FINRA Series 7 Exam Outline

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO DEBT SECURITIES?

"Debt Securities • Types of debt securities and money market instruments (e.g., corporate commercial paper, brokered CDs, Eurodollar bond, variable-rate preferreds) • Characteristics: structure, risks and rewards, call provisions • Structured products (e.g., equity-linked securities, exchange-traded notes (ETNs)) • Types and characteristics of non-U.S. market securities (e.g., sovereign and corporate debt) • Types of yields (e.g., coupon (nominal), current, yield to maturity (YTM), yield to call (YTC), yield to worst and discount yield, calculations and relationship to price) • Bond ratings • Tax implications of taxable debt securities, including original issue discount (OID) rules, interest, principal, premiums, discounts, and capital gains and losses"

What is Due Diligence?

"Due diligence is an investigation or audit of a potential investment or product to confirm all facts, such as reviewing all financial records, plus anything else deemed material. It refers to the care a reasonable person should take before entering into an agreement or a financial transaction with another party. (Investopedia.com) "

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO EQUITY SECURITIES?

"Equity securities • Types of stock (e.g., authorized, issued, outstanding, Treasury stock, stated value) • Characteristics of common stock ° Rights of common stockholders (e.g., pre-emptive right, pro rata share of dividends, access to corporate books, voting power (statutory, cumulative, nonvoting), residual claims on corporate assets) ° Spinoffs ° Stock acquired through a consolidation or transfer ° Penny stocks and rules associated with penny stock transactions • Characteristics of preferred stock ° Types of preferred stock (e.g., cumulative, non-cumulative, participating, nonparticipating, convertible, callable, adjustable-rate and variable-rate) ° Rights of preferred stockholders (e.g., preference upon corporate dissolution, dividend payment, conversions, sinking fund provisions) • Rights and warrants: origination, exercise terms, relationship of subscription price to market price of underlying stock, anti-dilution agreement • Electronic exchanges or auction markets (e.g., electronic communications networks (ECNs), over-the- counter (OTC), dark pools of liquidity) • Types and characteristics of non-U.S. market securities (e.g., American Depositary Receipts (ADRs), corporate equity) • Tax treatment of equity securities transactions ° Capital gains and losses, dividend distributions (qualified and non-qualified), wash sales, holding periods ° Determination of net long-term and short-term gains or losses ° When-issued securities, securities acquired through conversion ° Calculation of cost basis per share on: purchases, exchange of convertibles for common shares, stock dividends and stock rights, inherited or gifted securities ° Cost valuation: FIFO, LIFO, identified shares"

Types of questions for Series 7 Exam

"Function 1: (9 Q's) Seeks Business for the Broker-Dealer from Customers and Potential Customers Function 2: (11 Q's) Opens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectives Function 3: (91 Q's) Provides Customers with Information About Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records Function 4: (14 Q's) Obtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactions"

What is the meaning of Function 2: Opens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectives?

"Informs customers of the types of accounts and their appropriateness and provides disclosures regarding various account types and restrictions" "Obtains and updates customer information and documentation, including required legal documents and identifies and escalates suspicious activity" "Makes reasonable efforts to obtain customer investment profile information including, but not limited to, the customer's other security holdings, financial situation and needs, tax status and investment objectives" "Obtains supervisory approvals required to open accounts"

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO OPTIONS?

"Options • Listed options and their characteristics (e.g., contract specifications and adjustments, dividends, exercise/assignment, settlement date, opening and closing transactions, values (premium, intrinsic and time), volume, open interest, position limits, exercise limits) ° The Options Clearing Corporation (OCC) ° American-style and European-style ° Long-term Equity AnticiPation Securities (LEAPS) • Basic strategies (e.g., covered writing and hedging for equity, index, foreign currency and yield-based options) ° Protective put for equity and index options ° Covered call and put writing for equity options • Advanced strategies (e.g., spreads, straddles, combinations, uncovered writing) ° Long (debit) and short (credit) spreads ° Straddle/combination for equity and index options ° Uncovered (naked) call or put writing for equity, index and yield-based options • Profit and loss calculations, break-even points, economics of positions • Tax treatment of option transactions (equity, index, foreign currency, yield-based)"

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO PACKAGED PRODUCTS?

