Question 1

Which of the following is true of a red herring prospectus?

Accepted Answer

A)  It can be distributed to potential buyers during the pre-filing period, and limited sales can be finalized during this period. 
B)  It can be distributed to potential buyers during the pre-filing period to finalize sales. 
C)  It can be distributed to potential buyers during the waiting period, but no sales can be finalized during this period. 
D)  It can be distributed to potential buyers during the post-effective period to finalize any sales. 
A)  It can be distributed to potential buyers during the pre-filing period, and limited sales can be finalized during this period. 
B)  It can be distributed to potential buyers during the pre-filing period to finalize sales. 
C)  It can be distributed to potential buyers during the waiting period, but no sales can be finalized during this period. 
D)  It can be distributed to potential buyers during the post-effective period to finalize any sales. C

Question 2

Describe the exemptions from the registration process under the Securities Act of 1933.

Accepted Answer

The exemptions from the registration process under the Securities Act of 1933 include:
a. Private placement: Transactions by an issuing company not involving any public offering. Usually, the transaction involves sophisticated investors with enough knowledge to evaluate information given them (e.g., stock option plans for top-level management).
b. Intrastate offering: Any security or part of an offering offered or sold to persons resident within a single state or territory.
c. Small business: Section 3(b) of the 1933 Act allows the SEC to exempt offerings not exceeding $5 million. Regulations A and D promulgated by the SEC define the type of investors and the amount of securities that are exempt within a certain time period.
d. Other offering exemptions: By virtue of the 1933 Act, exemptions are allowed for transactions by any person other than an issuer, underwriter, or dealer. Also, government securities (federal, state, or municipal bonds) are exempt. Also exempt are securities issued by banks, charitable organizations, and savings and loans institutions.

Question 3

Which of the following is a correct statement regarding securities regulations?

Accepted Answer

A)  Securities are regulated by state law, not federal law. 
B)  Securities are regulated by federal law, not state law. 
C)  Securities are regulated concurrently by state and federal laws. 
D)  Securities are regulated sequentially by state and federal laws. 
A)  Securities are regulated by state law, not federal law. 
B)  Securities are regulated by federal law, not state law. 
C)  Securities are regulated concurrently by state and federal laws. 
D)  Securities are regulated sequentially by state and federal laws. C

Question 4

Which of the following is true of state securities laws?

Accepted Answer

A)  They are also referred to as "clear sky" laws. 
B)  They require that securities be registered with federal authorities only. 
C)  Securities are only regulated by state laws. 
D)  They regulate securities purchased and sold in intrastate commerce. 
A)  They are also referred to as "clear sky" laws. 
B)  They require that securities be registered with federal authorities only. 
C)  Securities are only regulated by state laws. 
D)  They regulate securities purchased and sold in intrastate commerce.

Question 5

Hedge funds larger than $250 million must register with the Securities and Exchange Commission and provide some information as to trades and their individual portfolios.

Accepted Answer

A) True 
 B)False

Question 6

Derivatives are synthetic securities that are dependent upon the movement of underlying variables.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is a difference between an exchange market and an over-the-counter (OTC) market?

Accepted Answer

A)  An exchange market is a securities market, whereas an OTC market is a goods market. 
B)  An exchange market has no membership qualifications, whereas an OTC has membership qualifications. 
C)  An exchange market provides a physical facility for the buying and selling of securities, whereas an OTC market has no physical facility. 
D)  An exchange market involves brokers buying directly from the public, whereas an OTC market involves brokers buying and selling stocks through registered specialists. 
A)  An exchange market is a securities market, whereas an OTC market is a goods market. 
B)  An exchange market has no membership qualifications, whereas an OTC has membership qualifications. 
C)  An exchange market provides a physical facility for the buying and selling of securities, whereas an OTC market has no physical facility. 
D)  An exchange market involves brokers buying directly from the public, whereas an OTC market involves brokers buying and selling stocks through registered specialists.

Question 8

Which of the following acts exempts all documents given to the Securities and Exchange Commission by foreign regulators from Freedom of Information Act disclosure requirements?

