A registered representative (RR) opens a new account for a customer whose investment objectives are growth and income. She makes an initial deposit of $5,500 using a series of money orders drawn from different sources, and she makes no investments for the first 30 days the account is open. At the end of that time, the customer asks to have the funds wired to an account at a different firm as her needs have changed. The RR's first course of action should be to:
Answer(s): C
Suspicious Activity: The use of multiple money orders, lack of investment activity, and request to wire funds to another firm raise red flags for potential money laundering.FINRA Rules: The RR should escalate the issue by reporting internally and potentially filing a Suspicious Activity Report (SAR).Incorrect Options:A: Denying the request without investigation may violate customer instructions.B: Freezing the account requires a valid legal or regulatory basis.D: Processing the request without investigation could facilitate illegal activity.
FINRA Anti-Money Laundering (AML) Guidance: FINRA AML Rules.
Company ABC stock currently trades on an exchange. An ABC insider wants to sell a large number of shares of her privately held ABC stock. ABC files the necessary paperwork to register the shares, but the insider decides to wait and sell the stock at a later date. Which of the following terms best describes the type of offering that is occurring in this situation?
Answer(s): D
Secondary Offering: Involves the sale of shares by an existing shareholder, such as an insider, rather than the company itself issuing new shares.Incorrect Options:A: Rights offerings involve giving existing shareholders the opportunity to buy additional shares.B: Private offerings are not registered with the SEC and involve limited investors.C: An exempt offering refers to securities exempt from SEC registration, such as Regulation D offerings.
SEC Guide on Secondary Offerings: SEC Secondary Offerings.
Which of the following responses describes a common feature of a hedge fund?
Answer(s): A
Low Liquidity: Hedge funds often impose lock-up periods and restrict redemptions, leading to low liquidity for investors.Incorrect Options:B: Hedge funds typically have high minimum investment requirements, often $1 million or more.C: Hedge funds employ diverse strategies, not just fixed income.D: Hedge funds are generally opaque about their strategies and holdings to protect their competitive advantage.
SEC Investor Bulletin on Hedge Funds: SEC Hedge Funds.
If an investor is bullish on ABC, which of the following actions will he most likely take?
Answer(s): B
Bullish Position: Buying ABC stock aligns with the expectation that the stock's price will rise, allowing the investor to profit.Incorrect Options:A: Buying puts is a bearish strategy.C: Selling calls benefits from stable or declining prices.D: Selling short is a bearish strategy anticipating a price drop.
FINRA Guidance on Market Strategies: FINRA Trading Basics.
Which of the following statements best describes the permissibility of a borrowing arrangement between a registered representative (RR) and a customer who is also the RR's grandfather?
FINRA Rule 3240: Permits borrowing or lending arrangements between RRs and customers under specific conditions, including familial relationships, provided the arrangement complies with the firm's policies.Incorrect Options:A: FINRA approval is not required; firm approval is.B: A written agreement alone is insufficient without firm approval.C: Commercially reasonable terms are not the sole criterion for permissibility.
FINRA Rule 3240 (Borrowing from or Lending to Customers): F, I, N, R, A Rule 3240.
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