Chapter 2 Practice Question Answers
1. Answer: B. Aside from discretionary authority, there are only two types of trading authorization: limited and full.
2. Answer: D. When acting as a broker, you must have prior written approval to transact for customers without their explicit agreement for each transaction.
3. Answer: A. A power of attorney is the authorization by one party (the “grantor” or “principal”) to another (the “agent” or “attorney-in-fact”) to make legally binding decisions on the grantor/principal’s behalf. A general power of attorney confers broad and substantial powers. This includes finances, contracts, tax filing, employment, claims and litigation, personal and family maintenance, business operations, and the right to delegate. A general power of attorney is given if the grantor/principal is or may become unable to take care of his affairs for some reason (e.g., extended travel, medical issues, incapacitation).
Limited power of attorney typically grants specific powers. It authorizes the agent to do something narrow, like sell a house, collect a debt, or buy/sell a stock. Again, motivation for this is to plan for the situation when the grantor cannot do something and needs help, perhaps due to extended travel or medical/incapacitation. Financial power of attorney cove