Market Circuit Breakers — A Post-Brexit Reminder

With post-Brexit vote market turmoil, it’s good to remember that the Securities Exchange Commission requires trading halts across US markets in the event that stocks fall more than specified percentages in one day. Continue reading

stop-634941_1280With post-Brexit vote market turmoil, it’s good to remember that the Securities Exchange Commission requires trading halts across US markets in the event that stocks fall more than specified percentages in one day. This information is also important to know if you are studying for securities licensing exam such as the Series 7, Series 24, Series 26, Series 62, Series 79, and the Series 65.

A market-wide trading halt can be triggered at three thresholds. These thresholds are triggered by steep declines in the S&P 500 Index. They are calculated based on the prior day’s closing price of the Index.

• Level 1 Halt—a 7% drop in the S&P 500 prior to 3:25 p.m. ET will result in a 15-minute cross-market trading halt. There will be no halt if the drop occurs at or after 3:25 p.m. ET.

• Level 2 Halt—a 13% drop in the S&P 500 prior to 3:25 p.m. ET will result in a 15-minute cross-market trading halt. There will be no halt if the drop occurs at or after 3:25 p.m. ET.

• Level 3 Halt—a 20% drop in the S&P 500 at any time during the day will result in a cross-market trading halt for the remainder of the day.

These halts apply to securities and options trading on all the exchanges as well as the OTC market. Levels 1 and 2 trading halts are permitted just once a day.

Solomon Exam Prep has helped thousands of financial professionals pass the Series 6, 7, 63, 65, 66, 24, 26, 27, 50, 51, 52, 53, 62, 79, 82 and 99 exams.

For more information call 503 601 0212 or visit http://www.solomonexamprep.com/

Upcoming Series 63, 65 and 66 Changes

The North American Securities Administrators Association (NASAA) has announced that it will implement updates to the Series 63, Series 65 and Series 66 examinations on July 1, 2016. What has changed? Continue reading

The North American Securities Administrators Association (NASAA) has announced that it will implement updates to the Series 63, Series 65 and Series 66 examinations on July 1, 2016.

The changes are aimed at better aligning the skills and knowledge required by professionals in the securities industry.

The new exam outlines are similar to the current exam outlines, but some significant changes have been made.

What has changed?

Series 63                                                         

  1. The weighting of the exam sections has been modified to put more emphasis on the registration of broker-dealers over investment advisers
  2. Several new topics have been added which reflect an emphasis on communications with customers and cyber-security. Specifically, the following topics have been added or amended:
  • Exceptions for foreign B-Ds
  • B-D supervision of agents
  • Prospectus delivery requirements
  • Types of customer accounts
  • B-D and agent commissions
  • Cyber-security and data protection
  • Outside securities accounts
  • Due diligence for B-Ds
  • Regulation A amendment
  • Regulation D amendment

Series 65                                                         

  1. The weighting of the exam sections has been modified to put slightly more emphasis on the characteristics of investment vehicles and slightly less emphasis on rules and regulations.
  2. Several new topics have been added which expand the types of investment products and add regulations on electronic communications, cyber-security, pay-to-play and anti-money laundering. Specifically, the following topics have been added or amended:
  • Valuation of equity securities
  • Real estate investments
  • Viatical and life settlements
  • Structured products
  • Commodities and precious metals
  • QDROs
  • High frequency trading
  • Regulation A amendment
  • Regulation D amendment
  • Electronic communications and social media
  • B-D and agent commissions
  • Cyber-security and data protection
  • Pay-to-play rule
  • Anti-money laundering
  • Business continuity plans

Series 66                                                         

  1. The passing score has been lowered from 75% to 73%.
  2. The weighting of the exams sections has been modified to put slightly more emphasis on the characteristics of investment vehicles and slightly less emphasis on rules and regulations
  3. Several new topics have been added which expand the types of investment products and add regulations on electronic communications, cyber-security, pay-to-play and anti-money laundering. Specifically, the following topics have been added or amended:
  • Valuation of equity securities
  • Technical analysis
  • Real estate investments
  • Viatical and life settlements
  • Structured products
  • Commodities and precious metals
  • QDROs
  • High frequency trading
  • Regulation A amendment
  • Regulation D amendment
  • Electronic communications and social media
  • B-D and agent commissions
  • Cyber-security and data protection
  • Pay-to-play rule
  • Anti-money laundering

How will this affect my Solomon Exam Prep products?

Solomon Exam Prep will be updating all products offered for the NASAA exams. For those students that currently have materials and are testing after July 1, 2016, we have added an addendum to their Resources folder (located on their student account), that includes all rule changes and updates.

