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FINRA Series 7
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Question 1 of 30
1. Question
Many investors are not sure how much risk they should be taking, and it is the broker’s job to help them figure this out. Various nonfinancial factors in making this determination include:
I. Investor previous investment experience
II. Investor employment situation
III. Investor household income
IV. Investor net worthCorrect
Nonfinancial factors
1. the investor’s age
2. his marital status
3. his dependents
4. his educational needs
5. his employment situation
6. his previous investment experienceIncorrect
Nonfinancial factors
1. the investor’s age
2. his marital status
3. his dependents
4. his educational needs
5. his employment situation
6. his previous investment experience -
Question 2 of 30
2. Question
Which of the following are the customer-specific factors which affect the selection of his securities for investment purposes:
I. Risk tolerance
II. Investment time horizon
III. Investment objectives
IV. Expected Rate of ReturnCorrect
The customer-specific factors which affect the selection of his securities for investment purposes are his risk tolerance, his investment time horizon, and his investment objectives.
Incorrect
The customer-specific factors which affect the selection of his securities for investment purposes are his risk tolerance, his investment time horizon, and his investment objectives.
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Question 3 of 30
3. Question
The following term refers to possession of several varied types of securities, usually so that different parts of one’s portfolio offset risks in other parts:
I. Diversification
II. Concentration
III. Asset allocation
IV. VolatilityCorrect
Diversification for portfolios or accounts is the possession of several varied types of securities, usually so that different parts of one’s portfolio offset risks in other parts.
Incorrect
Diversification for portfolios or accounts is the possession of several varied types of securities, usually so that different parts of one’s portfolio offset risks in other parts.
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Question 4 of 30
4. Question
The following theory that seeks to maximize the return and/or minimize risk for a given portfolio is:
I. Portfolio theory
II. Diversification theory
III. Capital budgeting theory
IV. Asset Valuation theoryCorrect
Portfolio theory is a branch of finance theory which mathematically seeks to maximize the return and/or minimize risk for a given portfolio
Incorrect
Portfolio theory is a branch of finance theory which mathematically seeks to maximize the return and/or minimize risk for a given portfolio
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Question 5 of 30
5. Question
Following is (are) brokerage accounts where, instead of paying his own cash, the customer is lent cash from the broker, with various securities and cash being used as collateral.
I. Cash Accounts
II. Margin Accounts
III. Options Accounts
IV. Day trading AccountsCorrect
Margin accounts are brokerage accounts where, instead of paying his own cash, the customer is lent cash from the broker, with various securities and cash
being used as collateral.Incorrect
Margin accounts are brokerage accounts where, instead of paying his own cash, the customer is lent cash from the broker, with various securities and cash
being used as collateral. -
Question 6 of 30
6. Question
Which of the following can serve as a lesser substitute for power of attorney:
I. Corporate Resolution
II. Trading authorization
III. Discretionary accounts
IV. Estate accountsCorrect
Trading authorization can serve as a lesser substitute for power of attorney.
Incorrect
Trading authorization can serve as a lesser substitute for power of attorney.
-
Question 7 of 30
7. Question
Which of the following statement is (are) true about the purpose of Know Your Customer (KYC) forms:
I. To assess client’s willingness to take risk
II. To assess client’s knowledge of investments and finance
III. To assess client’s actual assets
IV. To assess client’s qualification as bona fide foreign residentCorrect
Know Your Customer (KYC) forms are documents specifically designed assess the client’s willingness to assume risk, his knowledge of investments and finance, and his actual assets. Brokers should seek to gain this kind of information from their clients, such as whether they qualify as bona fide foreign residents.
Incorrect
Know Your Customer (KYC) forms are documents specifically designed assess the client’s willingness to assume risk, his knowledge of investments and finance, and his actual assets. Brokers should seek to gain this kind of information from their clients, such as whether they qualify as bona fide foreign residents.
