Wiley Series 7 Securities Licensing Exam Review 2019 + Test Bank: The General Securities Representative Examination

The most comprehensive guide to the Series 7 exam in the marketplace includes a self-directed study guide with all the most essential information to becoming a stockbroker. Areas covered include: Stocks, Debt Securities, Investment Banking, Securities Markets, Taxes, Securities Analysis, Self-Regulatory Organizations (SRO's), Mutual Funds and Investment Companies, Annuities, Margin, Options, Money Market Instruments, Direct Participation Programs and Municipal Securities. There is no prerequisite exam for the FINRA Series 7, however, test takers will be required to take the Series 63 or Series 66 as co-requisite exams. The Series 7 exam is made up of 260 multiple-choice questions of which 10 are experimental. Each student will be given a total of 6 hours for the exam (3 hours for each half). A grade of 72 is considered passing. This book includes multiple practice exams to help test takers improve their scores. The General Securities Representative Examination (Series 7) is an entry-level examination that qualifies the individual for registration with all self-regulatory organizations to trade, promote, and sell: Public offerings and/or private placements of corporate securities (stocks and bonds) rights warrants mutual funds money market funds unit investment trusts REITS asset-backed securities mortgage-backed securities options options on mortgage-backed securities municipal securities government securities repos and certificates of accrual on government securities direct participation programs securities traders venture capital ETFs hedge funds

Table of Contents:
ABOUT THE SERIES 7 EXAM xxiii ABOUT THIS BOOK xxvii ABOUT THE TEST BANK xxviii ABOUT THE SECURITIES INSTITUTE OF AMERICA xxix CHAPTER 1 EQUITY SECURITIES 1 What Is a Security? 1 Equity = Stock 2 Common Stock 2 Preferred Stock 14 Currency Risks 22 Functions of the Custodian Bank Issuing ADRs 23 Real Estate Investment Trusts (REITs) 23 Non-Traded REITs 24 Pretest 25 CHAPTER 2 DEBT SECURITIES 29 Corporate Bonds 29 Types of Bond Issuance 30 Bond Certificate 31 Bond Pricing 31 Corporate Bond Pricing 32 Bond Yields 32 Yield Spreads 36 The Real Interest Rate 37 Bond Maturities 37 Types of Corporate Bonds 38 Converting Bonds into Common Stock 41 Advantages of Issuing Convertible Bonds 42 Disadvantages of Issuing Convertible Bonds 42 Convertible Bonds and Stock Splits 42 Reverse Convertible Securities 42 Forced Conversion 43 The Trust Indenture Act of 1939 43 Bond Indenture 43 Ratings Considerations 44 Retiring Corporate Bonds 44 Collateralized Mortgage Obligation (CMO) 46 CMOs and Interest Rates 47 Types of CMOs 47 Private-Label CMOs 49 Exchange-Traded Notes (ETNs) 49 Euro and Yankee Bonds 50 Variable Rate Securities 50 Pretest 51 CHAPTER 3 GOVERNMENT SECURITIES 55 Series EE Bonds 55 Series HH Bonds 56 Treasury Bills, Notes, and Bonds 56 Treasury Bond and Note Pricing 57 Treasury STRIPS 58 Treasury Receipts 58 Treasury Inflation-Protected Securities (TIPS) 59 Agency Issues 59 Government National Mortgage Association (GNMA) 59 Federal National Mortgage Association (FNMA) 60 Federal Home Loan Mortgage Corporation (FHLMC) 60 Federal Farm Credit System (FFCS) 60 Sallie Mae 61 Pretest 63 CHAPTER 4 MUNICIPAL SECURITIES 65 Municipal Bonds 65 Types of Municipal Bonds 66 Issuing