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Question 1 of 10
1. 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
FINRA 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
FINRA 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 2 of 10
2. Question
Which of the following statement is true regarding delta neutral?
Correct
FINRA rule no 2360. Options
Delta Neutral — The term “delta neutral” describes an equity options position that has been fully hedged, in accordance with a Permitted Pricing Model as defined in paragraph (b)(3)(A)(ii)b. with a portfolio of instruments including or relating to the same underlying security to offset the risk that the value of the equity options position will change with incremental changes in the price of the security underlying the options position.Incorrect
FINRA rule no 2360. Options
Delta Neutral — The term “delta neutral” describes an equity options position that has been fully hedged, in accordance with a Permitted Pricing Model as defined in paragraph (b)(3)(A)(ii)b. with a portfolio of instruments including or relating to the same underlying security to offset the risk that the value of the equity options position will change with incremental changes in the price of the security underlying the options position. -
Question 3 of 10
3. Question
Which of the following statement is/are true about an 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 the strategies and prices of market
IV. review limits and types of credit extended to all customersCorrect
FINRA 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
FINRA 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. -
Question 4 of 10
4. Question
Which of the following statement is/are true regarding cash flow?
I. Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business
II. Three methods for calculation of cash flows
III. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts
IV. To understand the true profitability of the business, analysts look at free cash flowCorrect
FINRA rule no 2130. Direct Participation Program
Cash flow — cash funds provided from operations, including lease payments on net leases from builders and sellers, without deduction for depreciation, but after deducting cash funds used to pay all other expenses, debt payments, capital improvements, and replacements.Incorrect
FINRA rule no 2130. Direct Participation Program
Cash flow — cash funds provided from operations, including lease payments on net leases from builders and sellers, without deduction for depreciation, but after deducting cash funds used to pay all other expenses, debt payments, capital improvements, and replacements. -
Question 5 of 10
5. Question
What are the types of exempt securities?
I. Nonprofit securities
II. Securities issued by private company or business
III. Securities issued by insurance company
IV. Government securitiesCorrect
FINRA rule no 4210. Margin Requirements
The term “exempted security” or “exempted securities” has the meaning as in Section 3(a)(12) of the Exchange Act. Exempt securities, under Section 4 of the Securities Act of 1933, are financial instruments that carry government backing and typically have a government or tax-exempt status.Incorrect
FINRA rule no 4210. Margin Requirements
The term “exempted security” or “exempted securities” has the meaning as in Section 3(a)(12) of the Exchange Act. Exempt securities, under Section 4 of the Securities Act of 1933, are financial instruments that carry government backing and typically have a government or tax-exempt status. -
Question 6 of 10
6. Question
Which of the following statement is/are true regarding the current market value?
I. Market value is the price an asset would fetch in the marketplace
II. Market value is easiest to determine for exchange-traded instruments such as stocks and futures
III. Market value is calculated by taking the difference between assets and liabilities in the balance sheet
IV. Market value is also commonly used to refer to the market capitalization of a publicly-traded companyCorrect
FINRA rule no 4210. Margin Requirements
The term “current market value” means the total cost or net proceeds of a security on the day it was purchased or sold or at any other time the preceding business day’s closing price as shown by any regularly published reporting or quotation service except for security futures contracts (see paragraph (f)(10)(C)(ii)). If there is no closing price, a member may use a reasonable estimate of the market value of the security as of the close of business on the preceding business day.Incorrect
FINRA rule no 4210. Margin Requirements
The term “current market value” means the total cost or net proceeds of a security on the day it was purchased or sold or at any other time the preceding business day’s closing price as shown by any regularly published reporting or quotation service except for security futures contracts (see paragraph (f)(10)(C)(ii)). If there is no closing price, a member may use a reasonable estimate of the market value of the security as of the close of business on the preceding business day. -
Question 7 of 10
7. Question
Which of the following statements is/are true about SIPC?
I. Members to the SIPC include all brokers and dealers registered under the Securities Exchange Act of 1934
II. The Securities Investor Protection Corporation (SIPC) is a profit corporation
III. SIPC oversees the liquidation of broker-dealers who go bankrupt, lapse into financial trouble, or if the assets of their customers go missing
IV. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securitiesCorrect
FINRA rule no 2266. SIPC Information
All members, except those members: (a) that pursuant to Section 3(a)(2)(A)(i) through (iii) of the Securities Investor Protection Act of 1970 (SIPA) are excluded from membership in the Securities Investor Protection Corporation (SIPC) and that are not SIPC members; or (b) whose business consists exclusively of the sale of investments that are ineligible for SIPC protection, shall advise all new customers, in writing, at the opening of an account, that they may obtain information about SIPC, including the SIPC brochure, by contacting SIPC, and also shall provide the Web site address and telephone number of SIPC. In addition, such members shall provide all customers with the same information, in writing, at least once each year. In cases where both an introducing firm and clearing firm service an account, the firms may assign these requirements to one of the firms.Incorrect
FINRA rule no 2266. SIPC Information
All members, except those members: (a) that pursuant to Section 3(a)(2)(A)(i) through (iii) of the Securities Investor Protection Act of 1970 (SIPA) are excluded from membership in the Securities Investor Protection Corporation (SIPC) and that are not SIPC members; or (b) whose business consists exclusively of the sale of investments that are ineligible for SIPC protection, shall advise all new customers, in writing, at the opening of an account, that they may obtain information about SIPC, including the SIPC brochure, by contacting SIPC, and also shall provide the Web site address and telephone number of SIPC. In addition, such members shall provide all customers with the same information, in writing, at least once each year. In cases where both an introducing firm and clearing firm service an account, the firms may assign these requirements to one of the firms. -
Question 8 of 10
8. Question
What does the term “aggregate discount amount” mean?
