Pass FINRA Series 7 Exam in First Attempt Easily

Start Here - Intoduction Videos

1. Why is the Series 7 exam necessary?

When we see the markets on Wall Street or stockbrokers in the news or movies, one common question is: What does a person need to do to become a stockbroker? That is where the Series Seven Exam enters the picture. All stockbrokers who would like to work with securities and clients are required to take and pass this licencing exam. FINRA requires the Series 7 exam to be passed. But who is FINRA? FINRA is a regulatory body that governs the financial services industry and the Series Seven Exam. FINRA makes the decisions about what material should be included on the test, and FINRA decides what level of knowledge is needed to pass the test. Not only does FINRA require that potential stockbrokers pass this test, but brokers also have to go and complete continuing education throughout their career. Passing this test is the ticket to play in order to be a stockbroker; what is the cost of this ticket? a passing score of 72% or higher. This test is huge, and having a solid understanding of how the test works will help you to prepare. Currently, the nationally publicised FINRA Series Seven passrate ranges from about 60% to 65%. Those numbers mean about four out of every ten candidates. Don't pass the exam. But don't get discouraged. The goal of this video series is to give you the tools you need to improve your understanding and increase your confidence and likelihood of success. So let's have a look at what this test is all about.

2. What topics are tested as part of the Series 7 exam

When most people prepare for a test, it's common to think about what's on the test. So let's talk about it. As mentioned, FINRA is a governing body that administers a test, and they determine the content that must be tested. Now, because FINRA ultimately owns this test, let's go have a look at their website. This is where we can go to find out how they breakdown the Series 7 exam so we can see that they break up the test into what they call "job functions," such as seeking business for the broker dealer.However, these function descriptions can end up being vague and leaving individuals confused or concerned as they try to prepare for this large and important test. Our goal and the emphasis of this video course is to drill down into the many concepts that can be on the test, and we want to simplify the information and make it relevant to your job as a licenced stock broker. Now, with this exam, FINRA has access to a database of over 600 questions that they've created, and those 60,000 questions are based on over 1800 testable topics. So there are 1800 potential testable topics or concepts, and each candidate will receive 260 questions based on those topics, but only 250 of those count towards your score. With some quick math, we know that you need to get 180 questions correct to get the 72% passing score. Looking at all the numbers, it's obvious that you won't see all 1800 topics. So how do you study? Finner broke it down by job functions, but let's look at it from a different angle. Here we have a pie chart. It's broken up into broad topics and concepts, along with what percentage of the tests each topic will represent. For example, we see that debt makes up approximately 15% of the Series Seven exam, and we see that the topics about equities and the trading markets and exchanges will make up a combined 10% of the test. We will look at all the major topics and dive deeper into what should be known for the exam, helping to guide your focus on the most commonly tested themes and not waste your time or brain cells on the least likely topics to be tested. This course will include videos about these topics, practise sample questions, and demonstrations on how to work through the problems. Now, word of warning: these videos are not meant to be one's only source of information, but they will be of the most value if utilised as a review and organisational tool. So now we know about the test and the topics. Let's introduce the format of how we'll prepare for these topics throughout this course.

3. Series 7 Prep Video Course Format

Let's take just a couple of minutes to describe how the format of this video course for your Series Seven preparation will look, feel, and work. We will normally start with a short video like this to give the general layout of the concept for that particular section. Now, I may also use these videos to deliver or clarify concepts that may be a little more difficult, and using those examples and stories may help you remember those important concepts. I will utilise PowerPoint presentations to discuss the bulk of the material, focusing on the topics that are most commonly seen on the Series Seven exam, and I will provide a couple of questions during or at the end of the presentations to give a feel for the format or point of view that may be taken on the exam to test your understanding. After the presentations, you'll have access to a series of questions that are about the topic that was just covered to try on your own, normally in a PDF file to download and work through. Once you've had a chance to work through the questions on your own, I will come back and we will work through the problems together, allowing you to check your work for accuracy and the correct thought process. This will help you gain the confidence you need for a correct thought process and enhance your conceptual understanding. As we look at the questions together that you have on your PDF download, I'll draw your focus to keywords and phrases that can help us understand what they are asking and how to get to the correct answer quickly. So now that we have our plan of attack, let's go look at our first section together, equity securities.