Municipal Securities 70 Selecting an Underwriter 70 Creating a Syndicate 71 Syndicate Accounts 72 Submitting the Syndicate Bid 73 Determining the Reoffering Yield 73 Awarding the Issue 74 Underwriter’s Compensation 74 Order Period 76 Allocation Municipal Bond Orders 76 Sale Date 77 When Issued Confirmations 78 Final Confirmations 78 Other Types of Municipal Underwritings 79 Syndicate Operation and Settlement 79 The Official Statement 80 Bond Counsel 81 The Legal Opinion 81 Potential Conflicts of Interest for Municipal Bond Underwriters 82 Acting as a Financial Adviser to the Issuer 82 Information Obtained While Acting as a Fiduciary 82 Acting as a Financial Adviser and an Underwriter 83 Political Contributions 83 Municipal Bond Trading 85 Bona Fide Quotes 85 Informational Quotes 86 Out Firm Quotes 86 Executing a Customer’s Municipal Bond Orders 87 Customer Confirmations 88 Yield Disclosure 89 Sources of Municipal Bond Market Information 89 Recommending Municipal Bonds 90 Taxation of Municipal Bonds 90 Tax Equivalent Yield 91 Purchasing a Municipal Bond Issued in the State in which the Investor Resides 91 Triple Tax Free 92 Original Issue Discount (OID) and Secondary Market Discounts 92 Amortization of a Municipal Bond’s Premium 92 Bond Swaps 93 Analyzing Municipal Bonds 93 Analyzing General Obligation Bonds 93 The Debt Statement 94 Community Factors 95 Sources of Tax Revenue 95 Determining Property Taxes 96 Important Financial Ratios for General Obligation Bonds 96 Analyzing Revenue Bonds 97 Types of Revenue Pledge 97 Municipal Fund Securities 98 Municipal Securities Rulemaking Board (MSRB) 99 Pretest 103 CHAPTER 5 THE MONEY MARKET 109 Money Market Instruments 109 Corporate Money Market Instruments 109 Government Money Market Instruments 111 Municipal Money Market Instruments 112 International Money Market Instruments 112 Interest Rates 112 Pretest 115 CHAPTER 6 ECONOMIC FUNDAMENTALS 117 Gross Domestic Product (GDP) 117 Recession 119 Depression 119 Economic Indicators 119 Schools of Economic Thought 121 Economic Policy 122 Tools of the Federal Reserve Board 122 Fiscal Policy 125 Consumer Price Index (CPI) 126 Inflation/Deflation 126 Real GDP 126 International Monetary Considerations 127 Yield Curve Analysis 127 Pretest 129 CHAPTER 7 OPTIONS 133 Option Classification 133 Option Classes 134 Option Series 134 Bullish vs. Bearish 134 Possible Outcomes for an Option 135 Characteristics of All Options 136 Managing an Option Position 136 Buying Calls 137 Selling Calls 138 Buying Puts 140 Selling Puts 141 Option Premiums 143 At the Money Options 143 Out of the Money Options 144 Intrinsic Value and Time Value 144 Using Options as a Hedge 145 Long Stock Long Puts/Married Puts 145 Long Stock Short Calls/Covered Calls 147 Maximum Gain Long Stock Short Calls 148 Maximum Loss Long Stock Short Calls 149 Short Stock Long Calls 149 Maximum Gain Short Stock Long Calls 150 Maximum Loss Short Stock Long Call 151 Short Stock Short Puts 151 Maximum Gain Short Stock Short Puts 152 Maximum Loss Short Stock Short Puts 153 Multiple Option Positions and Strategies 154 Long Straddles 154 Short Straddles 156 Spreads 158 Combinations 169 Using a T Chart to Evaluate Option Positions 170 Index Options 174 Interest Rate Options 176 Price-Based Options 176 Rate-Based Options 178 Foreign Currency Options 178 The Option Clearing Corporation 180 The Options Markets 181 The Chicago Board