Chapter 1 Practice Question Answers
- 1. Answer: C. The minimum net capital requirement for broker-dealers that carry customer accounts is $250,000.
- 2. Answer: C. A broker or dealer that carries accounts but does not hold customer funds or securities is subject to a minimum net capital requirement of $100,000. In order to qualify, funds and securities must be transmitted and delivered promptly, and financial transactions must be made through one or more bank accounts each designated as “Special Reserve Account for the Exclusive Benefit of Customers of (name of the broker or dealer).”
- 3. Answer: D. Rule 15c3-1 states that brokers or dealers under the aggregate indebtedness standard may not permit their aggregate indebtedness to all other persons to exceed 1,500% of its net capital. If a broker or dealer has just commenced business within the past twelve months, such broker or dealer is not permitted to exceed such threshold by 800% of its net capital.
- 4. Answer: D. A broker or dealer generally must maintain net capital of not less than $25,000 if it buys and sells mutual funds. If it sells only on a subscription basis, the broker-dealer need only maintain $5,000. A subscription sale is one in which the customer provides funds directly to the issuer.
- 5. Answer: C. Firms like XYZ with a net capital requirement under $250,000 must purchase coverage valuing 120% of the firm’s net capital requirement or $100,000, whichever is greater. In this case, 120% of XYZ’s net capital requirement would be $72,000. That is not greater than $100,000, so the minimum amount of fidelity coverage would be $100,000.
- 6. Answer: D. When calculating a firm’s net capital, only liquid assets are allowed. Non-allowable assets include assets that are difficult to sell quickly at their fair market value, such as real estate, goodwill, furniture and fixtures, patents, and prepaid expenses. Securities are allowable assets.
- 7. Answer: B. The haircut percentage