Tag: Series 7

January Study Question of the Month

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

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

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the SIE, Series 6, 7, 22, 24, and 82 exams.

Question:

Which of the following people would be considered a specified adult?

Answer Choices:

A. A 16 year old with autism

B. A 30 year old

C. A 60 year old with a heart condition

D. An 18 year old in a coma

Correct Answer: D

Explanation: A specified adult is a natural person age 65 and older or a natural person age 18 and older who the member firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.

December Study Question of the Month

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

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

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the Series 6, 7, 14 and 79 exams.

Question: 
 
Which of the following is not typically part of an underwriting agreement?
 
Answer Choices:
 
A. Description of the per-share underwriting spread
 
B. Description of a Greenshoe option
 
C. Terms between syndicate members and selling group dealers
 
D. Terms under which the underwriter can terminate the contract
 
 

Correct Answer: C

Explanation: The underwriting agreement, which is typically signed the evening before or the morning of the effective date of a securities issue typically includes the per-share underwriting spread, an over-allotment (Greenshoe) option if granted, and the underwriter’s termination rights. It also is the document that contains the public offering price or a formula to derive it.

 

SEC Announces Major Revisions to Registration Exemptions Aimed at “Harmonizing” Regulation A Offerings, Regulation D Private Placements, and Crowdfunding

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” Continue reading

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” The changes affect Regulation A, which governs small public offerings; Regulation D, which governs private placements; and Regulation CF, which governs crowdfunding. This system of exemptions allows various small offerings to avoid the normal registration process required by the Securities Act.  
 
The rule changes should provide a clearer choice as to which exemption is most appropriate to an issuer, based on how much the issuer needs to raise and other factors.
 
The changes also seek to clarify how issuers can avoid “integration” of exempt offerings. Integration is the risk that exempt offerings will be considered a single offering by the SEC, because the offerings are too similar.
 
Highlights of the changes include:
 
  • If two exempt offerings are conducted more than 30 days apart, they are almost always protected from integration.
  • An issuer can “test the waters” with potential investors before deciding which exemption it will use for an offering. Test-the-waters communications solicit interest in a potential offering before the issuer has filed anything with the SEC. Previously, an issuer could only test the waters after deciding that its potential offering would take place under Regulation A.
  • Caps on the amount that may be raised through these exemptions have been increased:
    • Crowdfunding: from $1.07 million to $5 million
    • Regulation A, Tier 2: from $50 million to $75 million 
    • Regulation D, Rule 504: from $5 million to $10 million
  • Make “bad actor” exclusions more consistent across different exemptions.
The rule changes will take effect early next year. Until the changes take effect, securities exam questions will continue to be based on the old rules. FINRA Exams affected by these rule changes include the SIE, Series 6, Series 7, Series 14, Series 22, Series 24, Series 65, Series 66, Series 79, and Series 82.

Testing integrity in times of COVID-19

Test candidates are bound by guidelines that prohibit cheating or using any unfair means during the exam. Continue reading

On July 13, 2020, FINRA and NASAA responded to the pandemic testing challenge posed by in-person test centers with Prometric’s ProProctor, an online testing service, for certain qualifications exams. The exams for which online testing is permitted are the FINRA Securities Industry Essentials (SIE), Series 6, Series 7 and the NASAA Series 63, Series 65, and Series 66 exams. Read more about the announcement here. 

Curious about what the ProProctor online testing experience looks like? Click here to find out.

It is interesting to note that although the exams are proctored remotely, candidates are still bound by guidelines that prohibit cheating or using any unfair means during the exam. The checks that have been put in place especially for remote testing are as follows:

  • Candidates are required to provide a 360° view of his/her workstations and surrounding environment;
  • A camera (external or embedded) is required during the course of the exam. If an embedded camera is used, a large free-standing mirror is also required in order to reflect unseen areas;
  • Candidates are asked to participate in a visual person check (including a sleeve, pocket and glasses check);
  • While the exam is in progress, candidates are prohibited from leaving, moving out of or obstructing the camera view while the exam is in progress without prior authorization from the proctor; and
  • Additional requirements that are listed in the ProProctor User Guide.

Warning: a candidate found cheating in an online test will be subject to the same disciplinary actions that he/she would be subject to in a physical test, and if found guilty, can be permanently barred from the broker-dealer industry.

Earning Your Securities License May Now Make You an Accredited Investor

On Wednesday, the SEC finalized rule changes that will broaden its definition of “accredited investor” to encompass industry professionals who have earned certain FINRA licenses. Continue reading

On Wednesday, the SEC finalized rule changes that will broaden its definition of “accredited investor” to encompass industry professionals who have earned certain FINRA licenses.
 
