Series 7 - Chapter 02: Custom Exam

D (May open the account without notifying either firm)

An employee of a brokerage firm has decided to open an account with an investment company to purchase various mutual funds under the company's complex of funds. The employee: A. Must provide written notice to the employing firm of the account opening B. Must provide written notice to the employing firm of the new account and written notice to the investment company of the employment with the brokerage firm C. Is prohibited from opening the account D. May open the account without notifying either firm

D (Part ordinary income and part return of capital)

An individual has made before- and after-tax contributions to her traditional IRA. When she begins taking distributions after age 59 1/2, they would be taxed as: A. Return as capital and not taxed B. Ordinary income C. First ordinary income and then return of capital D. Part ordinary income and part return of capital

C (60 days)

An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within: A. 10 days B. 30 days C. 60 days D. 90 days

C (Is not subject to taxes or penalties)

An individual transferring an IRA from one trustee to another: A. Must be at least 59 1/2 to avoid penalties B. Will receive a check that must be rolled over within 60 days of receipt to avoid taxes C. Is not subject to taxes or penalties D. May only do so once each year

A (Sell short his corporation's stock)

An insider is not permitted to: A. Sell short his corporation's stock B. Exercise options on his corporation's stock C. Use public information D. Sell stock under Rule 144

C (Within 10 days of becoming a director)

A Form 3 must be filed: A. Within two business days of becoming a director B. Within two business days of the date on which a director buys or sells securities C. Within 10 days of becoming a director D. Within 10 days of the date on which a director buys or sells securities

C (Six years)

A broker-dealer must maintain customer account records for how long after an account is closed? A. Two years B. Three years C. Six years D. The life of the firm

B (Names of any other financial institutions with which the firm is affiliated)

A broker-dealer's privacy notice must include all the following information, EXCEPT the: A. Type of personal information that the firm collects B. Names of any other financial institutions with which the firm is affiliated C. Fact that clients may opt out of having their information shared with non-affiliates D. Types of third parties to which the firm may disclose information

B (Provided the broker-dealer has a written statement on file signed by the client)

A client would like to open a numbered account. An RR may open the account: A. Under no circumstances B. Provided the broker-dealer has a written statement on file signed by the client C. Provided the broker-dealer has a written statement on file signed by the client that is also filed with the appropriate SRO D. Provided the broker-dealer has a written statement on file signed by the client and the client is an accredited investor

A (May not accept the order because the wife does not have trading authorization to enter orders for the husband's personal account)

A client's wife calls and wants to purchase 200 shares of XYZ in her husband's personal account. The registered representative handling the account knows that a favorable earnings report is about to be issued. The registered representative: A. May not accept the order because the wife does not have trading authorization to enter orders for the husband's personal account B. May enter the order because the husband had previously mentioned he would like to establish a position in XYZ C. May enter the order in the husband's account if the wife also has a joint account with her husband D. May not enter the order because the earnings report has not been released

A (A corporate resolution)

A corporation wishes to open a cash account. Which of the following documents is required? A. A corporate resolution B. A copy of the corporate charter C. A hypothecation agreement D. A risk disclosure document

B (Six years)

A customer has recently closed her account. How long is her broker-dealer required to keep records related to her account? A. 10 years B. Six years C. Four years D. Three years

D (May do so, but only if the account owner provides written approval)

A customer of a member firm has provided one of his relatives with power of attorney in his account. If the relative contacts the RR and requests that all confirmations on transactions in this account be sent to him, the RR: A. May not do so under any circumstances B. May do so if principal approval is obtained C. May do so without principal approval since the relative has been granted power of attorney D. May do so, but only if the account owner provides written approval

C (The customer's signature)

A customer wants to open a cash account. What information is NOT required on the new account form? A. The name of the registered representative responsible for the account B. Whether the customer is of legal age C. The customer's signature D. The branch manager's approval

C (Open the account if the customer signs a written statement acknowledging the account is the customer's)

A customer would like to open an account designated by number. The registered representative should: A. Open the account B. Not open the account because it is a violation of SEC rules C. Open the account if the customer signs a written statement acknowledging the account is the customer's D. Not open the account because it is a violation of industry rules

B (The client's primary residential address)

A customer would like to open an individual account and would like his confirmations sent to a P.O. Box. What other information is needed to comply with the client's request? A. The client's business address B. The client's primary residential address C. The client's most recent address D. No additional information is needed

D (Have the General Securities Principal of the branch approve the account.)

