FINRA Series 31 - Quiz 14 - Pauline.new
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Question 1 of 10
1. Question
Which of the following under the disclosure document of the CTAs states that this document must include a discussion of these factors of the trading program?
Correct
Under the disclosure document of the Commodity Trading Advisors is the Principal Risk Factors. It is stated that the said document must have a discussion regarding the principal risk factors of the trading program. The discussion includes the risks that are related to volatility, leverage, liquidity, and counterparty creditworthiness, all of these without limitations. As much as possibly applicable to the trading program and transaction types and lastly the investment activity that is expected to be engaged with regards to the trading program.
Incorrect
Under the disclosure document of the Commodity Trading Advisors is the Principal Risk Factors. It is stated that the said document must have a discussion regarding the principal risk factors of the trading program. The discussion includes the risks that are related to volatility, leverage, liquidity, and counterparty creditworthiness, all of these without limitations. As much as possibly applicable to the trading program and transaction types and lastly the investment activity that is expected to be engaged with regards to the trading program.
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Question 2 of 10
2. Question
Under the disclosure document of the CTAs, which of the following states that this document must have the description of such a program?
Correct
Under the disclosure document of the Commodity Trading Advisors, it is mentioned that this document must also have such a description of the trading program. Such descriptions include the commodity interests’ types and other interests that the Commodity Trading Advisors intends to trade. It also includes the restrictions and limitations on such trading that are established and done by the trading advisor. Additional information is that it must also disclose how the CTA intends to treat positions of offsetting.
Incorrect
Under the disclosure document of the Commodity Trading Advisors, it is mentioned that this document must also have such a description of the trading program. Such descriptions include the commodity interests’ types and other interests that the Commodity Trading Advisors intends to trade. It also includes the restrictions and limitations on such trading that are established and done by the trading advisor. Additional information is that it must also disclose how the CTA intends to treat positions of offsetting.
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Question 3 of 10
3. Question
Which of the following is a possible reason why the member has a little experience allocating assets among particular trading advisors therein this reason needs to be seen in a disclaimer statement?
Correct
The possible reason why the member has little to no experience in allocating assets among particular trading advisors is that there are no actual allocations to compare to the performance results from the hypothetical allocation. This statement must be included in the disclaimer if an FCM, IB, CPO, or CTA member or associate has less than one year of experience allocating assets among particular trading advisors.
Incorrect
The possible reason why the member has little to no experience in allocating assets among particular trading advisors is that there are no actual allocations to compare to the performance results from the hypothetical allocation. This statement must be included in the disclaimer if an FCM, IB, CPO, or CTA member or associate has less than one year of experience allocating assets among particular trading advisors.
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Question 4 of 10
4. Question
Which of the following shall be maintained and be available for examination periods specified in CFTC Regulation 1.31?
Correct
Copies of all promotional material along with a record of the review and approval must be maintained by each FCM, IB, CPO, and CTA member and be available for examination for the periods specified in CFTC Regulation 1.31 which is measured from the date of the last use. Each member who uses promotional material shall demonstrate the basis for any reported results to NFA upon request.
Incorrect
Copies of all promotional material along with a record of the review and approval must be maintained by each FCM, IB, CPO, and CTA member and be available for examination for the periods specified in CFTC Regulation 1.31 which is measured from the date of the last use. Each member who uses promotional material shall demonstrate the basis for any reported results to NFA upon request.
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Question 5 of 10
5. Question
Which of the following best describes a commodity interest account, agreement, or transaction?
Correct
Commodity interest account, agreement, or transaction includes commodity interest accounts and agreements to direct or guide trading in commodity interest accounts. It also includes transactions and orders and commodity pool participation. This includes agreements and transactions involving the sale through publications or of non-personalized trading advice concerning commodity interests.
Incorrect
Commodity interest account, agreement, or transaction includes commodity interest accounts and agreements to direct or guide trading in commodity interest accounts. It also includes transactions and orders and commodity pool participation. This includes agreements and transactions involving the sale through publications or of non-personalized trading advice concerning commodity interests.
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Question 6 of 10
6. Question
What shall the FCM, IB, CPO, or CTA Member or Associate who uses promotional material shall include in promotional material?
I. The past performance results of the customer accounts under the direction of FCM, IB, CPO, or CTA Member pursuant to a power of attorney over at least the last five years.
II. The past performance results of the customer accounts under the direction of FCM, IB, CPO, or CTA Member pursuant to a power of attorney over the entire performance history if less than five years
III. The past performance results of the proprietary trading over at least the last three years or the entire performance history if more than 3 years.
IV. The past performance results of the proprietary trading over at least the last five years or the entire performance history if more than 5 years.Correct
Only statements I & II are correct since the recording of customer accounts and proprietary trading pursuant to a power of attorney must be over at least the last five years or over the entire performance history if less than five years. Under the NFA Compliance Rule 2-29, any FCM, IB, CPO, or CTA includes a measurement or description of a hypothetical composite performance record showing the achievements of a multi-advisor in a portfolio or pool. Therefore, the statements above are needed to be included in the promotional material prescribed by the NFA’s Board of Directors.