An accredited investor is an investor considered sophisticated enough to weigh an investment’s merits independently. Accredited investors have easier access to certain types of investments, such as private equity offerings.
 
Under the newly expanded definition, General Securities Representatives (Series 7), Private Securities Offerings Representatives (Series 82), and Licensed Investment Adviser Representatives (Series 65) are now accredited investors. The SEC indicated that it may add other FINRA licenses later. Note that passing the exam by itself does not make you an accredited investor – you must have and maintain the license.
 
The rule change also allows “spousal equivalents” such as domestic partners to qualify as accredited investors based on the total income and assets of both partners, a benefit previously limited to couples who are legally married. Native American tribes and foreign governments now qualify as accredited investors as well.
 
The Solomon Exam Prep team is always on the lookout for how current developments affect the securities industry. For more updates from our Industry News blog, use the subscribe form on this page.

Tips for Answering Basic Series 7 Options Questions

Struggling with options questions on the FINRA Series 7 exam? Here are ten tips to getting basic Series 7 options questions right. Continue reading

Updated July 6, 2022

Options are a frequently tested topic on the FINRA Series 7 exam. While there are some difficult options questions that involve calculations and identifying different types of spreads, there are also several basic-type options questions. Remembering a few essential points will help you get these more basic questions correct on the exam. Let’s go through some options basics that could be tested on the Series 7 exam.

Good to Know Definitions:

Options Contract: A contract that allows the holder to buy or sell 100 shares of an underlying security at a given price by a given date.

Underlying (security) = refers to the security that must be delivered when an options contract is exercised 

Expiration Date: The last day an options contract may be freely exercised before it becomes void. The last day is always the third Friday of the month.

Exercise or Strike Price: The price at which an options holder may buy or sell an underlying security.

Premium: The price paid to an option writer for the right to exercise the option before it expires. 

Breakeven Point: The market price of an underlying stock at which the investor neither makes nor loses money

Premiums and Maximum Potential Gain and Maximum Potential Loss

One options topic that comes up often is maximum potential gain and maximum potential loss for different types of options. A concept related to maximum gain and maximum loss that’s easy to remember is that the premium received is the maximum potential gain for an option seller, while the premium paid is the maximum potential loss for an option buyer.

Why is that? Remember that when an investor opens a position by shorting an option, he takes in the premium from the sale. The best-case scenario for that investor is that the option expires unexercised. If that occurs, the investor doesn’t need to take any further action related to the option; he keeps the premium and doesn’t have to shell out money to anyone else.

Example:

If Tim shorts an ABC call option and receives $500 in premiums, his maximum potential gain is $500. He will achieve this gain if the option expires unexercised. In that case, he simply gets to keep the $500 he received when he shorted the option. The same is true for an investor who shorts a put option: he takes in the premium when the option is sold, and if the option expires unexercised, he gets to keep the premium.

On the other hand, an options buyer’s maximum potential loss is the premium paid, or the cost of the option. An option buyer pays the premium to the option seller to open her long options position. If she holds the option through expiration and it’s never exercised, she won’t receive any money from her option transaction. That means the premium paid represents sunk cost or loss on the investment.

Example:

If Sally purchases an XYZ put option and pays a premium of $600, her maximum potential loss is $600. She’ll realize this loss if the option expires unexercised and she holds it through expiration.

In the Money

Another topic that shows up on the Series 7 exam related to options is whether the option is “in the money.” When it comes to these questions, remember that an option is “in the money” when it’s advantageous for its owner to exercise the option. That means a call option is in the money when its underlying security is trading at a price that exceeds the option’s strike price. In that case, the option holder can exercise the option by purchasing the underlying at the strike price and then selling it at its higher market price.

On the other hand, a put option is in the money when its underlying security is trading at a price below the strike price. In that case, the option holder can purchase the underlying security at the market price and then sell it to the option seller assigned the exercised option at the higher strike price.

Note that the phrase “in the money” applies to a call option whose underlying is above the strike price and a put option whose underlying is below the strike price, even if the question is talking about a short options investor’s investment. That’s because the phrase “in the money” is a FINRA definition that applies to the option itself and not a particular position taken related to the option.

Breakeven Points

Breakeven points are another basic topic you should understand for the exam. The breakeven point is the amount that the underlying security needs to be trading at for both buyer and seller to break even on the investment when the option is exercised.

Example:

If Bobby is long a WTC call option with a $50 strike price and a $5 premium, his breakeven point would be $55 ($50 strike price + $5 premium). This means that when WTC is trading at $55, he could exercise his option by purchasing the underlying shares at $50. He could then sell those shares at the market price of $55. He would net $5 from his purchase and sale. However, since he paid $5 in premiums to buy the option, his $5 gain would be washed out by that $5 payment. Hence, he would breakeven on his investment.

