Chapter 2 Practice Question Answers
- 1. Answer: B. The carrying firm is responsible for safeguarding customer funds and securities.
- 2. Answer: D. The customer protection rule requires broker-dealers to maintain fully paid and excess margin securities in its physical possession or control at all times and to keep customer accounts separate from their own. If a broker-dealer wishes to use customers’ free credit balances, it must first receive the customers’ explicit written authorization. It must also include with its subsequent quarterly account statements an acknowledgement that the free credit balances are payable to the customer on demand and their amount.
- 3. Answer: B. When credits exceed debits, the customer has more of her own money in her account than the broker-dealer has lent her. In other words, the broker-dealer has more liabilities to the customer than it has assets from the customer. This difference must be maintained by the broker-dealer and kept separate from its other accounts. If debits exceed credits, the firm, in theory, is not using customer money to conduct its own business, and therefore, no money need be deposited in the account.
- 4. Answer: A. The only acceptable deposits into the customer reserve bank account are cash and qualified securities. Qualified securities are those that are issued or guaranteed by the U.S. Treasury. The U.S. Treasury guarantees bonds issued by U.S. government agencies, such as the Tennessee Valley Authority and the Small Business Administration. Municipal bonds are not guaranteed by the U.S. government.
- 5. Answer: B. The computation must be made weekly for most broker-dealers at the close of the last business day of the week. Required deposits must be made no later than one hour after the opening of banking business on the second following business day.
- 6. Answer: C. Withdrawals must not cause the balance to drop below the required amount, which is the amount by which its liabilities to