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How does an individual acquire restricted stock?
Restricted stock refers to securities acquired through private placements, such as those offered under Regulation D. These securities are not registered with the SEC and are subject to holding period restrictions before resale.
A is correct because Regulation D offerings involve private placements, resulting in restricted stock.
B is incorrect because IPOs involve publicly traded shares, not restricted stock.
C and D are incorrect because restricted stock is not obtained through warrants or exchange-traded options.
A registered representative (RR) has a referral relationship with a family friend who is not affiliated with the financial industry. In the absence of a formal agreement, which of the following ways is the RR permitted to compensate the family friend for referrals?
FINRA prohibits the payment of referral fees or splitting of commissions with individuals who are not registered with a broker-dealer. However, taking a friend out to dinner as a gesture of gratitude is allowed, as it does not involve cash or monetary compensation directly tied to the referral.
C is correct because non-monetary expressions of gratitude (like a dinner) are permitted under FINRA rules.
A is incorrect because commission splitting with unregistered individuals is prohibited.
B is incorrect because paying referral fees is also prohibited without registration.
D is incorrect because giving prepaid credit cards tied to commission income violates compensation rules.
Which of the following statements characterizes the typical relationship between the market value of a municipal bond portfolio and interest rates?
Step by Step Explanation:
Inverse Relationship: Bond prices and interest rates have an inverse relationship. When interest rates fall, existing bonds with higher coupon rates become more valuable, leading to an increase in market value.
Incorrect Options:
A: Market value decreases as interest rates increase.
C: Interest rates and bond values move inversely, not in the same direction.
D: Interest rates are not constant; they fluctuate over time.
SEC Municipal Bonds Overview: SEC Municipal Bonds.
The process in which the buying firm must pay for the securities and the selling firm must deliver the securities is known as:
Step by Step Explanation:
Settlement of the Transaction: Refers to the finalization of a trade, where the buyer pays for the securities, and the seller delivers them. For most securities, regular-way settlement occurs T+2 (trade date plus two business days).
Incorrect Options:
Clearing the Trade: Refers to matching trade details to prepare for settlement.
DVP Transactions: A specific type of settlement involving simultaneous payment and delivery, often used for institutional clients.
Corporate Action: Refers to events like stock splits or dividend declarations.
FINRA and SEC Guidelines on Settlement: SEC Settlement Process.
Which of the following transactions gives a U.S. citizen the most efficient means to invest in the stock of an overseas corporation that trades only on a foreign exchange?
American Depositary Receipts (ADRs) allow U.S. investors to efficiently invest in foreign corporations without the need to trade on foreign exchanges. ADRs are traded on U.S. exchanges and represent shares of foreign companies.
D is correct because ADRs are designed for this purpose, simplifying currency exchange and reporting requirements for U.S. investors.
A is incorrect because directly purchasing an ETF on a foreign exchange requires additional steps, such as foreign account setup.
B is incorrect because options are derivative products, not direct investments in the stock.
C is less efficient because mutual funds may not provide direct exposure to the specific corporation.
