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SIE EXAM- UNIT 1 (KNOWLEDGE OF CAPITAL MARKETS) EXAM 2025
WITH 100% ACCURATE SOLUTIONS
SEC- - correct answers ✔✔Securities and exchange commission is the securities industry's primary regulatory body. Which act created the SEC? - correct answers ✔✔The securities exchange act of 1934 What is the purpose of registering with the SEC - correct answers ✔✔If you conduct securities business with either customers or broker dealers; you must be apply and be approved for registration with the SEC Additional role of the SEC - correct answers ✔✔It regulates all exchanges and trading markets Under the Uniform Securities act, registrations must be renewed how frequently? - correct answers ✔✔Annually The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is found where - correct answers ✔✔Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus. What happens a when a broker dealer does not comply with SEC rules - correct answers ✔✔Censure, limits on activities, functions, or operations. Suspension or revocation of registration Fine
Self Regulatory Organizations (SROs) - correct answers ✔✔Function under SEC's oversight. Each SRO is accountable to the commission for enforcing federal securities as well as supervising securities practices within assigned jurisdiction (FINRA, CBOE, MSRB) FINRA - correct answers ✔✔Financial Industry Regulatory Authority- More or less they regulate all matters related to investment banking (securities underwriting, trading in the OTC Market, trading in NYSE-listed securities and conduct of their member firms Purpose and objective of FINRA - correct answers ✔✔1. Promote the investment banking and securities business 2.promote high standards of commercial honor
- Provide a medium for communication among its members and between members, the govt/other agencies
- Enforce rules to prevent fraud and manipulative practices CBOE - correct answers ✔✔Chicago Board options exchange- regulates all matters related to trading standarized options and related contracts listed on that exchange MSRB - correct answers ✔✔Municipal securities Rulemaking Board- Regulates all matters related to the underwriting and trading of state and municipal securities. Regulates but does not enforce, that's where other SROs like FINRA come in. Dept of treasury - correct answers ✔✔Oversee the collection of taxes. This dept is administered by the secretary of the treasury IRS - correct answers ✔✔Internal Revenue service- Collects taxes and enforces tax laws NASAA - correct answers ✔✔North American Securities Administrators association-
How are the funds for this agency created? (FDIC) - correct answers ✔✔Premiums are paid by all participating institutions In the event of the failure of a member financial institution, what does the FDIC do? - correct answers ✔✔A customer deposits and loans of the failed institution are sold to another institution. This way they become new customers of that institution The FDIC provides deposit insurance up to how much? - correct answers ✔✔up to $250,000 for each deposit ownership category in each insured bank What does the FDIC cover? - correct answers ✔✔Covers traditional types of bank deposit accounts (checking, savings, money markets, CDs and self directed IRAs) What is not covered FDIC? - correct answers ✔✔Investment products, mutual funds, life insurances, stocks, bonds, annuities Investor - correct answers ✔✔Someone who provides money or resournces for an entreprise such as a corporation Retail investor - correct answers ✔✔an individual who makes investments such as the purchase of securities for their own personal accounts Institutional Investor - correct answers ✔✔An entity (bank, insurance company, hedge funds etc) that pools money to purchase securities and other investment assets Accredited investor - correct answers ✔✔Define as someone that has 1 million or more net assets including house. Can also be someone that has an income of $200,000 ($300,000 jointly) for the past two years and is set to make that again this.
OFficer or managers are also considered accredited investors Broker-Dealers - correct answers ✔✔Institutions or person, that buy securities, investment products(mutual funds, stocks, bonds) for their selves or for their customers What does the membership agreement of a B/D explain? - correct answers ✔✔It explains what lines of business the broker-dealer undertakes. Some are referred as full-service offering all types of investment products.. Carrying (Clearing Firm) - correct answers ✔✔Carries the customer accounts and accepts funds and securities from customers. Clearing firm rank among the larger B/D. They can do it all, trade execution, clear and settle transaction, handle all back office tasks such as sending statements and transactions confirmation. Why is the line of business for Carrying (Clearing firm )considered risky - correct answers ✔✔This is due to the fact that it is handling customers funds and securities. Thus it requires to maintain levels of net capital higher than other firms that do not accept custody of funds/security Fully Disclosed firm (Introducing firm) - correct answers ✔✔This firm can solicit customers but it cannot hold their funds/securities. they introduce the customer to a clearing (carrying firm) that will be in charge of doing this. So more or less the clearing firm acts as the introducing firm's back office. Prime brokers - correct answers ✔✔special group of services that many brokerages give to clients with more complex financial needs. The services provided under prime brokering include securities lending, leveraged trade executions and cash management, among other things. While other firms called executing firms handle all trades placed by the customer.