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Series 7 Prep - Equity Securities

1. Equity Securities Overview

When most people start to study for the Series Seven exam, one of the first topics they look at is equity securities. The topic of equity securities is what most people commonly correlate with stock brokers or the trading of stocks and equities. The equity and securities section of the exam will make up approximately half of the test, which means most people will see about eight to twelve questions. The equity security section can be broken down into three main subjects. They are common stock, preferred stock, and other securities. Common stock is what is most commonly traded and referred to when talking about the stock market. when talking about common stock. For the Series 7 exam, we will focus on why people buy stock, how their dividends work, and what rights stockholders have. Preferred stock is the next major topic within the Equity Securities section. Preferred stock is a different category of stock, and it acts differently compared to common stock. Being able to understand these differences is key. In preparing for the Series Seven exam, the last topic we will look at is other equity securities. Under other equity securities, we will look at rights and warrants, what they are and how they differ, and ADRs, which help facilitate the trade of foreign company stock on the US markets. Next, we will dive deeper into the concepts of equity securities through a PowerPoint lecture and practise questions. This will help solidify our understanding of these concepts.

2. Equity Securities - Common Stock characteristics and classifications

Welcome to the first section of our preparation for the Series Seven exam, where we will be talking about equity securities. This includes common stock, preferred stock, and other equity securities. Now, for most people that come back from taking the test, they normally say that they see about eight to twelve questions on the exam about this material. And that makes up about 4% of the total, which falls in line with expectations. So today, as part of this lecture, we're going to start looking at some of these securities. Here's a layout. We're going to first talk about common stock. We're going to be looking at the different characteristics, what rights stockholders have, dividends, and adjustments, and how those are affected, especially when we start to distribute those out to shareholders. We'll also talk about preferred stock. Key to this is being able to understand the differences between preferred and common stocks, their characteristics, and all the different types of preferred stocks that exist. We'll also talk about other equity securities. These include American depository, receipts orAVRs what their purpose is. Plus we'll talk about rights and warrants, mainly the differences in characteristics and how to compare the two. Then we'll also talk about the suitability of these equity securities. We need to know when and why they would be suitable for our clients. And then we'll briefly discuss the formulas and calculations that are associated with equity securities. So let's get started with equity securities, specifically common stock. So with common stock, this is what most people conjure up when they think about a company. And it does. Stock represents ownership in a company. So in our little pie chart here, Bob buys some shares of a particular company, let's say ABC Company or ABC Corporation, and the company issues out that stock to generate capital. The capital may be used for a variety of different purposes. It may be because they want to expand their business. It could also be because they need to build a plant or buy a factory. There are a variety of different reasons. The reasons aren't important. It's just that you need to understand that they will use stock in order to generate that capital. We call it going public. When a company goes public, they sell their stock to the general public and make it available. As people like you and I buy the stock, we now own a portion of that company. Now, in order for a company to become a public entity, they must be registered with the SEC, and they have to file for that. As they do so, money willcome into the company and shares. The stock will be divvied out to the owners who are purchasing that stock.It is important to understand how the stock is created. And it's also important to know how to classify these different shares of stock. There are different names that they like to test on in the Series Seven exams. So, for example, when a company first registers with the SEC, they are authorised to sell a certain number of shares, in our example, 100 million shares, to the public. Of those shares, they will then start to actually issue those out, meaning they will sell those to the public. For example, it says 50 million shares are issued to the public. Now, of those 50 million shares, it's possible that the company may want to buy some of them back. Those are called Treasury stocks. Not to be confused with the US Treasury's treasury bills and treasury bonds, but Treasury stock goes back into, if you want to think of it like the treasure chest that the company holds of their own stock, and there are many benefits to this. One advantage is that they can raise the potential earnings per share because earnings per share are calculated based on the number of outstanding shares still held by the public. Plus, they don't have to pay out as much in dividends because the shares that they hold do not receive dividends. So what's left after the company buys back some shares is what's called "outstanding shares." These are all the shares that are currently held by the public uri.They're ones that get traded back and forth. And these are also known as "voting shares," because anyone that holds one of these shares has the ability to vote in upcoming board of director elections or anything that involves material changes to the company. We'll look at the rights a little bit further as we dive in. Now, the outstanding shares are also usedto calculate the market capitalization of thecompany or how big the company is. That's normally taken by the number of shares and times that by the market price of the stock, and that will give you the market cap. So a large company like ExxonMobil or anything that's on the New York Stock Exchange is going to have a very large market capitalization because of two factors. One, there are a large number of outstanding shares, as well as the stock price. It gives an idea of how much the company is worth overall. Next we'll look at the common stockholders' rights.

