Chapter 2 Practice Questions
- 1. Investment customers are covered by the Securities Investor Protection Corporation in all of the following situations except:
- A. Insolvency of introducing broker-dealer
- B. Bankruptcy of clearing broker-dealer
- C. Insolvency of investment adviser
- D. Liquidation of a broker-dealer
- 2. The hypothecation agreement allows for which of the following:
- A. The pledging of securities as collateral
- B. The changing of margin requirements
- C. Maintaining physical safekeeping of customer funds and securities
- D. Meeting federal net capital requirements
- 3. A broker-dealer must secure its customer’s prior consent before it may commingle the customer’s hypothecated funds with other customers:
- A. When the customer securities are carried in a special memorandum account
- B. When the hypothecated securities exceed customers’ total indebtedness
- C. When the broker-dealer is a clearing corporation and the pledged securities will be repaid on the same day
- D. When the broker-dealer covers a margin deficiency on an existing loan with its own securities
- 4. Which of the following statements about free credit balances carried for the account of any customer by a broker-dealer is accurate:
- A. Segregated free credit balances can be used by the broker-dealer for normal operating expenses
- B. A written notice of free credit balances must be sent to the customer in order for a broker-dealer to invest the funds from free credit balances
- C. Free credit balances are only payable to a customer upon closure of a margin account
- D. Free credit balance reports must be submitted to FINRA monthly
- 5. In the securities industry, free credit balances:
- A. Must pay interest
- B. Must be FDIC-insured
- C. Must be payable on demand
- D. May not be transferred to an account outside the broke