Incorrect
Only statements I & II are correct since the recording of customer accounts and proprietary trading pursuant to a power of attorney must be over at least the last five years or over the entire performance history if less than five years. Under the NFA Compliance Rule 2-29, any FCM, IB, CPO, or CTA includes a measurement or description of a hypothetical composite performance record showing the achievements of a multi-advisor in a portfolio or pool. Therefore, the statements above are needed to be included in the promotional material prescribed by the NFA’s Board of Directors.
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Question 7 of 10
7. Question
Which of the following requirements would allow the members registered as broker-dealers to use any promotional material that specifically refers to security futures products?
I. If the promotional material prominently identifies the member.
II. If the promotional material includes the date that the material was first used.
III. If the promotional material provides contact information for obtaining a copy of the disclosure statement for security futures products.
IV. If the promotional material states that security futures products are suitable for all customers.Correct
Under the NFA Compliance Rule 2-29, members registered as broker-dealers and their associates shall not use any promotional material specifically refers to security futures products unless the following conditions are met: (1) the promotional material prominently identifies the member, (2) the promotional material includes the date that the material was first used, and (3) the promotional material provides contact information for obtaining a copy of the disclosure statements. It is also an exception if the promotional material states that security futures products are not suitable for all customers. It must also not include any statement suggesting that these securities can be liquidated at any time.
Incorrect
Under the NFA Compliance Rule 2-29, members registered as broker-dealers and their associates shall not use any promotional material specifically refers to security futures products unless the following conditions are met: (1) the promotional material prominently identifies the member, (2) the promotional material includes the date that the material was first used, and (3) the promotional material provides contact information for obtaining a copy of the disclosure statements. It is also an exception if the promotional material states that security futures products are not suitable for all customers. It must also not include any statement suggesting that these securities can be liquidated at any time.
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Question 8 of 10
8. Question
What are other conditions to be met in order for promotional material to be used by members and its associates?
I. If promotional material does not indicate statements suggesting that security futures positions can be liquidated at any time.
II. If the material includes a cautionary statement or disclaimer that is not legible or that is otherwise inconsistent with the content of the material.
III. If the material discloses the source of any tables, charts, graphs, or other illustrations unless the source of the information was obvious.
IV. If the promotional material states that documentation will be furnished upon request if it includes comparisons and recommendations.Correct
All of the statements mentioned above are correct except for Statement II whereas the cautionary statement or disclaimer that is not legible or is inconsistent shall not be a condition to be met in order for members and its associates to use the promotional material. It shall also not include attempts to disclaim responsibility for the content of the promotional material or the opinions expressed in the material that is misleading or inconsistent with its content.
Incorrect
All of the statements mentioned above are correct except for Statement II whereas the cautionary statement or disclaimer that is not legible or is inconsistent shall not be a condition to be met in order for members and its associates to use the promotional material. It shall also not include attempts to disclaim responsibility for the content of the promotional material or the opinions expressed in the material that is misleading or inconsistent with its content.
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Question 9 of 10
9. Question
Which of the following shall not be made by FCM, IB, CPO, or CTA member or associate under the NFA Compliance Rule 2-29, or simply it general prohibition?
I. Any communication related to its commodity interest business that does not operate as fraud or deceit.
II. Any communication related to its commodity interest business that operates as fraud or deceit.
III. Any communication related to its commodity interest business that employs or is part of a high-pressure approach.
IV. Any communication related to its commodity interest business that makes any statement that commodity interest trading is appropriate for all persons.Correct
Under the general prohibition in NFA Compliance Rule 2-29, no FCM, IB, CPO, or CTA member or associate shall make any communication related to its commodity interest business that operates as fraud or deceit, that employs or is part of a high-pressure approach, or makes any statement that commodity trading is appropriate for all persons. There are also certain prohibitions for the content of promotional material to be used by any FCM, IB, CPO, or CTA member or associate.
Incorrect
Under the general prohibition in NFA Compliance Rule 2-29, no FCM, IB, CPO, or CTA member or associate shall make any communication related to its commodity interest business that operates as fraud or deceit, that employs or is part of a high-pressure approach, or makes any statement that commodity trading is appropriate for all persons. There are also certain prohibitions for the content of promotional material to be used by any FCM, IB, CPO, or CTA member or associate.
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Question 10 of 10
10. Question
Which of the following promotional material shall not be used by any FCM, IB, CPO, or CTA member or associate?
I. Any promotional material that is likely to deceive the public.
II. Any promotional material that contains any material misstatement of fact or which the member or associate knows omits a fact if the omission makes the promotional material misleading.
III. Any promotional material states the possibility of profit unless accompanied by an equally prominent discussion of the risk of loss.
IV. Any promotional material that excludes the profits in the past without mentioning that past results are not necessarily indicative of future results.Correct
All of the abovementioned statements are correct except for the fourth statement wherein the actual past trading profits included in the promotional material shall not be used by any FCM, IB, CPO, or CTA. Also, any promotional material that includes specific information about past performance shall not be used by the said members or associates unless such information is demonstrated to NFA or the performance is presented net of all commissions, fees, and expenses.
Incorrect
All of the abovementioned statements are correct except for the fourth statement wherein the actual past trading profits included in the promotional material shall not be used by any FCM, IB, CPO, or CTA. Also, any promotional material that includes specific information about past performance shall not be used by the said members or associates unless such information is demonstrated to NFA or the performance is presented net of all commissions, fees, and expenses.