Correct
FINRA 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
FINRA 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 9 of 10
9. Question
Which of the following statement is/are true about “Joint Back Office Requirement”?
I. Participants must be registered as a broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934
II. Meet and maintain the ownership standards established by the carrying broker-dealer
III. Meet and maintain a minimum account equity requirement of $1,000,000 with each clearing broker-dealer where an account of the JBO Participant is carried
IV. Participants must be registered under the Bank Secrecy ActCorrect
FINRA rule no 4210. Margin Requirements
An arrangement may be established between two or more registered broker-dealer pursuant to Regulation T Section 220.7, to form a joint back office (“JBO”) arrangement for carrying and clearing or carrying accounts of participating broker-dealers. Members must provide written notification to FINRA prior to establishing a JBO arrangement.
(i) A carrying and clearing or carrying member must:
a. maintain a minimum tentative net capital (as such term is defined in SEA Rule 15c3-1) of $25 million as computed pursuant to SEA Rule 15c3-1 and, if applicable, Rule 4110(a), except that a member whose primary business consists of the clearance of options market-maker accounts may carry JBO accounts provided that it maintains a minimum net capital of $7 million as computed pursuant to SEA Rule 15c3-1 and, if applicable, Rule 4110(a). In addition, the member must include in its ratio of gross options market maker deductions to net capital required by the provisions of SEA Rule 15c3-1 and, if applicable, Rule 4110(a), gross deductions for JBO participant accounts. Clearance of options market maker accounts shall be deemed a broker-dealer’s primary business if a minimum of 60 percent of the aggregate deductions in the above ratio is options market maker deductions. In the event that a carrying and clearing, or a carrying member’s tentative net capital (as such term is defined in SEA Rule 15c3-1), or net capital, respectively, has fallen below the above requirements, the firm shall: 1. promptly notify FINRA in writing of such deficiency, 2. take appropriate action to resolve such deficiency within three consecutive business days, or not permit any new transactions to be entered into pursuant to the JBO arrangementIncorrect
FINRA rule no 4210. Margin Requirements
An arrangement may be established between two or more registered broker-dealer pursuant to Regulation T Section 220.7, to form a joint back office (“JBO”) arrangement for carrying and clearing or carrying accounts of participating broker-dealers. Members must provide written notification to FINRA prior to establishing a JBO arrangement.
(i) A carrying and clearing or carrying member must:
a. maintain a minimum tentative net capital (as such term is defined in SEA Rule 15c3-1) of $25 million as computed pursuant to SEA Rule 15c3-1 and, if applicable, Rule 4110(a), except that a member whose primary business consists of the clearance of options market-maker accounts may carry JBO accounts provided that it maintains a minimum net capital of $7 million as computed pursuant to SEA Rule 15c3-1 and, if applicable, Rule 4110(a). In addition, the member must include in its ratio of gross options market maker deductions to net capital required by the provisions of SEA Rule 15c3-1 and, if applicable, Rule 4110(a), gross deductions for JBO participant accounts. Clearance of options market maker accounts shall be deemed a broker-dealer’s primary business if a minimum of 60 percent of the aggregate deductions in the above ratio is options market maker deductions. In the event that a carrying and clearing, or a carrying member’s tentative net capital (as such term is defined in SEA Rule 15c3-1), or net capital, respectively, has fallen below the above requirements, the firm shall: 1. promptly notify FINRA in writing of such deficiency, 2. take appropriate action to resolve such deficiency within three consecutive business days, or not permit any new transactions to be entered into pursuant to the JBO arrangement -
Question 10 of 10
10. Question
Which of the following statements is/are true about the Direct Participation Program?
I. A direct participation program (DPP) is a pooled entity that offers investors access to a business venture’s cash flow and tax benefits
II. Most DPPs are managed passively and have a lifespan of ten to 15 years.
III. A DPP requires a buy-in from the members in order to access the program’s benefits
IV. Most DPPs are real-estate investment trusts (REITs) and limited partnershipsCorrect
FINRA rule no 2130. Direct Participation Program
Direct participation program (program) — a program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof. A program may be composed of one or more legal entities or programs but when used herein and in any rules or regulations adopted pursuant hereto the term shall mean each of the separate entities or programs making up the overall program and/or the overall program itself. Excluded from this definition are real estate investment trusts, tax-qualified pension and profit-sharing plans pursuant to Sections 401 and 403(a) of the Internal Revenue Code and individual retirement plans under Section 408 of that Code, tax-sheltered annuities pursuant to the provisions of Section 403(b) of the Internal Revenue Code, and any company including separate accounts, registered pursuant to the Investment Company Act.Incorrect
FINRA rule no 2130. Direct Participation Program
Direct participation program (program) — a program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof. A program may be composed of one or more legal entities or programs but when used herein and in any rules or regulations adopted pursuant hereto the term shall mean each of the separate entities or programs making up the overall program and/or the overall program itself. Excluded from this definition are real estate investment trusts, tax-qualified pension and profit-sharing plans pursuant to Sections 401 and 403(a) of the Internal Revenue Code and individual retirement plans under Section 408 of that Code, tax-sheltered annuities pursuant to the provisions of Section 403(b) of the Internal Revenue Code, and any company including separate accounts, registered pursuant to the Investment Company Act.