FINRA FINRA-SERIES-6 Online Practice Questions and Exam Preparation

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 151:

  When the U.S. dollar appreciates relative to other world currencies,

  I. the prices of all domestic stocks and bonds can be expected to increase.

  II. the prices of securities offered by manufacturers that import a lot of their parts can be expected to increase.

  III.

  an increase in the purchase of U.S. securities by foreign investors can be expected.

  A. I, II, and III
  B. I and II only
  C. II only
  D. III only
  I. the prices of all domestic stocks and bonds can be expected to increase. II. the prices of securities offered by manufacturers that import a lot of their parts can be expected to increase. III. an increase in the purchase of U.S. securities by foreign investors can be expected.
  C. II only

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  Explanation/Reference:

  When the U.S. dollar appreciates relative to other world currencies, the prices of securities offered by manufacturers that import a lot of their parts can be expected to increase. This is because the dollar will buy more, so the parts will cost these firms less. All else equal, a decrease in expenses leads to increased cash flow, which leads to an increase in the prices of the securities offered by these firms. Not all domestic companies will benefit from the appreciation of the dollar. In particular, firms that export their products overseas may be hurt since their products will now cost the foreign consumer more in terms of their own country's currency, and they may seek another supplier. A similar argument exists for why Selection III is not correct. U.S. securities will be more expensive to foreign investors, who may decide to invest in other foreign markets.

• Question 152:

  Fidelity Investments has two money market funds that is available to most investors. The Fidelity Cash Reserves fund (FDRXX) is currently yielding 0.10% while its Fidelity Municipal Money Market fund (FTEXX) is yielding 0.01%. One reason for this significant difference is that:

  A. the Municipal Money Market fund pays interest that is free from state and local taxes.
  B. the Municipal Money Market fund pays interest that is free from federal taxes.
  C. interest earned on the Cash Reserves fund is subject to the alternative minimum tax.
  D. the Municipal Money Market fund is insured by the FDIC, and this is not true of the Cash Reserves fund.
  B. the Municipal Money Market fund pays interest that is free from federal taxes.

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  Explanation/Reference:

  One reason for the significant difference between the returns on Fidelity's Cash Reserves fund and its Municipal Money Market fund is that the Municipal Money Market fund pays interest that is free from federal taxes. The interest earned is not necessarily free from state and local taxes, and the Municipal Money Market fund is not insured by the FDIC.

• Question 153:

  The Invest4U Mutual Fund is a regulated investment company under Internal Revenue Code Subchapter M. This means that:

  A. Invest4U must submit an annually-updated prospectus to the IRS as well as to the SEC.
  B. Invest4U does not itself have to pay taxes on any dividend or capital gain income it receives and distributes to its shareholders.
  C. Invest4U is a UIT.
  D. Invest4U is a non-diversified management company.
  B. Invest4U does not itself have to pay taxes on any dividend or capital gain income it receives and distributes to its shareholders.

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  Explanation/Reference:

  A regulated investment company under Internal Revenue Code Subchapter M is one that does not itself have to pay taxes on any dividend or capital gain income it receives and distributes to its shareholders. There is no

  requirement that it file an updated prospectus with the IRS, nor that it be a non-diversified management company. By definition, a mutual fund is not a UIT.

• Question 154:

  Private placements may be sold to whom?

  A. only to institutional investors.
  B. only to accredited investors.
  C. to as many as 35 non-accredited investors.
  D. to only 35 investors.
  C. to as many as 35 non-accredited investors.

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  Explanation/Reference:

  Private placements may be sold to as many as 35 non-accredited investors. Non-accredited investors must have a purchaser representative to help them evaluate the investment. There is no restriction on the number of accredited investors to whom the securities can be sold. Accredited investors include wealthier, more sophisticated individual investors as well as institutional investors.

• Question 155:

  Dottie is a newly-minted, registered representative and is doing some cold calling to line up appointments with prospects. When doing so, Dottie:

  I. must not call anyone on her firm's do-not-call list.

  II. must not call anyone on the FTC's national do-not-call-list.

  III. must not call anyone before 7 a.m. or after 7 p.m., based on the time zone of the person being called.

  IV.

  must provide the person called with her name, the name and contact information of her firm, and the purpose of her call.

  A. I and III only
  B. I and IV only
  C. I, II, and IV only
  D. I, II, III, and IV
  I. must not call anyone on her firm's do-not-call list. II. must not call anyone on the FTC's national do-not-call-list. III. must not call anyone before 7 a.m. or after 7 p.m., based on the time zone of the person being called. IV. must provide the person called with her name, the name and contact information of her firm, and the purpose of her call.
  C. I, II, and IV only

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  Explanation/Reference:

  Only Selections I, II, and IV are correct. When Dottie does her cold calling, she must not call anyone listed on either her firm's do-not-call list or the FTC's national do -not-call list, and she must provide the person called with her name, the name and contact information of her firm, and the purpose of her call. Under FINRA's telemarketing rules, she must not call anyone before 8 a.m. or after 9 p.m., based on the time zone of the person being called.

• Question 156:

  Which of the following is a characteristic of a mutual fund?

  A. shares may sell below net asset value
  B. shares are bought and sold through the fund
  C. shares are sold on exchange floors
  D. the fund has a fixed number of shares that can be sold
  B. shares are bought and sold through the fund

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  Explanation/Reference:

  Mutual fund shares are bought and sold through the fund itself. The shares will sell for at least net asset value, unlike shares of a closed-end investment company wherein prices are set by supply and demand forces. Mutual funds are open-end investment companies and have no fixed number of shares.