3. Equity Securities - Common stockholders' rights

Now we're going to look a little bit deeper into the common stockholder and what rights they have. So among their rights, they have one major right, and that is the right to vote. They hold what are called the voting shares. So they have the right to vote on all important matters that will affect the overall company since they are a partial owner. These may include diluted actions or mergers. So if the company is going to be merging with another one or having a spinoff, the power actually lies in the hands of the shareholders. The other most common time when there may be a vote for the stockholders is in regards to the board of directors. These are elections that take place every few years, and the votes are distributed to shareholders via proxy. There are two major types of voting. One's called statutory voting and the other is cumulative voting, and we'll actually break those down in just a minute. Another thing that stockholders get as a perk is that they have the ability to transfer ownership, which means they just get to trade or transfer that to someone else if they so desire to help out with that process. There are a couple of groups that help with that. They're called the transfer agent and the registrar. Now the transfer agent is normally hired by the corporation that has the stock, or sometimes a bank or trust company, and they handle all the necessary issuing and redeeming of shares and maintain a list of all the shareholders. Now the registrar has a role because they actually just kind of make sure that everything is done correctly. They act as a sort of watchdog over the transfer agent. Another thing that common stockholders have is what's called a claim of assets upon the dissolution of the company. So if the company happens to go bankrupt, the common stockholders do get to receive a portion of those assets. Because common stockholders are paid out last, the asset portion is likely to be very small. That is an important concept to remember because seven exams in the test series will test you on that order, and they are always the last. One thing that the stockholders do have the right to do is what's called "inspect the books." Normally, this is in the context of receiving their annual statements from the company. So your balance sheet, income statement, cash flow statement, all the public records—those are made available to the common stockholder. Now they don't get to go into the office and start opening up all the files and cabinets—that's not allowed—but they can receive that information so they know what they're investing in. And then you have the right to receive a dividend when it's declared. So it does have to be declared in order to receive that dividend. Now this is why a lot of people own stock because they want to receive the dividend. Now dividends can be paid to customers in many different ways The most common is that they can receive cash another waythat they can receive it is property and the other ismore stock stock and cash are the most common. Now it is possible, and it has happened in the past, where if there's a company, for example, that manufactures chewing gum, at the end of each year if they have excess inventory they will turn around and send that out to their shareholders as part of their dividend for the year. It's kind of weird; it doesn't happen a lot, but it could happen, so keep in mind that those are three ways that a company could pay their dividends: in cash, in stock, or in property. So let's look a little bit more at the right to vote. So again. Statutory voting and cumulative voting are used in important matters, boards of directors, and elections, so let's pretend Bobhere owns 100 shares under statutory voting. two people for seat B, and two people for seat 3. With his 100 shares, he basically gets to cast his 100 votes for one of the two people for seat A, 100 votes for one of the two people in seat B, and 100 votes for someone for seat C, and that's how he gets to do it. So he only gets to cast his vote for whatever his voting power is on one particular issue in this case. Now cumulative voting is a little bit different because with this one, you would still have the same seat, A. Seat B and seat C, but what they say is that there are three open seats, so there are three things to be voted upon, so we take our 100 shares. Times it by three, so that means we're technically going to give Bob 300 shares, and he can use those shares however he wants, so if he really liked someone that was going for CB, he could put all 300 shares towards that one individual. It is important to understand this for the purposes of the test, but it is also important to understand what they consider and who benefits from the cumulative voting. They say on the test that cumulative voting is beneficial to a small investor, so keep that in mind because they get to cast their votes all in one way, so if you really like someone, you can definitely do so okay. Now as part of the PowerPoint, I like to pose a couple of questions, so here's a sample question to look at when considering a common stockholder. All of the following are their rights and privileges, except part of this PowerPoint in the lecture is to help understand how questions can be asked and where to focus. So let's look at a couple of different things. All the fun is in their rights, except since they've been accepted, we are actually looking for false statements. The false statements will actually be the answer in this case. So let's look down at these. So my first tip and trick with regards to answering these questions is to first look down at the answers. Look down at the answers whenever you have a really simple question to see what you have to prove. Most of the time, you have to prove or find two true statements. And the other two are the ones that are bad, right? So what we do is figure out which ones are being compared with each other. As I look through one and two, they are never in an answer together.So that means I'm going with either one of these two being a correct answer or one of these two being a correct answer. So that means I'm never going to try to compare two to three or two to four. It's going to be just between one and two. So let's have a look. voting on the board of directors. So that's all right. But we're looking for the bad answer. We're looking for an acceptance. So that means we're not going to get that answer. which means two have to be voting on decisions. Being a daily company awesome. As a voter or a stockholder, you don't get to make any decisions on how they run the company. That's the board of directors' job. So that means this is going to be one of our answers because it is a false statement. So two is a good answer. That means we can get rid of B, and we can get rid of C because those are both ones. So now we're just looking at three and four. So let's see if the three receive value before the preferred stockholders at liquidation. No, they receive it after. Let's look at for receiving dividends when declared. So that is something they get to do. But again, we're looking for the fault statements. So, this is our fault statement. So our false statements are going to be two and three. Answer: Excellent. So as we proceed and we go into further questions, we'll look at these a little bit more. The next section that we're going to look at is cash dividends and distributions.

