SIE Module 1 Test Bank

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1. Which one of the following statements is correct regarding NASAA model rules related to advisory contracts?

A. The contract must specify that the investment adviser cannot be compensated based on the total value of the assets under management.

B. The contract can be assigned to a new investment adviser without the consent of the client.

C. The contract must disclose the extent of any discretionary authority granted to the adviser.

D. The contract can be in writing or oral.

2. Congress has provided which one of the following entities with the power to supervise self-regulatory organizations?

A. NASDAQ.

B. SEC.

C. FINRA.

D. AICPA.

3. Which one of the following investments is insured by the Federal Deposit Insurance Corporation (FDIC)?

A. Treasury bill.

B. Market-linked CD.

C. Debenture.

D. Commercial paper.

4. An individual or firm in the business of buying and selling securities for its own account is considered:

A. A broker.

B. A dealer.

C. An investment adviser.

D. An investment adviser representative.

5. Mario is an employee of SuperDealer, a broker/dealer in California. Mario’s sole responsibility is the sale of commercial paper to clients of SuperDealer. Which one of the following statements is correct regarding Mario’s registration requirements?

A. Mario must register as an investment adviser representative because he is in the business of selling securities.

B. Mario must register as an agent because he is selling securities for a broker/dealer.

C. Mario is not required to register because he exclusively sells one security.

D. Mario is not required to register because commercial paper is exempt from the definition of a security.

6. Which one of the following would be considered an agent of a broker/dealer?

A. A person who represents an issuer in effecting transactions with underwriters.

B. A bank employee who sells securities issued by the bank.

C. A person who effects transactions in municipal securities on behalf of a broker/dealer.

D. An administrative employee of a broker/dealer that receives a bonus based on the broker/dealer’s profits.

7. Which one of the following would be considered an investment adviser?

A. An organization that writes and publishes a newsletter that provides investment recommendations to paying subscribers.

B. A bank that has $200,000,000 of client assets under management.

C. A tax accountant that recommends a Roth IRA to clients that have a tax refund.

D. A professor providing investment advice to his neighbors for a fee.

8. Laura is a civil rights attorney, practicing in California. She offers her services on a 20% contingency fee basis. She recently won a $2,000,000 settlement for one of her clients, retaining a fee of $400,000 (20%) for work on the case. Laura also charged the same client a fee of $50,000 to help her invest the remaining proceeds received from the settlement. In exchange for the $50,000 fee, Laura created an asset allocation for the client, and recommended various investments, which included municipal bonds. Is Laura considered an investment adviser?

A. No, because attorneys are excluded from the definition of investment advisers.

B. No, because municipal bonds are exempt securities.

C. Yes, because contingency fees fall under the definition of investment advice.

D. Yes, because a separate fee was collected for investment advice.

9. Which one of the following would be considered an investment adviser?

A. A broker/dealer who provides incidental investment advice without special compensation.

B. An accountant who provides investment advisory services to her neighbors to earn some extra money.

C. The publisher of a financial newsletter with regular circulation.

D. A bank that provides investment advice to clients for a fee.

10. Which one of the following would be considered an investment adviser?

A. A bank holding company that provides investment advice to clients for a fee.

B. An attorney who provides investment advisory services to her neighbors to earn some extra money.

C. A broker who provides incidental investment advice without special compensation.

D. The publisher of a financial newsletter with regular circulation.

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11. Jorge is an investment adviser living and practicing in Washington. He currently has assets under management of $105,000,000. Which one of the following best represents Jorge’s registration requirements?

A. He is required to register both with the SEC and Washington.

B. He is required to register with the SEC.

C. He is required to register with Washington.

D. He can choose to register with the SEC or Washington.

12. A partner, officer, director, or other individual associated with an investment adviser who gives advice regarding securities is known as a(n):

A. Investment adviser representative.

B. Agent.

C. Market maker.

D. Day trader.

13. The primary purpose of the Securities and Exchange Commission is to:

A. Protect rights and liberties, uphold and interpret the law, and provide for the peaceful resolution of disputes.

B. Oversee organizations and individuals in the securities markets, including securities exchanges, brokerage firms, and investment advisors.

C. Foster the integrity and efficiency of the monetary, financial, and payment systems.

D. Maintain a strong economy and create economic and job opportunities by promoting the conditions that enable economic growth and stability.

14. Which one of the following statements is correct regarding the Securities and Exchange Commission (SEC)?

A. The SEC has the authority to bring both civil and criminal actions, either in federal court or before an administrative judge.

B. The SEC is part of the Executive branch of the U.S. government.

C. The SEC serves as the first level of appeal for actions sought by the securities industry’s self-regulatory organizations, such as FINRA.

