These two questions threw me off:
CQ2XT-9RMRY
and
8BYRT-KCXVD
-Edward
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Hi @EdwarDallas - thanks for reaching out on our forum!
Both questions are correct, but I’ll give you a slightly different explanation than was provided on the question. I’ll start first with CQ2XT-9RMRY:
An investor places a trade, which is executed in the second market. What statement made by a representative confirming the trade to a customer is misleading or incorrect?
A) Second market trades occur OTC
B) The second market is considered part of the secondary market
C) Only unlisted stocks trade in the second market
D) None of these choices
The secondary market is divided into four submarkets - the first, second, third, and fourth market. Therefore, B is a true statement. The second market involves trading of unlisted stocks in the over-the-counter (OTC) markets, confirming answer choices A and C as correct. Therefore, there is no misleading or incorrect answer here. If you want to read up more on the classifications of the market, here’s the section it’s covered in.
Next, let’s look at 8BYRT-KCXVD:
After researching a list of securities that may be recommended to clients, a registered representative makes a presentation relating to the risks of each. All of the following statements made on the presentation are considered false or misleading, EXCEPT:
A) Excessive leverage could result in significant business risk
B) Large-cap companies tend to experience lower levels of liquidity risk than small-cap companies
C) Non-systematic risks negatively affect the broad market
D) Market risk can be effectively eliminated with diversification
Based on the way the question was setup, we’re looking for the true statement. A is false because business risk relates to a company’s revenues falling due to competition or mismanagement. Financial risk occurs when a company is over-leveraged (borrowed too much money). C is false because systematic risks affect the broad market, while non-systematic risks tend to affect a single security or a small portion of the market. D is false because market risk, which is a type of systematic risk, applies to the broad market, and therefore cannot be diversified away. Only non-systematic risks can be effectively eliminated with diversification.
Large-cap companies are more popular and trade more frequently in the market than small-cap companies. Therefore, they tend to experience less liquidity risk.
I hope this helps clarify everything! Please respond to this post or DM me directly if you have any other questions.
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Thank you, Brandon!
I tried to email back my thanks the other day, but later in the day I received a DAEMON sending error. Just want y’all to know incase it’s an issue for other to reply back via email.
Edward
1 Like