Question 1

A wealth investor gives Bubba discretion to invest $50,000 for him in any way Bubba sees fit. Therefore, Bubba must:

Accepted Answer

furnish written documents of authority to the brokerage firm executing the orders. The wealthy investor has simply given Bubba discretion over the account. The brokerage firm only requires evidence that this authority has been granted to Bubba.

Question 2

A registered representative just accepted Bubba's instructions to buy a specific stock in the over-the-counter market with the credit balance in his account. Which of these orders for that issue can be entered and executed on a single ticket in a typical broker/dealer organization?

Accepted Answer

all of these. In the OTC market, all of these orders are possible. A mutual fund is considered OTC.

Question 3

Bubba opens an account at a broker/dealer with instructions to "transfer and ship". This means that:

Accepted Answer

securities purchased must be registered in Bubba's name and then delivered to him. Bubba is requesting delivery of securities in his name instead of being held by the broker.

Question 4

According to FINRA Conduct Rules, a party judged guilty of a rule infraction by the District Business Conduct Committee may then appeal to:

Accepted Answer

the FINRA Board of Governors. The first appeal is to the Board of Governors, then to the SEC, and then to the federal courts.

Question 5

To accommodate a customer's order to buy an over-the-counter stock, a broker/dealer is permitted to:

Accepted Answer

all of the above. All of the choices are normal ways for the broker to fill the customer's order.

Question 6

An investor purchasing a corporate bond regular way will have to pay the contracted price plus accrued interest:

Accepted Answer

up to but not including the settlement date. Accrued bond interest is always calculated up to but not including the settlement date. The interest accrual begins on the coupon date.

Question 7

Service charges by a FINRA dealer for transfer and safekeeping of customer securities held in street name:

Accepted Answer

may be levied only if the charge if fair, reasonable, and non-discriminatory. This is the standard in the FINRA rules.

Question 8

Bubba Corporation issued bonds that pay interest on January 15 and July 15 each year until maturity. An investor purchasing these bonds on Monday, April 12, must pay the contract price plus accrued interest for:

Accepted Answer

90 days. Interest accrues from the coupon date to the settlement date. A regular way purchase on April 12 will settle on April 15. corporate bonds are figures on 30-day months, regardless of the actual number of days in the month. The year is considered 360 days. Therefore interest is calculated for 16 days in January plus 30 each for February and March plus 14 for April.

Question 9

Most publicly owned securities are:

Accepted Answer

over-the-counter. The OTC market is much larger than any listed markets.

Question 10

A registered representative privately assures a customer that a certain stock will double within 18 months. During this period the stock the stock performs as predicted. Which of the following statements is true?

Accepted Answer

this statement constituted a form of fraud prohibited under the Securities Exchange Act of 1934. Such statements are fraudulent when rendered even if future events result in their accuracy.

Question 11

The FINRA markup policy requires that over-the-counter transactions with a customer be at:

Accepted Answer

prices reasonably related to the current market price of the security. All markups must be based upon the current market rather than the dealer's cost.

Question 12

The return by the receiving party of securities previously accepted for delivery or a demand by the delivering party for return of securities that have been delivered is called:

Accepted Answer

reclamation. In a reclamation a dealer requests that another dealer reclaim an improper delivery.

Question 13

A four-letter symbol assigned to an issue is characteristic of an equity security that is:

Accepted Answer

authorized for inclusion in the NASDAQ system. Stocks listed on an exchange have no more than three characters in their symbols.

Question 14

The FINRA Conduct Rules permit a transaction made "seller's option" to be delivered earlier than the expiration of the contract if:

Accepted Answer

the buyer is given one day notice in writing. A contract made on a "seller's option" may be terminated by the seller at an earlier date, provided that he gives the buyer one day notice.

Question 15

In regard to discretionary accounts, which of the following statements is correct?

Accepted Answer

both B and C. Choice A is the opposite of a discretionary account. Both B and C are standard procedures for a discretionary account.

Question 16

Which of the following are considered to be discretionary orders under the FINRA Rules of Fair Practice?

Accepted Answer

both A and C. Choice A is discretionary because the customer did not specify a quantity to purchase. Choice B only provides discretion about timing and thus is not discretionary. Choice C is clearly discretionary.

Question 17

A dealer buys 100 shares of XYZ common, which is an actively traded stock, at 23.50. Three days later, when XYZ common is quoted at 19.50 - 19.75, he sells the 100 shares to a customer. The basis for the dealer's markup is:

Accepted Answer

19 7/8. The markup is always based on the current market price, not upon cost. Therefore, the markup is based on the offering side of the current quotation.

Question 18

The practice of positioning stock in response to a customer's order and immediately after marking it up for resale to the customer is:

Accepted Answer

all of the above. A transaction that is simultaneous and thus riskless calls for a smaller than usual markup under FINRA guidelines.

Question 19

Which of the following is considered a firm quotation in the over-the-counter market?

Accepted Answer

27.50. Anytime there is qualifying language attached to a quotation it is not considered firm.

Question 20

Which of the following securities is traded only in the over-the-counter market?

Accepted Answer

open-end investment companies. Open-end mutual funds are a continuous offering of new securities that are not traded on an exchange. They trade only in the over-the-counter market. The other choices may trade over-the-counter or on exchanges.

Quiz 2: Investment and Securities