Question 1

Diane is the chief executive officer of a U.S.-based pharmaceutical firm. Over the years, she has been purchasing significant amounts of stock in the company. The rejection of the company's new drug, by the FDA, resulted in a huge drop in the company's stock value. Diane knew of the rejection before it was made public and sold her stock. Diane is guilty of .
A) false accounting
B) black marketeering
C) insider trading
D) influence peddling

Accepted Answer

Diane is guilty of insider trading, as she used non-public information to make a profit by selling her stock before news of the drug's rejection became public. False accounting involves falsifying financial records, black marketeering involves selling illegal goods, and influence peddling involves using one's position of power to gain favors or advantages. None of these apply to the situation described.

Question 2

State the amendments made to Rule 14(a) in 1983 with respect to exclusion of a shareholder proposal.

Accepted Answer

The answer of State the amendments made to Rule 14(a)...

Question 3

Atlas Consultancies, a financial consulting firm, has received a tender offer for a takeover from a rival firm. In order to retain the goodwill of its management, Atlas gave its employees large bonus packages and other forms of compensation. Which of the following defensive strategies is Atlas using?
A) porcupine provision
B) golden parachute
C) white knight
D) greenmail

Accepted Answer

Atlas is using the golden parachute defensive strategy, which involves providing executives with large severance packages or other financial benefits if the company is taken over. This is intended to incentivize executives to resist the takeover and work towards maintaining the independence of the company. The porcupine provision involves making the company unattractive to the acquirer by adopting measures such as adding debt, while the white knight involves finding a friendly third party to acquire the company instead. Greenmail involves buying back shares from the potential acquirer to prevent a takeover.

Question 4

The Uniform Securities Act has been adopted in part by some states to bring to state security laws.
A) diversity
B) accessibility
C) uniformity
D) accountability

Accepted Answer

The Uniform Securities Act was created to provide uniformity in state securities laws, so the best choice is C, uniformity.

Question 5

Which of the following is a correct statement regarding securities regulations?
A) Securities are regulated by state law, not federal law.
B) Securities are regulated by federal law, not state law.
C) Securities are regulated concurrently by state and federal laws.
D) Securities are regulated sequentially by state and federal laws.

Accepted Answer

Securities are regulated concurrently by both state and federal laws. Federal laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934, provide a framework, while state laws, known as "blue sky laws," also regulate securities within each state.

Question 6

An exchange market is a securities market that provides a physical facility for the buying and selling of stocks and prescribes the number and qualifications of its broker-members. These brokers buy and sell stocks through the exchange's registered specialists, who are dealers on the floor of the exchange.

Accepted Answer

This statement accurately describes an exchange market.

Question 7

Which of the following is true of state securities laws?
A) They are also referred to as "clear sky" laws.
B) They require that securities be registered with federal authorities only.
C) Securities are only regulated by state laws.
D) They regulate securities purchased and sold in intrastate commerce.

Accepted Answer

State securities laws, often called "blue sky" laws, regulate securities transactions within the state, particularly those that occur in intrastate commerce.

Question 8

State securities laws are often referred to as laws.
A) blue sky
B) dark water
C) open prairie
D) barbed wire

Accepted Answer

State securities laws are commonly referred to as "blue sky laws". This term originated from the idea that a worthless investment is like selling someone a piece of the "blue sky" - something that does not exist. State securities laws were enacted to protect ordinary investors from fraudulent investment schemes and to ensure that securities offerings are fair and provide adequate disclosure.

Question 9

The Securities Exchange Act of 1934 regulates the .
A) actions of brokers and dealers who trade in securities
B) use of public utility and holding companies
C) public issuance of bonds
D) structure and operation of public investment companies

Accepted Answer

The Securities Exchange Act of 1934 was enacted to regulate the actions of brokers and dealers who trade in securities, which includes stocks, bonds, and other financial instruments. The act also established the Securities and Exchange Commission (SEC) to enforce the regulations outlined in the act.

Question 10

A person engaged in the business of buying and selling securities for others' accounts is called a dealer.

Accepted Answer

A person engaged in the business of buying and selling securities for others' accounts is called a broker, not a dealer. A dealer buys and sells securities for their own account.

Question 11

State laws require that securities be registered (or qualified) with authorities.
A) state, not federal
B) federal, not state
C) both state and federal
D) neither state nor federal

Accepted Answer

Both state and federal laws require that securities be registered or qualified with authorities. The Securities Act of 1933 sets the requirements for federal registration, while state laws create their own registration requirements. Companies must comply with both sets of laws to sell securities lawfully.

Question 12

The Regulation Fair Disclosure (FD) required companies to .
A) publicize all potentially market-moving data at the time the data become available
B) make market-moving data available only to certain analysts
C) have more open relations with analysts who ask for data about the company's market performance
D) not share market-moving data with analysts or the public

Accepted Answer

The Regulation Fair Disclosure (FD) requires companies to publicize all potentially market-moving data at the time the data become available. This ensures that all investors have equal access to information and prevents companies from selectively releasing information to certain analysts or investors.

Question 13

A tender offer is a public offer made by an individual or a corporation made directly to the shareholders of another corporation in an effort to acquire the targeted corporation at a specific price.

Accepted Answer

This is the correct definition of a tender offer.

