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Question 1 of 10
1. Question
The term “aggregate discount amount” means?
Correct
Rule no 4210. Margin Requirements
The term “aggregate discount amount” as used with reference to a Treasury bill option contract means the principal amount of the underlying Treasury bill (A) multiplied by the annualized discount (i.e., 100 percent minus the exercise price of the option contract) and (B) further multiplied by a fraction having a numerator equal to the number of days to maturity of the underlying Treasury bill on the earliest date on which it could be delivered pursuant to the rules of The Options Clearing Corporation in connection with the exercise of the option (normally 91 or 182 days) and a denominator of 360Incorrect
Rule no 4210. Margin Requirements
The term “aggregate discount amount” as used with reference to a Treasury bill option contract means the principal amount of the underlying Treasury bill (A) multiplied by the annualized discount (i.e., 100 percent minus the exercise price of the option contract) and (B) further multiplied by a fraction having a numerator equal to the number of days to maturity of the underlying Treasury bill on the earliest date on which it could be delivered pursuant to the rules of The Options Clearing Corporation in connection with the exercise of the option (normally 91 or 182 days) and a denominator of 360 -
Question 2 of 10
2. Question
Which of the following statement is/are true about underlying securities?
I. Price movements in the underlying security will necessarily affect the pricing of the derivative based upon it
II. An underlying security is a stock, index, bond, interest rate, currency, or commodity on which derivative instruments, such as futures and options, are based
III. The relationship between the underlying and its derivatives is linear
IV. The apparent role of the underlying security is merely to be itselfCorrect
Rule no 4210. Margin Requirements
The term “underlying security” means, in the case of physically settled security futures contracts, the security that is delivered upon expiration of the contract, and, in the case of cash settled security futures contracts, the security or securities index the price or level of which determines the final settlement price for the security futures contract upon its expiration.Incorrect
Rule no 4210. Margin Requirements
The term “underlying security” means, in the case of physically settled security futures contracts, the security that is delivered upon expiration of the contract, and, in the case of cash settled security futures contracts, the security or securities index the price or level of which determines the final settlement price for the security futures contract upon its expiration. -
Question 3 of 10
3. Question
Which of the following statements is/are true about portfolio margin?
I. The objective of portfolio margining is to offset the risks to the lender through consolidating, or netting, positions to account for a portfolio’s overall risk
II. Portfolio margin is utilized for derivatives accounts containing swaps, options and futures contracts
III. Portfolio margin requirements have only been recently instituted in the options market
IV. Portfolio margin accounting requires a margin position that is equal to the remaining assets that exists after all offsetting positions have been netted against each otherCorrect
Rule no 4210. Margin Requirements
As an alternative to the “strategy-based” margin requirements set forth in paragraphs (a) through (f) of this Rule, members may elect to apply the portfolio margin requirements set forth in this paragraph (g) to all margin equity securities,1 listed options, security futures products (as defined in Section 3(a)(56) of the Exchange Act), unlisted derivatives, warrants, stock index warrants, and related instruments (as defined in paragraph (g)(2)(D)), provided that the requirements of paragraph (g)(6)(B)(i) of this Rule are met.
In addition, a member, provided that it is a Futures Commission Merchant (“FCM”) and is either a clearing member of a futures clearing organization or has an affiliate that is a clearing member of a futures clearing organization, is permitted under this paragraph (g) to combine an eligible participant’s related instruments with listed index options, unlisted derivatives, options on exchange traded funds (“ETF”), stock index warrants and underlying instruments and compute a margin requirement for such combined products on a portfolio margin basis.Incorrect
Rule no 4210. Margin Requirements
As an alternative to the “strategy-based” margin requirements set forth in paragraphs (a) through (f) of this Rule, members may elect to apply the portfolio margin requirements set forth in this paragraph (g) to all margin equity securities,1 listed options, security futures products (as defined in Section 3(a)(56) of the Exchange Act), unlisted derivatives, warrants, stock index warrants, and related instruments (as defined in paragraph (g)(2)(D)), provided that the requirements of paragraph (g)(6)(B)(i) of this Rule are met.
