FINRA Series 31 - Quiz 6 - Pauline.new
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Question 1 of 10
1. Question
Which of the following are true about the Delta Hedging and Position Limits?
I. A firm using delta hedging does not remain subject to position and exercise limits
II. The net delta will be subject to position limits
III. Firms may not necessarily hedge every position to be delta neutral
IV. Delta Hedging is employed as part of an overall risk management programCorrect
Under the Delta Hedging and Position Limits, a qualified non-member affiliate or a firm using delta hedging, any option position that is not delta hedged remains subject to position and limits must be exercised. It was mentioned, generally, delta hedging is working as part of an overall risk management program, firms may not essentially hedge every position to be delta neutral or for every stock options position that uses delta hedging. There may be cases that net delta will be subject to position limits.
Incorrect
Under the Delta Hedging and Position Limits, a qualified non-member affiliate or a firm using delta hedging, any option position that is not delta hedged remains subject to position and limits must be exercised. It was mentioned, generally, delta hedging is working as part of an overall risk management program, firms may not essentially hedge every position to be delta neutral or for every stock options position that uses delta hedging. There may be cases that net delta will be subject to position limits.
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Question 2 of 10
2. Question
Which of the following information is true about Delta Hedging and Position Reporting?
I. A broker-dealer must report any options position in which the member firm has an interest
II. The obligation to report an aggregate position of 200 or more options contracts applies even if the options position of any member is delta neutral
III. A broker-dealer has a choice whether to not or to report any options positions
IV. The expansion of the delta hedging exemption does not retain the reporting thresholdsCorrect
Under the Delta Hedging and Position Reporting, it is mentioned that a broker-deal must report any options position where a member firm has an interest. Each customer or non-member broker-dealer account has established a cumulative position of 200 or more contracts. In the NASD Rule 2860, it was mentioned that it expands the use of the delta hedging exemption to hold these commentary thresholds. Lastly, each firm or chosen aggregation unit pursuant that uses delta hedging exemption for an options position must report the OCEND and if the contracts are less than 200 contracts.
Incorrect
Under the Delta Hedging and Position Reporting, it is mentioned that a broker-deal must report any options position where a member firm has an interest. Each customer or non-member broker-dealer account has established a cumulative position of 200 or more contracts. In the NASD Rule 2860, it was mentioned that it expands the use of the delta hedging exemption to hold these commentary thresholds. Lastly, each firm or chosen aggregation unit pursuant that uses delta hedging exemption for an options position must report the OCEND and if the contracts are less than 200 contracts.
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Question 3 of 10
3. Question
Which of the following is true about a Permitted Pricing Model?
I. A pricing model is maintained by an Options Clearing Partnership
II. A pricing model is maintained and used by a financial holding company
III. A pricing model is maintained and used by a member subject to consolidated supervision by the Commission
IV. A pricing model is maintained and used by an OTC derivativeCorrect
In a Permitted Pricing Model, it is maintained by an Options Clearing Corporation (OCC Model). It is also maintained and used by a member subject to consolidated supervision by the Commission. This pricing model is maintained and used by a Financial Holding Company and requirements are specified. It is used by an OTC derivatives dealer and it is registered with the Commission. Lastly, this pricing model is used by a national bank under the National Bank Act and it has its internal risk management control.
Incorrect
In a Permitted Pricing Model, it is maintained by an Options Clearing Corporation (OCC Model). It is also maintained and used by a member subject to consolidated supervision by the Commission. This pricing model is maintained and used by a Financial Holding Company and requirements are specified. It is used by an OTC derivatives dealer and it is registered with the Commission. Lastly, this pricing model is used by a national bank under the National Bank Act and it has its internal risk management control.
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Question 4 of 10
4. Question
Which of the following is true about the effect on the aggregation of account positions?
