a market
2. May accept it for up to one year
3. Must accept it to provide liquidity
4. May accept it if the fee is disclosed on each published quote

61. Which payment from an issuer to a member is permitted under the exceptions in FINRA Rule 5250(b)?

1. A monthly retainer for acting as the stock's market maker
2. Payment for bona fide investment banking services
3. A bonus for raising the bid price
4. A fee for publishing a quote

62. Under MSRB Rule G-32, a dealer selling offered municipal securities to a customer must deliver the official statement by when?

1. Only if the customer requests it in writing
2. Within 90 days after settlement
3. No later than settlement of the transaction
4. Before the order is taken

63. Under MSRB Rule G-32, the primary offering disclosure period ends how long after the issuer's final delivery of the issue to the underwriters?

1. 25 days
2. 10 days
3. 90 days
4. 45 days

64. Under MSRB Rule G-11, unless the issuer agrees otherwise, whose orders generally get priority in a new municipal issue?

1. Customer orders over syndicate members' own-account orders
2. Syndicate members' dealer accounts
3. Orders in the exact sequence they are received, ignoring order type
4. Orders from the largest firm

65. Under MSRB Rule G-11, the senior syndicate manager must give syndicate and selling group members the priority provisions how and when?

1. Orally, after allocation of the bonds
2. Only on request
3. In writing, after settlement
4. In writing, before the first offer

66. A retail order period in a municipal offering is one in which:

1. Only institutional orders are accepted
2. Dealers fill their own inventory accounts before any customers
3. Orders may be placed after settlement
4. Orders meeting the issuer's retail criteria get priority

67. A company's balance sheet shows:

1. What it owns and owes at a fixed point in time
2. Its cash inflows and outflows by quarter
3. Its stock price history
4. Its revenues and expenses over a full fiscal year

68. Which equation describes a balance sheet?

1. Equity = assets + liabilities
2. Assets = liabilities + shareholders' equity
3. Net income = total assets - total liabilities
4. Assets = revenues - expenses

69. Which financial statement shows how much money a company made and spent over a period of time?

1. Balance sheet
2. Income statement
3. Statement of shareholder addresses
4. Trial balance of assets

70. A company has current assets of $9 million and current liabilities of $5 million. What is its working capital?

1. $4 million
2. $14 million
3. $1.8 million
4. $5 million

71. Current assets are assets a company expects to convert to cash within:

1. One year
2. Thirty days
3. Five years
4. The life of the company

72. Gross domestic product (GDP) measures the value of:

1. Federal government tax receipts
2. All goods and services produced by U.S. citizens living abroad only
3. Total stock market capitalization
4. Final goods and services produced in the United States

73. Gross national product (GNP) differs from GDP because GNP measures output from labor and property supplied by:

1. Federal agencies only
2. U.S. residents, wherever the activity is located
3. Anyone working inside U.S. borders
4. Foreign residents and businesses working inside the U.S.

74. BEA's international transactions accounts, the U.S. balance of payments, record transactions between:

1. U.S. residents and residents of other countries
2. U.S. issuers and U.S. investors
3. U.S. states and the federal government's budget agencies
4. The Federal Reserve and member banks