Flashcards

An equity indexed annuity is a type of annuity issued by an insurance company. An equity indexed annuity has a minimum interest rate that it promises to pay to the annuitant, commonly referred to as the floor. It also has a cap rate, which is the most it can earn. Equity indexed annuities have a participation rate as well. The participation rate describes how much of the earnings of the index the account will be credited with and varies by insurance company and product offered. An equity indexed annuity is not considered a security. The only license required to sell an equity indexed annuity is a life insurance license.  This product is best for moderate and conservative investors. It has higher fees than a mutual fund.

A Eurobond is a long-term bond that is issued by either a government or corporation that is denominated in the currency of the issuer, but sold in another country.

Eurodollars are U.S. dollars that are held in banks that are outside of the United States.

The ex-dividend date is the date that the stock trades without the dividend attached. The price of the security is reduced by the amount of the dividend on the ex-date. Normally the ex-dividend date is the business day before the record date.

The exchange privilege is the right of an investor who has invested in one fund to transfer to another fund under the same management without incurring an additional sales charge.  The exchange is considered a sale and repurchase under the tax code.

An exchange traded fund (ETF) is a type of investment company that may track an index or may be actively managed. The ETF trades in the secondary market, at the market price, which may be more, less, or equal to the value of the underlying assets. ETFs may be shorted, purchased on margin, and may even have options that are written on them.

The exclusion allowance is the amount of money that the employer may withhold for the employee for the purchase of a (TSA) 403b tax-sheltered annuity.

The executor is the person named in a will to settle the financial affairs and distribute the assets of a deceased person.

An exempt security is a security that may be sold without registration, it is exempt from the Securities Act of 1933 and/or the Uniform Securities Act. U.S. Government securities and municipal securities are both exempt securities. Exempt securities are not required to file sales and advertising materials.

: An exempt transaction is a transaction that does not require registration or the filing of a registration statement. Exempt transactions include private placements, fiduciary transactions, unsolicited transactions, and institutional transactions.

The exercise price is the price found in an option contract or a warrant. On a call, the owner can buy shares from the seller at the exercise price. On a put, the owner can sell shares to the seller at the exercise price. The exercise price is also known as the strike price.

An expansion is also called a recovery. During an expansion, there is growth in the economy. It is one of the four phases of the business cycle. Expansions are followed by a peak and preceded by a trough.

Expansionary monetary policies are designed to grow the economy (get the economy out of a contraction). Expansionary policies include lowering interest rates, lowering banks’ reserve requirements, and buying U.S. government bonds. Expansionary policies increase the money supply and are used to fight deflation.

The expense guarantee is part of a variable annuity contract that guarantees that the amount of the net annuity payment will not be reduced by increased operating expenses of the company.

The expense ratio of a mutual fund takes the fund’s operating expenses divided by the net asset value of the fund. Actively managed funds have higher expense ratios than index funds due to the higher management fee paid to the investment adviser.

: In 2016 NASAA adopted The Model Act to Protect Vulnerable Adults from Financial Exploitation. The Act gives industry participants and state regulators new tools to help detect and prevent the financial exploitation of vulnerable adults.

Face-amount certificate companies are a type of investment company. The FACC issue certificates, usually purchased on an installment basis at a discount, that mature after a period of years for the face amount.

A federal covered adviser is an investment adviser that is required to register at the federal level, with the SEC. Federal covered advisers are exempt from state registration.

A federal covered security must be registered federally but is exempt from state registration. Securities listed on an exchange and mutual fund shares are both federal covered securities.

The FDIC is a federal agency that provides deposit insurance for member banks. The FDIC protects the clients of insolvent banks.

Banks lend their excess reserves to other member banks, overnight, to meet reserve requirements, charging the federal funds rate. The federal funds rate is the most sensitive indicator of interest rate direction. The Federal Reserve sets a target for the federal funds rate.

The Federal Reserve Board is a federal governmental body responsible for the country’s monetary policy. There are seven members on the FRB, each appointed by a President and confirmed by the Senate.

A fiduciary is a person in a place of financial trust.  The custodian of a minor’s account is a fiduciary. The trustee of a trust is a fiduciary. Section 404(c) of ERISA, Safe Harbor Provisions, defines a fiduciary as a person who can exercise discretion or control in administering and/or managing/controlling a plan’s assets.   Investment advisers must act in a fiduciary capacity in making recommendations to clients, fully disclosing all conflicts of interest.