"Packaged products • Investment companies, exchange-traded funds (ETFs), unit investment trusts (UITs) ° Types of mutual funds: equity, fixed income, money market, interval ° Structure of investment companies (e.g., open-end and closed-end funds) ° Fund objectives (e.g., value, growth, income, balanced, international, sector, life cycle) ° Characteristics of: − Open-end funds: e.g., NAV, forward pricing, offering price, exchange privileges within families of funds, fees and expenses: no load, load (front-end, back-end), distribution fees, management fees, nature of 12b-1 fees − Closed-end funds: distributed in primary market at IPO price, traded in secondary market ° Sales practices (e.g., dollar-cost averaging (DCA), computing sales charge, breakpoints) ° Redemption (e.g., redemption price, payout or withdrawal plans, conversion privilege, restrictions, contingent deferred sales charge, tenders) ° Tax treatment of mutual funds ° Reinvestment of dividends and capital gain distributions ° Charges and expenses • Variable life insurance/annuity contracts ° Characteristics and insurance features (e.g., minimum guarantees, death benefits, living benefits, riders) ° Separate accounts (e.g., purpose, management of portfolio, investment policies, performance of account) ° Valuation of a variable annuity contract (e.g., accumulation units, surrender value, annuitization units) ° Purchasing or exchanging variable annuities (e.g., immediate annuity, charges, fees, penalties, right of accumulation (ROA), waiver of premium) ° Annuitization: types of election, variable payout, assumed interest rate, relationship between assumed interest rate and actual rate of return ° Tax treatment of variable annuity contracts during accumulation period and annuity period and taxation at surrender of contract • Real estate investment trusts (REITs) ° Structure (e.g., finite number of shares, distributed in primary market at IPO price, traded in secondary market, premiums and discounts to NAV) ° Types and characteristics (e.g., equity REIT, mortgage REIT, hybrid REIT) ° Tax treatment (e.g., dividends, capital gains, distributions) • Direct participation programs (DPPs) ° General characteristics − Structures (e.g., limited partnerships (e.g., roles and duties of general partners vs. limited partners), limited liability companies, corporations that have tax pass-through exemption from the IRS) − Tax treatment (e.g., flow-through of income, expenses and tax liability, real estate depreciation, oil and gas tax advantages) ° Types of DPPs (e.g., real estate, oil and gas, small-cap debt and equity, business development companies (BDCs), equipment leasing) and their investment advantages, risks and tax implications ° Types of DPP offerings (i.e., private placements and public offerings) ° Evaluation of DPPs (e.g., economic soundness of the program, expertise of the general partner, basic objectives of the program; start-up costs, leverage and other revenue considerations)"

What is the meaning of Function 4: Obtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactions?

"Provides current quotes" "Processes and confirms customers' transactions pursuant to regulatory requirements and informs customers of delivery obligations and settlement procedures" "Informs the appropriate supervisor and assists in the resolution of discrepancies, disputes, errors and complaints" "Addresses margin issues"

What is the meaning of Function 3: Provides Customers with Information About Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records?

"Provides customers with information about investment strategies, risks and rewards, and communicates relevant market, investment and research data to customers" "Reviews and analyzes customers' investment profiles and product options to determine suitable investment recommendations" "Provides appropriate disclosures regarding investment products and their characteristics, risks, services and expenses" "Communicates with customers about account information, processes requests and retains documentation"

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO REGISTERED HEDGE FUNDS AND FUNDS OF FUNDS?

"Registered hedge funds and fund of funds • Structure (e.g., private placements, registered, exemption from registration under the Investment Company Act of 1940, blind pool/ blank check) • Characteristics (e.g., limited or no liquidity, limited available information, lock-up provisions, charges and expenses, tangible assets, wide array of investment styles, models and vehicles) • Tax treatment of distributions"

1.1 As a FA, what knowledge should you have when contacting current and potential customers, developing promotional and advertising materials and seeking appropriate approvals to distribute marketing materials?

"Standards and required approvals of public communications • Types of communications (e.g., retail, institutional, correspondence) • Seminars, lectures and other group forum requirements • Product specific advertisements and disclosures ° Investment company products and variable contracts ° Options-related communications; options disclosure document (ODD) ° Municipal securities ° Research reports (e.g., quiet periods, distribution, third-party research) ° Government securities, collateralized mortgage obligations (CMOs), certificates of deposit (CDs)"

2.3 As a FA, what knowledge should you have when making reasonable efforts to obtain customer investment profile information including, but not limited to, the customer's other security holdings, financial situation and needs, tax status and investment objectives?