Option Exchange 181 Opening and Closing Option Prices 183 Order Execution 183 Expiration and Exercise 184 American vs. European Exercise 184 Market Volatility Options/VIX 185 Flex Options 185 Weekly Options 186 Mini Options 186 Position and Exercise Limits 187 Stock Splits and Stock Dividends 187 Taxation of Options 188 Closing an Option Position 188 Exercising a Call 188 Exercising a Put 189 Protective Puts 189 Covered Calls 189 Retail Communication 189 Option Agreement 189 Pretest 191 CHAPTER 8 MUTUAL FUNDS 199 Investment Company Philosophy 199 Types of Investment Companies 200 Open-End vs. Closed-End Funds 201 Diversified vs. Nondiversified 202 Investment Company Registration 203 Investment Company Components 205 Mutual Fund Distribution 207 Selling Group Member 207 Distribution of No-Load Mutual Fund Shares 208 Distribution of Mutual Fund Shares 208 Mutual Fund Prospectus 208 Characteristics of Open-End Mutual Fund Shares 210 Mutual Fund Investment Objectives 211 Other Types of Funds 212 Alternative Funds 212 Floating Rate Bank Loan Funds 213 Bond Funds 213 Valuing Mutual Fund Shares 215 Changes in the NAV 216 Sales Charges 216 12B-1 Fees 219 Calculating a Mutual Fund’s Sales Charge Percentage 219 Finding the Public Offering Price 220 Sales Charge Reductions 220 Breakpoint Schedule 221 Letter of Intent 221 Backdating a Letter of Intent 222 Breakpoint Sales 222 Rights of Accumulation 222 Automatic Reinvestment of Distributions 223 Other Mutual Fund Features 223 Cost Base of Multiple Purchases 228 Purchasing Mutual Fund Shares 228 Sales Charges 231 45-Day Free Look 232 Withdrawal Plans 232 Recommending Mutual Funds 233 Structured Retail Products/SRPs 234 Pretest 235 CHAPTER 9 VARIABLE ANNUITIES 241 Annuities 241 Equity Indexed Annuity 244 Recommending Variable Annuities 245 Annuity Purchase Options 246 Accumulation Units 247 Annuity Units 247 Annuity Payout Options 247 Factors Affecting the Size of the Annuity Payment 249 The Assumed Interest Rate (AIR) 249 Taxation 250 Types of Withdrawals 250 Annuitizing the Contract 250 Expenses and Guarantees 251 Other Charges 251 Pretest 253 CHAPTER 10 ISSUING CORPORATE SECURITIES 257 The Securities Act of 1933 257 The Prospectus 258 The Final Prospectus 258 Free Writing Prospectus 259 Prospectus to Be Provided to Aftermarket Purchasers 260 SEC Disclaimer 260 Misrepresentations 260 Tombstone Ads 261 Free Riding and Withholding/FINRA Rule 5130 261 Underwriting Corporate Securities 262 Types of Underwriting Commitments 263 Types of Offerings 264 Awarding the Issue 265 The Underwiting Syndicate 265 Selling Group 265 Underwriter’s Compensation 265 Private Placements/Regulation D Offerings 267 Rule 144 268 Private Investment in a Public Equity (PIPE) 269 Regulation S Offerings 270 Regulation A Offerings 270 Rule 145 271 Rule 147 Intrastate Offering 271 Crowdfunding 272 Rule 415 Shelf Registration 273 Pretest 275 CHAPTER 11 TRADING SECURITIES 279 Types of Orders 279 The Exchanges 283 Priority of Exchange Orders 283 The Role of the Designated Market Maker (DMM) 284 The DMM Acting as a Principal 284 The DMM Acting as an Agent 285 Crossing Stock 286 Do Not Reduce (DNR) 287 Adjustments for Stock Splits 287 Stopping Stock 288 Commission House Broker 289 Two-Dollar Broker 289 Registered Traders 289 Super Display Book (SDBK) 289 Short Sales 290 Rule 200 Definitions and Order Marking 290 Rule 203 Security Borrowing and