What are retail investors?

Individual investors who buy and sell securities for their personal accounts rather than for an organization.

True or False: Retail investors typically trade larger amounts than institutional investors.

False. Retail investors typically invest smaller amounts of money compared to institutional investors.

Which account type allows multiple owners?
A. Individual Account
B. Joint Account
C. Custodial Account
D. Retirement Account

B. Joint Account

UGMA stands for _____.

Uniform Gifts to Minors Act

What is the main difference between retail and institutional investors regarding trading volume?

Retail investors typically trade less frequently and in smaller volumes than institutional investors.

Scenario: A 25-year-old wants to invest for retirement. What time horizon category fits?

Long-term (10+ years)

What does SIPC stand for?

Securities Investor Protection Corporation

How much SIPC coverage do retail investors receive per customer?

$500,000 per customer (including $250,000 cash limit)

True or False: Retail investors must execute trades through broker-dealers.

True. Retail investors cannot trade directly on exchanges.

Which represents capital preservation objective?
A. Growth stocks
B. Money market funds
C. Penny stocks
D. Options

B. Money market funds

What does KYC require from broker-dealers?

Collect essential information about retail investors including financial situation and investment objectives.

The _____ rule requires broker-dealers to act in retail customers' best interest.

Regulation Best Interest (Reg BI)

Scenario: An investor panics and sells during market downturns. What behavioral pattern is this?

Emotional decision-making

What are odd lots in trading?

Trades of fewer than 100 shares, commonly executed by retail investors.

True or False: Retail investors have the same market access as institutional investors.

False. Retail investors have limited access compared to institutional investors.

Which investment objective focuses on regular cash flow?
A. Growth
B. Speculation
C. Current Income
D. Capital Preservation

C. Current Income

What characterizes institutional investors?

Organizations that invest large sums of money on behalf of others or their own accounts.

Mutual funds are classified as _____ investment companies.

Open-end

How do closed-end funds differ from mutual funds regarding share transactions?

Closed-end funds have fixed capitalization and trade on exchanges, not continuous issuance/redemption.

True or False: ETFs trade throughout the day like stocks.

True. ETFs trade on exchanges during market hours at market-determined prices.

What distinguishes life insurance companies' investment approach?
A. Short-term focus
B. High liquidity needs
C. Long-term investments
D. Speculative trading

C. Long-term investments

Property and casualty insurers emphasize _____ in their portfolios.

Liquidity

Scenario: A pension fund promises specific retirement benefits. What type is this?

Defined benefit plan

What characterizes hedge funds' investor base?

Limited to accredited investors and qualified purchasers due to reduced regulatory oversight.

True or False: Sovereign wealth funds are privately owned investment vehicles.

False. Sovereign wealth funds are state-owned investment funds.

What income threshold qualifies an individual as accredited?
A. $100,000 annually
B. $200,000 annually
C. $300,000 annually
D. $500,000 annually

B. $200,000 annually ($300,000 jointly with spouse)

An accredited investor's net worth must exceed _____ excluding primary residence.

$1 million

What investment amount qualifies someone as a qualified purchaser?

At least $5 million in investments (not including primary residence)

Scenario: A Series 7 license holder wants to invest in private offerings. Are they qualified?

Yes, professional credentials qualify them as an accredited investor.

True or False: Qualified purchaser status allows investment in Section 3(c)(7) funds.

True. These funds may have unlimited accredited investors.

What does ERISA regulate?
A. Mutual funds
B. Pension plans
C. Insurance companies
D. Hedge funds

B. Pension plans

Investment companies must follow the _____ Act of 1940.

Investment Company

What is the typical hedge fund fee structure?

"2 and 20" - 2% management fee plus 20% performance fee

Scenario: An endowment needs perpetual income while preserving principal. What's their spending policy?

Typically distribute 4-5% of assets annually

True or False: Private foundations must distribute at least 5% of assets annually.

True. This is required for charitable purposes.

What characterizes venture capital funds' investment focus?
A. Established companies
B. Government bonds
C. Early-stage startups
D. Real estate

C. Early-stage startups

Private equity funds typically hold investments for _____ years before exit.

4-7

What does systematic risk affect?

The entire market or broad market segments; cannot be eliminated through diversification.

Scenario: A company recalls its product, affecting only that stock. What risk type?

Unsystematic risk (company-specific risk)

True or False: Interest rate risk affects all fixed-income securities equally.

False. Longer maturity bonds have greater interest rate risk.

What protects against inflation risk?
A. Cash only
B. Fixed-rate bonds
C. Stocks and TIPS
D. Money market funds

C. Stocks and TIPS

The _____ margin requirement under Regulation T is 50%.

Initial

What is the typical maintenance margin requirement?

25% minimum (set by self-regulatory organizations)

Scenario: A retiree with limited assets seeks speculative investments. What's the concern?

Potential unsuitable recommendation due to capacity-tolerance mismatch

True or False: Risk capacity takes precedence over risk tolerance when they conflict.

True. Risk capacity is objective and more important for suitability.

What must broker-dealers document for suitability determinations?

Reasonable basis for believing the recommendation is suitable for the particular customer.