Question 14

The regulates the trading in securities once they are issued.
A) Trust Indenture Act of 1939
B) Securities Act of 1933
C) Securities Exchange Act of 1934
D) Investment Company Act of 1940

Accepted Answer

The Securities Exchange Act of 1934 regulates the trading in securities once they are issued, including oversight of the securities markets and their participants (such as securities exchanges and brokers). The Trust Indenture Act of 1939 regulates the issuance of debt securities and the protections afforded to holders of those securities, while the Securities Act of 1933 regulates the issuance of new securities to the public. The Investment Company Act of 1940 regulates mutual funds and other types of investment companies.

Question 15

Supreme Motors, a car manufacturer in the United States, decides to move to Delaware to avoid a hostile takeover bid. Delaware is known to have strong antitakeover laws. Which of the following defense strategies is Supreme Motors using?
A) scorched-earth policy
B) porcupine provision
C) white knight
D) shark repellent

Accepted Answer

Supreme Motors is using a "shark repellent" strategy, which involves making changes to the company's bylaws or state of incorporation to make it less attractive or more difficult for a hostile takeover to occur. Delaware's strong antitakeover laws serve as a form of shark repellent.

Question 16

Which of the following terms refers to buying out a hostile shareholder at a price far above the current price of the target company's stock in exchange for the hostile shareholder's agreement not to buy more shares for a period of time?
A) golden parachute
B) poison pill
C) porcupine provision
D) greenmail

Accepted Answer

Greenmail is a term used when a hostile shareholder is bought out at a premium in exchange for not buying additional shares for a certain period of time. This is often done to avoid a hostile takeover. A golden parachute refers to a compensation package given to executives in the event of a merger or acquisition, while a poison pill is a defensive tactic used by a company to make itself less attractive to an acquiring company. A porcupine provision is not a commonly used term in finance.

Question 17

Which of the following defensive strategies refers to bankrupting a company?
A) porcupine provision
B) scorched-earth policy
C) shark repellent
D) white knight

Accepted Answer

The scorched-earth policy refers to destroying or bankrupting a company in order to prevent it from being taken over by a hostile bidder. This defense strategy involves selling off valuable assets, taking on excessive debt, and incurring significant legal costs to make the company unattractive to the acquirer.

Question 18

What is Regulation Fair Disclosure? Explain the views of those favoring and opposing Regulation FD.

Accepted Answer

The answer of What is Regulation Fair Disclosure? Explain the...

Question 19

Amendments to the Securities Exchange Act in 1975 required any exchange or over-the- counter market to .
A) register each individual market transaction with the Securities and Exchange Commission
B) obtain advance approval from the Securities and Exchange Commission prior to any rule changes
C) report profits and losses to the Securities and Exchange Commission on a monthly basis
D) cease all trading activity in times of severe recession

Accepted Answer

The Securities Exchange Act amendments in 1975 required any exchange or over-the-counter market to obtain advance approval from the Securities and Exchange Commission prior to any rule changes. This was done to provide more transparency and oversight for the markets. The other options listed are not accurate requirements of the amendments.

Question 20

Which of the following is a difference between an exchange market and an over-the-counter (OTC) market?
A) An exchange market is a securities market, whereas an OTC market is a goods market.
B) An exchange market has no membership qualifications, whereas an OTC has membership qualifications.
C) An exchange market provides a physical facility for the buying and selling of securities, whereas an OTC market has no physical facility.
D) An exchange market involves brokers buying directly from the public, whereas an OTC market involves brokers buying and selling stocks through registered specialists.

Accepted Answer

An exchange market provides a physical facility, such as a trading floor, for the buying and selling of securities, whereas an OTC market does not have a physical facility and trading takes place electronically or over the phone. The other options (A, B, and D) are incorrect because they do not accurately describe the differences between exchange and OTC markets.

Quiz 23: Rules Governing the Issuance and Trading of Securities

State the amendments made to Rule 14(a) in 1983 with respect to exclusion of a shareholder proposal.

The Uniform Securities Act has been adopted in part by some states to bring to state security laws.

Which of the following is a correct statement regarding securities regulations?

Which of the following is true of state securities laws?

State securities laws are often referred to as laws.

The Securities Exchange Act of 1934 regulates the .

A person engaged in the business of buying and selling securities for others' accounts is called a dealer.

State laws require that securities be registered (or qualified) with authorities.

The Regulation Fair Disclosure (FD) required companies to .

A tender offer is a public offer made by an individual or a corporation made directly to the shareholders of another corporation in an effort to acquire the targeted corporation at a specific price.

The regulates the trading in securities once they are issued.

Supreme Motors, a car manufacturer in the United States, decides to move to Delaware to avoid a hostile takeover bid. Delaware is known to have strong antitakeover laws. Which of the following defense strategies is Supreme Motors using?

Which of the following terms refers to buying out a hostile shareholder at a price far above the current price of the target company's stock in exchange for the hostile shareholder's agreement not to buy more shares for a period of time?

Which of the following defensive strategies refers to bankrupting a company?

What is Regulation Fair Disclosure? Explain the views of those favoring and opposing Regulation FD.

Amendments to the Securities Exchange Act in 1975 required any exchange or over-the- counter market to .

Which of the following is a difference between an exchange market and an over-the-counter (OTC) market?