"• Essential facts regarding customers and customer relationships • Financial factors relevant to assessing a customer's investment profile ° Security holdings, other assets and liabilities, annual income, net worth, tax considerations ° Other considerations (e.g., age, marital status, dependents, employment, investment experience, home ownership and financing, employee stock options, insurance, liquidity needs) • Investment objectives (e.g., preservation of capital, income, growth, speculation) • Reasonable-basis suitability, customer-specific suitability and quantitative suitability • Investment strategies and recommendations to hold • Verification of investor accreditation and sophistication"

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO MUNICIPAL SECURITIES?

"• General characteristics of municipal fund securities, method of quotations (e.g., yield/basis price, dollar price), interest rate, payment periods, denominations, diversity of maturities (e.g., serial, term) and legal opinion (purpose and contents) • Analysis and diversification of municipal investments: geographical, type and rating • Analysis of general obligation (GO) bonds, including: characteristics of the issuer, nature of the issuer's debt, factors affecting the issuer's ability to pay, municipal debt ratios • Analysis of revenue bonds, including feasibility studies, sources of revenue, security (protective covenants of bond indenture), financial reports and outside audits, restrictions on the issuance of additional bonds, flow of funds, earnings coverage, sources of credit information, rating services, credit enhancements • Purpose and characteristics of specific types of municipal securities: ° Types of municipal bonds (e.g., GO bonds, limited tax GO bonds and notes, revenue bonds, short-term municipal obligations (e.g., tax anticipation notes (TANs), bond anticipation notes (BANs), revenue anticipation notes (RANs), tax-exempt commercial paper, grant anticipation notes (GANs), tax and revenue anticipation notes (TRANs))) ° Special tax, special assessment, moral obligation, advance or pre-refunded, double-barreled, taxable (e.g., Build America bonds), OIDs, zero-coupon (capital appreciation) bonds, certificates of participation (COPs), alternative minimum tax (AMT), lease revenue, variable rate securities, auction rate securities ° Municipal fund securities including 529 college savings plans, local government investment pools (LGIPs), ABLE accounts (e.g., change in beneficiary, rollovers, ownership, tax consequences of unqualified withdrawals) ° Call features (e.g., par or premium, optional, mandatory, partial call, sinking fund, extraordinary calls, make whole calls), advantages/disadvantages to issuers and investors ° Put or tender options ° Refunding methods: direct exchange versus sale of new issue, advance refunding, refunding at call dates/current refunding, escrowed to maturity, crossover refunding • Factors affecting the marketability of municipal bonds: rating, maturity, call features, interest (coupon) rate, block size, liquidity (ability to sell the bond in the secondary market), dollar/yield price, issuer name (local or national reputation), credit enhancement, credit and liquidity support, denominations • Pricing of municipal securities and other mathematical calculations: dollar price, accrued interest (regular coupon, odd first coupon), computations of accrued interest (30/360), amortization of premium, accretion of discount, relationship of bond prices to changes in maturity, coupon, various yield calculations (taxable equivalent yield, net yield after capital gains tax, current yield, YTC on premium bonds) value of basis point, in default, • Tax treatment of municipal securities: securities bought at a discount or premium in the secondary market, OID, federal income tax status, state and local tax status, computation of taxable equivalent yield, accrued interest, AMT, bonds, taxable bonds, bank qualified bonds"

What is the knowledge of Function 4: Obtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactions?

