FINRA SIE — Securities Industry Essentials

An American Depositary Receipt (ADR) is best described as a security that:

1. ARepresents shares of a U.S. company that trade on foreign exchanges
2. BRepresents shares of a foreign company and trades in U.S. markets in U.S. dollarsCorrect
3. CRepresents a bond a foreign company sells to U.S. investors in U.S. dollars
4. DGives U.S. investors a contract to buy foreign currency at a fixed rate

Why: An ADR is issued by a U.S. depositary bank and represents a specified number of a foreign company's shares, trading and paying dividends in U.S. dollars. It is the foreign company's equity brought to U.S. markets, not a U.S. company's shares listed abroad. A bond a foreign company sells to U.S. investors in dollars is a Yankee bond, which is debt rather than equity, and an ADR is not a foreign-exchange contract.Securities Act of 1933

A broker-dealer fills a customer's buy order by selling shares out of its own inventory and adds a markup to the price. In what capacity did the firm act?

1. AAs an agent (broker) earning a commission
2. BAs a principal (dealer)Correct
3. CAs a syndicate underwriter
4. DAs the issuer's transfer agent

Why: When a firm fills a customer order out of its own inventory and charges a markup or markdown, it acts as a principal, or dealer. An agent (broker) instead arranges the trade between the customer and a third party and earns a commission, which is not what happened here because the firm itself was the seller. A syndicate underwriter distributes new issues for an issuer, not an inventory trade with a customer, and an issuer's transfer agent only records changes in ownership.Securities Exchange Act of 1934