FBLA Securities and Investments
Exam with Complete Solutions (All
Correct) Tested and Graded A+
private placement - Answer- an exempt transaction under Reg D (Rule 506) of the
Securities Act of 1933, allowing issuers to sell securities without registration to
accredited investors, who agree to hold them fully paid 1 year before then selling them
through Rule 144
purchaser representative - Answer- someone independent of the issuer in a private
placement who can represent the needs of a non-accredited investor
best efforts - Answer- a type of understanding leaving the syndicate at no risk for unsold
shares, and allowing them to keep the proceeds on the shares that were
sold/subscribed to
firm commitments - Answer- an underwriting in which the underwriters agree to
purchase all securities from an issuer, even the ones they failed to sell to investors.
Involves acting in a "principal" capacity, unlike in "best efforts," "all or none," and "mini-
max" offerings
spread - Answer- generally, the difference between a dealer's purchase price and
selling price, both for new offering (underwriting spread) and secondary market quotes.
For underwritings the spread is the difference between the proceeds to the issuer and
the POP
standby offering - Answer- a firm commitment by an underwriter to purchase any shares
that are not subscribed to in a rights offering
auction market - Answer- the NYSE, for example, where buyers and sellers
simultaneously enter competitive prices, Sometimes called a "double auction" market
because buying and selling occur at the same time, as opposed to Sotheby's, where
only buyers are competing
first market - Answer- the exchange market, e.g., NYSE
, specialist - Answer- an individual who oversees trading in a particular stock (GE, IBM,
etc.,) in order to maintain a "fair and orderly market." The specialist buys and sells for
his own account.
second market - Answer- Also known as the "negotiated market", or "OTC" market is
not a physical marketplace, but its definitely a market; where market makers put out a
bid and ask price, and stand ready to take either side of the trade for at least one round
lot. For stocks a round lot is 100 shares.
bid - Answer- what a dealer is willing to pay to a customer who wants to sell
ask - Answer- the higher price in a quote representing what the customer would have to
pay/what the dealer is asking the customer to pay. Customers buy at this price because
dealers sell to customers at this price. Also called "offer/offered."
NASDAQ - Answer- National Association of Securities Dealers Automated Quotations
system
Non-NASDAQ OTC - Answer- securities trading on the "over-the-counter" market that
do not meet NASDAQ requirements. For example, pink sheets
third market - Answer- exchange-listed stock traded OTC primarily by institutional
investors
fourth market - Answer- Where big institutional investors (pension funds, insurance
companies, mutual funds, etc.) trade directly through electronic communications
networks (ECNs)
bonds - Answer- debt securities which represent loans from investors to a corporation
partial surrender - Answer- life insurance policyholder cashes in part of the cash value.
Excess over premiums is taxable
maturity date - Answer- the date that a bond pays out the principal and interest
payments cease. Also called "redemption"
nominal yield - Answer- the interest rate, also known as the "coupon rate" which is
named on the bond certificate
leverage - Answer- using borrowed money to increase returns. Debt securities and
margin accounts are associated with this term.
current yield - Answer- the annual interest paid by a bond to an investor divided by what
the investor would have to pay for the bond
discount bond - Answer- a bond trading below the par value
Exam with Complete Solutions (All
Correct) Tested and Graded A+
private placement - Answer- an exempt transaction under Reg D (Rule 506) of the
Securities Act of 1933, allowing issuers to sell securities without registration to
accredited investors, who agree to hold them fully paid 1 year before then selling them
through Rule 144
purchaser representative - Answer- someone independent of the issuer in a private
placement who can represent the needs of a non-accredited investor
best efforts - Answer- a type of understanding leaving the syndicate at no risk for unsold
shares, and allowing them to keep the proceeds on the shares that were
sold/subscribed to
firm commitments - Answer- an underwriting in which the underwriters agree to
purchase all securities from an issuer, even the ones they failed to sell to investors.
Involves acting in a "principal" capacity, unlike in "best efforts," "all or none," and "mini-
max" offerings
spread - Answer- generally, the difference between a dealer's purchase price and
selling price, both for new offering (underwriting spread) and secondary market quotes.
For underwritings the spread is the difference between the proceeds to the issuer and
the POP
standby offering - Answer- a firm commitment by an underwriter to purchase any shares
that are not subscribed to in a rights offering
auction market - Answer- the NYSE, for example, where buyers and sellers
simultaneously enter competitive prices, Sometimes called a "double auction" market
because buying and selling occur at the same time, as opposed to Sotheby's, where
only buyers are competing
first market - Answer- the exchange market, e.g., NYSE
, specialist - Answer- an individual who oversees trading in a particular stock (GE, IBM,
etc.,) in order to maintain a "fair and orderly market." The specialist buys and sells for
his own account.
second market - Answer- Also known as the "negotiated market", or "OTC" market is
not a physical marketplace, but its definitely a market; where market makers put out a
bid and ask price, and stand ready to take either side of the trade for at least one round
lot. For stocks a round lot is 100 shares.
bid - Answer- what a dealer is willing to pay to a customer who wants to sell
ask - Answer- the higher price in a quote representing what the customer would have to
pay/what the dealer is asking the customer to pay. Customers buy at this price because
dealers sell to customers at this price. Also called "offer/offered."
NASDAQ - Answer- National Association of Securities Dealers Automated Quotations
system
Non-NASDAQ OTC - Answer- securities trading on the "over-the-counter" market that
do not meet NASDAQ requirements. For example, pink sheets
third market - Answer- exchange-listed stock traded OTC primarily by institutional
investors
fourth market - Answer- Where big institutional investors (pension funds, insurance
companies, mutual funds, etc.) trade directly through electronic communications
networks (ECNs)
bonds - Answer- debt securities which represent loans from investors to a corporation
partial surrender - Answer- life insurance policyholder cashes in part of the cash value.
Excess over premiums is taxable
maturity date - Answer- the date that a bond pays out the principal and interest
payments cease. Also called "redemption"
nominal yield - Answer- the interest rate, also known as the "coupon rate" which is
named on the bond certificate
leverage - Answer- using borrowed money to increase returns. Debt securities and
margin accounts are associated with this term.
current yield - Answer- the annual interest paid by a bond to an investor divided by what
the investor would have to pay for the bond
discount bond - Answer- a bond trading below the par value