4. Equity Securities - Common stock dividends and adjustments

Alright, so our next section in equity securities will be talking about common stock and, more specifically, cash dividends and stock splits. So when we think of dividends that come in for us and stockholders, most often they are paid in cash. Now, with cash dividend distribution, there are certain dates that need to be known for the test. Specifically, ones that are set by the company or its board of directors, as opposed to those that are not. So the first date is the declaration date. This is set by the board of directors and basically says we are declaring that there will be a dividend. It's basically the announcement of the dividend. Now, the exdividend date is a date that is set by the exchange or FINRA because they're taking into account the time it takes for the trades to settle. and we'll talk about that in just a little bit. You have the record date, which is set by the board of directors as well. The record date basically says that you must be an owner of record by this date to be able to receive the dividend. That means the trade has to settle if you're going to be buying that stock; the trade has to settle on or before this date in order for you to get that dividend. And then you have the payable date. The "payable date" is actually when the dividend will be paid out to the common stockholders. So, if we were to look at a calendar, let's say that the company decides to come out beyond their dividend declaration and their announcement date. And let's say they do that on the fifth. Excellent. And they will set, because again, the board of directors will set; they may set that you have to be the owner of record as of the 22nd. And that's when they set that They'll also say, "Hey, if you want to get the dividend if you are going to be paid the dividend, the dividend will be paid out on the 30th." That's a payable date. Now, the one that's missing is the one that's set by FINRA. So FINRA says that since the trade has to be settled by the record date, that means you have to purchase it at least three days in advance, or three business days in advance. It's critical to remember that the ex-dividend date will be two business days prior to the record date, which means the stock will no longer trade with the dividend on this date. So exdividend means that the stock is no longer trading with the dividend. That's important to remember without the dividend. So just like if you have an ex-wife, ex-spouse, ex-girlfriend, or ex-boyfriend, you're without them; you're not with them anymore. So that's what an ex dividend entails. So let's have a look a little bit deeper into how these cash dividends work. Specifically, what happens on an ex-dividend date. because it's part of the market system. Since the value of the stock since the stock is no longer going to receive the dividend. That needs to be reflected. Because in most cases, as you buy stock. The expectation is that you will receive the dividends as they're paid. But if you aren't getting the dividend, that should be reflected to make sure that all things are equal. So let's say, for example, that we'll go back to our example. Let's say the 22nd was our record date, which means the 20th is going to be our ex-dividend date. So let's say that on Monday, January 19, the stock closed the day out at $20 a share. Now, the dividend that's going to be paid later in the month, on the 30th pay date, is our ex-dividend over here. So when it gets paid out, we're going to be paid a dividend, and the dividend is going to be one dollar per share. So everyone who holds it and is an owner of record as of the 22nd will receive that dollar at the end of the month. So if you buy it early in the month, you're obviously going to be receiving the dividend because it's going to make sense that you'll be an owner as of the 22nd. What will happen? anyone who buys it too late. So on the ex-dividend date or later, they're not going to get the dividend. But what's interesting to know is that on the ex-dividend date, the price gets adjusted. So on Monday, the stock is worth $20 a share. However, on Tuesday, the ex-dividend date, the stock will be adjusted, and it will open the morning at $19 a share, because anyone who buys it on Tuesday, January 20, will no longer receive that dividend. So, there will be questions on the exam about the dates as well as the fact that there may be adjustments to those dividends, specifically the price of the stock, and how that reflects and what that means to a customer or your client. And we'll see these in a couple of the practise questions that we'll go through a little bit later. Plus, in a different section down the road, trading markets and exchanges, you'll be able to see a little bit more of this. So stock splits and stock dividends At times, companies will want to pay out dividends to their shareholders, but they may not do it in cash. They may actually just issue new shares, give their clients new shares, or do both. Companies pay them with more shares, but their proportionate ownership stays the same. So if Bob here has 10%, we're just assuming that he has 10% of a company. What will happen is that if everybody gets 25% more in a stock dividend, everybody gets 25%, including Bob. So instead of having 10%, he'll still have 10% because everybody got another 25%. So his proportionate ownership does not change. What will happen, though, is she will receive additional shares. and we'll look at an example in just a minute. Now, stock splits and reverse splits are a little bit different, but they still maintain proportionate ownership. A regular split makes the stock more affordable for a smaller investor. So say, for example, you have a stock that's trained at $500 a share. Not all