Accepted Answer

A)  the Market Reform Act of 1990 
B)  the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 
C)  the Foreign Corrupt Practices Act of 1977 
D)  the International Securities Enforcement Cooperation Act of 1990 
A)  the Market Reform Act of 1990 
B)  the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 
C)  the Foreign Corrupt Practices Act of 1977 
D)  the International Securities Enforcement Cooperation Act of 1990

Question 9

An organizational directive is the first part of the registration statement the SEC requires from issuers of new securities. It contains material information about the business and its management, the offering itself, the use to be made of the funds obtained, and certain financial statements.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is true of the Dodd-Frank Act with regard to derivatives?

Accepted Answer

A)  The Dodd-Frank statute will standardize derivatives traded on exchanges to decrease transparency. 
B)  Derivatives must be routed through a subsidiary to ensure that companies using them post collateral. 
C)  Banks can continue to trade derivatives in-house based on interest rates and foreign exchanges, and for purposes of hedging risk. 
D)  Banks will have to spin off their riskier derivatives and trade them through a clearing house. 
A)  The Dodd-Frank statute will standardize derivatives traded on exchanges to decrease transparency. 
B)  Derivatives must be routed through a subsidiary to ensure that companies using them post collateral. 
C)  Banks can continue to trade derivatives in-house based on interest rates and foreign exchanges, and for purposes of hedging risk. 
D)  Banks will have to spin off their riskier derivatives and trade them through a clearing house.

Question 11

Under the Securities Act of 1933, commerce between any foreign country and the United States is referred to as commerce.

Accepted Answer

A)  domestic 
B)  intrastate 
C)  interstate 
D)  international 
A)  domestic 
B)  intrastate 
C)  interstate 
D)  international

Question 12

Which of the following was established by the Securities Investor Protection Act of 1970?

Accepted Answer

A)  the Securities and Exchange Commission (SE
C)  
B)  the Securities Investor Protection Corporation (SIP
C)  
C)  the Federal Deposit Insurance Corporation (FDI
C)  
D)  the Federal Savings and Loan Insurance Corporation (FSLI
C)  
A)  the Securities and Exchange Commission (SE
C)  
B)  the Securities Investor Protection Corporation (SIP
C)  
C)  the Federal Deposit Insurance Corporation (FDI
C)  
D)  the Federal Savings and Loan Insurance Corporation (FSLI
C)

Question 13

Which of the following is true of securities?

Accepted Answer

A)  They have no value in and of themselves. 
B)  Since they are paper, they can be produced in limited numbers only. 
C)  They are easily regulated in terms of hazards or merchantability. 
D)  Since they are paper, they cannot be easily manipulated by their issuers. 
A)  They have no value in and of themselves. 
B)  Since they are paper, they can be produced in limited numbers only. 
C)  They are easily regulated in terms of hazards or merchantability. 
D)  Since they are paper, they cannot be easily manipulated by their issuers.

Question 14

State securities laws are also referred to as "blue sky" laws.

Accepted Answer

A) True 
 B)False

Question 15

The Sarbanes-Oxley Act of 2002 requires CEOs and CFOs to certify financial reports.

Accepted Answer

A) True 
 B)False

Question 16

The Regulation Fair Disclosure (FD) required companies to .

Accepted Answer

A)  publicize all potentially market-moving data at the time the data become available 
B)  make market-moving data available only to certain analysts 
C)  have more open relations with analysts who ask for data about the company's market performance 
D)  not share market-moving data with analysts or the public 
A)  publicize all potentially market-moving data at the time the data become available 
B)  make market-moving data available only to certain analysts 
C)  have more open relations with analysts who ask for data about the company's market performance 
D)  not share market-moving data with analysts or the public

Question 17

Which of the following is true of the Securities Investor Protection Corporation (SIPC)?

Accepted Answer

A)  It protects investors from losses up to $750,000 due to the financial failure of a brokerage firm. 
B)  It has the monitoring and bailout functions that the Federal Deposit Insurance Corporation (FDI
C)  has in banking. 
C)  It does not use trustees in any of its functions. 
D)  It supervises the liquidation of brokerage firms that are in financial trouble. 
A)  It protects investors from losses up to $750,000 due to the financial failure of a brokerage firm. 
B)  It has the monitoring and bailout functions that the Federal Deposit Insurance Corporation (FDI
C)  has in banking. 
C)  It does not use trustees in any of its functions. 
D)  It supervises the liquidation of brokerage firms that are in financial trouble.