D. The SEC was created by the Investment Adviser Act of 1940 to regulate the banking and securities industries.

15. The Securities and Exchange Commission (SEC) enforces which one of the following laws?

A. Truth in Lending Act.

B. Fair Credit Reporting Act.

C. Tax Reform Act of 1986.

D. Investment Advisers Act of 1940.

16. Which one of the following represents a self-regulatory organization?

A. New York Stock Exchange.

B. United States Treasury Department.

C. Securities and Exchange Commission.

D. Federal Reserve.

17. Which one of the following has the authority to regulate and oversee brokerage firms, transfer agents, and self-regulatory organizations?

A. Internal Revenue Service.

B. Securities and Exchange Commission.

C. Municipal Securities Rulemaking Board.

D. Financial Industry Regulatory Authority.

18. Which one of the following statements is correct regarding self-regulatory organizations (SROs)?

A. SROs can establish rules for members of an industry, but these rules are merely suggestions and are not binding.

B. SROs are prohibited from regulating the activities of the capital market.

C. SROs must include conflict resolution in its list of duties.

D. SROs are affiliated with the U.S. government.

19. Which one of the following best describes the primary role of self-regulatory organizations (SROs)?

A. To ensure that all securities are appropriately registered with the federal government.

B. To promote public knowledge of investment characteristics.

C. To develop and enforce industry standards.

D. To license investment advisers and investment adviser representatives.

20. Which one of the following statements is correct regarding the Chicago Board Options Exchange (CBOE)?

A. It facilitates the trades of publicly traded stocks.

B. It is home to the VIX volatility index.

C. It focuses exclusively on trade execution.

D. Its jurisdiction for trading is limited to the United States.

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21. Which one of the following organizations regulates the underwriting, trading, and selling of state and local bonds that are used to finance public projects?

A. Securities Investor Protection Corporation.

B. Chicago Board Options Exchange.

C. Federal Reserve.

D. Municipal Securities Rulemaking Board.

22. The Financial Industry Regulatory Authority (FINRA) has jurisdiction over:

A. Initial public offerings.

B. Registered investment adviser firms.

C. U. S. banks.

D. Accredited investors.

23. The mission of the Department of the Treasury is to:

A. Keep the economy strong by creating and promoting conditions that support economic growth.

B. Protect investors against bank failures.

C. Protect investors against brokerage firm failures.

D. Oversee organizations and individuals in the securities markets, including securities exchanges, brokerage firms, and investment advisors.

24. Which one of the following organizations is charged with administering the finances of the federal government?

A. Federal Deposit Insurance Corporation.

B. Securities and Exchange Commission.

C. Federal Reserve.

D. Department of the Treasury.

25. All of the following are correct statements regarding the North American Securities Administrators Association (NASAA), EXCEPT:

D. It insures savings accounts and certificates of deposit up to $250,000.

A. Its aim is to help investors detect and prevent investment fraud in securities trading.

B. It consists of administrators in Canada, Mexico, and the United States and its territories.

C. It exercises jurisdiction over a large number of issuers and brokers who sell securities.

26. Which one of the following protects clients of brokers in the event of the brokerage firm’s financial failure?

A. The PBGC protects the securities and cash in a brokerage account up to $250,000.

B. The SIPC protects the securities and cash in a brokerage account up to $500,000.

C. The U.S. Treasury protects the securities and cash in a brokerage account up to $250,000.

D. The FDIC protects the securities and cash in a brokerage account up to $500,000.

27. All of the following statements regarding the Security Investor Protection Corporation (SIPC) are correct, EXCEPT:

A. The SIPC will not reimburse investors for losses incurred due to bad advice received from brokers.

B. The SIPC is a non-profit, governmental organization.

C. Replacement securities worth up to $500,000 will be issued to investors with covered losses.

D. Funds placed with a broker/dealer just to earn interest are not covered by the SIPC.

28. Which one of the following statements is correct regarding the Federal Reserve?

A. It oversees the U.S. Payment system.

B. It insures bank deposits up to $250,000 per account.

C. It derives its authority from the U.S. Treasury Department.

D. It oversees fiscal policy.

29. Which one of the following represents a type of investor that does not buy and sell securities with enough frequency and volume to obtain discounted fees?