A new customer wants to open an account at a brokerage firm to purchase municipal securities. The Municipal Securities Principal of the branch is out of the office for the day, but the customer is adamant about the account being opened right away. What action can be taken? A. Explain to the customer that no orders can be entered until the account has been approved by a Municipal Securities Principal. B. Any securities must be purchased in another account and then transferred to the customer's account after the account has been approved by a Municipal Securities Principal C. Execute any customer orders and have the account approved when the Municipal Securities Principal returns to the office. D. Have the General Securities Principal of the branch approve the account.

B (Four or more times in a five-day period)

A pattern day trader is defined as an individual who day-trades no less than: A. Three or more times in a five-day period B. Four or more times in a five-day period C. Five or more times in a five-day period D. Six or more times in a five-day period

D (Hedge fund)

A prime brokerage account would MOST likely be established for a(n): A. Individual opening an account for a minor B. Mutual fund C. Corporation D. Hedge fund

D (Follow her employing firm's guidelines when trading securities)

A registered person of a broker-dealer has an existing account at another firm and has followed the proper procedures to open the account. The current responsibility of the registered person is to: A. Obtain her employing firm's prior written consent in order to purchase any securities in the account B. Obtain her employing firm's prior verbal consent in order to purchase any securities in the account C. Notify her clients that she has an existing account at another member firm to trade securities D. Follow her employing firm's guidelines when trading securities

C (The client can have either a taxpayer identification number or a passport number and country of origin.)

A registered representative (RR) wants to open a new account for a client who is a resident of Mexico. Which of the following statements is TRUE? A. Customer verification of the client's personal information is not required if the customer was referred by an existing client. B. Customer verification of the client's personal information is required if the name is on the Office of Foreign Assets Control (OFAC) list. C. The client can have either a taxpayer identification number or a passport number and country of origin. D. The client must have a taxpayer identification number to open the account.

B (The Treasury Department)

A registered representative discovers that one of her customers is on the Office of Foreign Assets Control (OFAC) list. The RR or another person at her firm must notify: A. The Office of the Comptroller of the Currency B. The Treasury Department C. The SEC D. FINRA

A (To attempt to contact the client directly, and then the client's trusted contact person if one is on file)

A registered representative receives a call from client's relative to inform her that the client is in a coma. The broker-dealer doesn't have an existing durable power of attorney on file for the client. Two weeks ago, the registered representative spoke with the client and he was feeling fine. What's the BEST course of action? A. To attempt to contact the client directly, and then the client's trusted contact person if one is on file B. To petition a judge for a court order for control of the account C. To contact the client's doctors to verify his medical condition D. For the RR to follow the instructions that are received from the client's relative

D (Education)

All of the following information should be obtained by a registered representative when opening a new account for a customer, EXCEPT the: A. Street address B. Tax identification number C. Occupation D. Education

B (Procedures designed to ensure taxes are paid in ERISA qualified accounts)

All of the following must be addressed in the written supervisory procedures (WSP), EXCEPT: A. Approval of new accounts B. Procedures designed to ensure taxes are paid in ERISA qualified accounts C. Communication between research and investment banking D. An identity theft prevention program

C (II and IV)

According to FINRA which TWO of the following are not required when opening a cash account for a customer? I. Name II. Signature III. Is customer of legal age IV. Social Security Number A. I and III B. II and III C. II and IV D. III and IV

B (Annually.)

