FINRA Series 31 - Quiz 15 - Pauline.new
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Question 1 of 10
1. Question
Which of the following is a limitation of hypothetical performance results as stated in the NFA Compliance Rule 2-29?
I. Hypothetical trading involves financial, operating, and investment risks.
II. They are generally prepared with the benefit of hindsight.
III. Hypothetical trading does not involve financial risks.
IV. No hypothetical trading record can completely account for the impact of financial risk in actual trading.Correct
It is the limitation of hypothetical performance results is the general preparation with the benefit of hindsight. Hypothetical trading also does not involve any financial risks and no hypothetical trading record can completely account for the impact of financial risk in actual trading. An example is an ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can affect actual trading results adversely.
Incorrect
It is the limitation of hypothetical performance results is the general preparation with the benefit of hindsight. Hypothetical trading also does not involve any financial risks and no hypothetical trading record can completely account for the impact of financial risk in actual trading. An example is an ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can affect actual trading results adversely.
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Question 2 of 10
2. Question
Which of the following is true under the approval and documentation of changes in account name or designation?
I. After the customer order is executed, there must be placed upon the order form or other similar record of the member for each transaction, the name or designation of the account
II. No change in such account name or designation shall be made unless the change has been authorized by a qualified and registered principal designated by the member
III. Such person must be personally informed of the essential facts relative thereto and indicate his or her approval of such change in writing on the order or other similar record of the member
IV. The essential facts relied upon by the person approving the change must be documented in writing and preserved for the periodCorrect
Under the approval and documentation of changes in account name or designation, it is stated that before any execution regarding the customer’s orders, there must be an order form for each transaction and it also includes the account’s designation where the order was executed. There are no changes to be made in the account name unless the change is authorized by the registered principal that is assigned by such a member. Prior to the approval regarding the changes of the account designation, a person must be informed personally regarding the essential facts and shall indicate the approval in writing. All of the essential facts regarding the approval for change must be kept and documented in writing and shall be preserved for a period of time.
Incorrect
Under the approval and documentation of changes in account name or designation, it is stated that before any execution regarding the customer’s orders, there must be an order form for each transaction and it also includes the account’s designation where the order was executed. There are no changes to be made in the account name unless the change is authorized by the registered principal that is assigned by such a member. Prior to the approval regarding the changes of the account designation, a person must be informed personally regarding the essential facts and shall indicate the approval in writing. All of the essential facts regarding the approval for change must be kept and documented in writing and shall be preserved for a period of time.
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Question 3 of 10
3. Question
Which of the following is true under the member filing and contact information requirements?
I. Each member is not required to file with FINRA
II. Each member must identify, review and, if necessary, update its executive representative designation
III. Each member is not required to submit a file to FINRA
IV. Each member shall report and update to FINRA all contact information requiredCorrect
Under the member filing and contact information requirements, there is information that an individual must know. It is stated that the members are required to file and submit to FINRA if required by FINRA in electronic format, and all regulatory notices are needed to be filed and submitted to FINRA. Next, Members must identify, review, and update the executive designation of representative and the contact information that is stated in the FINRA By-Laws. Lastly, members shall report and update all the contact information that is required and that is specified by FINRA.
Incorrect
Under the member filing and contact information requirements, there is information that an individual must know. It is stated that the members are required to file and submit to FINRA if required by FINRA in electronic format, and all regulatory notices are needed to be filed and submitted to FINRA. Next, Members must identify, review, and update the executive designation of representative and the contact information that is stated in the FINRA By-Laws. Lastly, members shall report and update all the contact information that is required and that is specified by FINRA.
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Question 4 of 10
4. Question
Which of the following is true that is stated under the risk disclosure document for CTAs?
I. If you purchase a commodity option, you may sustain a total loss of the premium and of all transaction costs
II. If you purchase or sell a commodity future or sell a commodity option, you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position.
III. Under certain market conditions, you may find it difficult or impossible to liquidate a position.
IV. This brief statement can disclose all the risks and other significant aspects of the commodity markets.Correct
One of the information that is shown in the disclosure document for Commodity Trading Advisors is the Risk Disclosure Statement. It is stated in the Risk Disclosure Statement that such risk of loss in trading commodities can be significant. An individual shall consider whether such training is suitable for him/her with regards to his/her financial condition. An individual should be aware of the information under this statement.
