AIP Risk Assessment & Regulatory Compliance 3

Question 1

A client complains that their broker churned their account to generate commissions. Under FINRA rules, which metric is most commonly used to assess whether excessive trading occurred?

Accepted Answer

Turnover rate and cost-to-equity ratio

Answer

Churning analysis typically focuses on the turnover rate (how often the portfolio is turned over) and the cost-to-equity ratio (how much the account must earn just to break even on commissions).

Question 2

The Investment Company Act of 1940 requires registered investment companies to maintain what minimum percentage of liquid assets to meet redemptions under normal conditions?

Accepted Answer

15%

Answer

Under SEC Rule 22e-4 (the Liquidity Rule), registered open-end funds must maintain at least 15% of net assets in 'highly liquid investments' to meet anticipated redemptions.

Question 3

Which of the following is an example of 'model risk' in investment management?

Accepted Answer

A quantitative model producing incorrect valuations due to flawed assumptions

Answer

Model risk is the risk of loss resulting from using inaccurate or flawed financial models, including incorrect assumptions, data errors, or misapplication of the model.

Question 4

Under FINRA Rule 4511, member firms must preserve most books and records for a minimum of how many years?

Accepted Answer

6 years

Answer

FINRA Rule 4511 requires member firms to preserve most books and records for a minimum of six years, with the first two years in an easily accessible location.

Question 5

A fund manager implements a 'stop-loss' rule to sell any position that declines more than 10% from its peak. This is an example of which type of risk management technique?

Accepted Answer

Loss mitigation / downside protection

Answer

A stop-loss rule is a loss mitigation technique that automatically limits downside by triggering a sale when losses reach a predefined threshold.

(AIP) Accredited Investment Professional Certification Practice Test

(AIP) Accredited Investment Professional Certification Practice Test

AIP Risk Assessment & Regulatory Compliance 3