"• Orders, offerings and transactions in customer accounts (e.g., at advertised yield) • Trade execution activities • Types of securities quotes (e.g., firm, subject) • Types of orders (e.g., all-or-none (AON), fill-or-kill (FOK), immediate-or-cancel (IOC), not-held, market-on- close (MOC), spread, straddle) • Short sale requirements and strategies (e.g., order marking, locate, borrow and delivery, speculation, hedging, arbitrage) • Securities lending (e.g., hard to borrow, fail to deliver) • Best execution obligations" "• Information required on an order ticket (e.g., symbol, account number, price) • Market making activities: role and functions of the designated market maker, listing requirements, limitations on trading during significant market declines, principal transactions, agency transactions, quotations (e.g., firm, subject or otherwise qualified, bid wanted, offer wanted, size obligations), SEC order handling rules, transaction reporting • Use of automated execution systems • Regulatory reporting requirements (e.g., Order Audit Trail System (OATS), Trade Reporting and Compliance Engine (TRACE), Electronic Municipal Market Access (EMMA), trade reporting facility (TRF), Real-Time Transaction Reporting System (RTRS)) • Delivery requirements • Good delivery (e.g., certificates in possession of the seller, certificates in the name of two persons, deceased owner, stock or bond powers, mutilated certificates, due bills, DVP/RVP, book entry securities, stock certificate, endorsements, denominations, bearer, registrar, registered, Direct Registration System (DRS)) • Settlement of transactions (e.g., security-specific requirements, when-, as- and if-issued, ex-rights, ex- dividends, due bill checks, negotiated settlements, option exercise/assignment, don't know (DK), extensions)" "• Erroneous reports, errors, cancels and rebills • Requirements for addressing customer complaints and consequences of improper handling of complaints • Methods of formal resolution (e.g., arbitration, mediation, litigation) • Form U4 reporting requirements" "• Requirements and characteristics of margin accounts (e.g., minimums, approvals, ineligible accounts, eligible/ineligible securities), and required disclosures (e.g., interest rate disclosure and hypothecation) • Product or strategy specific requirements (e.g., Treasury securities, mutual funds) • Calculations in margin accounts (e.g., long and/or short positions) • Initial margin: long market value, short market value, debit balance, credit balance, initial Regulation T margin requirement on long or short positions, Regulation T requirement for established accounts, loan value, excess equity, buying power of deposited securities • Maintenance: additional purchases, sales (long or short), cash withdrawals, stock withdrawals, simultaneous purchases and sales, restrictions, liquidation to meet a margin/maintenance call, deposit of cash or securities required to meet a margin or maintenance call • Special memorandum account (SMA): balance, buying power, prohibited use of SMA, effect of excess equity, deposit of marginable securities, receipt of cash dividends and earned interest, liquidation of securities in the account, cash or securities withdrawals, new margin securities purchased or sold short • Other margin accounts (e.g., portfolio margin, day trading)"

What are securities?

"A simple definition of a security is any proof of ownership or debt that has been assigned a value and may be sold. (Today, evidence of ownership is likely to be a computer file, while once it was a written piece of paper.) For the holder, a security represents an investment as an owner, creditor or rights to ownership on which the person hopes to gain profit. Examples are stocks, bonds and options."(https://www.thestreet.com/topic/47042/securities.html)

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO ASSET-BACKED SECURITIES?

"Asset-backed securities • Collateralized mortgage obligations (CMOs) • Collateralized debt obligations (CDOs) • Characteristics (e.g., indenture, maturities, form of ownership, interest payment periods, call and put features, calculation of accrued interest, and specific characteristics (e.g., maturity, type of collateral, priority of claim, call provisions))"

What is the meaning of Function 1: Seeks Business for the Broker-Dealer from Customers and Potential Customers?

"Contacts current and potential customers in person and by telephone, mail and electronic means; develops promotional and advertising materials and seeks appropriate approvals to distribute marketing materials" "Describes investment products and services to current and potential customers with the intent of soliciting business"

What is a bond?

A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. A bond has an end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments that will be made by the borrower. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.

What is an option?

A contract allowing the recipient the right (but not obligation) to transact a known transaction (buy or sell) of a known asset at a known price in a known time frame

What is the knowledge of Function 3: Provides Customers with Information About Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records?

A lot.

municipal bond

A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures, including the construction of highways, bridges or schools.

What are blue sky laws?

Blue Sky Laws are state regulations established as safeguards for investors against securities fraud. The laws, which may vary by state, typically require sellers of new issues to register their offerings and provide financial details. This allows investors to base their judgments on verifiable information.

Collateralized mortgage obligation

Collateralized mortgage obligation (CMO) refers to a type of mortgage-backed security that contains a pool of mortgages bundled together and sold as an investment. Organized by maturity and level of risk, CMOs receive cash flows as borrowers repay the mortgages that act as collateral on these securities.

FINRA

Financial Industry Regulatory Authority

Options Disclosure Document (ODD)

Prior to buying or selling an option, investors must read a copy of the Characteristics & Risks of Standardized Options, also known as the options disclosure document (ODD). It explains the characteristics and risks of exchange traded options.

SEC

Securities and Exchange Commission

Pension

a regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life.

Annuity

a series of equal regular deposits (yearly allowance)

Securities and Exchange Commission

an independent agency of the government that regulates financial markets and investment companies

What is the knowledge of Function 1: Seeks Business for the Broker-Dealer from Customers and Potential Customers?

