Securities and Market Makers Quiz
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Questions and Answers

What is the purpose of sending Forms 10-K to broker-dealers?

  • Broker-dealers are required to retain them permanently.
  • Broker-dealers must forward them to their clients. (correct)
  • Broker-dealers must analyze them for compliance.
  • Broker-dealers use them for their internal reporting.

    • Which of the following is true regarding sales charge breakpoints?

  • Breakpoints apply to funds from different broker-dealers.
  • Purchases by spouses can be combined to reach breakpoints. (correct)
  • Sales charge breakpoints can only be reached with individual fund purchases.
  • Only purchases by the shareholder count towards breakpoints.

    • What type of offering assures a corporation that it will receive the full amount?

  • Public offering
  • Private placement
  • Firm commitment (correct)
  • Best efforts offering

    • What is the main restriction on the use of 12b-1 fees?

    <p>They cannot be used to pay commissions for executing trades.</p> Signup and view all the answers

    Under what condition can a brokerage firm temporarily hold a securities transaction?

    <p>For the account of a specified adult.</p> Signup and view all the answers

    Who bears the most risk in a limited partnership within a direct participation program?

    <p>General Partner</p> Signup and view all the answers

    What is the breakeven point for the buyer of a call option?

    <p>Strike price plus premium</p> Signup and view all the answers

    What distinguishes an open-end investment company from a closed-end investment company?

    <p>Determines share prices once per day</p> Signup and view all the answers

    What happens to the current yield when a bond is sold at a premium?

    <p>Current yield is lower than nominal yield</p> Signup and view all the answers

    Which statement is true regarding the liquidity of hedge funds?

    <p>Hedge funds typically have restrictions on withdrawals</p> Signup and view all the answers

    What characterizes a mutual fund investor's redemption of shares?

    <p>Receives the next computed bid price</p> Signup and view all the answers

    What is a primary benefit of investing in an index mutual fund?

    <p>Lower management fees due to passive management</p> Signup and view all the answers

    What position does a seller of call options generally take on the underlying stock?

    <p>Bearish outlook on stock price</p> Signup and view all the answers

    What must be obtained to issue a general obligation bond?

    <p>Voter approval</p> Signup and view all the answers

    What is the total takedown when a syndicate member sells a new issue?

    <p>The additional takedown plus the concession</p> Signup and view all the answers

    How long must prospectuses be delivered for unlisted IPOs in the aftermarket?

    <p>90 days</p> Signup and view all the answers

    When can an underwriter first discuss a new issue with customers?

    <p>After the cooling-off period</p> Signup and view all the answers

    What does Rule 144 limit for a control person in a secondary market?

    <p>The amount of shares they can sell</p> Signup and view all the answers

    What is assumed if an order has no qualifier attached?

    <p>It is a day order</p> Signup and view all the answers

    Which order type allows a broker discretion over execution time and price?

    <p>Not held order</p> Signup and view all the answers

    What happens when an investor sells stock short?

    <p>They borrow stock and hope it drops in value</p> Signup and view all the answers

    What role do corporations typically play in capital markets?

    <p>They can issue both equity and debt securities.</p> Signup and view all the answers

    Which type of investor is characterized by having a minimum of $100 million in securities investment?

    <p>Qualified institutional buyers (QIB)</p> Signup and view all the answers

    What does a broker primarily do in a transaction?

    <p>Serves as an agent that connects buyers and sellers.</p> Signup and view all the answers

    What is the main function of a market maker?

    <p>To buy and sell specific amounts of securities at specific prices.</p> Signup and view all the answers

    What distinguishes debt securities from equity securities?

    <p>Debt securities represent a creditor's claim on assets.</p> Signup and view all the answers

    Which act regulates the primary market for new securities offerings?

    <p>Securities Act of 1933</p> Signup and view all the answers

    What is a significant characteristic of dark pools in trading?

    <p>They limit the impact on market activity by keeping quotes anonymous.</p> Signup and view all the answers

    What is the primary responsibility of a clearing firm in a fully disclosed account setup?

    <p>To maintain client assets and establish accounts.</p> Signup and view all the answers

    What type of security represents ownership in a corporation?

    <p>Stocks</p> Signup and view all the answers

    Who must be registered with the SEC when advising municipalities on bond offerings?

    <p>Municipal advisors</p> Signup and view all the answers

    What is the primary purpose of the Options Clearing Corporation (OCC)?

    <p>To issue and guarantee option contracts.</p> Signup and view all the answers

    What is meant by the term 'spread' in trading?

    <p>The difference between bid and ask prices.</p> Signup and view all the answers

    What is an IPO?

    <p>An initial public offering of securities.</p> Signup and view all the answers

    What is the primary purpose of a prime broker in the hedge fund industry?