Our Online Exam Simulator has already been adjusted to reflect the new changes, so students will see an option to take full exams structured prior to July 1 or after July 1 – this will allow for any and all students to utilize our products regardless of their anticipated exam date. We are always adding new questions to our database and that will be reflected in the Online Exam Simulator.

In the coming weeks we will also be releasing a new/ updated digital Study Guide that will reflect the upcoming changes. Any current students will have the option of having their digital Study Guide changed to the new edition at that time, or they can continue to study with our current edition and the supplied addendum.

If you have any questions about the changes or our materials, please do not hesitate to call our office at 503.601.0212 or email info@solomonexamprep.com.

Currency Hedging in International Investing: Smart Investing or Just Smart Marketing?

Investing internationally has never been easier, especially if you don’t want to invest directly in a foreign market. Today, US investors have an enormous range of mutual fund, ETF and ADR options from which to choose. However, when making a foreign investment it’s important to know that, unless currency hedging is employed, returns depend not only on the performance of the investment but also on the currency exchange rate. Continue reading

Currency HedgingInvesting internationally has never been easier, especially if you don’t want to invest directly in a foreign market. Today, US investors have an enormous range of mutual fund, ETF and ADR options from which to choose. However, when making a foreign investment it’s important to know that, unless currency hedging is employed, returns depend not only on the performance of the investment but also on the currency exchange rate. To understand this, imagine you buy shares in a Brazilian company. Time passes and the share price has gone up 5%. But at the same time the value of the real, the Brazilian currency, has depreciated 10%. Since the Brazilian shares, and any returns, are denominated in real, and must be converted to dollars, the value of your Brazilian investment has declined. Instead of a gain, you have a loss. This foreign exchange (“FX”) risk is the risk that the currency of a foreign investment will decline in relation to the value of the US dollar (or, said another way, that the US dollar will appreciate relative to the value of the currency of the foreign investment).

To protect against currency or exchange risk, a US investor can hedge using various FX products such as forward currency contracts, swaps and options. These products allow an investor to lock in an exchange rate and thereby minimize the effect of currency fluctuations. Recently, many ETF and mutual fund companies have begun to use FX products and strategies to reduce the effect of currency volatility in their international offerings. BlackRock’s iShares web site says that this allows investors to “take command of currency risk.” WisdomTree’s website says that by hedging currencies their ETFs allow investors to “participate more fully in the local equity returns of international markets.”  Vanguard urges “investors to consider fully hedging their portfolios’ fixed income allocation” and “investors should consider hedging at least a portion of the foreign-currency exposure within their equity allocation.”

Sounds good. But everything has a cause and effect, not to mention a cost. Is currency hedging really a good idea for investors with international investments?

A brief review of the information available online indicates the following:

• Currency hedging helps returns when the US dollar is rising. But when the dollar is falling, unhedged does better.

• Short-term changes in exchange rates are difficult, perhaps impossible, to predict. In the long run, currency swings even out.

• Studies seem to indicate that hedging reduces short-term volatility. This may be particularly beneficial for those investing in international bonds. In the long-term, however, it’s not clear that currency hedging reduces volatility, especially in equity investing.

• Hedging costs, which cuts into returns. Hedging costs more in times of economic uncertainty and stress, often exactly when hedging may be most desirable.

• Currency hedging makes it easier to track the local return of an international equity index.

• Long-term, unhedged international stock and bond portfolios perform better than hedged international stock and bond portfolios.

• Currency exposure means greater volatility and greater diversification.

• Hedged foreign investments have a higher correlation with US investments than un-hedged foreign investments.

On balance, if you are investing in foreign securities and you are concerned with short-term volatility, particularly if you are a fixed income investor, currency hedging may be for you. But if short-term volatility is not a concern, the lower returns, greater costs and reduced diversification of currency hedging may outweigh any benefit.

Studying for the FINRA Series 7 exam or the NASAA Series 65 exam?

You need to know that in times of home currency strength, the value of a foreign investment will be negatively impacted. When the dollar appreciates, US investors with overseas holdings will earn less. Conversely, if the home currency weakens, the Series 7 or Series 65 exam will expect you to know that the returns on international investments will be higher. That means that US investors with foreign holdings will see higher returns on their international assets when the US dollar depreciates.

A related question that may come up on your securities licensing exam, such as the Series 7 or Series 65, is what effect will a rising or falling US dollar have on the share price of a US company with international sales? Remember, a rising US dollar means overseas sales will be worth less since they will convert into fewer US dollars, while a falling US dollar means overseas sales will be worth more since they will convert into more US dollars.  However, if a company hedges its currency exposure, that may dampen the effect of currency fluctuations.

