Currency Risk Survives the Wrapper

Rule 13 of 14 in this unit2.1.1

2.1.1 Equity Securities

SIE outline 2.1.1

Currency Risk Survives the Wrapper

SEC Investor Bulletin, verbatim: "When the exchange rate between the foreign currency and the U.S. dollar changes, it can increase or reduce an investment return in a foreign security": and "it is possible that a foreign investment may increase in value in its home market but, because of changing exchange rates, the value of that investment in U.S. dollars is actually lower." NOT "an ADR removes currency risk because it trades in dollars." Trading in dollars is where the risk shows up, not where it disappears: the dollar price is the foreign price after the exchange rate has been applied.

The method for this kind of question

1h45m ÷ 80 items = 78.75 seconds per item. A classification item here should cost about 40.
Stop hunting for a rule. Every fact in this lesson is a term in a document, so the stem must hand it to you.
Arrears: count the missed years, then ADD the year now due. Dropping that last step is the classic error.
Rights vs warrants: either axis classifies it. Weeks and below-market → right. Years and above-market → warrant.
"Attached to the bonds" is a warrant, every time.
An ADR trading in dollars does NOT remove currency risk: the dollar price is the foreign price after the exchange rate.
Next: SIE Practice Quiz #5: Equity Securities, every answer explained.

Now answer

1 question on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Above the exam

An affiliate of a reporting company acquires restricted shares and holds them for exactly six months, satisfying Rule 144's holding period. The company has 20,000,000 shares outstanding, and the average weekly trading volume over the preceding four weeks was 150,000 shares. What is the maximum she may sell in the current three-month window?

A. 200,000 shares, the greater of 1% of the 20,000,000 shares outstanding (200,000) and the 150,000-share average weekly volume figure B. 150,000 shares, the average weekly volume figure alone. 150,000 is the smaller of the two figures; the rule uses the greater, not the lesser. C. 20,000,000 shares, since the holding period has been satisfied. Satisfying the holding period does not remove the separate volume limitation; the two rules apply together. D. 200,000 shares, but only after an additional six-month wait beyond the first. No second six-month wait applies once the holding period is met; the volume limit governs the amount, not a further waiting period.

How sure are you?

Sure Fairly sure Guessing

Correct: A. The holding period (six months, reporting issuer) is satisfied, clearing her to sell; the volume limit is then the greater of 1% of 20,000,000 (200,000) and the 150,000 four-week average, so 200,000 governs.

B. 150,000 is the smaller of the two figures; the rule uses the greater, not the lesser.

C. Satisfying the holding period does not remove the separate volume limitation; the two rules apply together.

D. No second six-month wait applies once the holding period is met; the volume limit governs the amount, not a further waiting period.

Unit: SIE outline 2.1.1

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