FINRA Securities Industry Essentials 2

Question 1

Which of the following best describes a 'market maker' in the context of OTC securities?

Accepted Answer

A dealer who quotes both bid and ask prices and stands ready to buy or sell

Answer

A market maker is a dealer firm that continuously quotes both bid (buy) and ask (sell) prices, providing liquidity in OTC markets.

Question 2

Under FINRA rules, a registered representative who wants to open a brokerage account at another member firm must:

Accepted Answer

Notify their employer firm in writing prior to opening the account

Answer

FINRA Rule 3210 requires associated persons to notify their employer firm prior to opening accounts at other member firms.

Question 3

A customer purchases 100 shares of XYZ stock at $50 per share and later sells them at $60 per share after 8 months. How is this gain classified for tax purposes?

Accepted Answer

Short-term capital gain taxed as ordinary income

Answer

Gains on securities held 12 months or less are short-term capital gains and are taxed at ordinary income rates.

Question 4

Which type of bond is backed solely by the full faith and credit of the issuing municipality, with repayment from general tax revenues?

Accepted Answer

General obligation bond

Answer

General obligation bonds are backed by the taxing power of the municipal issuer and repaid from general tax revenues.

Question 5

What is the primary purpose of the Securities Investor Protection Corporation (SIPC)?

Accepted Answer

To protect customers if a broker-dealer fails and customer assets are missing

Answer

SIPC protects customers of failed broker-dealers by replacing missing cash and securities up to $500,000, including a $250,000 cash limit.

(FINRA) FINRA Exams Practice Test

(FINRA) FINRA Exams Practice Test

FINRA Securities Industry Essentials 2