FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 251:

  When the Federal Reserve lowers reserve requirements, what is it attempting to do?

  A. ease credit

  B. raise interest rates

  C. counter inflation

  D. increase the rediscount rate

  Correct Answer: A

  ease credit. A lower reserve requirement permits member banks to have more money available for lending, thus ease credit.

• Question 252:

  What is the importance of the "at risk" rule?

  A. it limits deductions to the amount at risk

  B. it limits liability to the amount at risk

  C. deductions for interest may not exceed investment income

  D. it prevents carry forward of disallowed interest deductions

  Correct Answer: A

  it limits deductions to the amount at risk. Deductions may not exceed contributed capital.

• Question 253:

  Which of the following pays interest at maturity only?

  A. a corporate serial bond

  B. US treasury bills

  C. Income bonds

  D. Series H savings bonds

  Correct Answer: B

  US treasury bills. T-bills are purchased at a discount and do not have interest coupons. When surrendered, the par value is paid at maturity. All the other choices, if they are paying any interest, pay throughout the term of the issue.

• Question 254:

  The Bubba Insurance Company is not incorporated. It consists of Bubba and his two brothers as general partners, who maintain an active securities account in the name of the company. If one of the partners should suddenly die, what course of actions should be undertaken by the registered representative at the brokerage?

  A. freeze the account from further activity until a death certificate and new partnership agreement are furnished to the brokerage

  B. no special action is required because the death of a single partner does not terminate the partnership agreement

  C. distribute the assets in the account to the surviving partners

  D. execute sell orders but do not accept buy orders or distribute assets from the account until a new partnership agreement is provided to the brokerage

  Correct Answer: D

  execute sell orders but do not accept buy orders or distribute assets from the account until a new partnership agreement is provided to the brokerage. Sell orders may be accepted but not buy orders or distributions.

• Question 255:

  Most publicly owned securities are:

  A. listed

  B. over-the-counter

  C. unregistered

  D. exempt from SEC registration requirements

  Correct Answer: B

  over-the-counter. The OTC market is much larger than any listed markets.

• Question 256:

  Bubba sells short 100 XYZ at $60 and makes the required Regulation T deposit of 50%. XYZ then rises I price to $65. At this point what is the credit balance?

  A. $2,500

  B. $3,500

  C. $6,000

  D. $9,000

  Correct Answer: D

  $9,000. Credit balances in short accounts do not change because of fluctuation in market prices. The initial deposit of $3,000 ($6,000 x 50%) plus the $6,000 from the short sale leave a credit balance of $9,000.

• Question 257:

  Which of the following sets of prices is that of a closed-end investment company?

  A. $7.50 $8.10

  B. $10.10 $11.00

  C. $28.14 $27.75

  D. $20.15 $21.85

  Correct Answer: C

  NAV=$28.14 and Asked Price=$27.75. In this case the ask price is less than NAV, which is never true of an open-end investment company.

• Question 258:

  A buy-in of a customer's sale transaction is mandated if the securities have not been received by the broker/ dealer within how many business days following the settlement date:

  A. 5

  B. 10

  C. 20

  D. 30

  Correct Answer: B

  10. If a customer fails to deliver securities within ten days after settlement, the broker must repurchase the securities.

• Question 259:

  The net asset value of a mutual fund was $9.72 last month. This month it is calculated at $9.85. What is the change in value called?

  A. yield

  B. asset revaluation

  C. appreciation

  D. capital gain

  Correct Answer: C

  appreciation. That's the correct term for increase in value.

• Question 260:

  The Bubba Corporation is offering stock to the public for the first time. The registration statement lists 150,000 shares for sale at $400 per share. The company conducts business in a 100-mile radius that includes towns in two neighboring

  states.

  Which of the following information is not required in the preliminary prospectus for this offering?

  A. a notice in red ink to the effect that the prospectus has not been approved by the SEC

  B. a section describing how the funds from the sale will be used

  C. a statement of the company's assets and liabilities

  D. the price at which the issue is offered

  Correct Answer: D

  the price at which the issue is offered. The offering price is usually determined on the offering date and does not normally appear in the preliminary prospectus.