-
Question 8 of 30
8. Question
Which of the following appliers when concerning to corporate insiders:
I. Individuals who are privy to corporation’s inside information
II. Includes directors and officers
III. Those who have access to material but non-public knowledge
IV. Owning less than 10% of the voting sharesCorrect
Corporate insiders are individuals who are particularly privy to a corporation’s “inside” information; this definition includes directors and officers for the company in addition to anyone owning over 10% of the voting shares, and really anyone who has access to material but nonpublic
knowledge.Incorrect
Corporate insiders are individuals who are particularly privy to a corporation’s “inside” information; this definition includes directors and officers for the company in addition to anyone owning over 10% of the voting shares, and really anyone who has access to material but nonpublic
knowledge. -
Question 9 of 30
9. Question
Which of the following statement is true about money market funds:
I. Money market funds are not insured by FDIC
II. They can be invested in short term securities
III. They can be invested in both short term and long term securities
IV. The average maturity of the portfolio cannot exceed 120 daysCorrect
money market funds are not insured by the FDIC, Another restriction on money market funds is that they must stay mainly invested in short-term securities—the average maturity in their portfolio cannot exceed 90 days
Incorrect
money market funds are not insured by the FDIC, Another restriction on money market funds is that they must stay mainly invested in short-term securities—the average maturity in their portfolio cannot exceed 90 days
-
Question 10 of 30
10. Question
Which of the following is false about transferring accounts between broker dealers
I. Account transfer form states whatever securities the customer had with old broker dealer
II. the old broker-dealer has three business days to confirm or else make an exception for some information in the request
III. The old-broker dealer has five business days to execute the account transfer
IV. Using ACATS requires membership in National Securities Clearing Corporation (NSCC)Correct
The old-broker dealer then has three more business days to execute the account transfer.
Incorrect
The old-broker dealer then has three more business days to execute the account transfer.
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Question 11 of 30
11. Question
Accounts can be registered under different categories, such as:
I. individual
II. Joint
III. Custodial
IV. DealersCorrect
Accounts can be registered under different categories, such as individual, joint, and custodial.
Incorrect
Accounts can be registered under different categories, such as individual, joint, and custodial.
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Question 12 of 30
12. Question
Customer making transfer between or among their own accounts or accounts with which they are closely associated are known as:
I. internal transfer
II. Transfer on death
III. Divorce transfers
IV. External transfersCorrect
Internal transfers are transfers which customers make with funds between or among their own accounts (or accounts with which they are closely associated).
Incorrect
Internal transfers are transfers which customers make with funds between or among their own accounts (or accounts with which they are closely associated).
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Question 13 of 30
13. Question
Following is the deliberate concealment of the source of illegally-obtained funds:
I. Specially Designated Nationals
II. Currency transaction reports
III. Money laundering
IV. Bank Secrecy ActCorrect
Money laundering is the deliberate concealment of the source of illegally-obtained funds, and due to its deception and harm, a number of regulations
Incorrect
Money laundering is the deliberate concealment of the source of illegally-obtained funds, and due to its deception and harm, a number of regulations
-
Question 14 of 30
14. Question
Which of the following is made by financial institutions to the U.S detailing Information about suspicious individuals or transactions:
I. Currency transaction reports
II. Suspicious activity reports
III. Bank Secrecy Act
IV. Money launderingCorrect
Suspicious activity reports (SARs) are made by financial institutions to the U.S. Treasury Department (specifically, the Financial Crimes Enforcement Network, or Fin CEN), detailing information about suspicious individuals or transactions
Incorrect
Suspicious activity reports (SARs) are made by financial institutions to the U.S. Treasury Department (specifically, the Financial Crimes Enforcement Network, or Fin CEN), detailing information about suspicious individuals or transactions
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Question 15 of 30
15. Question
Bank Secrecy Act (BSA), passed in 1970, established responsibilities for:
I. U.S. Treasury
II. Federal government agencies
III. Financial institutions
IV. Economic and trade sanctionsCorrect
The Bank Secrecy Act (BSA), passed in 1970, established responsibilities for financial institutions to federal government agencies, requiring the institutions to maintain records for cash purchases of negotiable instruments, to file any such purchases totaling over $10,000, and to report any suspicious activity
Incorrect
The Bank Secrecy Act (BSA), passed in 1970, established responsibilities for financial institutions to federal government agencies, requiring the institutions to maintain records for cash purchases of negotiable instruments, to file any such purchases totaling over $10,000, and to report any suspicious activity
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Question 16 of 30
16. Question
OFAC has compiled a list of people or groups of people with whom U.S. citizens and institutions are prohibited from doing business are:
I. Specially Designated Nationals
II. Office of Foreign Asset Control
III. Currency transaction reports
IV. Bank Secrecy ActCorrect
The OFAC has compiled a list of Specially Designated Nationals (SDNs), that is, people or groups of people with whom U.S. citizens and institutions are prohibited from doing business.