clients would be able to buy 100 shares of us at one given point in time. That would be $50,000. So what they may do is the company may split it up, and instead of having one share worth $500, they'll have two shares worth $250 each. And that's called a stock split. It makes it a little bit more affordable for some of the smaller investors. You'll have the same overall value because you have one share here, and here you just have two shares worth $250 each. So, as mentioned right here, the number of shares will increase while the price per share decreases, maintaining the same overall value. Now, reverse splits are a little bit different because these are used to help make stock more attractive for an institutional investor. These are like the big mutual funds or insurance companies. These are people who are buying in large numbers. So in this case, let's say stock is $7 a share, and a company wants to make their stock a little more attractive for an institutional buyer. They may say, "Well, we're going to take these $7 shares." We're going to take five of them. So seven, seven, and seven. And we're going to make one share worth $35. This would be a one-for-five reverse split. So if you held shares, your number of shares will end up decreasing, and the dollar amount per share is going to increase. And again, we'll show an example of how that kind of works. So, here's another example of stock dividends. Bob will say he owns 100 shares,and it's worth $50 a share. If the company declares the stock dividend, what's going to happen is that Bob is going to end up with more shares. But what we first need to look at is what his overall value is for his position. So we take 100 shares and multiply it by $50 a share. Basically, it tells us that his value or position in that account for that one stock is $5,000. Since the overall proportionate ownership is not going to change, what will happen after he receives this dividend is that he'll have 125 shares. And we know that by just doing quick math, we can take 25% of that and add it to the 100 shares that he has, and then it's going to be worth a certain dollar amount per share, but it's still going to end up being worth $5,000 in the end. So if we do some quick math and divide the 125 into 50, we find that now the stock price is going to be listed at $40 a share. There are more shares that exist, but at a lower price per share, which means the overall value remains the same. and that is the key to remember. You can get through some of the harder questions just by remembering that if you know where you need to end up, you'll be good to go. Now, going down to a stock split a stock split. What we'll do with that is refer to it as, let's say, a two for one. You get two new shares for every old share you used to have. And again, it makes it easier for the smaller investor to purchase those. So if you used to have 100 shares, they are again worth $50 a share. So going back to Bob's example with the two-for-one split, it's still worth $5,000 here. If he gets this two for one, he's now going to have 200 of the new shares, and they're going to be worth $25 a piece, still ending up with $4,000 as our book value. The reverse split, as kind of mentioned before, is a little bit different. You get one new share for every five old shares that you used to have. So if you had seven, so in our example, if every share was worth $7 and he had, let's say, a customer with, I don't know, 500 shares, try and make it an easy example. So we currently hold 500 shares at $7 a share. His overall value in this position is going to be $3500, right? So if we take these five shares, all worth $7, and now we convert them into one new share, we're going to have, instead of 500 shares, 100 shares. But now it's worth $35 a share in value, which is still $3,500, but just increases the price per share. But you're decreasing the number of shares that you hold. Again, it's beneficial or it's looked at as an attractive and enticing thing to do for your larger investors, whereas the regular stock split makes more sense for the other investors or the smaller investors. Let's do a quick sample question. XYZ has declared a record date for a quarterly cash dividend for their common stock, and it's going to be a record date of April 18. When is the last day that investors could purchase a stock regularly and receive the dividend? Excellent. So this is a question that's going to test you to determine if you kind of understand where the ex-dividend date is and when someone would need to purchase it in order to receive the dividend. So, the way I normally stack something out like this is to give a quickcalendar and then put the date. So start with the 18th here. I know this has to be 19th,20th, and I'll count backwards 16, 1514. So the record date is right here. So that means trades have to be settled by the record date in order to receive the dividend. So when we say "regular way," regular way means that the trade will settle within three business days. So it's trade plus three business days. That's the assumption when we talk about the ex-dividend date. So if we count backward, this would be the third day. So this would be the second day. This would be the first business day. And that means this would be a trade day. So you would have to buy it by this day in order to get it on the record by this day. Even though the question doesn't ask, they could potentially say: When is the ex-dividend date? The ex-dividend date would be here because if you buy it on the 16th, it wouldn't settle until the 19th, which is too late to be considered on the record to receive the dividend. So the answer on this is Monday, April 15. Now that we've worked through that question, let's jump into the next section about equity securities.