The breakeven point for a put option is the option’s strike price minus its premium. If the underlying is trading at that value and the options holder exercises the option, both buyer and seller would breakeven on their investments.

Example:

If Jane is long an XYZ put option with a strike price of $40 and a premium of $4, her breakeven point would be $36 ($40 strike price – $4 premium). This means than when XYZ is trading at $36, she can purchase the underlying shares at that value and then exercise the option by selling them to the seller assigned her option for the $40 strike price. She would net $4 from her purchase and sale. However, since she paid $4 in premiums to buy the option, her $4 gain would be washed out by that $4 payment. Hence, she would breakeven on her investment.

Trading Options

An investor can exit his options position in one of two ways: he can exercise the option or he can trade the option.

Exercising the option involves either buying underlying shares at the strike price in a call option or selling the underlying shares at the strike price in a put option.

Trading an option involves taking the opposite position to an open position, thereby closing that open position. That means that someone who is long a call option can trade his option by shorting the same call, while an investor who is long a put option can trade his option by shorting the same put. Investors who have an open short options position (i.e., they shorted the option and it has yet to expire) can close out their position by purchasing the same option.

When an investor trades an option, gain or loss is calculated by subtracting the premium paid when going long the option from the premium received when shorting the option. If the difference is positive, the investor has a gain. If the difference is negative, the investor has a loss.

Example:

If Marie is long an END call option for which she paid $1,000 total in premiums and she decides to close out her position by shorting the same option, receiving $1,200 in premiums, she will realize a $200 gain ($1,200 received – $1,000 paid). Once she closes her position, she has no other obligation regarding the option because her short position is entered to close out a previous long position.

Note that traded options settle on the business day after the trade date.

Options Premiums

Knowing a bit about options premiums is also important for the Series 7 exam. Remember the premium is the amount an investor pays to go long an option or receives when shorting an option. An option’s premium is essentially its market price.

The premium is made up of two components: intrinsic value and time value. A premium’s intrinsic value is the amount by which the option is in the money. So for a call option, the intrinsic value is the amount that the underlying security’s price is above the strike price.

For a put option, the intrinsic value is the amount that the underlying security’s price is below the strike price. For instance, the premium for a put option with a strike price of $20 and an underlying security trading at $17 would have $3 in intrinsic value.

It’s also important to note that an option premium’s intrinsic value can never be a negative number. If the option is out of the money, its intrinsic value will be 0. So, for instance, if an ABC call option has a strike price of 50 and ABC is trading at 45, the option premium’s intrinsic value would be 0; it would not be -5.

A premium’s time value is the difference between its total amount and the intrinsic value. So time value = premium – intrinsic value. That means an option with a premium of $10 that is in the money by $6 will have a time value of $4 ($10 premium – $6 intrinsic value = $4 time value). Time value typically decreases the closer an option is to its expiration date.

American vs. European Options

Options can be either American-style or European-style. Equity options are American-style options. This means they can be executed at any point prior to or on their expiration date. The expiration date for monthly equity options is the third Friday of the month in which the option expires.

Non-equity options, such as index options, are often European-style options. This means they can only be executed on the expiration date. It is important to remember, however, that either European- or American-style options can be traded on the secondary market at any time before expiration.

Series 7 exam options questions tips

If you keep these basics in mind, you should be able to answer many of the options questions that show up on the Series 7 exam correctly. Understanding the points described above will also help you have a better understanding of some of the concepts tested by the more difficult options questions that appear on the exam.

If you’re preparing for the Series 7 exam, explore Solomon Exam Prep Series 7 study materials. Solomon offers a Series 7 Study Guide, Exam Simulator, Video Lecture, Audiobook, Flashcards, and Live Web Classes to help you pass.

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/

FINRA qualification exam restructure update

Panel discussion May 24, 2016 at the FINRA annual conference. John Kalohn, Joe McDonald and Roni Meikle from FINRA discussed coming restructure of qualification exams. Continue reading

Panel discussion May 24, 2016 at the FINRA annual conference. John Kalohn, Joe McDonald and Roni Meikle from FINRA discussed coming restructure of qualification exams.

Goals of exam restructure:

• Respond to industry and regulatory changes
• Reduce redundancy of content across exams
• Streamline exam process
• Minimize impact and change to the registration rules
• Ensure registered reps have a solid breadth of understanding of securities industry

Another goal appears to be a desire by FINRA and member firms to expand the number of people who can and will get licensed to work in the securities industry.

Exam restructure launch date has been postponed, at least a year, till January 2018 at the earliest.

Exams slated to be retired, will not be retired till 2018 restructure launch date. These include the Series 11 (Order Processing Assistant), Series 42 (Options Representative), Series 62 (Corporate Securities Representative) and Series 72 (Government Securities Representative) exams. The panel noted that only one person had taken the Series 72 in the past year.