Incorrect
The OFAC has compiled a list of Specially Designated Nationals (SDNs), that is, people or groups of people with whom U.S. citizens and institutions are prohibited from doing business.
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Question 17 of 30
17. Question
Brokerage firms will also have restrictions on what kind of accounts:
I. margin accounts
II. Stock market
III. Long and short margin accounts
IV. Short sale accountsCorrect
Brokerage firms will also have restrictions on what kind of accounts can be margin accounts, as well as what kind of securities can be purchased in margin accounts.
Incorrect
Brokerage firms will also have restrictions on what kind of accounts can be margin accounts, as well as what kind of securities can be purchased in margin accounts.
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Question 18 of 30
18. Question
There are two different courses of action either he can borrow money with which he will buy securities, or he can borrow securities directly which is following as:
I. long margin account
II. Short margin account
III. Short sale accounts
IV. Special memorandum accountsCorrect
In a margin account, a client can take two different courses of action: either he can borrow money with which he will buy securities, or he can borrow securities directly. The first type of margin account is a long margin account, and the second is a short margin account
Incorrect
In a margin account, a client can take two different courses of action: either he can borrow money with which he will buy securities, or he can borrow securities directly. The first type of margin account is a long margin account, and the second is a short margin account
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Question 19 of 30
19. Question
Which are the following is (are) true for long margin accounts?
I. the customer uses money lent to him by the broker
II. To purchase a security
III. Hoping to make a profit on the security
IV. Pay back the brokerCorrect
In a long margin account, the customer uses money lent to him by the broker, in addition to some of his money, to purchase a security (or set of securities), hoping to make a profit on the security, pay back the broker, and pocket the extra cash.
Incorrect
In a long margin account, the customer uses money lent to him by the broker, in addition to some of his money, to purchase a security (or set of securities), hoping to make a profit on the security, pay back the broker, and pocket the extra cash.
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Question 20 of 30
20. Question
In the following marginal account, customer will generally sell the security (or set of securities) he has just borrowed from the broker, hope for the price to decrease, purchase the security at a lower price:
I. long margin account
II. Short margin account
III. Portfolio margin accounts
IV. Day trading accountsCorrect
In a short margin account, the customer will generally sell the security (or set of securities) he has just borrowed from the broker, hope for the price to decrease, purchase the security at a lower price, and return the security to the broker while pocketing the extra cash.
Incorrect
In a short margin account, the customer will generally sell the security (or set of securities) he has just borrowed from the broker, hope for the price to decrease, purchase the security at a lower price, and return the security to the broker while pocketing the extra cash.
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Question 21 of 30
21. Question
In the following lines of credit, an investor is permitted to take out more on margin if he has more equity in his margin account:
I. Portfolio margin accounts
II. Day trading accounts
III. Special memorandum accounts
IV. Credit balanceCorrect
Special memorandum accounts (SMAs) are like lines of credit, where an investor is permitted to take out more on margin if he has more equity in his margin account.
Incorrect
Special memorandum accounts (SMAs) are like lines of credit, where an investor is permitted to take out more on margin if he has more equity in his margin account.
