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NEW QUESTION # 18
Which of the following assets is not covered under the SEC ' s Customer Protection Rule?
Answer: B
Explanation:
The correct answer is C, $250,000 in cash in the customer ' s savings account. The SEC's Customer Protection Rule (Rule 15c3-3 under the Securities Exchange Act of 1934) is designed to protect customer funds and securities held by broker-dealers, not assets held at banks.
Step-by-step, the rule requires broker-dealers to segregate customer securities and maintain a reserve of cash or qualified securities to safeguard customer assets in case the firm fails. This includes securities like stocks and bonds (Choices A and B), which are held in brokerage accounts and therefore fall under the rule's protection.
Choice D, excess margin, is also covered because it represents customer funds held by the broker-dealer beyond what is required for margin purposes. These funds must be included in the reserve computation and are protected under the rule.
However, Choice C refers to cash held in a bank savings account, which is not under the custody of a broker- dealer. Instead, such deposits are typically protected by FDIC insurance, not the SEC's Customer Protection Rule.
Therefore, assets held outside a brokerage relationship-like bank savings-are not covered by the Customer Protection Rule, making Answer C correct.
NEW QUESTION # 19
Which of the following statements is true regarding Treasury securities?
Answer: A
Explanation:
Treasury securities (Treasury bills, notes, and bonds) are obligations of the U.S. government. A key testable feature is their tax treatment: interest earned on Treasuries is subject to federal income tax (though it is generally exempt from state and local income taxes). That makes choice B correct.
Choice A is incorrect because FDIC insurance applies to bank deposit products (e.g., bank CDs, savings accounts) held at insured depository institutions, within insurance limits. Treasury securities are not bank deposits; they are direct government securities, so "FDIC-insured" is not the right concept. Treasuries are considered to have very low credit risk due to U.S. government backing, but that is different from FDIC insurance.
Choice C is incorrect because Treasuries trade in both the primary market (when issued by the Treasury) and the secondary market (after issuance). In fact, Treasuries are among the most actively traded securities in the world, and secondary-market trading is a major source of liquidity and price discovery. Investors can buy newly issued Treasuries at auction (primary) or purchase existing Treasuries from other investors and dealers (secondary).
Choice D is incorrect because securities issued by states and municipalities are municipal securities (muni bonds/notes), not Treasury securities. Treasuries are issued by the U.S. Department of the Treasury, while municipal bonds are issued by states, cities, counties, and other political subdivisions or authorities.
On the SIE, this question targets product knowledge: issuer identity, trading markets, and tax characteristics of government vs. municipal vs. bank products.
NEW QUESTION # 20
Under the Investment Company Act of 1940, which of the following products are considered redeemable securities?
Answer: D
Explanation:
Redeemable securities are those that can be sold back to the issuer.
* D is correct because unit investment trusts (UITs) issue redeemable securities.
* C is incorrect because closed-end fund shares are traded on secondary markets, not redeemable.
* A and B do not meet the definition of redeemable securities.
Reference: Investment Company Act of 1940, Section 2(a)(32)
NEW QUESTION # 21
Which of the following products is redeemable at net asset value (NAV)?
Answer: B
Explanation:
Open-end mutual funds are redeemable securities, meaning investors can sell their shares back to the fund at the NAV.
* D is correct because mutual funds allow redemption at NAV.
* A, B, and C are not redeemable securities.
Reference: Investment Company Act of 1940, Section 2(a)(32)
NEW QUESTION # 22
The primary function of a mutual fund custodian is to:
Answer: C
Explanation:
The correct answer is C, hold the fund's cash and securities. A mutual fund custodian is a financial institution, typically a bank, responsible for the safekeeping of the fund's assets. This includes maintaining custody of the fund's securities (such as stocks and bonds) as well as holding its cash. The custodian ensures that assets are secure, properly recorded, and protected from theft or misuse.
It is important to distinguish the custodian's role from other service providers. The investment adviser or portfolio manager (choice A) is responsible for making investment decisions and managing the portfolio. The broker-dealer (choice B) executes trades by buying and selling securities on behalf of the fund. The transfer agent (choice D) handles recordkeeping functions related to shareholder accounts, such as processing purchases, redemptions, and maintaining ownership records.
The custodian plays a critical oversight and control function, helping ensure compliance with regulatory requirements and protecting investors' assets. This separation of duties is a key safeguard in the mutual fund industry, reducing the risk of fraud or mismanagement.
Thus, the primary role of the custodian is safekeeping, making choice C the correct answer.
NEW QUESTION # 23
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