Core Knowledge and Fundamentals Flashcards

Which FINRA rule governs the suitability of recommendations made to customers?

Answer: FINRA Rule 2111

FINRA Rule 2111 sets the suitability standard, requiring recommendations to be appropriate based on the customer's investment profile.

What is a 'prospectus' in the context of securities offerings?

Answer: A legal document providing material information about a securities offering to potential investors

A prospectus is an official document that provides investors with essential information about a company and its securities offering to help them make informed investment decisions.

Under FINRA rules, what is the maximum period a customer's account can remain dormant before being considered abandoned property?

Answer: This varies by state law, typically 3-7 years

Abandoned property (escheatment) rules vary by state, but generally accounts inactive for 3 to 7 years may be turned over to the state.

Which of the following is NOT a characteristic of a money market instrument?

Answer: High potential for capital appreciation

Money market instruments are short-term, highly liquid, and low-risk; they do not offer significant capital appreciation potential.

A 'callable bond' gives which party the right to redeem the bond before maturity?

Answer: The issuer

A callable bond gives the issuer the right to redeem (call) the bond before the scheduled maturity date, typically when interest rates decline.

What does 'short selling' involve?

Answer: Borrowing securities to sell them, with the obligation to buy them back later

Short selling involves borrowing securities and selling them, then repurchasing them later at a hopefully lower price to return to the lender.

Under FINRA Rule 4370, member firms must maintain a written Business Continuity Plan (BCP). What must this plan address?

Answer: How the firm will respond to significant business disruptions to protect customer assets

FINRA Rule 4370 requires firms to maintain a BCP addressing how they will respond to significant disruptions to protect customer assets and ensure business continuity.