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Question 22 of 30
22. Question
If the margin requirement is 50% (that is, if the financial institution does not raise the requirement above the minimum 50%), then what will be the buying power of Special memorandum accounts (SMA):
I. Single
II. Double
III. Triple
IV. HalfCorrect
If the margin requirement is 50% (that is, if the financial institution does not raise the requirement above the minimum 50%), then the buying power for any SMA will be double the SMA balance.
Incorrect
If the margin requirement is 50% (that is, if the financial institution does not raise the requirement above the minimum 50%), then the buying power for any SMA will be double the SMA balance.
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Question 23 of 30
23. Question
Following is the type of margin account where the initial margin requirement differs according to the particular risk of the portfolio:
I. Customer Portfolio Margin system
II. Day trading accounts
III. Portfolio margin accounts
IV. Margin callsCorrect
Portfolio margin accounts are a type of margin account where the initial margin requirement differs according to the particular risk of the portfolio.
Incorrect
Portfolio margin accounts are a type of margin account where the initial margin requirement differs according to the particular risk of the portfolio.
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Question 24 of 30
24. Question
The following type (types) of accounts are most risky margin accounts:
I. Day trading accounts
II. Customer Portfolio Margin system
III. Short sale accounts
IV. Special memorandum accountsCorrect
Day trading accounts are especially risky margin accounts used to make a very high number of trades per day, making a profit or loss off of the small upticks and downticks in the daily price.
Incorrect
Day trading accounts are especially risky margin accounts used to make a very high number of trades per day, making a profit or loss off of the small upticks and downticks in the daily price.
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Question 25 of 30
25. Question
Which of the following statements are true for credit brokerage?
I. How much has the customer borrowed from the brokerage firm?
II. How much the customer has contributed to or received in his account.
III. The practice of using stocks as collateral for loans.
IV. The current value of the stocks the investor bought on margin.Correct
The credit brokerage refers to how much the customer has contributed to or received in his account.
Incorrect
The credit brokerage refers to how much the customer has contributed to or received in his account.
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Question 26 of 30
26. Question
The difference between the margin requirement for an account and the total cost refers to the following:
I. Margin
II. Margin calls
III. Hypothecation
IV. Loan valueCorrect
Loan value is the difference between the margin requirement for an account and the total cost.
Incorrect
Loan value is the difference between the margin requirement for an account and the total cost.
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Question 27 of 30
27. Question
The brokerage house may not pledge by more than of following percent of a customer’s debit balance:
I. 140 percent
II. 145 percent
III. 150 percent
IV. 155 percentCorrect
The brokerage house may not pledge more than 140 percent of a customer’s debit balance:
Incorrect
The brokerage house may not pledge more than 140 percent of a customer’s debit balance:
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Question 28 of 30
28. Question
Which of the following is (are) prohibited activities for brokers?
I. They are not permitted to spread market rumours
II. They are not permitted to engage in front-running
III. They are not permitted to pay for referrals
IV. They are not permitted to make prearrange tradesCorrect
(i)They are not permitted to spread market rumours. (ii)They are not permitted to engage in front-running. (iii)They are not permitted to pay for referral.(iv) They are not permitted to prearrange trades
Incorrect
(i)They are not permitted to spread market rumours. (ii)They are not permitted to engage in front-running. (iii)They are not permitted to pay for referral.(iv) They are not permitted to prearrange trades
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Question 29 of 30
29. Question
TRACE is a program developed by:
I. NASDAQ
II. Rating agencies
III. FINRA
IV. EMMACorrect
It is a program developed by FINRA to facilitate the reporting of various trades by brokers.
Incorrect
It is a program developed by FINRA to facilitate the reporting of various trades by brokers.
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Question 30 of 30
30. Question
Which of the following documents are prepared by investment research teams for brokerage firms or investment banks?
I. TRACE
II. Research reports
III. Product-specific periodicals
IV. NASDAQCorrect
Research reports are documents prepared by investment research teams for brokerage firms or investment banks (or by individual analysts in such teams).
Incorrect
Research reports are documents prepared by investment research teams for brokerage firms or investment banks (or by individual analysts in such teams).