5. Equity Securities - Preferred stock and ADR's

So the next part of equity superiors that we're going to discuss is preferred stocks and ADRs. So with preferred stocks, what we need to know for the Series Seven exam is that we need to understand what the characteristics are of the preferred stock and how they work. So preferred stocks have a par value, which means it's worth a certain amount, sometimes $10, $25, $50, or $100. So it's going to be printed on the stock itself: how much it's worth, and then it has a specific interest rate that is stated as well. So they will be paying 8% annually. So customers will actually really like these asa form of regular or fixed income that'scoming into their pocket on a regular basis. Now, because they have a par value and theyhave an interest rate that is stated, they actuallywork very common or very comparable to a bond. They have an inverse relationship in regards to the price of the stock and the dividend yield. So what that means is if the dividend yieldsare going up, the price of the stock, thepreferred stock is most likely dropping and vice versa. If the price of the stock is going up,that will mean that the yield that someone wouldactually be receiving is going to be going down. This is an important concept that we'll touch on again once we get into bonds. Now, a couple of the things to remember when we're talking about preferred stock and common stock are the differences. So preferred stock has a preference over common stock, which means preferred gets all the stuff first. They're the first child; they get all the goods that the common stock may not get. So one of which is that the preferred stocks may get paid their dividends before, and normally they have what are called either straight or non-cumulative dividends that will get paid, and then they have cumulative dividends, and it may state that they get paid in arrears. Basically, what that means is that if, for whatever reason, in 2010, a company didn't have enough money to pay the preferred stock dividend, but it had a cumulative dividend statement on it where the preferred stock was considered a cumulative stock, if the company paid their dividend in 2011, they would have to go back and pay the back dividends. So whatever they were due from the previous year, they'd have to pay those out first before they could pay the dividends that are due for that current year. You can imagine that if a company is doing that, they may not have enough money left over for the common stockholders. So the common stockholders are always the last. They're the last ones to eat; they're the last ones to get paid; they're always last. And that refers back to this topic down here, the claim to assets upon dissolution. And that just means if a company goes under, who gets paid out first? It's always the debt holders first because they have skin in the game from providing the loan to the company, and then it trickles down. Eventually, preferred stockholders will receive their portion or get some sort of payout as owners, and then if there's anything left over, it goes to the common stockholders. Now, one thing that preferred stockholders do not have is the ability to vote on any issues. They have nonvoting shares, as they're called. So they are not going to have the opportunity to vote on anything when it comes up, like a common stockholder. So there are payoffs. Preferred stockholders normally get a higher dividend, and it's more regular and more stable, whereas common stock owners have the ability to vote on things that happen in the company. so very different. One thing that does set preferred stockholders apart is that there are different types of preferred stock. So you could have a convertible preferred stockwhich gives people the option to convert theirpreferred stock shares into common stock. You could also have a callable preferred stock, and all that means is a company has the option. If they wanted to do so, they could call those preferred stock shares back and basically pay out the holders, and then those shares would not exist anymore. The last one is an adjustable-rate preferred stock. Adjustable rate simply means that there is a yield percentage of the stated rate that will be included on the stock itself. So if it's adjustable, it means that the rate may change over time depending on what's happening in the marketplace. So