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Question 1 of 10
1. Question
Apart from the key responsibilities what are the additional responsibilities that come under the CPO member?
Correct
According to NFA Rule 2-9, The CPO will perform a risk assessment to see where its most important risks exist in designing and enforcing the relevant controls, and then design and implement controls to mitigate those risks. This is not a one-time evaluation and should be completed periodically to take into account new risks that may arise in particular with any changes in the business or operations of the firm. Also, the CPO should monitor the effectiveness of the controls implemented to ensure the proper functioning of the controls and make adjustments where necessary.
Incorrect
Question 2 of 10
2. Question
To ensure proper segregation of duties, whenever possible, the CPO should require that:
I. Functions related to the management of pool assets should be distinguished from functions related to financial reporting
II. Everyone should be responsible for initiating a transaction in the pool funds area, approving the transaction, recording the transaction
III. Duties are assigned to different employees
IV. Recording the transaction and reconciling the account with the documentation and information provided by third parties.
Correct
According to NFA Rule 2-9, In general, to ensure that duties are properly segregated, the CPO should require that:
(a) Duties are assigned to different employees in a manner or there are adequate automated checks to ensure that the work performed in
material areas are regularly cross-checked.
(b) Functions relating to the custody of pool assets should be separated from functions relating to financial reporting, such as recording
of assets.
(c) No one person should be responsible for initiating a transaction in the pool funds area (e.g. subscriptions, transfers, and
redemptions), approving the transaction, recording the transaction, and reconciling the account with documentation and information from
third parties.
Incorrect
According to NFA Rule 2-9, In general, to ensure that duties are properly segregated, the CPO should require that:
(a) Duties are assigned to different employees in a manner or there are adequate automated checks to ensure that the work performed in
material areas are regularly cross-checked.
(b) Functions relating to the custody of pool assets should be separated from functions relating to financial reporting, such as recording
of assets.
(c) No one person should be responsible for initiating a transaction in the pool funds area (e.g. subscriptions, transfers, and
redemptions), approving the transaction, recording the transaction, and reconciling the account with documentation and information from
third parties.
Question 3 of 10
3. Question
What are the risk areas that are generally applicable to the business operations of most CPOs apart from its own risk assessment?
Correct
According to NFA Rule 2-9, Although each CPO Member should conduct its own risk assessment, there are a number of risk areas that are generally applicable to the business operations of most CPOs. They include the following:
(a) Pool Subscriptions, Redemptions, and Transfers
(b) Risk Management and Investment and Valuation of Pool Funds
(c) Use of Administrators
(d) Record Keeping
Incorrect
According to NFA Rule 2-9, Although each CPO Member should conduct its own risk assessment, there are a number of risk areas that are generally applicable to the business operations of most CPOs. They include the following:
(a) Pool Subscriptions, Redemptions, and Transfers
(b) Risk Management and Investment and Valuation of Pool Funds
(c) Use of Administrators
(d) Record Keeping
Question 4 of 10
4. Question
Which of the following controls comes under Pool Subscriptions, Redemptions, and Transfers risk areas?
I. Authorization of redemptions
II. Reconciliation (not on a periodic basis) of transactions between the pool’s general ledger, banks, and other third party depositories
III. Calculation of Net Asset Value
IV. Verification that pool investment is held in accounts properly
Correct
According to NFA Rule 2-9, controls that come under Pool Subscriptions, Redemptions, and Transfers risk areas include:
(a) Verification that pool investments are held in properly titled accounts with the name of the pool and are not mixed with any other
person's assets (this is also an appropriate control over risk management and investment and pool fund valuation)
(b) Reconciliation (periodically) of transactions between the general ledger of the pool, banks and another third-party depository (this is
also an effective monitor for risk management and investment and pool fund valuation)
(c) Authorization of redemptions, including confirmation that an application was made by a participant, availability of sufficient funds,
measurement of the correct Net Asset Value (e.g., fee amounts and profit and loss allocations) and release of funds, and payment to a
pool member or approved third party on time.
(d) Verification that transactions involving pool funds do not violate NFA Compliance Rule 2-45, Prohibition of Loans by Commodity Pools to
CPOs and Affiliated Entities.
Incorrect
According to NFA Rule 2-9, controls that come under Pool Subscriptions, Redemptions, and Transfers risk areas include:
(a) Verification that pool investments are held in properly titled accounts with the name of the pool and are not mixed with any other
person's assets (this is also an appropriate control over risk management and investment and pool fund valuation)
(b) Reconciliation (periodically) of transactions between the general ledger of the pool, banks and another third-party depository (this is
also an effective monitor for risk management and investment and pool fund valuation)
(c) Authorization of redemptions, including confirmation that an application was made by a participant, availability of sufficient funds,
measurement of the correct Net Asset Value (e.g., fee amounts and profit and loss allocations) and release of funds, and payment to a
pool member or approved third party on time.