"Standards and required approvals of public communications • Types of communications (e.g., retail, institutional, correspondence) • Seminars, lectures and other group forum requirements • Product specific advertisements and disclosures ° Investment company products and variable contracts ° Options-related communications; options disclosure document (ODD) ° Municipal securities ° Research reports (e.g., quiet periods, distribution, third-party research) ° Government securities, collateralized mortgage obligations (CMOs), certificates of deposit (CDs)" "• Process for bringing new issues to market (e.g., due diligence, registration statement, preliminary prospectus, final prospectus, underwriting agreement, selling group agreement, blue-sky laws and procedures) • Regulatory requirements for initial public offerings (IPOs) (e.g., restrictions on prospecting or soliciting, allowable communications with the public) • Primary financing for municipal securities (e.g., competitive sale, negotiated sale, private offering, advance refunding) • Syndicate formation and operational procedures (e.g., purpose of syndicate bid, roles and responsibilities of underwriters, selling group concession and reallowance) • Pricing practices and components of underwriters' spread and determination of underwriters' compensation and selling practices • Prospectus requirements (e.g., timeliness of information, preliminary prospectus (red herring), final prospectus) • Information required in a registration statement and offering material on new issue (e.g., in pre-filing period, in cooling-off period, in post-registration period) • Official statements, preliminary official statements, notice of sale for municipal securities • Qualified institutional buyer (QIB) and accredited investor • Qualification requirements for Regulation A offerings (e.g., filing of abbreviated registration statement and offering circular • Regulation D offerings (e.g., exemption from SEC registration, access to capital markets, accredited investors) • Securities and transactions exempted from registration, including Section 3(a)(11) of the Securities Act of 1933 and Rule 147 thereunder (i.e., intrastate offering) • Regulatory requirements for private placements or resales • Nonregistered foreign securities sold to institutions qualified in the U.S. • Foreign securities prohibited from being sold to U.S. investors"

Purpose of FINRA Series 7 exam

"The Series 7 exam is designed to assess the competency of entry-level General Securities Representatives. The Series 7 exam seeks to measure the degree to which each candidate possesses the knowledge, skills and abilities needed to perform the critical functions of a General Securities Registered Representative. In order to obtain registration as a General Securities Representative, candidates must pass both the Series 7 exam and a general knowledge co-requisite, the Securities Industry Essentials (SIE) exam."

Length of Series 7 Exam

"The exam consists of 125 multiple-choice items, and each item consists of four answer choices." There are an additional 10 pre-test questions that are not scored. 3 hours and 45 minutes to take exam

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO U.S. TREASURY SECURITIES?

"U.S. Treasury securities • Treasury bills, notes, bonds • Treasury receipts (Separate Trading of Registered Interest and Principal Securities (STRIPS)/zero-coupon) • Treasury Inflation Protected Securities (TIPS) • Characteristics (e.g., types, maturities, denominations, payment of interest)"

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO U.S. GOVERNMENT AGENCY SECURITIES?

"U.S. government agency securities • Government National Mortgage Association (GNMA) • Federal National Mortgage Association (FNMA) • Federal Home Loan Mortgage Corporation (FHLMC) • Student Loan Marketing Association (SLMA) • Characteristics: types, maturities, denominations, primary dealers, distribution, issue form, quotations, pass- through, calculating a spread, pricing, payment of interest and principal"

3.4 As a FA, what knowledge should you have when communicating with customers about account information, processing requests and retaining documentation?

"• Customer confirmations and statements, including: components, timing, mailings to third parties, and exceptions • Account value, profits and losses, realized and unrealized • Withdrawals and tenders • Customer account records (e.g., updating for change of address, sending required notifications, investment objectives) • Transferring accounts between broker-dealers (e.g., Automated Customer Account Transfer Service (ACATS), transfer agent and procedures) • Books and records retention requirements • Account closure procedures"

2.2 As a FA, what knowledge should you have when obtaining and updating customer information and documentation, including required legal documents and identifying and escalating suspicious activity?

"• Customer screening (e.g., customer identification program (CIP), know-your-customer (KYC), domestic or foreign residency and/or citizenship, corporate insiders, employees of broker-dealers or self-regulatory organizations (SROs)) • Information security and privacy regulations (e.g., initial privacy disclosures to customers, opt-out notices, disclosure limitations, exceptions) • Account authorizations (e.g., power of attorney (POA), trust documents, corporate resolutions, trading authority, discretionary account documents)"

3.1 As a FA, what knowledge should you have when providing customers with information about investment strategies, risks and rewards, and communicating relevant market, investment and research data to customers?