In addition, a member, provided that it is a Futures Commission Merchant (“FCM”) and is either a clearing member of a futures clearing organization or has an affiliate that is a clearing member of a futures clearing organization, is permitted under this paragraph (g) to combine an eligible participant’s related instruments with listed index options, unlisted derivatives, options on exchange traded funds (“ETF”), stock index warrants and underlying instruments and compute a margin requirement for such combined products on a portfolio margin basis. -
Question 4 of 10
4. Question
Which of the following statement is true about “long” OTC Option?
Correct
Rule no 4210. Margin Requirements
In the case of an OTC put, call, index stock group option, or stock index warrant carried “long”, margin must be deposited and maintained equal to at least 75 percent of the option’s or warrant’s “in-the-money” amount plus 100 percent of the amount, if any, by which the current market value of the option or warrant exceeds its “in-the-money” amount provided the option or warrant:
(i) is guaranteed by the carrying broker-dealer,
(ii) has an American-style exercise provision, and
(iii) has a remaining period to expiration exceeding nine months.Incorrect
Rule no 4210. Margin Requirements
In the case of an OTC put, call, index stock group option, or stock index warrant carried “long”, margin must be deposited and maintained equal to at least 75 percent of the option’s or warrant’s “in-the-money” amount plus 100 percent of the amount, if any, by which the current market value of the option or warrant exceeds its “in-the-money” amount provided the option or warrant:
(i) is guaranteed by the carrying broker-dealer,
(ii) has an American-style exercise provision, and
(iii) has a remaining period to expiration exceeding nine months. -
Question 5 of 10
5. Question
What does Index Multiplier mean?
Correct
Rule no 4210. Margin Requirements
The term “index multiplier” as used in reference to an index option contract means the amount specified in the contract by which the index value is to be multiplied to arrive at the value required to be delivered to the holder of a call or by the holder of a put upon valid exercise of the contractIncorrect
Rule no 4210. Margin Requirements
The term “index multiplier” as used in reference to an index option contract means the amount specified in the contract by which the index value is to be multiplied to arrive at the value required to be delivered to the holder of a call or by the holder of a put upon valid exercise of the contract -
Question 6 of 10
6. Question
Which of the following statement is/are true about gross revenue?
I. The investment community sometimes calculates the value of a business as a multiple of its gross revenue
II. Gross revenue is the total amount of sales recognized for a reporting period, prior to any deductions
III. Deductions from gross revenue include sales discounts only
IV. The use of gross revenue as a metric has somewhat more validity in a services organizationCorrect
Rule no 3120. Supervisory Control System
“gross revenue” is defined as:
(1) total revenue as reported on FOCUS Form Part II or IIA (line item 4030) less commodities revenue (line item 3990), if applicable; or
(2) total revenue as reported on FOCUS Form Part II CSE (line item 4030) less, if applicable, (A) commissions on commodity transactions (line item 3991); and (B) commodities gains or losses (line items 3924 and 3904).Incorrect
Rule no 3120. Supervisory Control System
“gross revenue” is defined as:
(1) total revenue as reported on FOCUS Form Part II or IIA (line item 4030) less commodities revenue (line item 3990), if applicable; or
(2) total revenue as reported on FOCUS Form Part II CSE (line item 4030) less, if applicable, (A) commissions on commodity transactions (line item 3991); and (B) commodities gains or losses (line items 3924 and 3904). -
Question 7 of 10
7. Question
Which of the following statement is/are true regarding callable securities?
I. the callable security is generally more expensive than comparable securities that do not have a call provision
II. A callable security is a security with an embedded call provision that allows the issuer to repurchase or redeem the security by a specified date
III. Callable securities are commonly found in the fixed-income markets
IV. They allow the issuer to protect itself from overpaying for debtCorrect
Rule no 4340. Callable Securities
Each member that has in its possession or under its control any security which, by its terms, may be called or redeemed prior to maturity, shall:
(1) establish and make available on the member’s website procedures by which it will allocate among its customers, on a fair and impartial basis, the securities to be redeemed or selected as called in the event of a partial redemption or call; and
(2) provide written notice (which may be electronic) to new customers at the opening of an account, and all customers at least once every calendar year, of the manner in which they may access the allocation procedures on the member’s website and that, upon a customer’s request, the member will provide hard copies of the allocation procedures to the customer.Incorrect
Rule no 4340. Callable Securities
Each member that has in its possession or under its control any security which, by its terms, may be called or redeemed prior to maturity, shall:
(1) establish and make available on the member’s website procedures by which it will allocate among its customers, on a fair and impartial basis, the securities to be redeemed or selected as called in the event of a partial redemption or call; and
(2) provide written notice (which may be electronic) to new customers at the opening of an account, and all customers at least once every calendar year, of the manner in which they may access the allocation procedures on the member’s website and that, upon a customer’s request, the member will provide hard copies of the allocation procedures to the customer. -
Question 8 of 10
8. Question
Which of the following is NOT the responsibility of carrying agreements?