(d) Verification that transactions involving pool funds do not violate NFA Compliance Rule 2-45, Prohibition of Loans by Commodity Pools to
CPOs and Affiliated Entities.
Question 5 of 10
5. Question
Which of the following are the important control activities that should be carried out by a CPO member?
I. Approval of investments
II. One time monitoring of pool liquidity
III. Discontinuous monitoring of the risks associated with investments
IV. Verification that the CPO values investments under the CPO’s valuation policies
Correct
According to NFA Rule 2-9, the important control activities that should be carried out by a CPO member includes:
(a) Investment approval to ensure that each type of investment is authorized and in line with the strategy of the pool
(b) Verify that the CPO values investments in line with the valuation policies of the CPO
(c) Continuous due diligence of counterparties and other third-party depositories including review of the credibility of the depository or
counterparty, trading policy, past performance and any actions taken by regulators.
(d) Ongoing monitoring of the risks associated with investments held at third parties utilized by the pool(s) including market risk and
credit risk.
(e) Ongoing monitoring of pool liquidity to ensure the pool is able to satisfy redemption requests, margin calls and other financial
obligations.
Incorrect
According to NFA Rule 2-9, the important control activities that should be carried out by a CPO member includes:
(a) Investment approval to ensure that each type of investment is authorized and in line with the strategy of the pool
(b) Verify that the CPO values investments in line with the valuation policies of the CPO
(c) Continuous due diligence of counterparties and other third-party depositories including review of the credibility of the depository or
counterparty, trading policy, past performance and any actions taken by regulators.
(d) Ongoing monitoring of the risks associated with investments held at third parties utilized by the pool(s) including market risk and
credit risk.
(e) Ongoing monitoring of pool liquidity to ensure the pool is able to satisfy redemption requests, margin calls and other financial
obligations.
Question 6 of 10
6. Question
CPOs often use a third-party administrator to facilitate which target areas?
Correct
According to NFA Rule 2-9, CPOs often use a third party administrator to facilitate the preparation of pool financial records and account statements or to assist in certain fields, including the processing of subscriptions and redemptions, assessment, calculation and reporting balances or the issuing of pool account statements.
Incorrect
According to NFA Rule 2-9, CPOs often use a third party administrator to facilitate the preparation of pool financial records and account statements or to assist in certain fields, including the processing of subscriptions and redemptions, assessment, calculation and reporting balances or the issuing of pool account statements.
Question 7 of 10
7. Question
In the risk area of use of Administrators which are the following controls that are taken into consideration by a CPO member:
I. Initial and ongoing due care of the administrator
II. Prepare shadow books
III. Obtaining evidence of a test of controls
IV. Security measures conducted at the primary level
Correct
According to NFA Rule 2-9, the following controls that should be taken into consideration by a CPO member:
(a) Initial and ongoing due diligence on the administrator.
(b) Obtaining evidence of a test of controls and security measures conducted at the administrator by an internal audit department.
(c) The CPO should also consider whether its own independent financial records (i.e., shadow books)
Incorrect
According to NFA Rule 2-9, the following controls that should be taken into consideration by a CPO member:
(a) Initial and ongoing due diligence on the administrator.
(b) Obtaining evidence of a test of controls and security measures conducted at the administrator by an internal audit department.
(c) The CPO should also consider whether its own independent financial records (i.e., shadow books)
Question 8 of 10
8. Question
On what key factors the particulars of a CPO’s internal controls system should be based upon?
Correct
According to NFA Rule 2-9, NFA recognizes that the particulars of a CPO’s internal controls system will vary based on the Member’s size and complexity of operations.
Incorrect
According to NFA Rule 2-9, NFA recognizes that the particulars of a CPO’s internal controls system will vary based on the Member’s size and complexity of operations.
Question 9 of 10
9. Question
To become a CPO member under which registration a person should register himself?
Correct
According to NFA Rule 1-1, Commodity Pool Operator or “CPO” — means a person who is authorized under the Act and Commission Rules to register or register as a commodity pool operator.
Incorrect
According to NFA Rule 1-1, Commodity Pool Operator or “CPO” — means a person who is authorized under the Act and Commission Rules to register or register as a commodity pool operator.
Question 10 of 10
10. Question
What is the role played by a Commodity Trading Advisor?
Correct
According to NFA Rule 1-1, “Commodity Trading Advisor” or “CTA” — means an exchange designated by the Commission for trading in one or more commodity interests as a contract market.
Incorrect
According to NFA Rule 1-1, “Commodity Trading Advisor” or “CTA” — means an exchange designated by the Commission for trading in one or more commodity interests as a contract market.
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