After opening an account with a firm a customer must receive an updated privacy notice: A. Semi-annually. B. Annually. C. Bi-annually. D. A privacy notice need not be provided after opening an account.

D (The signature of the person granted discretion must be obtained)

An elderly client would like to give discretionary authority to a third party. Which of the following statements is TRUE concerning the person who is granted discretion? A. She will be a co-owner of all account assets B. She must be a U.S. citizen C. The person granted discretion must be a blood relative or spouse D. The signature of the person granted discretion must be obtained

B (Obtain the name of the customer's agent from the customer)

Before accepting a delivery versus payment (DVP) order from a customer, a broker-dealer must: A. Notify FINRA B. Obtain the name of the customer's agent from the customer C. Receive approval of the trade from the contrabroker D. Notify the appropriate banking regulator

D (Are age 21 or older and have worked a minimum of 1,000 hours during the year)

ERISA stipulates that employers with qualified plans are not permitted to exclude employees who have worked for the employer at least one year and: A. Are age 18 or older B. Are age 21 or older C. Are age 18 or older and have worked a minimum of 1,000 hours during the year D. Are age 21 or older and have worked a minimum of 1,000 hours during the year

A (If Dennis dies, his interest in the account will pass to Al and Dan)

Dennis, Al, and Dan have opened a securities account with your firm as tenants in common. All of the following are TRUE, EXCEPT: A. If Dennis dies, his interest in the account will pass to Al and Dan B. You may accept an order from either Dennis, Al, or Dan C. Checks issued by your firm from the account will be in the name of all three co-owners D. When opening the account, you should obtain Social Security numbers from all three co- owners

C (Six years after the move)

For how long must an account record be maintained after a joint owner's death and the account is moved to the survivor? A. Four years after the first owner's death B. Four years after the move C. Six years after the move D. Six years after the first owner's death

D (The investor's educational background)

If a registered representative opens an account for an investor, the registered representative would need to know all of the following information, EXCEPT: A. The investor's tax identification number B. If the investor is a U.S. citizen C. The investor's investment objectives D. The investor's educational background

D (A loan is permitted, but the amount is based on the customer's vested interest.)

If one of the customers of a registered representative (RR) wants to borrow funds from her 401(k) plan, what advice should the RR provide? A. Loans are not permitted from a 401(k) plan. B. The loan is permitted, but must be repaid within 30 years. C. The loan can only be taken if there's a financial hardship. D. A loan is permitted, but the amount is based on the customer's vested interest.

B (Maintain a record of the account for six years from the closure in November)

In April, one of the customers of a broker-dealer died. If the decedent's estate is settled and the account is closed by a relative in November, the firm's responsibility is to: A. Maintain a record of the account for three years from the date of death in April B. Maintain a record of the account for six years from the closure in November C. Maintain a record of the account for six years from the date of death in April D. Maintain a record of the account for three years from the closure in November

B (A form which identifies the third-party agent for the client)

In a Delivery Versus Payment (DVP) and Receive Versus Payment (RVP) account, which of the following is required? A. Approval by FINRA to open the account B. A form which identifies the third-party agent for the client C. Settlement to occur on a regular-way basis D. Physical delivery of securities

C (Seena's estate has a claim on her portion of the account's assetsl)

Lyle, Molly, and Seena have a joint account registered as Tenants in Common. In the event that Seena dies, which of the following statements is TRUE? A. The account would be liquidated as soon as the brokerage firm learns of Seena's death B. Lyle and Molly must change the arrangement to a Joint Tenants with Right of Survivorship C. Seena's estate has a claim on her portion of the account's assets D. Seena's share of the assets in the account are automatically transferred to Lyle and Molly

B (The profit from the trade must be forfeited according to the short-swing profit rule)

On May 25, the president of MaxCo bought 3,000 shares of MaxCo stock in the open market at $33. Two months later, the stock has increased to $40. If the president now wants to sell the shares: A. Permission must be granted by the MaxCo board of directors B. The profit from the trade must be forfeited according to the short-swing profit rule C. Notification must be made to the corporation's legal counsel D. Permission must be granted by FINRA

D (All tenants, and all have authority to trade in the account.)