I. Members and non-members affiliates who rely on this exemption can use another pricing model
II. Members who rely on this exemption must ensure that the Permitted Pricing Model is applied to all positions
III. The Permitted Pricing Model shall be applied for the purposes of calculating such member’s net delta
IV. The net delta of the positions owned or controlled by the entities and trading units who are relying on this exemption shall be aggregatedCorrect
Under Options, there is an Effect on Aggregation of Account Positions. The following information under this is members and non-member affiliates that rely on the said exemption must ensure that the pricing model is applied to all positions and this pricing model is called the Permitted Pricing Model. This model must be applied for the purpose of calculating the net delta of the members. Lastly, such net delta of the positions that are owned or maintained by entities that rely on this exemption shall be gathered.
Incorrect
Under Options, there is an Effect on Aggregation of Account Positions. The following information under this is members and non-member affiliates that rely on the said exemption must ensure that the pricing model is applied to all positions and this pricing model is called the Permitted Pricing Model. This model must be applied for the purpose of calculating the net delta of the members. Lastly, such net delta of the positions that are owned or maintained by entities that rely on this exemption shall be gathered.
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Question 5 of 10
5. Question
Which of the following are the assumptions of Yield to Maturity and Yield to Worst?
I. An individual does not hold their bond to maturity.
II. An individual does not reinvest in coupons.
III. All coupons are reinvested at the Yield to Maturity and Yield to Worst, whichever is appropriate.
IV. All individuals reinvest every coupon.Correct
When it comes to Yield to Maturity and Yield to Worst, there are assumptions that an individual must remember. The assumptions include that an individual holds his or her bond to maturity or may also be called call date. Next, an individual reinvests his or her coupon and reinvestment all coupons at the Yield to Maturity and Yield to Worst, whichever is appropriate. YTM and YTW are only estimates. An individual must also know that YTM and YTW may not be the same as a total return of bonds.
Incorrect
When it comes to Yield to Maturity and Yield to Worst, there are assumptions that an individual must remember. The assumptions include that an individual holds his or her bond to maturity or may also be called call date. Next, an individual reinvests his or her coupon and reinvestment all coupons at the Yield to Maturity and Yield to Worst, whichever is appropriate. YTM and YTW are only estimates. An individual must also know that YTM and YTW may not be the same as a total return of bonds.
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Question 6 of 10
6. Question
Which of the following is true regarding FINRA’s alert-monitoring criteria?
I. Cumulative losses in two consecutive months in excess of 25 percent of current excess capital
II. Other internal or external factors as determined by the staff
III. There is no restriction and reduction in business
IV. If three consecutive months in excess of 25 percent of excess capitalCorrect
The alert-monitoring criteria of FINRA, this is designed to closely surveil those firms that carry the self-clear transactions or customer accounts that experienced financial or operational difficulties that need distinct monitoring. Some part of the criterion that has been used is cumulative losses in two and three consecutive months or equal to or in excess of 25 percent and 30 percent of existing excess net capital, respectively. There are also other internal or external factors that are determined by the staff but it is not limited to severe operational, record, cash flow, and customer difficulties.
Incorrect
The alert-monitoring criteria of FINRA, this is designed to closely surveil those firms that carry the self-clear transactions or customer accounts that experienced financial or operational difficulties that need distinct monitoring. Some part of the criterion that has been used is cumulative losses in two and three consecutive months or equal to or in excess of 25 percent and 30 percent of existing excess net capital, respectively. There are also other internal or external factors that are determined by the staff but it is not limited to severe operational, record, cash flow, and customer difficulties.
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Question 7 of 10
7. Question
Under the Leverage Limitation for Retail Forex, which of the following is true about the term Forex?
I. It is not offered or entered on a leveraged basis
II. It is offered to or entered with the person that are not eligible contract participants
III. It is not executed on or subject to the rules of a contract market registered
IV. It offers and entered on a leveraged basisCorrect
In the Leverage Limitation for Retail Forex, the term Forex is a foreign currency future, options, other agreements, contracts, and transactions in foreign currency. It is also mentioned that it is offered and entered on a leveraged basis or it may be financed by the offeror connected with the offeror on a similar basis. It may also be accessible or entered with persons that are not qualified, contract participants. Lastly, it is not implemented on or exposed to such rules of contract market registered.