Question 18

Which of the following terms refers to buying out a hostile shareholder at a price far above the current price of the target company's stock in exchange for the hostile shareholder's agreement not to buy more shares for a period of time?

Accepted Answer

A)  golden parachute 
B)  poison pill 
C)  porcupine provision 
D)  greenmail 
A)  golden parachute 
B)  poison pill 
C)  porcupine provision 
D)  greenmail

Question 19

The Division of is responsible for setting and administering the disclosure requirements prescribed by the 1933 and the 1934 Securities Acts, the Public Utility Holding Company Act, and the Investment Company Act.

Accepted Answer

A)  Market Regulation 
B)  Corporation Finance 
C)  Enforcement 
D)  Investment Management 
A)  Market Regulation 
B)  Corporation Finance 
C)  Enforcement 
D)  Investment Management

Question 20

The gives the Securities and Exchange Commission cease-and-desist powers and the power to impose substantial monetary penalties in administrative proceedings.

Accepted Answer

A)  International Securities Enforcement Cooperation Act of 1990 
B)  Securities Enforcement Remedies and Penny Stock Reform Act of 1990 
C)  Private Securities Litigation Reform Act of 1995 
D)  Foreign Corrupt Practices Act of 1977 
A)  International Securities Enforcement Cooperation Act of 1990 
B)  Securities Enforcement Remedies and Penny Stock Reform Act of 1990 
C)  Private Securities Litigation Reform Act of 1995 
D)  Foreign Corrupt Practices Act of 1977

Exam 23: Rules Governing the Issuance and Trading of Securities

Which of the following is true of a red herring prospectus?

Describe the exemptions from the registration process under the Securities Act of 1933.

Which of the following is a correct statement regarding securities regulations?

Which of the following is true of state securities laws?

Hedge funds larger than $250 million must register with the Securities and Exchange Commission and provide some information as to trades and their individual portfolios.

Derivatives are synthetic securities that are dependent upon the movement of underlying variables.

Which of the following is a difference between an exchange market and an over-the-counter (OTC) market?

Which of the following acts exempts all documents given to the Securities and Exchange Commission by foreign regulators from Freedom of Information Act disclosure requirements?

An organizational directive is the first part of the registration statement the SEC requires from issuers of new securities. It contains material information about the business and its management, the offering itself, the use to be made of the funds obtained, and certain financial statements.

Which of the following is true of the Dodd-Frank Act with regard to derivatives?

Under the Securities Act of 1933, commerce between any foreign country and the United States is referred to as commerce.

Which of the following was established by the Securities Investor Protection Act of 1970?

Which of the following is true of securities?

State securities laws are also referred to as "blue sky" laws.

The Sarbanes-Oxley Act of 2002 requires CEOs and CFOs to certify financial reports.

The Regulation Fair Disclosure (FD) required companies to .

Which of the following is true of the Securities Investor Protection Corporation (SIPC)?

Which of the following terms refers to buying out a hostile shareholder at a price far above the current price of the target company's stock in exchange for the hostile shareholder's agreement not to buy more shares for a period of time?

The Division of is responsible for setting and administering the disclosure requirements prescribed by the 1933 and the 1934 Securities Acts, the Public Utility Holding Company Act, and the Investment Company Act.

The gives the Securities and Exchange Commission cease-and-desist powers and the power to impose substantial monetary penalties in administrative proceedings.

Critical Thinking and Legal Reasoning

Introduction to Law and the Legal Environment of Business

The American Legal System

Alternative Tools of Dispute Resolution

Constitutional Principles

White-Collar Crime and the Business Community

Ethics, Social Responsibility, and the Business Manager

The International Legal Environment of Business

The Law of Contracts and Sales I

The Law of Contracts and Sales Ii

The Law of Torts

Product and Service Liability Law

Law of Property: Real and Personal

Intellectual Property

Agency Law

Law and Business Associations I

Law and Business Associations II

The Law of Administrative Agencies

The Employment Relationship and Immigration Laws

Laws Governing Labor-Management Relations

Employment Discrimination

Environmental Law

Antitrust Laws

Laws of Debtor-Creditor Relations and Consumer Protection

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