A. Dormant investor.

B. Institutional investor.

C. Accredited investor.

D. Retail investor.

30. A correct statement regarding private placements is that they can have:

A. Up to 35 non-accredited investors and up to 35 accredited investors.

B. An unlimited number of accredited investors and up to 35 non-accredited investors.

C. An unlimited number of non-accredited investors and up to 35 accredited investors.

D. An unlimited number of accredited and non-accredited investors.

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31. Charlie takes securities purchase orders from clients. Once he receives these purchase orders, he then passes these orders to Andrea, who then matches the purchase orders with sell orders from other individuals. Which one of the following best describes their respective roles?

A. Charlie is primary market broker and Andrea is a secondary market broker.

B. Charlie is an introducing broker and Andrea is a clearing broker.

C. Charlie is a clearing broker and Andrea is a dealer.

D. Charlie is an investment adviser representative and Andrea is a matching broker.

32. Which one of the following represents a type of broker that offers a bundle of services, such as cash management and securities lending, to hedge funds and similar clients?

A. Introducing broker.

B. Clearing broker.

C. Prime broker.

D. Discount broker.

33. Which one of the following would be considered a municipal advisor?

A. An investment adviser registered under the Investment Advisers Act of 1940.

B. A municipal securities dealer serving as an underwriter of a particular issuance of municipal securities.

C. A guaranteed investment contract broker that engages in municipal advisory activities.

D. An employee of a municipal entity.

34. Which one of the following represents a person that provides advice to or on behalf of a municipal entity with respect to the issuance of municipal securities?

A. Municipal advisor.

B. Market maker.

C. Investment adviser.

D. Underwriter.

35. The underwriter assumes the price risk when securities are sold through a:

A. Best efforts underwriting.

B. Mini-maxi underwriting.

C. Firm commitment underwriting.

D. All or none underwriting.

36. Which one of the following represents a difference between a trader and a market maker?

A. A trader places transactions in the primary market, while a market maker places transactions in the secondary market.

B. A trader does not necessarily offer bid and sell prices continuously, while a market maker continually offers bid and sell prices.

C. A trader must be licensed with the state securities administrator, while a market maker must be registered with the SEC.

D. A trader is compensated via a commission, while a market maker is compensated via a salary.

37. Which one of the following represents the role of a transfer agent?

A. Managing and keeping track of registered shareholders for companies that issue stock.

B. Determining the price and risk of securities.

C. Providing investment advice to customers for a fee.

D. Buying and selling securities for their own account.

38. Which one of the following is an organization associated with an exchange that handles the confirmation, settlement, and delivery of transactions?

A. Market maker.

B. Clearing corporation.

C. Institutional investor.

D. Depository.

39. The Options Clearing Corporation (OCC) guarantees:

A. Investors’ accounts that are held with insolvent brokerage firms.

B. Only option contracts that are purchased through clearing brokers.

C. All listed stock option contracts in the United States.

D. Only forward contracts that are purchased through clearing brokers.

40. Which of the following statements is correct regarding the primary market?

A. Once a registration statement is approved by the SEC, the investment banker issues a “red herring” with a final offering price.

B. An advantage of the primary market is that the investor does not pay a direct commission.

C. Most primary offerings are slightly overpriced, in an attempt to stabilize the demand for a new security.

D. The primary market is defined primarily by special offerings for block trades.

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41. All of the following statements are correct regarding the secondary market, EXCEPT:

A. Companies that sell securities that they own are referred to as floor traders.

B. A specialist is charged with making a market in a particular security.

C. The most basic function that brokers and their firms perform is to link investors to the securities markets.

D. The Graham-Leach-Bliley Act repealed the Glass-Steagall Act, thereby allowing investment banks to operate commercial banks.

42. Which of the following statements is correct regarding the secondary markets?

A. Stocks listed on the New York Stock Exchange may also be listed on a regional exchange.

B. The majority of transactions in the secondary market are executed through best efforts underwriting.

C. The equity securities of most large U.S. companies trade in over-the-counter dealer markets.

D. Traditionally, the Amex has been the exchange used by companies that are too large to be listed on the New York Stock Exchange.

43. The fourth market can best be described as:

A. Private trading between institutions.

B. Initial public offerings.

C. Penny stocks.

D. Publicly traded stocks.

44. Which one of the following statements is correct regarding types of securities markets?

A. The primary market includes the New York Stock Exchange and the NASDAQ.

B. The fourth market features trades between retail investors.

C. The secondary market is the market in which securities are sold by the issuers to investors.

D. The third market involves over-the-counter trades of exchange-listed stocks.

45. All of the following statements are correct regarding the third and fourth markets, EXCEPT:

A. The fourth market typically involves trades between small investors.

B. The third market consists of over-the-counter trading of listed stocks.

C. The third market may offer more attractive stock prices than the exchanges.

D. Commissions are not incurred on fourth market trades.

SIE Module 1 Test Bank

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