Delivery Requirements 292 Threshold Securities 292 Listing Requirements for the NYSE 294 Over the Counter/Nasdaq 294 Market Makers 294 Nasdaq Subscription Levels 295 Nasdaq Quotes 295 Nominal Nasdaq Quotes 296 Automated Confirmation System (ACT)/Trade Reporting Facility (TRF) 297 Nasdaq Execution Systems 297 The Nasdaq Market Center Execution System (NMCES) 297 The Nasdaq Opening Cross 297 Non-Nasdaq OTCBB 298 Regulation M, Rule 101 299 Penalty Bids 299 Regulation M, Rule 102 300 Regulation M, Rule 103 300 Passive Market Makers’ Daily Purchase Limit 301 Regulation M, Rule 104 301 Syndicate Short Positions 303 Regulation M, Rule 105 303 Pink OTC Market 303 Third Market 304 Fourth Market 304 Reading the Consolidated Tape 304 Exchange Qualifiers 306 Broker vs. Dealer 306 FINRA 5% Markup Policy 307 Markups/Markdowns When Acting as a Principal 307 Riskless Principal Transactions 308 Proceeds Transactions 309 The Order Audit Trail System (OATS) 309 Trade Reporting and Compliance Engine (TRACE) 309 Circuit Breakers 310 Limit Up Limit Down (LULD) 311 Arbitrage 311 Pretest 313 CHAPTER 12 CUSTOMER ACCOUNTS 317 Holding Securities 319 Mailing Instructions 320 Types of Accounts 321 Commingling Customers’ Pledged Securities 331 Wrap Accounts 332 Regulation S-P 332 Identity Theft 333 Day Trading Accounts 333 ABLE Accounts 334 FINRA Rules on Financial Exploitation of Seniors 335 Pretest 337 CHAPTER 13 MARGIN ACCOUNTS 341 Regulation of Credit 341 Regulation T 341 House Rules 344 Establishing a Long Position in a Margin Account 344 An Increase in the Long Market Value 345 Special Memorandum Account (SMA) Long Margin Account 347 A Decrease in the Long Market Value 349 Minimum Equity Requirement Long Margin Accounts 349 Establishing a Short Position in a Margin Account 350 A Decrease in the Short Market Value 351 Special Memorandum Account (SMA) Short Margin Account 352 An Increase in the Short Market Value 353 Minimum Equity Requirement Short Margin Accounts 354 Combined Margin Accounts 355 Portfolio Margin Accounts 355 Securities Backed Lines of Credit 356 Minimum Margin for Leveraged ETFs 356 Pretest 357 CHAPTER 14 RETIREMENT PLANS 361 Individual Plans 361 Individual Retirement Accounts (IRAs) 362 Traditional IRAs 362 Roth IRAs 363 Simplified Employee Pension IRA (SEP IRA) 364 Educational IRA/Coverdell IRA 366 Tax-Sheltered Annuities (TSAs)/Tax-Deferred Accounts (TDAs) 370 Corporate Plans 372 Rolling Over a Pension Plan 374 Health Savings Accounts 374 Employee Retirement Income Security Act of 1974 (ERISA) 375 ERISA 404C SAFE HARBOR 377 Department of Labor Fiduciary Rules 377 Pretest 379 CHAPTER 15 BROKERAGE OFFICE PROCEDURE 383 Executing an Order 383 Customer Confirmations 385 Clearly Erroneous Reports 386 Execution Errors 386 Corporate and Municipal Securities Settlement Options 386 RVP/DVP/COD 387 When-Issued Securities 387 Government Securities Settlement Options 388 Accrued Interest 388 Calculating Accrued interest 389 Accrued Interest for Government Notes and Bonds 390 Rules for Good Delivery 391 Delivery of Round Lots 392 Delivery of Bond Certificates 392 Rejection of Delivery 393 Don’t Know (DK) Procedures 393 Fail to Deliver/Fail to Receive 393 Due Bills 393 Customer Account Statements 394 Carrying of Customer Accounts 394 Proxies 395 Pretest 397 CHAPTER 16 FUNDAMENTAL AND TECHNICAL ANALYSIS 403 Fundamental Analysis 403 The Balance Sheet 404 Industry