Correct
Rule no 4311. Carrying Agreements
Each carrying agreement in which accounts are to be carried on a fully disclosed basis shall specify the responsibilities of each party to the agreement, including at a minimum the allocation of the responsibilities set forth in paragraphs (c)(1)(A) through (I) and (c)(2) of this Rule. The allocation of such responsibilities shall be subject to approval by FINRA pursuant to paragraph (b)(1) of this Rule.
(A) Opening and approving accounts.
(B) Acceptance of orders.
(C) Transmission of orders for execution.
(D) Execution of orders.
(E) Extension of credit.
(F) Receipt and delivery of funds and securities.
(G) Preparation and transmission of confirmations.
(H) Maintenance of books and records.
(I) Monitoring of accounts.Incorrect
Rule no 4311. Carrying Agreements
Each carrying agreement in which accounts are to be carried on a fully disclosed basis shall specify the responsibilities of each party to the agreement, including at a minimum the allocation of the responsibilities set forth in paragraphs (c)(1)(A) through (I) and (c)(2) of this Rule. The allocation of such responsibilities shall be subject to approval by FINRA pursuant to paragraph (b)(1) of this Rule.
(A) Opening and approving accounts.
(B) Acceptance of orders.
(C) Transmission of orders for execution.
(D) Execution of orders.
(E) Extension of credit.
(F) Receipt and delivery of funds and securities.
(G) Preparation and transmission of confirmations.
(H) Maintenance of books and records.
(I) Monitoring of accounts. -
Question 9 of 10
9. Question
Which institution is not included in designated account?
Correct
The term “designated account” means the account of:
(A) a bank (as defined in Section 3(a)(6) of the Exchange Act),
(B) a savings association (as defined in Section 3(b) of the Federal Deposit Insurance Act), the deposits of which are insured by the Federal Deposit Insurance Corporation,
(C) an insurance company (as defined in Section 2(a)(17) of the Investment Company Act),
(D) an investment company registered with the SEC under the Investment Company Act,
(E) a state or political subdivision thereof, or
(F) a pension or profit sharing plan subject to the Employee Retirement Income Security Act (ERISA) or of an agency of the United States or of a state or a political subdivision thereofIncorrect
The term “designated account” means the account of:
(A) a bank (as defined in Section 3(a)(6) of the Exchange Act),
(B) a savings association (as defined in Section 3(b) of the Federal Deposit Insurance Act), the deposits of which are insured by the Federal Deposit Insurance Corporation,
(C) an insurance company (as defined in Section 2(a)(17) of the Investment Company Act),
(D) an investment company registered with the SEC under the Investment Company Act,
(E) a state or political subdivision thereof, or
(F) a pension or profit sharing plan subject to the Employee Retirement Income Security Act (ERISA) or of an agency of the United States or of a state or a political subdivision thereof -
Question 10 of 10
10. Question
Which of the following statement is/are true about additional margin?
I. formulate their own margin requirements
II. review the need for instituting higher margin requirements, mark-to-markets and collateral deposits than are required by this Rule for individual securities or customer accounts
III. review limits and types of credit extended to all customers
IV. review the strategies and prices of marketCorrect
Rule no 4210. Margin Requirements
Procedures shall be established by members to:
(1) review limits and types of credit extended to all customers;
(2) formulate their own margin requirements; and
(3) review the need for instituting higher margin requirements, mark-to-markets and collateral deposits than are required by this Rule for individual securities or customer accounts.Incorrect
Rule no 4210. Margin Requirements
Procedures shall be established by members to:
(1) review limits and types of credit extended to all customers;
(2) formulate their own margin requirements; and
(3) review the need for instituting higher margin requirements, mark-to-markets and collateral deposits than are required by this Rule for individual securities or customer accounts.