FREE BUSINESS AND STUDY GAMES ABOUT FINRA SERIES

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FREE BUSINESS AND STUDY GAMES ABOUT FINRA SERIES

7 EXAM QUESTIONS

Actual Qs and Ans Expert-Verified Explanation

This Exam contains:

-Guarantee passing score -107 Questions and Answers -format set of multiple-choice -Expert-Verified Explanation

Question 1: Outside buisiness activity

Answer:

• must be disclosed in writing
• permission is not required
• BD can reject/restrict affiliations
• passive investments (ltd partnership) is exempt

Question 2: Shorting against the box

Answer:

• tax strategy used to lock in capital gains in a long position and defer them to a later period.
• selling short shares that are currently owned in the long position when a profit already exists in the

long position.

Question 3: Company balance sheet

Answer:

Assets = liabilities + net worth Assets - liabilities = net worth

Question 4: Economic Industry: Cyclical

Answer:

• steel
• heavy equipment
• capital goods
• autos

Question 5: Interpositioning

Answer:

When a FINRA member places a third party between it and the best available market.

Question 6: Interpositioning

Answer:

• adding another BD to a transaction when there is no benefit to the customer
• purpose is to generate commissions or fees

Question 7: Earnings before interest and taxes (EBIT)

Answer:

the amount of money a company has retained before paying taxes and interest on outstanding debt issues. This can be found by looking at the income statement for the company.

Question 8: Bond taxation - amortization

Answer:

• municipal bond is bought at a premium, the premium must be amortized over the life of the bond.
• At maturity, no capital gain or loss would occur because the premium would have been fully amortized.
• reduces cost basis and reported interest income

Question 9: Reinvestment risk

Answer:

• mortgage-backed instruments are susceptible
• Zero coupon bonds are not subject to reinvestment risk

Question 10: Modern portfolio theory

Answer:

• attempts to quantify and control risk
• determine the relationship between risk and reward in the total portfolio vs specific securities

Question 11: Capital asset pricing model (CAPM)

Answer:

• takes into account a stock's sensitivity to risk that cannot be lessened by diversification.
• takes into account systemic and nonsystemic risk
• investors rewarded for taking risks

Question 12: Seeking capital growth

Answer:

-refers to an investment's value over time

• common stock / mutual funds

Question 13: SIPC

Answer:

SIPC covers each separate customer. industry-funded org.

• Account coverage up to $500,000 in securities, ($250,000 max cash).
• In margin accounts, the equity, not the market value, is used for securities coverage purposes.
• commodities not covered

Question 14: Taxable interest income - bonds

Answer:

Corporate bonds: taxed at all levels

US Govt: T bills/notes/bonds are exempt from state/local tax

Mortgage-backed securities: taxable at all levels (Fannie Mae/Freddie Mac)

Muni bonds: interest is federal tax exempt (triple exemption for territories)

Question 15: Discretionary accounts

Answer:

Rep has authority over:

• buy/sell (action)
• security (asset)
• quantity (amount)

**if rep makes any one of these, it's discretionary **timing and price are not significant

Question 16: Ways to generate income

Answer:

corporate and muni bonds, govt securities, some stocks (utilities and REITS), money market funds, annuities, some mutual funds

• not Zero Coupon bonds

Question 17: FRB rates

Answer:

• setting the reserve requirement, the discount rate, and the initial margin requirement for nonexempt

securities.The federal funds rate is heavily influenced by Fed action, it is not set by the Fed. and neither is the prime rate

Question 18: Account transfers

Answer:

• new BD validates with old firm w/in one business day
• transfer w/in 3 business days

Question 19: Progressive taxes

Answer:

• estate and income tax
• greater impact on high income families

Question 20: Maloney Act

Answer:

Provides for the establishment of SROs (FINRA, MSRD, CBOE)

Question 21: Marking the Close

Answer:

• falsely reporting trades to influence the closing price of a stock

Question 22: Account status upon death

Answer:

• cancel open orders
• mark account deceased
• await instructions and legal papers

Question 23: Insider Trading

Answer:

Anyone who is an officer, executive, director or 10%-or-more owner of the company, as well as his or her immediate family.

• Insider status only has to do with equity ownership, not debt holding.
• Must ACT on information to be criminal