Fundamentals 411 Top Down and Bottom up Analysis 412 Technical Analysis 412 Market Theories and Indicators 416 Efficient Market Theory 417 Pretest 419 CHAPTER 17 DIRECT PARTICIPATION PROGRAMS 421 Limited Partnerships 421 Structuring and Offering Limited Partnerships 423 Types of Limited Partnerships 424 Oil and Gas Sharing Arrangements 426 Equipment Leasing Programs 426 Tax Reporting for Direct Participation Programs 427 Limited Partnership Analysis 427 Tax Deductions vs. Tax Credits 428 Other Tax Considerations 428 Dissolving a Partnership 428 Pretest 431 CHAPTER 18 CUSTOMER RECOMMENDATIONS, PROFESSIONAL CONDUCT, AND TAXATION 435 Professional Conduct in the Securities Industry 436 Fair Dealings with Customers 436 Periodic Payment Plans 441 Mutual Fund Current Yield 441 Information Obtained from an Issuer 441 Disclosure of Client Information 442 Borrowing and Lending Money 442 Gift Rule 442 Outside Employment 443 Private Securities Transactions 443 Customer Complaints 443 Investor Information 444 NYSE/FINRA Know Your Customer 444 Investment Objectives 445 Risk vs. Reward 447 Alpha 449 Beta 449 Capital Asset Pricing Model (CAPM) 449 Products Made Available through Member Firms 450 Recommendations through Social Media 451 Tax Structure 452 Investment Taxation 452 Calculating Gains and Losses 453 Cost Base of Multiple Purchases 453 Deducting Capital Losses 454 Wash Sales 454 Taxation of Interest income 455 Inherited Securities 456 Donating Securities to Charity 456 Gift Taxes 456 Estate Taxes 457 Withholding Tax 457 Corporate Dividend Exclusion 457 Alternative Minimum Tax (AMT) 457 Taxes on Foreign Securities 458 Pretest 459 CHAPTER 19 SECURITIES INDUSTRY RULES AND REGULATIONS 465 The Securities Exchange Act of 1934 465 The Securities and Exchange Commission (SEC) 466 Extension of Credit 467 The National Association of Securities Dealers (NASD) 467 Becoming a Member of FINRA 469 Hiring New Employees 470 Disciplinary Actions against a Registered Representative 471 Resignation of a Registered Representative 472 Continuing Education 472 Termination for Cause 474 Retiring Representatives/Continuing Commissions 474 State Registration 474 Registration Exemptions 475 Persons Ineligible to Register 475 Communications with the Public 475 FINRA Rule 2210 Communications with the Public 476 Broker Dealer Websites 479 Blind Recruiting Ads 480 Generic Advertising 480 Tombstone Ads 480 Testimonials 481 Free Services 481 Misleading Communication with the Public 482 Securities Investor Protection Corporation Act of 1970 482 Net Capital Requirement 482 Customer Coverage 483 Fidelity Bond 483 The Securities Acts Amendments of 1975 483 The Insider Trading & Securities Fraud Enforcement Act of 1988 484 Firewall 484 Telemarketing Rules 485 Do Not Call List Exemptions 486 The Penny Stock Cold Call Rule 486 The Role of the Principal 487 Violations and Complaints 487 Resolution of Allegations 487 Minor Rule Violation 488 Code of Arbitration 488 The Arbitration Process 489 Mediation 490 Currency Transactions 491 The Patriot Act 491 U.S. Accounts 493 Foreign Accounts 493 Annual Compliance Review 493 Business Continuity Plan 493 Sarbanes-Oxley Act 494 The Uniform Securities Act 495 Tender Offers 496 Stockholders Owning 5% of an Issuer’s Equity Securities 497 Pretest 499 ANSWER KEYS 505 GLOSSARY OF EXAM TERMS 523 INDEX 589  

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