Solomon Exam Prep News

What Does “Tender” Mean on Securities Exams?

For a number of securities exams, you should understand the term “tender.” Solomon explains what the term means and how it’s used in the securities industry. Continue reading

When studying for a securities exam such as the FINRA Securities Industry Essentials (SIE) exam and the Series 7, Series 14, Series 24, Series 79, or the MSRB Series 50, Series 52, Series 53, or Series 54, it’s likely you will encounter the word “tender.” This bit of terminology may be confusing at first. But learning the ways “tender” is commonly used in the securities industry will prevent you from getting tripped up when you see it on an exam.

You may have heard this word in connection with stock buybacks. When a company offers to buy its shares back from stockholders, the company is said to be conducting a tender offer. The stockholders who take the company up on the offer are said to be tendering their shares. A company may also make a tender offer to a different company’s shareholders, for example if it wants to acquire the other company.

The word “tender” comes from the field of law. To tender is to make a binding offer to enter into an agreement. (It also has a second meaning of presenting payment, which is why your dollar bill has the phrase “legal tender” on it.) So when you tender a security you own, you are offering to sell it on terms that have been spelled out between you and the other party. In the case of a tender offer, the company must specify these terms when it makes the offer and shareholders must take them or leave them. In many cases, the U.S. Securities and Exchange Commission (SEC) requires that these terms include a window of time during which shareholders who tendered their shares may change their minds. In that case, the “binding offer” is not binding right away.

Another securities-related use of “tender” is when a security gives its owner the right to sell it back to the issuer. Exercising this right is sometimes called tendering the security. For example, a municipal bond might have a tender option that gives the bondholder the right to sell it back to the municipality at a certain time for a certain price. Additionally, some variable-rate municipal securities come with a mandatory tender that is triggered when the rate is adjusted. When this happens, the bondholder must choose between tendering the bond or accepting the new rate.

So if you see the word “tender” on a securities exam, it means that the owner of a security is offering to sell it under specific terms and conditions, and the owner’s ability to back out of the offer may be limited.

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Solomon Poll: Inflation Expectations for 2022

What are inflation and inflation expectations, and why are they important? Learn what these terms mean and the results of the latest Solomon poll. Continue reading

Can you predict what the economic future of the U.S. will be next month? How about next year? If you’re not sure, Solomon Exam Prep suggests you look at leading indicators, which are economic measures that have been found to anticipate a change in the economy. They are also tested subjects on securities licensing exams such as the FINRA Securities Industry Essentials (SIE) exam and the NASAA Investment Adviser (Series 65) exam.

One important leading indicator is inflation. So, we asked Solomon LinkedIn followers to predict whether the rate of inflation in 2022 will increase, decrease, or stay the same. According to the poll, a whopping 81% of respondents believe that inflation will increase in 2022. Ten percent predict that inflation will stay the same, and nine percent think it will decrease.

For securities licensing exams, leading indicators are important to understand because they are believed to have predictive power, and therefore, allow economists to see what the economic future may hold. That is why Solomon Exam Prep study guides for the Securities Industry Essentials (SIE), Series 7, Series 65, and Series 66 all discuss inflation. So, what exactly is inflation and why does it occur?

What is inflation and why does it happen?

Inflation means an increase in the prices of goods and services and a decline in the purchasing power of a currency. It can be understood as a part of business cycles, which are fluctuations in the economy. A business cycle has four phases. The first phase, expansion, is characterized by an increase in economic activity and above-average economic growth. In this phase, the production of goods rises and unemployment falls. Lenders make credit more available because they believe businesses and people will be able to repay their loans. Available credit means lower interest rates, which fuels expansion, resulting in more jobs.

The expansion phase feels good because jobs are plentiful, and wages rise. But a risk of the expansion phase is the possibility of inflation because increasing wages and available credit tend to boost prices. Inflation can result when demand for goods and services outstrips their supply. This usually occurs near the end of an expansionary phase, when too much money is chasing too few goods. Inflation can occur because of:

- High consumer confidence in the economy
- An economy that has reached its production potential
- Excess money in the economy
- Increases in wages and other production costs, such as a rise in commodity prices

What does inflation mean for investors?

With rising prices come rising interest rates. For example, if the cost of living is increasing at 5%, as measured by the Consumer Price Index (CPI), investors will be unwilling to purchase a bond paying 4% and lose purchasing power. Lenders will need to raise interest rates to keep up with inflation.

In an inflationary environment, investors may be less inclined to make long-term investments. The possibility that a long-term bond or other long-term investment will not keep up with inflation may drive investors to short-term and variable-rate bonds. Unfortunately, to grow, many businesses, especially capital-intensive companies such as oil and gas refineries, airlines, and telecommunications companies need to borrow for the long-term. As a result, an inflationary environment can reduce business investment and cause an economic downturn.

What are inflation expectations?

To return to the Solomon LinkedIn poll – does it matter what people think will happen with inflation in the future? The short answer is yes, and there’s even a term for this: inflation expectations. Inflation expectations refer to the rate at which people and businesses expect prices to rise in the future. Inflation expectations are important because they can actually affect the real rate of inflation. For example, if everyone expects prices to increase by two percent over the next year, then businesses will likely raise their prices by two percent or more, and workers will want comparable salary increases.

If the Solomon LinkedIn poll results are any indication, inflation expectations for the next year are that prices will increase. Do you agree that 2022 will see a rise in the rate of inflation? Comment below to share your thoughts on the topic.

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Solomon Exam Prep Celebrates 1,000 LinkedIn Followers

The Solomon Exam Prep LinkedIn community continues to grow, and we couldn’t be happier. Keep reading to find out who our followers are and why they follow the Solomon page. Continue reading

Solomon Exam Prep is excited to celebrate a new milestone: we now have 1,000 followers on the Solomon LinkedIn page! We’d like to extend a sincere thank you to everyone who has joined our LinkedIn community – from those who’ve been following along with us since the page was created in 2010 to the 37 new followers we’ve gained in the past month. We truly appreciate all of your likes, comments, and shares.

The top 5 locations our followers come from:

- Greater NY City area – 17%
- Greater Atlanta area – 5%
- Portland, OR area – 4%
- Greater Chicago area – 3%
- Greater Philadelphia area – 3%

Other locations include the D.C. Metro area, Greater Denver area, Greater Los Angeles area, Dallas/Fort Worth area, and San Francisco Bay Area.

The top 5 industries our followers work in:

- Financial Services – 53%
- Investment Banking – 7%
- Investment Management – 7%
- Insurance – 6%
- Banking – 3%

The rest work in Higher Education, Real Estate, Education Management, and Management Consulting.

Not a follower yet? The Solomon LinkedIn page is a place where you can:

- Stay informed about the latest industry news and trends
- Get securities licensing exam information and study tips
- Hear about Solomon product updates and releases
- Read about Solomon customers’ success stories

Sound interesting? Join the community! Just follow the link to visit the Solomon LinkedIn page.

Thank you again to all of our followers for engaging with Solomon and helping us reach this exciting milestone! We look forward to continuing the conversation.