A fill-or-kill order instructs the broker to fill the entire order right away, and if it can’t be filled in its entirety immediately, it must be canceled.

The final prospectus must be delivered to a client who is buying a new issue. It includes the price of the securities, the delivery date, and the underwriting spread.

Financial risk is a type of nonsystematic risk related to the financial health of the company that issued the security.  Financial risk is also known as credit risk or default risk.

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms and registered securities representatives doing business in the United States.  FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry.

FINRA Bylaws are the body of laws that describes how FINRA functions, defines its powers, and determines the qualifications and registration requirements for broker-dealers and registered representatives.

FINRA’s Department of Enforcement is a committee appointed from among the members of the FINRA that acts in accordance with the FINRA’s Bylaws, Rules of Conduct, and Code of Procedure to handle trade complaints.

A firm commitment is the most common type of underwriting agreement. In a firm commitment, the underwriter purchases the entire issue at a guaranteed specific price. The underwriter acts as a dealer and assumes the risk of resale.

A firm quote is an actual price at which a trading unit of the security may be bought or sold by dealers. The trading unit is 100 shares of stock or five bonds.

First in, first out is an accounting method in which the assets sold are assigned a cost basis from the first purchases, generally resulting in the largest gain, thus the largest tax bill due.

Fiscal policies are those policies set by the President and Congress designed to control the economy. Fiscal policies include tax laws and budgetary changes (government spending).

A fixed annuity is a contract in which the insurance company makes fixed (guaranteed) dollar payments to the annuitant for the term of the contract (usually until he or she dies). The insurance company guarantees both the interest rate paid and the principal amount.

Fixed assets are those assets that have a physical quality. Fixed assets include land, building, and machinery. Generally, fixed assets are written down over time through depreciation, depletion, or amortization, depending upon the asset and applicable tax rules.

Fixed-dollar option is a mutual fund withdrawal plan pay-out option under which the client receives payment of a predetermined dollar amount monthly, for an undetermined time.

Fixed-percentage option is a mutual fund withdrawal plan option under which the client receives a payment equal to the liquidated value of a set percentage of the mutual fund account, monthly, for an undetermined time.

Fixed-shares option is a mutual fund withdrawal plan pay-out option under which the client receives payment of the value from the liquidation of a set number of shares, monthly, for an undetermined time.

Fixed-time option is a mutual fund withdrawal plan option providing for the liquidation of the client’s account by a set future time. Monthly payments will vary.

When the yield curve is flat, the yields on the debt, short-term, mid-term, and long-term are all about the same.

Both floating rate and adjustable rate preferred stock have dividends that may be adjusted, the difference is the reference benchmark. Floating rate preferred stocks’ benchmark has historically been LIBOR (London Interbank Offered Rate – which is currently being phased out). Today floating rate preferred stocks’ benchmark is SOFR (Secured Overnight Financing Rate). The dividend payment is based on the benchmark, plus a fixed spread, which is primarily a reflection of the issuer’s credit risk. The calculation of the dividend and the linked benchmark rate is set when the shares are issued. The dividend typically has a minimum rate and a rate cap, to prevent the issuer from having to pay inordinately large dividends.

A follow-on offering is when a corporation offers shares to the public after an IPO. A follow-on offering can be dilutive or nondilutive. In a dilutive follow-on offering, the issuer is selling new shares, causing the earnings per share to decrease. In a nondilutive offering, the shares being offered to the public are not new shares but shares that were already issued (often held by insiders and control persons). A nondilutive follow-on offering does not reduce earnings per share. A nondilutive follow-on offering is also called a secondary offering.

Foreign currency is a currency issued in a country other than the one in which the investor resides.

The foreign exchange rate is the rate at which one currency is exchanged for another.

 Form 1040 is an individual’s income tax form. It is due by April 15th. Sole proprietorships declare their business income on Schedule C of the owner’s 1040.

Form 1041 is the income tax form for estates and trusts. It is due by April 15th.

Form 1065 is the tax form for partnerships. It is an information return only. It is due by March 15th. An LLC taxed like a partnership would file 1065.

Form 1120 is the tax form for corporations. It is due by April 15th.

Form 1120 is the tax form for S corporations. It is an informational return only. It is due by March 15th.

Form 706 is the estate tax form, it is due within nine months of a person’s death.