FINRA-SERIES-6 Real Exam Questions and Verified Answers

Question 1 Single choice

Which of the following is true about a hedge fund?

A
It is designed to help investors hedge their risk and, as such, is a low risk alternative to a mutual fund.
B
It is closed to all but sophisticated, wealthy investors.
C
It is more liquid than almost any investment other than a money market mutual fund.
D
It has very low management fees since it is passively managed.

Show answer and explanation

Correct answer: B

Explanation

Explanation: A hedge fund is closed to all but sophisticated, wealthy investors. Hedge fund managers engage in riskier strategies than mutual fund managers. They are fairly illiquid; the redemption of shares is
restricted. They are actively managed, and management fees are much higher than those charged by other types of funds.

Question 2 Single choice

Which of the following statements regarding a letter of intent is true?

A
An investor has 12 months in which to invest the amount stipulated in the letter.
B
Reinvested dividends and capital gain distributions count toward the amount stipulated in the letter of intent.
C
An investor who signs a letter of intent and does not invest the amount stipulated must make up the difference between the sales charge he paid and what he should have paid, plus interest.
D
A letter of intent may be backdated up to 90 days so that any purchases made during that prior time period will count toward making a breakpoint.

Show answer and explanation

Correct answer: D

Explanation

Explanation: The true statement is that a letter of intent may be backdated up to 90 days so that any purchases made during that prior time period will count toward making a breakpoint. An investor has 13 months in which to invest the amount stipulated in the letter. The invested funds must consist of new
money; reinvested dividends and capital gain distributions don't count. If the amount stipulated in the letter of intent is not invested during the 13 months, the investor must only make up the difference between the sales charge he paid and what he should have paid, given that he didn't qualify for the breakpoint. No interest is charged on the difference.

Question 3 Single choice

You have just become a licensed registered representative with Fine, Howard, Fine and Associates, a broker-dealer. (Congratulations!) You have had a brokerage account with Anon Brokerage for the past ten years. In this instance, you are required to:

A
transfer the assets in your account with Anon to a Fine, Howard, Fine account and close your account with Anon.
B
provide Fine, Howard, Fine with written notification of this fact.
C
provide Anon Brokerage with written notification of your association with Fine, Howard, Fine.
D
The actions described in both B and C are requirements.

Show answer and explanation

Correct answer: D

Explanation

Explanation: If you have an account with another member firm upon becoming associated with a member firm, you are required to provide both the firm with which you have your account and your new employer in writing of the fact.

Question 4 Single choice

Which of the following are fiscal policy tools under the jurisdiction of the U.S.
Congress?

A
the decision on the amount of cash reserves that a bank must hold
B
the decision on whether to raise or lower effective tax rates
C
the decision on whether to raise or lower the rate at which banks can borrow money from the Federal Reserve
D
Both A and B are fiscal policy tools

Show answer and explanation

Correct answer: B

Explanation

Explanation: The decision on whether to raise or lower effective tax rates is a fiscal policy tool under the jurisdiction of the U.S. Congress. The decision on the amount of cash reserves a bank must hold (the reserve requirement) and the decision on whether to raise or lower the rate at which banks can borrow money from the Federal Reserve (the discount rate) are monetary policy tools under the jurisdiction of the Federal Reserve.

Question 5 Single choice

Which of the following securities would be exempt from SEC registration requirements?

I. a 15-year bond issued by the state of Colorado
II. an issue of preferred stock that has an aggregate par value of $5 million III. an issue of commercial paper that has a 5-month maturity

A
I only
B
III only
C
I and III only
D
I and II only

Show answer and explanation

Correct answer: C

Explanation

Explanation: Only Selections I and III are exempt from SEC registration requirements. The bond issued by Colorado is exempt because bonds issued by a government body are exempt from registration. The issue of commercial paper is exempt because securities with less than 270 days to maturity are exempt from registration.

Question 6 Single choice

An order to buy or sell a stock at the prevailing market price is called a(n):

A
open-ended order.
B
market order.
C
stop order.
D
limit order.