if interest rates are going up everywhere else, it is possible that the preferred stock that has an adjustable rate will see its yield increase as well, helping to keep in line with what's happening in the rest of the marketplace. Excellent. So now what we're going to do is branch over and talk about some of the other equities that exist, specifically the American Depository Receipts, or ADRs. And basically the focus of these securities is that they are used to help foreign companies' stocks come to the US and be traded on its markets. And so, for example, if a company in Asia or Europe wants their stock to be bought and sold in the United States for greater exposure, they can certainly do so, but there is a process that must be followed. In most cases, the way that it works is that there needs to be a major US bank that has a foreign branch in that country. So, for example, in Japan, if a Japanese company would like its stock to be sold on the US market, there has to be a US branch over in Japan. So that bank will actually buy the shares overthere in Japan and then they will basically createwhat's called a receipt that basically says. Hey. We hold this share of stock that we bought in Japan, and it's sitting in our vaults here in Japan. But we're going to take this receipt, and people can buy it to basically demonstrate or represent the ownership of shares that are being held. Normally, foreign companies do not want to simply come over and register in the United States. Markets because it can be a very costly and time-consuming process as they have to go through registration with the SEC. So this process allows banks to kind of partner up with these companies overseas to help out. Now, there are two different types. They are classified as sponsored and non-sponsored. The only thing you have to remember here is that a sponsored ADR means that it's traded on one of the major exchanges like the New York Stock Exchange. There are listing requirements, so there are certain hoops to jump through in order to be considered a sponsored ADR. So there are quite a few that just remain nonsponsored, which just means they aren't traded on an exchange. They are traded over the computer or over the counter in the OTC marketplace. Now, one thing in regards to these receipts that you, as an investor, may buy is that dividends will get paid, but they are declared in a foreign currency and then they get converted. And then, by the time they are deposited in your account, you have them in US dollars. Right? Now the voting rights are something that's very interesting and commonly tested since you, as an investor, do not actually hold a share. You actually just hold the receipt that represents a share. You personally don't have any voting rights. All of the voting rights are actually held by the actual owner or holder of the shares, and that would be the bank. So those are some of the things that make a common stock and an ADR very different. One thing to take into consideration specifically when talking about ADRs is the fact that there are some specific risks that are inherent to these ADRs, one of which is the fact that there's currency involved. So when there is currency that we have to consider, and it's coming, if a dividend is declared in Swiss francs and it has to be converted over to dollars, if the currency rate is bad, it could affect you and how much dividend you actually receive. Plus, there are other political risks to be considered as well. We don't know what's happening at that other company. Excuse me, is there political unrest that could potentially harm that company itself? Then there's anything with an international risk that should be considered, as those are increased for these types of investors. That's really all you need to know in regards to American Depository Receipts. You may see one to two questions specifically on this brief topic. but normally it's about what the purpose is. So how it happens with theUS Bank sponsored versus non sponsored. So keep in mind that, again, if it's traded on an exchange like the New York Stock Exchange or by non-sponsors over the counter as in the OTC market, what happens with the dividends and voting rights? Excellent. So we've gone through that. The following section will go over rights and warrants as other types of securities.

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