Signatures of which tenants must be obtained when opening a joint account? A. Only one, the tenant with authority to trade in the account. B. Only one, the tenant with the greatest percent interest in the account. C. All tenants, but only one has authority to trade in the account. D. All tenants, and all have authority to trade in the account.

A (Obtain the prior written consent of the employing firm in order to open the account)

The spouse of a brokerage firm employee wants to open a brokerage account in order to invest in bonds. If this account is opened at a firm that does not employ her spouse, the employee of the firm is required to: A. Obtain the prior written consent of the employing firm in order to open the account B. Obtain the prior written consent of the employing firm if the account is a joint account C. Obtain the written consent of the employing firm within a reasonable period after the account is opened D. Obtain the prior written consent of the employing firm for each order being entered

C (Procedures that must be followed in the event of a catastrophic business disruption)

The written supervisory procedures (WSP) manual of a broker-dealer would NOT include the: A. Nature of a firm's business activities B. Responsibilities of all supervisors C. Procedures that must be followed in the event of a catastrophic business disruption D. Identity of those responsible for implementing the procedures

B (Equal and undivided)

Two individuals hold $100,000 in assets in a JTWROS account. Each party's ownership in the account may be described as: A. Equal and divided B. Equal and undivided C. Unequal and divided D. Unequal and undivided

C (Partner or principal)

Under industry rules, the final approval to open a new account is given by a(n): A. Registered representative B. Operations manager C. Partner or principal D. Supervisor

C (II and III)

Which TWO of the following statements are TRUE concerning Section 457 plans? I. These plans are state-sponsored and used to fund higher education expenses II. These plans are used to fund retirement III. These plans grow tax-deferred IV. These plans grow tax-free A. I and III B. I and IV C. II and III D. II and IV

A (A 401(k) plan)

Which of the following choices is considered a qualified retirement plan? A. A 401(k) plan B. An IRA C. A 529 plan D. A Roth IRA

D (Tax-deferred earnings)

Which of the following is a tax benefit that's offered by 403(b) plans? A. Tax credits on contributions B. Tax-free capital gains C. Tax-exempt withdrawals D. Tax-deferred earnings

A (The customer's mail is sent only to the registered representative's primary address.)

Which of the following situations should be escalated to the firm's compliance department? A. The customer's mail is sent only to the registered representative's primary address. B. The customer's mail is sent only to the primary address. C. The customer's mail is sent both to the primary address and her daughter's address. D. The customer's mail is sent only to a post office address.

C (Employees of certain tax-exempt organizations are permitted to claim a tax credit based on the amount of their contributions.)

Which of the following statements is NOT TRUE concerning a 403(b) plan? A. A tax-exempt employer can establish the plan. B. Employees of certain tax-exempt organizations are permitted to make pre-tax contributions. C. Employees of certain tax-exempt organizations are permitted to claim a tax credit based on the amount of their contributions. D. Employees of certain tax-exempt organizations are not taxed on the earnings until they withdraw funds from their accounts.

A (The customer is required to positively affirm that he wants to opt out of information sharing)

Which of the following statements is TRUE concerning Regulation SP and a customer choosing to opt out of information sharing? A. The customer is required to positively affirm that he wants to opt out of information sharing B. The customer is required only to opt out if the account is held at a clearing firm C. The customer may be required to write a letter to opt out of information sharing D. The broker-dealer is not required to provide an opt-out notice

D (Grandparents may make contributions for their grandchildren until the children reach the age of 18)

Which of the following statements is TRUE regarding a Coverdell Education Savings Account? A. The maximum contribution is $6,000. B. If the funds are not used for educational expenses, the account may be used for tax-deferred retirement savings C. Contributions must be invested conservatively D. Grandparents may make contributions for their grandchildren until the children reach the age of 18