    <p>To offer custody and margin financing services</p> Signup and view all the answers

    What is the maximum coverage provided by SIPC for cash and securities per customer?

    <p>$500,000 in cash and securities with a cash limit of $250,000</p> Signup and view all the answers

    Which of the following best describes 'cumulative preferred stock'?

    <p>Entitles shareholders to unpaid dividends before common stock dividends</p> Signup and view all the answers

    Which regulatory body is responsible for enforcing federal securities laws?

    <p>Securities and Exchange Commission</p> Signup and view all the answers

    What is the primary function of Regulation T?

    <p>To establish guidelines for margin trading</p> Signup and view all the answers

    How do 'restricted stocks' become recognized under Rule 144?

    <p>They require a mandatory six-month holding period</p> Signup and view all the answers

    In which scenario would the SEC require a filing of Form 144?

    <p>When selling restricted and control stock</p> Signup and view all the answers

    What does the term 'insider trading' refer to?

    <p>Using non-public, material information for trading</p> Signup and view all the answers

    Which type of stock typically does not provide voting rights to its shareholders?

    <p>Preferred stock</p> Signup and view all the answers

    Which of the following is NOT a characteristic of a debenture?

    <p>Secured by specific company assets</p> Signup and view all the answers

    What is a main goal of the Federal Reserve when conducting open market operations?

    <p>To control money supply and interest rates</p> Signup and view all the answers

    Under what circumstances might a company repurchase some of its outstanding shares?

    <p>To create Treasury stock which does not receive dividends</p> Signup and view all the answers

    What do 'American Depositary Receipts (ADRs)' represent?

    <p>Shares of foreign companies traded in the U.S.</p> Signup and view all the answers

    What does a zero-coupon bond represent?

    <p>A bond issued at a discount and matures at face value</p> Signup and view all the answers

    Which type of bond maturity allows for payments to be made over several years?

    <p>Serial maturity</p> Signup and view all the answers

    What is the main financial benefit of bonds with call provisions?

    <p>Allows issuer to redeem bonds prior to maturity</p> Signup and view all the answers

    In terms of bond pricing, what does a bond trading at a discount indicate?

    <p>The bond is priced below its par value</p> Signup and view all the answers

    What is the role of conversion parity in convertible debentures?

    <p>Reflects the market value of the common stock received</p> Signup and view all the answers

    Which of the following correctly describes the relationship between bond prices and market interest rates?

    <p>Inverse relationship</p> Signup and view all the answers

    What risk is associated with bonds that have high credit risk ratings?

    <p>Default risk</p> Signup and view all the answers

    Which agency is responsible for providing mortgage-backed securities?

    <p>Ginnie Mae</p> Signup and view all the answers

    When a bondholder wishes to redeem a bond before maturity due to rising interest rates, which provision is typically involved?

    <p>Put provision</p> Signup and view all the answers

    What describes the coupon rate of a bond?

    <p>The fixed rate of return on investment.</p> Signup and view all the answers

    T-bills are characterized by which of the following features?

    <p>Issued at a discount and mature at face value</p> Signup and view all the answers

    What does 'current yield' refer to in bond terminology?

    <p>Annual interest divided by the bond's current market price</p> Signup and view all the answers

    Which bond has the lowest credit risk typically associated with it?

    <p>U.S. government securities</p> Signup and view all the answers

    What does it mean when a bond is trading at a premium?

    <p>It is selling above its par value</p> Signup and view all the answers

    What is the significance of the 'conversion price' in convertible debentures?

    <p>It sets the number of shares upon conversion</p> Signup and view all the answers

    Study Notes

    Issuers

    • Legal entities raise capital by issuing securities
    • Corporations
    • US treasury and government agencies
    • State and local governments
    • Banks
    • Foreign governments

    Types of Securities

    • Equity (stocks)
      • Sold only by corporations and banks
      • Represents ownership
      • May receive dividends
    • Debt (notes and bonds)
      • Represents an issuer's promise to pay
      • Receive periodic interest payments
      • All entities can sell debt
    • Public or private markets
      • Companies raise money via debt or equity
      • The market can be either public or private

    Broker-Dealers

    • Broker
      • Acts as a conduit or agent
      • Finds a counterparty
      • Earns a commission
      • No risk to the firm
      • Uses an agency model
    • Dealer
      • Acts as a principal
      • Takes the other side of the trade
      • Makes a markup/markdown
      • Has inventory/risk exposure
      • Uses a principal model

    Market Maker

    • Broker-dealer displays quotes to buy/sell specific securities.
    • Quotes are firm for 100 shares(round lot)
    • Odd lot--other number of shares

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    Description

    Test your knowledge on issuers and types of securities, including equity and debt. This quiz covers the roles of broker-dealers and market makers in the financial markets. Assess your understanding of how these entities operate and interact within public and private markets.

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