Show answer and explanation

Correct answer: B

Explanation

Explanation: An order to buy or sell a stock at the prevailing market price is called a market order. Stop orders and limit orders specify prices at which the order is triggered.

Question 7 Single choice

Which of the following retirement plans requires the employer to match employee contributions in accordance with specific guidelines?

A
401(k) plans
B
SIMPLE IRAs
C
Section 457 plans
D
both A and B

Show answer and explanation

Correct answer: B

Explanation

Explanation: The retirement plan that requires the employer to match employee contributions in accordance with specific guidelines is the SIMPLE IRA. SIMPLE is an acronym for Savings Incentive Match Plans for Employees. Although some employers offer some sort of matching contribution to 401(k) participants, it is not required that they do so. A Section 457 plan is a deferred compensation plan.

Question 8 Single choice

In order for the Invest4U Mutual Fund to qualify as a regulated investment company under Internal Revenue Code Subchapter M, it must:

A
distribute at least 90% of its net investment income to its shareholders.
B
distribute at least 98% of its net income from capital gains to its shareholders.
C
invest at least 75% of its monies in diversified securities.
D
Both A and B are required for Invest4U to qualify as a regulated investment company.

Show answer and explanation

Correct answer: D

Explanation

Explanation: To qualify as a regulated investment company, Invest4U must distribute at least 90% of its net investment income to its shareholders and distribute at least 98% of its net income from capital gains to its shareholders. Only 50% of its monies needs to be invested in diversified securities to qualify.

Question 9 Single choice

Mr. Schaker hasn't been seeing a lot of clients these days with the recent market downturn-which means he hasn't been generating any commissions, and commissions are his bread and butter. So, Mr. Schaker does some Googling on his computer and notes that a prominent family of load funds has just introduced a new global fund. Scribbling the name and contact information of the fund family on his notepad, he begins calling his existing clients and promoting the new fund, encouraging his clients to redeem some shares in their existing funds to invest in this fund.

Has Mr.
Schaker violated any securities laws?

A
No. In FINRA's rules regarding fair dealing with customers, the SRO clearly states that "This does not mean that legitimate sales efforts in the securities business are to be discouraged. . . "
B
Yes. Mr. Schaker is recommending the fund to his existing clients to benefit himself, not them.
C
No. Research indicates that new funds tend to offer abnormally high returns for the first 12 months of their existence, so Mr. Schaker is doing his clients a favor even if he himself stands to profit.
D
Yes. A registered representative should always refrain from recommending shares of a load fund;
trades involving load funds should always be "unsolicited."

Show answer and explanation

Correct answer: B

Explanation

Explanation: Yes. Mr. Schaker has violated securities laws in recommending a fund that he doesn't even seem to have researched very well to his existing clients, some of whom may not be suitable candidates for a global fund, which invests in foreign as well as domestic securities. Although FINRA's rules do indicate that it is not trying to stymie legitimate sales efforts, Mr. Schaker's actions do not fall within this category. There is no research that indicates new funds tend to offer abnormally high funds for the first 12 months of their existence, and if Mr. Schaker would have implied that, he could be up on criminal fraud charges. There is no law, however, that prohibits a registered representative from recommending a load fund to a client, as long as there is a legitimate reason for doing so.

Question 10 Single choice

Which of the following statements regarding the "rights of accumulation" is true?

A
All mutual funds that have front-end loads are required to allow their shareholders rights of accumulation.
B
Reinvested dividends and capital gain distributions count toward reaching a breakpoint under the rights of accumulation.
C
A breakpoint must be reached within a 13-month period, at which point the accumulation period begins anew.
D
A letter of intent must be signed to activate the rights of accumulation.

Show answer and explanation

Correct answer: B

Explanation

Explanation: The true statement is that reinvested dividends and capital gain distributions count toward reaching a breakpoint under the rights of accumulation. The rights of accumulation are not something that all mutual funds with front-end loads must offer. There is no time limit on the accumulation period. The
rights of accumulation and the letter of intent are two separate animals; neither has anything to do with the
other.