Anyone holding registrations that are being retired (Series 11, Series 62, Series 72) will be able to continue to hold them until they leave industry for more than 2 years.

Series 17/37/38 Exams – FINRA will retire these exams and use the UK and Canadian certifications to exempt certificate holders from the Essentials Exam.

Exams that will remain as “Top-off” exams: Series 6, 7, 22, 57, 79, 82, 86/87 and 99. Top-off exams will be shorter than current exams.

Essentials Exam features:

Essentials exam currently envisioned to be 100 questions long.

Unlike the current system, you will not need to be associated with a member firm to take the Essentials Exam. In other words, you won’t need to have a job with a broker-dealer to take the Essentials Exam.

If you pass the Essentials Exam, it will be valid for 4 years from your passing date.

Just passing the Essentials Exam will not be enough to qualify you to be a registered person with FINRA. To become a registered person, you will have to have a job with a FINRA member firm, file a U4, get finger-printed, and pass a Top-off exam.

What if you are currently registered?

Current registrants will maintain registration(s) without the need for additional testing.

Most current registrants will be considered to have passed the Essentials Exam, and it will be valid for 4 years upon leaving the securities industry.

Registrants who return to the securities industry within 2 years will regain registration without needing to take the Essentials or Top-off exam.

Registrants who return to the securities industry between 2 and 4 years later will not need to take the Essentials Exam, only the Top-off exam for the registration position.

Registrants who return to the securities industry more than 4 years later will need to take both the Essentials and the top-off exam.

Next steps:

Securities Essentials Exam is being finalized by FINRA and committee of industry representatives.

Top-off exam outlines to be released 9-12 months prior to launch date of exam restructure

Prepare CRD and other FINRA systems for new exam
structure

Create a system for persons not associated with a member to enroll and pay for the Essentials Exam

Make registration rule, fee and qualification exam filings with the SEC in 2016

FINRA says exam restructure will do the following for firms:

• Give firms an opportunity to employ new business models for onboarding staff.
• Allow firms to better gauge industry knowledge of interns and other potential employees.
• Allow non-registered staff (e.g., administrative) to take Essentials Exam.
• Create a larger pool of potential new registered persons

Impact on firms

Firms will have choices of how to onboard new reps:
• Request applicants take and pass Essentials Exam prior to making job application
• Have new hires take Essentials Exam-only initially and then take top-off qualification exam
• Have new hires take both Essentials Exam and top-off exam together

Other info related to exam restructure:

• Through CRD, firms will be able to confirm whether and when an individual passed the Essentials Exam.
• Top-off exams will retain traditional names: i.e., Series 7 exam will remain the Series 7 exam.
• Position designations in CRD will remain the same (i.e., GS will remain GS [Series 7]).
• Firms will be able to schedule the Essentials Exam for support personnel through CRD.
• Current registrants will not need to take the Essentials Exam to maintain current registrations.
• Principal exams and registrations will not be directly affected.

Principal Exams

Under the new representative-level program structure, several principal exams cover subject matter already covered on the Essentials and the Top-off exams.

Example – Series 24 Exam major topic areas include:

• Sales practice (Series 7)
• Investment banking (Series 79)
• Trading (Series 57)
• Research (Series 86/87)

As a result of this, FINRA will develop a principal exam structure that builds on the new representative-level exam structure to reduce redundancy in content and better focus on testing knowledge of and ability to apply supervisory level rules and concepts

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 – May 2016

This month’s study question from the Solomon Online Exam Simulator question database is now available! Relevant to the Series 7, 62 and 82. —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 62 and Series 82): Which of the following is not true of commercial paper?

Answers:

A. It is used to cover an issuer’s short-term needs such as payroll and inventory

B. It typically matures in less than 90 days, but it can have a term as long as 397 days.

C. It is generally issued in lots of $100,000, but they can be sold at a discount in the primary market

D. Highly rated commercial paper is generally considered safe enough to be purchased by money market funds, but it is rarely purchased by retail investors.

Correct Answer: B. It typically matures in less than 90 days, but it can have a term as long as 397 days.

Rationale: Large corporations, banks, and financial firms with high credit ratings may issue commercial paper to cover short-term needs, such as payroll and inventory, and to finance general operations. Commercial paper is unsecured and issued at a discount, and typically matures in less than 90 days, although it can have a term as long as 270 days. It is generally issued in lots of $100,000, but they can be sold at discount in the primary market. Even though it is unsecured, because it is short-term and issued only by banks and large corporations with high credit ratings, commercial paper is generally considered safe enough to be purchased by money market funds, but it is rarely purchased by retail investors.

Congratulations Alexander B. this month’s Study Question of the Month winner!

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