Series6 : Investment Company and Variable Contracts Products Representative - Series 6 Exam

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QUESTION: 194
All of the following would create Deflation in the U.S. economy EXCEPT:
A. Increasing taxes
B. A decline in the general level of prices
C. Reduction in the supply of money
D. More government spending
Answer: D
Explanation:
Deflation is a general decline in the prices of goods and services. Deflation can occur from
an increase in taxes, less government spending, and a reduction in the money supply. It is
usually caused by a slowdown in demand coupled with an adequate supply
QUESTION: 195
The security that offers the best protection against purchasing power risk or inflation is
which of the following?
A. Treasury bond
B. Fixed annuity
C. Common stock
D. Certificate of deposit
Answer: C
Explanation:
Debt securities and investments that promise fixed rates of returns are the most susceptible
to purchasing power risk or inflation. Fixed annuities, CD’s, and treasury bonds all fall
under these categories
QUESTION: 196
An investor that holds a corporate bond until maturity will be exposed to all of the
following risks EXCEPT:
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A. Call risk
B. Inflationary Risk
C. Credit risk
D. Interest rate risk
Answer: D
Explanation:
At maturity date, it makes neither difference what the bonds coupon is nor its relationship to
current interest rates. The bond always pays off at par. Inflation, credit risk, and call risk are
all risks associated with buying corporate bonds
QUESTION: 197
Which of the following can be found on the corporate Balance Sheet?
I. Working Capital,
II. Accounts Payable,
III. Inventory,
IV. Current Ratio
A. II, III, and IV
B. I, II, III, and IV
C. II and III only
D. I and II only
Answer: B
Explanation:
The balance Sheet is also known as the statement of financial condition it is used as a
snapshot picture of a company at a specific date in time. The balance Sheet compares
corporate assets to liabilities, the total assets minus total liabilities equals net worth
QUESTION: 198
Which of the following statements concerning Inflation are Correct?
I. A higher rate of inflation usually leads to increasing interest rates,
II. A higher rate of inflation usually leads to lower interest rates,
III. Inflation deteriorates purchasing power,
IV. Inflation has no relationship to the rise in prices of good and services
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A. I and III only
B. I, III, and IV
C. II, III, and IV
D. II and III only
Answer: A
Explanation:
Inflation is the economic condition that is characterized by continuously rising prices for
goods and services. Inflation deteriorates purchasing power and typically has a negative
effect on interest-rate sensitive securities, a higher rate of inflation usually leads to
increased interest rates
QUESTION: 199
If the value of the US dollar declines relative to foreign currencies, which of the following
would be true?
I. US exports would increase,
II. Foreign imports would decrease,
III. Foreign products become cheaper in the US,
IV. US exports would decrease
A. II, III, and IV
B. II and IV only
C. I and II only
D. III and IV only
Answer: C
Explanation:
When the value of the US dollar is high, importers benefit and exporters suffer. When the
US dollar has weakened, importers suffer and exporters benefit. As the US dollar declines
relative to foreign currencies, foreign products become more expensive to purchase in the
US. US exports then become more cheaper and competitive for foreigners, thus resulting in
an increase in US exports and a decrease of foreign imports into the United States
QUESTION: 200
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The risk found in trading “thinly held issues” or those that lack marketability is best known
as:
A. Liquidity Risk
B. Exchange Rate Risk
C. Default Risk
D. Business Risk
Answer: A
Explanation:
Liquidity is the ability to convert assets into cash or cash equivalents without significant
loss



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