How might a US company with international sales hedge FX risk? A US company can do several things.  It can enter into a forward contract that locks in a specific exchange rate. This is highly effective as long as the transaction is likely to occur. It’s also low cost. A standardized and exchange-traded version of a forward is a futures contract.  An exporter can also use options to hedge currency risk.  An exporter could buy a put on a foreign currency in order to hedge FX risk.  Conversely, a US company that imports from overseas is exposed to the risk that the foreign currency will rise in value and if that happens it will cost more US dollars to pay foreign suppliers. To hedge such a risk, a US importer could buy a call on the foreign currency.

*For your Series 7 or Series 65 exam, remember the mnemonic: EPIC which stands for Exporters use Puts, Importers use Calls.

Of course, there are ways to mitigate foreign currency risk without using options or entering into forward contracts.  If you’re an exporter, you can ask your customer to pay in dollars. This transfers all exchange risk to the foreign buyer.  However, this will limit a company’s overseas sales.  Also, you can set up a foreign subsidiary and keep the foreign sales revenue overseas.


Sources and suggested links:

Currency Hedging: 5 Things You Need to Know
http://www.schwab.com/public/schwab/nn/articles/Currency-Hedging-5-Things-You-Need-to-Know

Currency Risk Does Not Belong in Your Bond Portfolio
https://www.betterment.com/resources/investment-strategy/why-international-bonds-but-not-currency-risk-belong-in-your-portfolio/

To hedge or not to hedge? Evaluating currency exposure in global equity portfolios
https://personal.vanguard.com/pdf/ISGCMC.pdf

To Hedge or Not to Hedge: Currency Hedging and International Investing
http://gersteinfisher.com/wp-content/uploads/2015/06/GF_Research_ToHedgeOrNot.pdf

Hedge of least regret: The benefits of managing international equity currency risk with a 50% hedging strategy
http://www.nylinvestments.com/polos/ME39a-071555414.pdf

Study Question of the Month – November

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, 7, 62, 65 and 79. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 6Series 7Series 62Series 65 and Series 79): A few years back ABC Corporation issued callable bonds yielding 6%. The call price is 104, and the call protection period has ended. The bonds are trading at 105 today. Which of the following are true:

I. The current yield on these bonds is 6.3%

II. The current yield on these bonds is 5.7%

III. There is a good chance the bonds will be called

IV. There is a good chance the bonds will not be called

Answers: 

A. I and III

B. I and IV

C. II and III

D. II and IV

Correct Answer: C. II and III

Rationale: The formula for calculating current yield is the annual interest on the bond ($60) divided by the current price of the bond ($1050) which is equal to 5.7%. Because ABC can finance the debt at a lower interest rate than they are currently paying there is a good chance that they will call the bonds.

Congratulations Stephen Z., this month’s Study Question of the Month winner!

All study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Month – October

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 52, 62, 65 and 66. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 7, Series 52, Series 62Series 65 and Series 66):

The interest rate on a SLGS certificate or bond can never fall below:

Answers:

A. The Treasury rate

B. One basis point above the Treasury rate

C. One basis point below the Treasury rate

D. Zero

Correct Answer: D. Zero

Rationale: The SLGS interest rate is always one basis point below the Treasury security that has a comparable maturity, unless the Treasury rate itself equals zero, which is the floor below which the interest rate on a SLGS cannot go. In this case the Treasury rate and the SLGS rate will be equal.

 

All study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Month – September

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 65 and 66. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 65 and Series 66):

Daredevil Dave, a famous skydiver, is your client. “Double D“ as he is known, comes to you and tells you that in 18 months he is planning on doing his most dangerous dive yet: a free fall from an orbiting space station. Double D says that he doesn’t have life insurance and in case he doesn’t survive this space dive, he wants to make sure his family will be provided for. He wants them to receive a monthly payment of $5,000 in perpetuity. He asks you how much money he will need to pay now in order to achieve this. Assuming a 2% rate of return, and assuming this is going to be Double D’s last dive, you tell him that he will need to contribute:

Answers:

A. $3 million

B. $6 million

C. $9 million

D. $12 million

Correct Answer: A. $3 million

Rationale: A perpetuity is an annuity or stream of payments without end. To calculate the present value of a perpetuity, you divide the periodic payment by the rate of return (also known as interest rate or yield). In this case there are two ways to reach the answer: (1) Divide the 2% rate of return by 12 to get the monthly rate of return: 0.001667, then divide the monthly payment by the monthly rate of return: $5,000/0.001667 = $2,999,400 or (2) Multiply $5,000 times 12 months to get a $60,000 annualized payment to the family and then divide that by the 2% yield or $60,000/.02 = $3 million.