"• Customer-specific factors that generally affect the selection of securities (i.e., customer's investment profile, including the customer's risk tolerance, investment time horizon and investment objectives, liquidity needs) • Portfolio or account analysis and its application to security selection (e.g., diversification, asset allocation principles, concentration, volatility, potential tax ramifications) • Portfolio theory (e.g., alpha and beta considerations, Capital Asset Pricing Model (CAPM)) • Delivery of annual reports and notices of corporate actions (e.g., dividends, splits, odd lot tenders) • Fundamental analysis of financial statements and types of financial statements included in an annual report, importance of footnotes, material risk disclosures and key terms (e.g., assets, liabilities, capital, cash flow, income, earnings per share (EPS), book value, shareholders' equity, depreciation, depletion, goodwill) • Balance sheet and methods of inventory valuation: last-in, first out (LIFO), first-in, first-out (FIFO) and methods of depreciation • Income statement and calculations derived from an income statement: earnings before interest and taxes (EBIT); earnings before taxes (EBT); net profit; and earnings before interest, taxes, depreciation and amortization (EBITDA) • Principal tools to measure financial health ° Liquidity: working capital, current ratio, quick assets, acid test ratio ° Risk of bankruptcy: bond ratio, debt-to-equity ratio ° Efficient use of assets: inventory turnover ratio, cash flow ° Profitability: margin-of-profit ratio, net profit ratio, asset coverage and safety of income (i.e., net asset value (NAV) per bond, bond interest coverage, book value per share) ° EPS: fully diluted EPS, price-earnings (P/E) ratio, dividend payout ratio, current yield ° Competitiveness (comparative performance): return on common equity"

1.2 As a FA, what knowledge should you have when describing investment products and services to current and potential customers with the intent of soliciting business?

"• Process for bringing new issues to market (e.g., due diligence, registration statement, preliminary prospectus, final prospectus, underwriting agreement, selling group agreement, blue-sky laws and procedures) • Regulatory requirements for initial public offerings (IPOs) (e.g., restrictions on prospecting or soliciting, allowable communications with the public) • Primary financing for municipal securities (e.g., competitive sale, negotiated sale, private offering, advance refunding) • Syndicate formation and operational procedures (e.g., purpose of syndicate bid, roles and responsibilities of underwriters, selling group concession and reallowance) • Pricing practices and components of underwriters' spread and determination of underwriters' compensation and selling practices • Prospectus requirements (e.g., timeliness of information, preliminary prospectus (red herring), final prospectus) • Information required in a registration statement and offering material on new issue (e.g., in pre-filing period, in cooling-off period, in post-registration period) • Official statements, preliminary official statements, notice of sale for municipal securities • Qualified institutional buyer (QIB) and accredited investor • Qualification requirements for Regulation A offerings (e.g., filing of abbreviated registration statement and offering circular • Regulation D offerings (e.g., exemption from SEC registration, access to capital markets, accredited investors) • Securities and transactions exempted from registration, including Section 3(a)(11) of the Securities Act of 1933 and Rule 147 thereunder (i.e., intrastate offering) • Regulatory requirements for private placements or resales • Nonregistered foreign securities sold to institutions qualified in the U.S. • Foreign securities prohibited from being sold to U.S. investors"

3.3 As a FA, what knowledge should you have when providing appropriate disclosures regarding investment products and their characteristics, risks, services and expenses?

"• Required disclosures on specific transactions (e.g., material aspects of investments, statement of additional information, material events, control relationships) • Types of investment risk (e.g., call, systematic and nonsystematic, reinvestment, timing) • Types of investment returns (e.g., tax-exempt interest, return of capital) • Costs and fees associated with investments (e.g., markups, commissions, net transactions, share classes, non-discretionary fee-based accounts, surrender charges, 12b-1 fees, mortality and expense charges in variable products, soft dollar arrangements) • Tax considerations (e.g., unification of gift and estate taxes, lifetime exclusion, annual gift limit, taxation of securities received as a gift, inheritance of securities) • Market analysis considerations (e.g., market sentiment, market indices, options volatility, put/call ratio, market momentum, available funds, trading volume, short interest, index futures) • Market analysis considerations for municipal securities, including Bond Buyer indexes (e.g., 11 GO Bonds Index, Municipal Bond Index (40 Bond), 20 GO Bonds Index) • Technical analysis of basic chart patterns and key terms (e.g., trend lines, saucer/inverted saucer, head- and-shoulders/inverted head-and-shoulders, breakouts, resistance/support levels, moving averages, consolidation, stabilization, overbought and oversold) • Disclosure of material events effecting retail sales of municipal bonds"

