FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 1:

  Bubba is long spot Canadian dollars at 0.7400. If he wants to buy one put option on Canadian dollars with a strike price of 74 and a cost of $0.35, what is Bubba's breakeven price for Canadian dollars?

  A. 0.4900

  B. 0.7365

  C. 0.7400

  D. 0.7435

  Correct Answer: D

  0.7435. The put protects against a decline in the exchange rate for Canadian dollars. However, the cost of the put raises the breakeven point to 0.7435 (0.7400 + 0.0035).

• Question 2:

  Under which of the following was SIPC established?

  A. Securities Act of 1933

  B. Securities Exchange Act of 1934

  C. Securities Investor Protection Act of 1970

  D. Securities Exchange Reform Act of 1975

  Correct Answer: C

  Securities Investor Protection Act of 1970. SIPC was established under this act.

• Question 3:

  In a monthly review of customer statements, Bubba notices that one of his firm's clients has paid for seven purchases five days late. What does he do?

  A. decides this situation is acceptable provided payment was received before any securities were sold

  B. ascertains whether the client had a sufficient bank balance on settlement date

  C. nothing because this is not a violation provided the securities were not listed on the NYSE

  D. ascertains that extensions had been obtained under Reg T

  Correct Answer: D

  ascertains that extensions had been obtained under Reg T. If valid reasons exist, extension of time for payment may be obtained.

• Question 4:

  To accommodate a customer's order to buy an over-the-counter stock, a broker/dealer is permitted to:

  A. sell him shares from the firm's inventory

  B. sell these shares short to the customer

  C. act as agent on this transaction

  D. all of the above

  Correct Answer: D

  all of the above. All of the choices are normal ways for the broker to fill the customer's order.

• Question 5:

  Which of the following are sources of funding for limited partnerships?

  A. proceeds of the offering

  B. periodic assessments on the partners

  C. installment payments

  D. all of the above

  Correct Answer: D

  all of the above. All are sources of funds for limited partnerships along with non -recourse loans.

• Question 6:

  Bubba owns 100 shares of XYZ at $58. He needs to limit his loss to 5 points or less and will accept a longer time for the order to be executed, to make sure the loss does not exceed 5 points. Which of the following orders would be the best recommendation?

  A. sell limit order

  B. sell stop-limit order

  C. sell stop order

  D. buy stop order

  Correct Answer: B

  sell stop-limit order. A sell stop-limit order specifies a price, but will not turn into a market order. This order will only get executed at the price or better. Stop orders, although quicker in execution, will turn into market orders and the customer will not be guaranteed a specific price. Stop -limit orders are risky, in that the order may or may not get executed, but in this situation, it is the best choice.

• Question 7:

  A revenue bond is issued by a state agency. The state legislature is granted authority to apportion money to support the debt services if necessary, but is not legally obligated to do so. What type of bond is this?

  A. limited tax

  B. double-barreled

  C. Series 8

  D. moral obligation

  Correct Answer: D

  moral obligation. The lack of a legally binding obligation removes the issue from the general obligation category. Although defaults are possible, it is usually held that no state legislature would allow a moral obligation issue to default.

• Question 8:

  Bubba purchases 100 shares of XYZ at 78 and, on the same day, writes 1 XYZ October 80 call for a premium of 4. If the option expires unexercised, what is Bubba's profit on the 100 shares of stock?

  A. $200

  B. $400

  C. $600

  D. cannot be determined

  Correct Answer: D

  cannot be determined. Since Bubba has not yet sold the stock, a profit cannot be determined on the stock. He has a $400 profit on the option.

• Question 9:

  A mutual fund custodian is paid according to which of the following specifications when receiving deposits from a shareholder's reinvestment plan?

  A. a commission for each share purchased

  B. a percentage of the sales charge

  C. a processing fee

  D. a percentage of the fund's net asset value

  Correct Answer: C

  a processing fee. Many custodian banks charge the custodian fee to the mutual fund rather than the individual shareholder.

• Question 10:

  Which of the following is normally the largest asset of a manufacturing company?

  A. sales

  B. inventory

  C. accounts receivable

  D. notes receivable

  Correct Answer: B

  inventory. A manufacturer will normally have more inventory than accounts receivable and notes receivable. Sales is not an asset category.