Incorrect
One of the information that is shown in the disclosure document for Commodity Trading Advisors is the Risk Disclosure Statement. It is stated in the Risk Disclosure Statement that such risk of loss in trading commodities can be significant. An individual shall consider whether such training is suitable for him/her with regards to his/her financial condition. An individual should be aware of the information under this statement.
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Question 5 of 10
5. Question
Which of the following is true under the disclosure document of the CTA under the fees?
I. Wherever possible, the Document must specify the dollar amount of each fee
II. Wherever any portion of the commission paid to the FCM or IB is paid to the CTA, the amount that is to be paid shall not be disclosed
III. The Document must explain how the base amount will be calculated
IV. The Document must specify how that increase is calculatedCorrect
Under the disclosure document of CTAs shows such fees. The said document must show the description of such fees which the Commodity Trading Advisor will charge the client. It is mentioned that the document shall specify the amount of each fee in dollars, but if negotiated, it shall provide the range of the highest and lowest fees. Next, any portion of the commission that is paid to the FCM or IB is paid to the CTA and all the said amount paid must be disclosed. It is also mentioned that this document must also show and explain how the base amount will be calculated. Lastly, any fee based on an increase in the value of the commodity interest account of the client, this document must show and specify how such increase and the period of time is calculated, the fee that must be charged at the end of the period, and the account’s value regarding the payment of the fee commences.
Incorrect
Under the disclosure document of CTAs shows such fees. The said document must show the description of such fees which the Commodity Trading Advisor will charge the client. It is mentioned that the document shall specify the amount of each fee in dollars, but if negotiated, it shall provide the range of the highest and lowest fees. Next, any portion of the commission that is paid to the FCM or IB is paid to the CTA and all the said amount paid must be disclosed. It is also mentioned that this document must also show and explain how the base amount will be calculated. Lastly, any fee based on an increase in the value of the commodity interest account of the client, this document must show and specify how such increase and the period of time is calculated, the fee that must be charged at the end of the period, and the account’s value regarding the payment of the fee commences.
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Question 6 of 10
6. Question
Which of the following is true under the additional disclosures for partially-funded accounts in the document of the CTAs?
I. An explanation of how cash additions, cash withdrawals, and net performance will not affect the nominal account size
II. A brief explanation regarding the effect of partial funding on margin and leverage
III. A statement that partial funding increases the fees and commissions as a percentage of actual funds but does not increase the dollar amount of those fees
IV. A description, example, or formula of the effect of partial funding on the rate of return and drawdown percentagesCorrect
Under the disclosure document of the CTAs, additional disclosure for partially-funded accounts is mentioned. Under this additional disclosure states that such Commodity Trading Advisors shall provide its clients with the information regarding the partially funded accounts – (a) such information includes an explanation regarding how cash additions, withdrawals, and net performance will affect the nominal account size, (b) a detailed explanation on how the partial funding on margin and leverage will have an effect, (c) a statement regarding the partial funding that increases the fees and commissions as a percentage of the actual funds but shows that it does not increase the amount of those fees in dollars, and lastly, (d) it can be either in descriptions, examples, or formulas that show the effect of such partial funding on the rate of return and percentages. The following information may be part of the client agreement. The Commodity Trading Advisors may also have the choice to provide such information to its clients in a separate document before the first trade that is placed in the account of the client.
Incorrect
Under the disclosure document of the CTAs, additional disclosure for partially-funded accounts is mentioned. Under this additional disclosure states that such Commodity Trading Advisors shall provide its clients with the information regarding the partially funded accounts – (a) such information includes an explanation regarding how cash additions, withdrawals, and net performance will affect the nominal account size, (b) a detailed explanation on how the partial funding on margin and leverage will have an effect, (c) a statement regarding the partial funding that increases the fees and commissions as a percentage of the actual funds but shows that it does not increase the amount of those fees in dollars, and lastly, (d) it can be either in descriptions, examples, or formulas that show the effect of such partial funding on the rate of return and percentages. The following information may be part of the client agreement. The Commodity Trading Advisors may also have the choice to provide such information to its clients in a separate document before the first trade that is placed in the account of the client.
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Question 7 of 10
7. Question
Who of the following shall review and approve all promotional material prior to its first use?