2.4 As a FA, what knowledge should you have when obtaining supervisory approvals required to open accounts?

"• Required review, approvals and documentation for account opening and maintenance • Physical receipt, delivery and safeguarding of cash or cash equivalents, checks and securities • Circumstances for refusing or restricting activity in an account or closing accounts"

2.1 As a FA, what knowledge should you have when informing customers of the types of accounts, their appropriateness and providing disclosures regarding various account types and restrictions?

"• Types of accounts (e.g., pattern day trading, prime brokerage, delivery verses payment/receive versus payment (DVP/RVP), advisory or fee-based) • Account registration types (e.g., tenants in common (TIC), community property, sole proprietorship, partnership, unincorporated associations) • Requirements for opening customer accounts • Retirement plans and other tax advantaged accounts ° Transfers, rollovers, eligibility, distribution strategies and taxation (e.g., types of allowable contributions, distribution options, taxation of distribution at retirement, age restrictions for distributions, permissible investments) ° Employer-sponsored plans and ERISA (e.g., 457, defined benefit, profit-sharing, stock options and stock purchase, non-qualified deferred compensation programs) • Wealth events (e.g., inheritance) • Account registration changes and internal transfers"

What is the knowledge of Function 2: Opens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectives?

"• Types of accounts (e.g., pattern day trading, prime brokerage, delivery verses payment/receive versus payment (DVP/RVP), advisory or fee-based) • Account registration types (e.g., tenants in common (TIC), community property, sole proprietorship, partnership, unincorporated associations) • Requirements for opening customer accounts • Retirement plans and other tax advantaged accounts ° Transfers, rollovers, eligibility, distribution strategies and taxation (e.g., types of allowable contributions, distribution options, taxation of distribution at retirement, age restrictions for distributions, permissible investments) ° Employer-sponsored plans and ERISA (e.g., 457, defined benefit, profit-sharing, stock options and stock purchase, non-qualified deferred compensation programs) • Wealth events (e.g., inheritance) • Account registration changes and internal transfers" "• Customer screening (e.g., customer identification program (CIP), know-your-customer (KYC), domestic or foreign residency and/or citizenship, corporate insiders, employees of broker-dealers or self-regulatory organizations (SROs)) • Information security and privacy regulations (e.g., initial privacy disclosures to customers, opt-out notices, disclosure limitations, exceptions) • Account authorizations (e.g., power of attorney (POA), trust documents, corporate resolutions, trading authority, discretionary account documents)" "• Essential facts regarding customers and customer relationships • Financial factors relevant to assessing a customer's investment profile ° Security holdings, other assets and liabilities, annual income, net worth, tax considerations ° Other considerations (e.g., age, marital status, dependents, employment, investment experience, home ownership and financing, employee stock options, insurance, liquidity needs) • Investment objectives (e.g., preservation of capital, income, growth, speculation) • Reasonable-basis suitability, customer-specific suitability and quantitative suitability • Investment strategies and recommendations to hold • Verification of investor accreditation and sophistication" "• Required review, approvals and documentation for account opening and maintenance • Physical receipt, delivery and safeguarding of cash or cash equivalents, checks and securities • Circumstances for refusing or restricting activity in an account or closing accounts"

3.2 As a FA, what knowledge should you have when reviewing and analyzing customers' investment profiles and product options to determine suitable investment recommendations PERTAINING TO CORPORATE BONDS?

"• Types of corporate bonds (e.g., mortgage bonds, equipment trust certificates, debentures, step coupon bonds, zero-coupon bonds, convertible bonds, high-yield bonds, income bonds) and their characteristics • Convertible bonds: general characteristics, (e.g., conversion privilege, fixed versus variable, conversion ratio or price, calculation of parity price of underlying security, arbitrage, factors influencing conversion)"

hedge fund

a limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains. `Very Risky Investing `2% fee of fund `20 % of profits