Flashcards

European style options can only be exercised at expiration, if in the money.

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.

Exercise limits for options are the same as the stock’s position limits, so they will vary depending on the capitalization of the company and the volume of shares traded in the past six months. For the largest stocks, no more than 250,000 contracts of the same class may be exercised within 5 consecutive business days.

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.

Monthly equity, index, and cash-settled currency options expire on the third Friday of the expiration month.

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 feasibility study considers the need for the municipal project.

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.

Freddie Mac is a publicly-traded, government-sponsored enterprise. FHLMC was created in 1970 to expand the secondary market for mortgages in the United States. Freddie Mac issues corporate debt securities that are backed by loans for residential mortgages and are fully taxable at all levels of government.

Fannie Mae is an agency of the U.S. government that buys FHA and VA mortgages, then issues debt backed by the pools of mortgages. Interest paid by Fannie Mae is fully taxable at all levels of government. The bonds issued are book-entry and non-callable.

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.

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.

If a bond is trading flat it is trading without accrued interest. This is done if the issuer is in default, if it is a zero-coupon bond, or if the settlement date is the same as the interest payment date.

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.

The flow of funds is a statement found in the bond resolutions of municipal revenue issues showing the priorities by which municipal revenue will be applied. Typically, under a net revenue pledge, the flow of funds in decreasing order of priority is operations and maintenance, bond debt service, expansion of the facility, and sinking fund for the retirement of debt prior to maturity. Under a gross revenue pledge, debt service is paid first.

Forward pricing is a process used in pricing mutual fund shares for purchase or redemption. The client will always pay and received at redemption, the next price determined. The fund is required to determine its net asset value per share at a minimum of once per business day, at the close of business of the New York Stock Exchange. The client purchases at the ask price, next determined, and redeems at the net asset value per share, next determined.

The fourth market is where direct trading of securities between large investors occurs. The fourth market consists of alternative trading systems, many of which are dark pools. The fourth market is also referred to as the institutional market.

Fraud is the deliberate concealment or misrepresentation of a material fact.

Freeriding is the buying and selling of securities, without fully paying for them. Freeriding is prohibited under Federal Reserve Board Regulation T.

A front-end load is a sales charge that is charged when mutual fund shares are purchased. Class A shares have a front-end load. The front-end load is included in the public offering price (ask).

A frozen account occurs when an investor engages in freeriding. When an account is frozen under Regulation T subsequent transactions must be paid in cash in advance for the following 90 days.

A general obligation muni bond is backed by taxes. GO bonds are sometimes referred to as full faith and credit bonds.

A full power of attorney is a written authorization for someone other than the account owner to make deposits and withdrawals and to execute trades in the account. Also referred to as full trading authorization.