• Question 157:

  Anna Vestor placed an order to sell 100 shares of Microsoft through the on-line site of her broker, GetErDone Broker-Dealers. GetErDone sold her shares for $24.59 a share and charged her a commission of $8.95. Among other things, the trade confirmation that Anna receives must stipulate:

  I. the time and date of the transaction.

  II. that GetErDone served as a principal in the transaction.

  III. the number of shares sold and the price at which they were sold.

  IV.

  the exchange or ECN on which the transaction was executed.

  A. I and III only
  B. I, II and III only
  C. I, III, and IV only
  D. I, II, III, and IV
  I. the time and date of the transaction. II. that GetErDone served as a principal in the transaction. III. the number of shares sold and the price at which they were sold. IV. the exchange or ECN on which the transaction was executed.
  A. I and III only

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  Explanation/Reference:

  Among other things, the trade confirmation that Anna receives must stipulate the items described in Selections I and III only. The trade confirmation that Anna receives from GetErDone must stipulate the time and date of the transaction, the number of shares sold, and the price at which they were sold. The exchange or ECN on which the transaction was executed is not provided on the confirmation statement. Whether GetErDone acted as a principal or a broker in the transaction does need to be stipulated, but in this instance GetErDone acted as a broker, not a principal. GetErDone did not itself buy the shares from Anna.

• Question 158:

  The primary difference between dealers and brokers is that:

  A. dealers operate exclusively in the primary market whereas brokers operate only in the secondary market.
  B. dealers operate only in the bond market, while brokers conduct trades in stocks, bonds and options.
  C. dealers are market makers, who buy and sell out of their own inventory of securities, while brokers are matchmakers, who match buyers with sellers.
  D. Both Choices B and C describe differences between dealers and brokers.
  C. dealers are market makers, who buy and sell out of their own inventory of securities, while brokers are matchmakers, who match buyers with sellers.

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  Explanation/Reference:

  The primary difference between dealers and brokers is that dealers are market makers, who buy and sell out of their own inventory of securities, while brokers are matchmakers, who match buyers with sellers. Both dealers and brokers engage in primary and secondary market transactions, and both conduct trades in stocks, bonds, and options.

• Question 159:

  Which of the following describes a difference between a Roth IRA and a traditional IRA?

  I. Anyone with earned income can contribute to a traditional IRA, but not everyone with earned income can make contributions to a Roth IRA.

  II. The contributions made to a traditional IRA may be tax deductible, but the contributions made to a Roth IRA are never tax deductible.

  III. Contributions made to a Roth IRA may be withdrawn without penalty at any time whereas contributions to a traditional IRA may only be withdrawn without penalty when the contributor reaches 59 ½ or if the contributor meets some specific requirements (e.g., becomes disabled.)

  IV.

  When a contributor to a traditional IRA turns 70 ½, he must begin making mandatory withdrawals, but there are no mandatory withdrawals with a Roth IRA.

  A. II and III only
  B. I, II, and III only
  C. II, III, and IV only
  D. I, II, III and IV
  I. Anyone with earned income can contribute to a traditional IRA, but not everyone with earned income can make contributions to a Roth IRA. II. The contributions made to a traditional IRA may be tax deductible, but the contributions made to a Roth IRA are never tax deductible. III. Contributions made to a Roth IRA may be withdrawn without penalty at any time whereas contributions to a traditional IRA may only be withdrawn without penalty when the contributor reaches 59 ½ or if the contributor meets some specific requirements (e.g., becomes disabled.) IV. When a contributor to a traditional IRA turns 70 ½, he must begin making mandatory withdrawals, but there are no mandatory withdrawals with a Roth IRA.
  D. I, II, III and IV

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  Explanation/Reference:

  All four selections describe differences between a Roth IRA and a traditional IRA. Only those below a stipulated income level may contribute to a Roth IRA, which is not the case with a traditional IRA although with the traditional IRA, the contributions will not be tax deductible if the contributor's income is above a certain level. Contributions made to a Roth IRA are never tax deductible and may be withdrawn without penalty at any time. Even non-tax-deductible contributions made to a traditional IRA may not be withdrawn early without penalty. There is a minimum distribution requirement associated with a traditional IRA when the contributor turns 70 ½, but there is no such requirement associated with a Roth IRA.

• Question 160:

  The Securities Exchange Act of 1934:

  I. regulates the market for new issues.

  II. delineates the registration requirements for investment advisers.

  III. regulates secondary market activities.

  IV.

  requires that officers and some other employees of member firms submit their fingerprints to the U.S. attorney general's office.

  A. I and II only
  B. II and III only
  C. III and IV only
  D. I, II, III, and IV
  I. regulates the market for new issues. II. delineates the registration requirements for investment advisers. III. regulates secondary market activities. IV. requires that officers and some other employees of member firms submit their fingerprints to the U.S. attorney general's office.
  C. III and IV only

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  Explanation/Reference:

  Only Selections III and IV accurately describe provisions of the Securities Exchange Act of 1934. The Securities Exchange Act of 1934 provides for the regulation of secondary market activities. One section of the Act (Rule 17f-2) requires that officers and some other employees of member firms submit their fingerprints to the U.S. attorney general's office. The Securities Act of 1933 regulates the market for new issues, and the Investment Advisers Act of 1940 delineates the registration requirements for investment advisers.