I. Other supervisory employees other than the individual who prepared such material.
II. General partner of the member shall review and approve promotional materials.
III. Limited partners shall review and approve promotional materials.
IV. Sole proprietors shall review and approve promotional materials.Correct
Under the supervisory requirements of NFA Compliance Rule 2-29, prior to its first use, all promotional material shall be reviewed and approved, in writing, by a general limited partner, sole proprietors, and other supervisory employees other than the individual who prepared such material. An officer and a branch manager may also review and approve promotional material. If the member is registered as a broker-dealer and the promotional material specifically refers to security futures products, the individual reviewing and approving the promotional material must be a designated security futures principal.
Incorrect
Under the supervisory requirements of NFA Compliance Rule 2-29, prior to its first use, all promotional material shall be reviewed and approved, in writing, by a general limited partner, sole proprietors, and other supervisory employees other than the individual who prepared such material. An officer and a branch manager may also review and approve promotional material. If the member is registered as a broker-dealer and the promotional material specifically refers to security futures products, the individual reviewing and approving the promotional material must be a designated security futures principal.
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Question 8 of 10
8. Question
Which testimonials included in a promotional material shall not be used by FCM, IB, CPO, or CTA Member, or associate under the NFA Compliance Rule 2-29?
I. Testimonials that states it is either a paid testimonial or not indicative of future performance or success.
II. Testimonials that are not representative of all reasonably comparable accounts.
III. Testimonials that do not prominently state that the testimonial is not indicative of future performance or success.
IV. Testimonials that do not prominently state that it is a paid testimonial.Correct
Promotional materials that include testimonials that are not representative of all reasonably comparable account, that do not prominently state that the testimonial is not indicative of future performance or success, and that does not prominently state that it is a paid testimonial shall not be used by any FCM, IB, CPO, or CTA member or associate. This is stated under the NFA Compliance Rule 2-29, Content of Promotional Material.
Incorrect
Promotional materials that include testimonials that are not representative of all reasonably comparable account, that do not prominently state that the testimonial is not indicative of future performance or success, and that does not prominently state that it is a paid testimonial shall not be used by any FCM, IB, CPO, or CTA member or associate. This is stated under the NFA Compliance Rule 2-29, Content of Promotional Material.
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Question 9 of 10
9. Question
Which of the following promotional material may be used by members registered as broker-dealers?
I. Promotional materials with recommendations only if the member has a reasonable basis for the recommendation.
II. Promotional materials with recommendations only if the material discloses all material conflicts of interest created by the member’s activities in the underlying security.
III. Promotional materials with recommendations only if the material contains contact information for obtaining the list of prior recommendations.
IV. Promotional materials with recommendations only if a rational basis of recommendation has been indicated.Correct
No members registered as broker-dealers shall use any promotional material unless the promotional material includes recommendations regarding security futures products only if the member has a reasonable basis for the recommendation, the material discloses all material conflicts of interest created by the member’s activities in the underlying security, and the material contains contact information for obtaining the list of recommendations. Promotional material also submitted to NFA for review and approval at least ten days prior to its first use may be used by the member.
Incorrect
No members registered as broker-dealers shall use any promotional material unless the promotional material includes recommendations regarding security futures products only if the member has a reasonable basis for the recommendation, the material discloses all material conflicts of interest created by the member’s activities in the underlying security, and the material contains contact information for obtaining the list of recommendations. Promotional material also submitted to NFA for review and approval at least ten days prior to its first use may be used by the member.
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Question 10 of 10
10. Question
Which of the following statements regarding promotional material may be used by the members registered as broker-dealers?
I. Promotional material stating that security futures products are suitable for all customers.
II. Promotional material includes only a general description of the security futures products for which accounts, orders, trading authorization, or pool participants are being solicited.
III. Promotional material submitted to NFA for review and approval at least ten days prior to its first use if it reaches a public audience through mass media.
IV. Promotional material refers to past recommendations regarding security futures products, underlying securities, or a derivative.Correct
Statements II, III, and IV are correct as stated by the NFA Compliance Rule 2-29. Statement I is incorrect because promotional material states that security future products are not suitable for customers are promotional materials that may be used by the members registered as broker-dealers. The promotional materials submitted to NFA for review and approval at least ten days prior to its first use does not apply to any promotional material in which the only reference to security futures products is contained in a listing of the member’s services.
Incorrect
Statements II, III, and IV are correct as stated by the NFA Compliance Rule 2-29. Statement I is incorrect because promotional material states that security future products are not suitable for customers are promotional materials that may be used by the members registered as broker-dealers. The promotional materials submitted to NFA for review and approval at least ten days prior to its first use does not apply to any promotional material in which the only reference to security futures products is contained in a listing of the member’s services.