Congratulations Kate F., this month’s Study Question of the Month winner!

All study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: SEC Issues Bulletin Regarding Diminished Financial Capacity

On June 1, 2015, the SEC issued an investor bulletin about “diminished financial capacity”, which refers to when an individual becomes unable to manage their finances. They recommend a number of steps for individuals to take to prepare for such a condition. Continue reading

Exam AlertOn June 1, 2015, the SEC issued an investor bulletin about “diminished financial capacity”, which refers to when an individual becomes unable to manage their finances. They recommend a number of steps for individuals to take to prepare for such a condition. These steps include:

  • Organize important documents and keep them safe and accessible
  • Give your financial professionals emergency contacts
  • Keep your information and contacts updated
  • Report financial fraud and abuse

Some other options to consider include:

  • Authorizing a durable power of attorney
  • Getting someone you trust involved

Source: Investor Bulletin and Consumer Advisory: Planning for Diminished Capacity and Illness

This alert applies to the Series 6, Series 7, Series 52, Series 65, and Series 66.

Study Question of the Month – April

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 63, 65, and 66. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 63, Series 65, and Series 66):

Jenny is an administrative assistant who mans the phones over the lunch hour for a broker-dealer. She occasionally takes orders while the sales staff is on lunch, but does not solicit orders. She is not compensated directly for the orders she takes. Which of the following is true under the Uniform Securities Act?

Answers:

A. Jenny does not need to register if she only takes unsolicited orders.

B. Jenny does not need to register since her job function is mostly clerical in nature.

C. Jenny needs to register as an agent for the broker-dealer.

D. Jenny does not need to register because she is not compensated for the orders she takes.

Correct Answer: C. Jenny needs to register as an agent for the broker-dealer.

Rationale: Even though Jenny’s job is clerical in nature, if she takes orders, even unsolicited orders, she must register as an agent for the broker-dealer. Interestingly, she is allowed to read off bond quotes or stock prices over the phone and she may access account information without having to register as an agent.

Congratulations! This month’s winner is Jessi B.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Month – February

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 52, and 65. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

 Study Question

Question (Relevant to the Series 7Series 52, and Series 65) 

Jenny lives in Minnesota. She is comparing a Washington state municipal bond that pays 5% to similar corporate bonds. She has a federal tax rate of 20% and a State rate of 4%. What yield will the corporate bond have to pay to be equivalent to the municipal bond?

Answers:

A. 4%

B. 5%

C. 6.25%

D. 6.58%

Correct Answer: C. 6.25%

Rationale: Because Jenny lives in Minnesota, the interest on her municipal bond will be tax-exempt at the federal level, but not at the state level. To calculate the tax-equivalent yield of a municipal bond, simply take the rate of the municipal bond and divide it by 1 minus the tax rate. So the tax equivalent yield = .05/(1-.20) = .0625 or 6.25%.

Congratulations! This month’s winner is Ruth K.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

New Solomon Exam Prep Study Guides!

To ring in the New Year, Solomon Exam Prep is pleased to announce the publication of new Exam Study Guides for the FINRA Series 6, FINRA Series 7, and NASAA Series 65. Continue reading

Solomon Exam Prep has been publishing study materials for securities exams for over ten years. Keeping our materials up-to-date and constantly adding product offerings is just part of the reason why Solomon Exam Prep boasts a first-time pass rate of 92% across all exams with thousands of happy customers.

New BooksTo ring in the New Year, Solomon Exam Prep is pleased to announce the publication of new Exam Study Guides for the FINRA Series 6, FINRA Series 7, and NASAA Series 65.

President and founder Jeremy Solomon emphasizes the importance of up-to-date study materials: “Once upon a time, you could use an old textbook from a friend and expect to pass your Series 7.  In those pre-Dodd-Frank and Bernie Madoff days, regulations and securities licensing exams in particular, didn’t change that often. Today like everything else, the rules and the exams change at a dizzying pace. Financial scandals, and the changing views of Congress, the regulators and the courts, mean that students who want the best chance of passing need current materials. Even more so now that the required passing scores of many exams have been increased. The bar has never been higher.”

With detailed explanations, visual study aids, and example questions, these new Study Guides will keep you engaged as you prepare for your exam. Solomon Exam Prep also produces Online Exam Simulators, Audiobooks and On-Demand Study Courses to make learning even easier. Check out the Solomon Exam Prep website for the full suite of product offerings: http://solomonexamprep.com.​

Updated for 2015, Solomon’s Exam Study Guides are the key to helping you pass your exam!