FINRA General Securities Representative Exam (5)

By Kevin Leland 

I’m going to try to cut down on the ‘blah, blah, blah’ on this post, and bang out about a half dozen good horse questions. The FINRA administered General Securities Representative test is broken down into four sections: (1) Functions (2) Tasks (3) Financial Industry Knowledge (4) Knowledge of Rules and Regulations. The test will cover the major job functions a RR (Registered Representative) will perform. Those include:

  • Seeking new business for the firm. (Welcome to the world of ‘cold calling!’)
  • Evaluating new customers: tax status, objectives, needs, other holdings.
  • Opening accounts, moving assets, and keeping records.
  • Informing customers about investments and making recommendations.
  • Obtaining customer’s purchase and sales instructions, and following up.

To perform any of those major functions, correctly, RRs need to know the rules and regs, understand how different securities work, be current on what’s going on in the market and do all the associated tasks and fill out all the (digital?) paperwork properly.

As I said in an earlier post, I’m purposely avoiding an organized format. For the purposes of building this horse, I’m also writing the questions and answers in a way that will be very different than the multiple choice questions you will find on the test. A horse isn’t a practice test. It’s more of a way to insert the knowledge into your brain in a very boiled down, but complete way, so that you will be able to answer the questions no matter how they are formatted on the exam. The trick to making the horse work for you, is to focus on the information contained in the question as much as the answer. Resist the temptation to ‘skim’ the questions that you have already memorized the answers to. Read or listen to the question carefully, as if it’s the first time you tackled it.

Q008) After a three-year review of the Telemarketing Sales Rule (TSR), and considering over 64,000 comments by concerned parties, the National Do Not Call Registry was set up in 2003, and is managed and enforced by whom?

A008) The National Do Not Call Registry is managed by the Federal Trade Commission (FTC), the nation’s consumer protection agency. It is also enforced by the FTC along with the Federal Communications Commission (FCC) and state law enforcement officials.

If a number on the registry is disconnected or reassigned, the National Do Not Call Registry will take the number off the list. The person that the number is re-assigned to will need to register the number once again. Telemarketers have 31 days after the registration to quit calling the number.

Link to the:  National Do Not Call Registry

Q009) Stocks and bonds are liquid assets. What does the ‘liquidity’ of an asset, refer to?

A009) How quickly and easily the asset can be converted into cash.

Obviously, especially now-a-days, a house is NOT a liquid asset. Poor realtors, *sniffle, sniffle* how do they eat? What is an antonym for liquidity? Illiquidity –don’t confuse ‘liquid assets’ with ‘hard assets’ which are anything but cash. Some hard assets can be very liquid and are called: liquid hard assets. I found a really smart guy online; John T. Reed, who gives some really good advice regarding liquid hard assets — the kind of advice you usually hear from the ‘Apocolypse Now’ crowd, of which I am, admittedly and shamefully, a card-carrying member. Instead of recommending that you convert your cash and liquid assets into an arsenal of zombie-killing bazookas, he lists some realistic and practical liquid hard assets to stock up on to hedge and survive hyperinflation and depression –not the ‘Prozac’ kind of depression, but the kind of depression our government likes to refer to as ‘recession.’ Check out his site: John T. Reed Publishing. I set the link to land on his article listing those good liquid hard assets.

Q010) Options are often purchased in order to ‘hedge’ investments. How is the term ‘hedging’ defined as it relates to an investment strategy?

A011) Hedging is a strategy that minimizes the risks an investor assumes by offsetting the potential losses in one investment by gains that are guaranteed in the ‘hedge’ investment, should the value of the held security move in a direction contrary to the investor’s hopes, expectations and predictions.

Hedging is very difficult to define outside of an example. To get the terminology straight, because an option is technically a security, and the hedge investment is still an investment, let’s look at life, as a real-life example. We invest in our life. We are bullish on continuing to live, work, and produce an income. However, we know we’re facing about a one in a thousand chance of dying any given year. So, we pay life insurance premiums to ‘hedge’ the prediction, expectation and hope that we will continue to live, work and make money. So, our family makes bank should we croak. Pretty simple, huh?

Now let’s confuse ourselves with a similar term, that we’ve all probably heard of, (most likely in a bad light) but is difficult to define, even by example: Hedge fund.

Q012) Other than a legal way for a fund manager to earn $3,000,000,000.00 in one year (no exaggeration–that’s three billion, if your eyes went crossed trying to count all the zeros) wtf is a hedge fund?

A012) According to WikiPedia: A hedge fund is an investment fund that can undertake a wider range of investment and trading activities than other funds, but which is generally only open to certain types of investor specified by regulators. These investors are typically institutions, such as pension funds, university endowments and foundations, or high net worth individuals, who are considered to have the knowledge or resources to understand the nature of the funds. As a class, hedge funds invest in a diverse range of assets, but they most commonly trade liquid securities on public markets. They also employ a wide variety of investment strategies, and make use of techniques such as short selling and leverage.

Form PF is submitted as an instrument to help the SEC understand more about leverage, credit providers, investor focus and fund performance. The regulators share this information with the Financial Stability Oversight Council.

Q013) What is the function of the Financial Stability Oversight Council?

A013) The (FSOC) is a Federal  organization, chaired by the Secretary of the Treasury, that was established in 2010 by Title I of the Dodd–Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act provides the Council with broad authorities to watch for threats to the stability of the U.S. financial system arising from the failure of large, bank holding companies or non-bank financial companies, or from risks arising outside of the financial system.

The notion and expectations that any American institution is ‘Too Big to Fail’ needed to be done away with, right after these institutions were bailed out by American taxpayers –because they were too big to fail. As Alan Greenspan simply stated, so eloquently, “If they’re too big to fail, they’re too big.” In this aspiring financial regulator’s opinion, we would all be better off if that Jewish Cowboy galloped back into town to clean up this mess left after the housing market bubble burst, which was NOT Mr. Greenspan’s fault, any more than the bursting of the dot-com bubble that preceded it. As a matter of fact, Alan Greenspan predicted the Housing Market crash decades before it happened.

I’m in complete agreement with Alan Greenspan’s statement: “It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed have grown so enormously.” He suggested that financial markets need to be regulated. I sure would like to play a part in making those roads straighter and more narrow. If anyone should take the blame for the housing market crash, it’s me. If you want to read an article I wrote, that I’m proud of, about my own up close and personal experience with the mortgage fiasco, read:

I’ll Take the Blame for the Housing Market Crash of 2007

It will explain some of my motivations for wanting to get into the financial regulation business –besides seeing Alan Greenspan as a rock star and counting him among my personal heros. Do you like how my study guide is also an application / resume to get me a job with FINRA?


One response to “FINRA General Securities Representative Exam (5)

  1. Pingback: Free Stockbroker Exam Guide | Bangari Content Gallery

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