Clearing Agencies - correct answers ✔✔firms that clear/process transactions between clearing member firms. Includes depositories. DTCC (Depository Trust and Clearing Corporation) - correct answers ✔✔World's largest securities depository, provides custody services for virtually all securities restricted securities (transfer/ownership restrictions) OCC (Options Clearing Corporation) - correct answers ✔✔Clearing corporation for all options Market - correct answers ✔✔a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. Can be physical or electronic Some expectations of markets - correct answers ✔✔Basic regulations, transparent prices, cost/fees Capital market - correct answers ✔✔A stock or a bond market where firms can raise money for investment purposes Primary market - correct answers ✔✔a market in which new issues of securities are offered to the public. Known as issuer transactions Secondary Market - correct answers ✔✔the market in which previously issued securities are traded among investors Third market - correct answers ✔✔exchange-listed stock traded OTC primarily by institutional investors
Fourth Market - correct answers ✔✔Where big institutional investors (pension funds, insurance companies, mutual funds, etc.) trade directly through electronic communications networks (ECNs) Federal reserve board affects the money supply through what three tools? - correct answers ✔✔1.Through open market operations (buying/selling govt. securities) 2.Changes in the discount rate 3.Changes in reserve requirements Monetary policy - correct answers ✔✔Is what the type of policy the FRB uses when it wants to influence the money supply Fiscal policy - correct answers ✔✔Government policy that attempts to manage the economy by controlling taxing and spending. -Federal spending -Money raised through taxes -Federal budget deficits or surpluses Why is fiscal policy considered the least efficient when it comes to solving short term problems?
- correct answers ✔✔Due to the length of the political process, that comes about from enacting policies, Business cycles are - correct answers ✔✔Expansion, Peak, contraction, Trough. Mild short term contractions - correct answers ✔✔Called recessions, and they are considered a recession if the GDP has been dropping for 2 or more quarters. Trough - correct answers ✔✔Business activity has stopped declining and levels off
Stagnation - correct answers ✔✔Little to no economic growth; accompany by period of high unemployment Staglation definition - correct answers ✔✔-unemployment: up -interest rates: up Defensive Industries - correct answers ✔✔those that are least affected by the stage of the business cycle and include utilities, consumer staples, and basic services. food, pharma, tobacco cyclical industries - correct answers ✔✔industries with above-average sensitivity to the state of the economy. Auto industry, steel and metal, durable goods. Growth Industry - correct answers ✔✔An industry that is growing faster than the economy as a whole as a result of technological changes, new products, or changing consumer tastes. Tech and compyter Special situation stock - correct answers ✔✔Unusual profit potential resulting from nonrecurring circumstances. Example new ceo, new board Keysenian economics - correct answers ✔✔Govt. fiscal policies affect the health of the economy Monetarist Policy - correct answers ✔✔the amount of money a government prints and puts into circulation and the basic interest rates the government sets. Federal reserve influences the economy. supply-side economics - correct answers ✔✔Government is less involved in regulating the economy so supply will keep the economy successful ex: cut taxes so people have more money to spend
Balance of payment - correct answers ✔✔Flow of $ from US to other countries. Surplus in the balance of payments - correct answers ✔✔The excess of credits over debits in the current and financial accounts, or autonomous transactions. deficits in the balance of payment - correct answers ✔✔more money flying out of the US than in GDP - correct answers ✔✔Gross Domestic Product- the total market value of all final goods and services produced annually in an economy GNP (Gross National Product) - correct answers ✔✔total dollar value of goods & services produced by a nation at home or away Offerings - correct answers ✔✔The issue or sale of securities to the investing public Underwriters - correct answers ✔✔A group of b/d that work with the issuing company to register the security and bring the securities to the market for sale to the investing public. Primary offering - correct answers ✔✔The corporation sells shares. Proceeds go to directly to the issuing corporation. This can happen at any time and for any amount as long as it doesnt exceed the charter Public offering - correct answers ✔✔a primary market issue in which new securities are offered to any investors who are willing and able to purchase them. More regulation than private offering. Regulated by the securities act of 1933
For Nasdaq or exchange listed, a prospectus must be provided to all those who purchase securities for how many days after the effective date? - correct answers ✔✔25 days Best Efforts Underwriting - correct answers ✔✔the type of underwriting in which the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility All or none underwriting - correct answers ✔✔An Underwriter agrees to try to sell all of shares offered, sales are contingent on all shares being issued. If shares cannot be sold, the deal is cancelled and any funds collected from investors returned. Mini-max underwriting - correct answers ✔✔setting a minimum level for number of shares to sold firm commitment underwriting - correct answers ✔✔the type of underwriting in which the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares The cooling off period - correct answers ✔✔After an issuer files a registration statement with the SEC there is a 20 day cooling off period. You cannot solicit sales, but you can red herring meaning gauge interest and solicit with preliminary prospectus tombstone advertisement - correct answers ✔✔An advertisement that provides a listing of the underwriting syndicate involved in the new offering in addition to basic information on the offering. Bare minimum What should not be found in a tombstone? - correct answers ✔✔The intended purpose for which to use the sales proceeds or the names of the company's officers
Shelf offering - correct answers ✔✔An SEC provision allowing an issuer to register a new issue security without selling the entire issue at once. The issuer may sell limited portions of the issuer over a three-year period without reregistering the security or incurring penalties. Blue Sky Laws - correct answers ✔✔State laws that regulate the offering and sale of securities for the protection of the public. Uniform Securities Act (USA) - correct answers ✔✔Model legislation for securities industry regulation at the state level. Each state may adopt the legislation in its entirety or it may adapt it (within limits) to suit its needs. Exemption to state registration - correct answers ✔✔Isolated nonissuer transactions & unsolicited transactions isolated non-issuer transaction - correct answers ✔✔exempt, regardless of whether effected through BD. Happens in the second market Unsolicited Transactions - correct answers ✔✔Transactions initiated by the client and not the agent. What disclosure document is required for exempt disclosures? - correct answers ✔✔An official statement (contains any information the investor might want to know about muni)