Incorrect
In the Leverage Limitation for Retail Forex, the term Forex is a foreign currency future, options, other agreements, contracts, and transactions in foreign currency. It is also mentioned that it is offered and entered on a leveraged basis or it may be financed by the offeror connected with the offeror on a similar basis. It may also be accessible or entered with persons that are not qualified, contract participants. Lastly, it is not implemented on or exposed to such rules of contract market registered.
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Question 8 of 10
8. Question
Which of the following is true about Volatility?
I. Can be an important measure of investment risk
II. It can be used for market-wide
III. It can measure an individual stock
IV. If a stock has a large price, its volatile is considered lowCorrect
To define the word Volatility, it talks about how it is important in measuring such investment risks. It was mentioned that it can be either both market-wide and it can also be for an individual stock. It is also stated that if a stock has a comparatively large price over a short period of time, it is measured as highly volatile and may expose an individual to increased risk of loss, especially if an individual sells when the prices are down.
Incorrect
To define the word Volatility, it talks about how it is important in measuring such investment risks. It was mentioned that it can be either both market-wide and it can also be for an individual stock. It is also stated that if a stock has a comparatively large price over a short period of time, it is measured as highly volatile and may expose an individual to increased risk of loss, especially if an individual sells when the prices are down.
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Question 9 of 10
9. Question
Which of the following are exceptions regarding volatility?
I. Growth stocks are not volatile
II. The growth stocks are less volatile than value
III. Information regarding those companies whose earnings have increased at a faster rate
IV. The growth stocks tend to be more volatile than value stocksCorrect
When it comes to volatility, there may be exceptions. It is stated that growth stocks, where the earnings of the company have increased at a faster rate than its competitors, tend to be more volatile than the value stocks which means that when it comes to well-established industries that stocks have been traded for how many years and may be under-valued. It is mentioned that if the range of prices is relatively narrow over a short period of time, stocks may be considered less volatile and exposes an individual to less investment risk.
Incorrect
When it comes to volatility, there may be exceptions. It is stated that growth stocks, where the earnings of the company have increased at a faster rate than its competitors, tend to be more volatile than the value stocks which means that when it comes to well-established industries that stocks have been traded for how many years and may be under-valued. It is mentioned that if the range of prices is relatively narrow over a short period of time, stocks may be considered less volatile and exposes an individual to less investment risk.
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Question 10 of 10
10. Question
Which of the following is true about Stock Volatility?
I. An individual will see long-term fluctuations as the stock’s price moves
II. If a stock has a relatively large price range, it is considered highly volatile
III. An individual may be exposed to increased risk of loss when a stock has a relatively large price range
IV. Value Stocks tend to be more volatile than growth stocksCorrect
In the Stocks Volatility, it is mentioned that if an individual sees jagged lines in the charts of stock prices, it means that prices fluctuate over a period. An individual will see short-term fluctuations if the price of stocks moves within a specific price range. The frequency and size of the short-term fluctuations may also be known as the volatility of stocks. It is stated that if a stock has a comparatively large price range, it is considered as highly volatile and an individual may be exposed to an increase of risk of loss, specifically when the prices are down. Lastly, an exception is also mentioned that growth stocks are more volatile than value stocks.
Incorrect
In the Stocks Volatility, it is mentioned that if an individual sees jagged lines in the charts of stock prices, it means that prices fluctuate over a period. An individual will see short-term fluctuations if the price of stocks moves within a specific price range. The frequency and size of the short-term fluctuations may also be known as the volatility of stocks. It is stated that if a stock has a comparatively large price range, it is considered as highly volatile and an individual may be exposed to an increase of risk of loss, specifically when the prices are down. Lastly, an exception is also mentioned that growth stocks are more volatile than value stocks.