THE ULTIMATE FINRA SERIES 7
PRACTICE EXAM QUESTION
WITH ANSWERS& DETAILED
RATIONALES
Section 1: Regulatory Framework and Customer Accounts (Questions 1-
Question 1
Which of the following pieces of legislation requires broker-dealers to register with the SEC?
A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) Investment Company Act of 1940
D) Investment Advisers Act of 1940
Answer: B) Securities Exchange Act of 1934
, Rationale: The Securities Exchange Act of 1934
created the SEC and requires broker-dealers to register with the SEC. The 1933 Act governs new
issues and prospectus requirements, while the 1940 Acts regulate investment companies and
advisers respectively .
Question 2
Under FINRA rules, a written customer complaint must be retained for what period?
A) 2 years
B) 3 years
C) 6 years
D) Permanently
Answer: C) 6 years
Rationale: FINRA rules require that customer
complaints be maintained for at least 6 years. Firms must also respond to written complaints
within 30 calendar days and maintain records of all complaints .
Question 3
Which of the following is NOT considered a branch office under FINRA rules?
,A) A location where a registered representative conducts business 40 days per year
B) A location where a registered representative conducts business 25 days per year
C) The firm's main headquarters
D) A remote location used for 15 business days annually
Answer: D) A remote location used for 15 business days annually
Rationale: Under FINRA rules, a location is not
considered a branch office if it is used for fewer than 30 business days in any calendar year. A
location used for 25 days would not qualify as a branch office, but 40 days would trigger branch
office status .
Question 4
A registered representative must send a trade confirmation on or before the settlement date in
all of the following situations EXCEPT:
A) Customer purchases common stock
B) Customer sells a mutual fund
C) Customer purchases shares through a dividend reinvestment plan
D) Customer purchases a when-issued municipal bond
Answer: C) Customer purchases shares through a dividend reinvestment
plan
Rationale: For dividend reinvestment plans, a
quarterly account statement may replace an immediate trade confirmation if the customer has
, received advance written notice. For all other transactions, confirmations must be sent on or
before settlement date .
Question 5
What is the maximum initial margin requirement under Regulation T for purchasing fully
marginable stock?
A) 25%
B) 40%
C) 50%
D) 75%
Answer: C) 50%
Rationale: Regulation T requires a 50% initial margin
deposit for purchasing fully marginable securities. The remaining 50% may be borrowed from
the broker-dealer .
Question 6
An investor deposits $20,000 cash into a new margin account. What is the maximum amount of
fully marginable stock the investor can purchase?
A) $20,000
PRACTICE EXAM QUESTION
WITH ANSWERS& DETAILED
RATIONALES
Section 1: Regulatory Framework and Customer Accounts (Questions 1-
Question 1
Which of the following pieces of legislation requires broker-dealers to register with the SEC?
A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) Investment Company Act of 1940
D) Investment Advisers Act of 1940
Answer: B) Securities Exchange Act of 1934
, Rationale: The Securities Exchange Act of 1934
created the SEC and requires broker-dealers to register with the SEC. The 1933 Act governs new
issues and prospectus requirements, while the 1940 Acts regulate investment companies and
advisers respectively .
Question 2
Under FINRA rules, a written customer complaint must be retained for what period?
A) 2 years
B) 3 years
C) 6 years
D) Permanently
Answer: C) 6 years
Rationale: FINRA rules require that customer
complaints be maintained for at least 6 years. Firms must also respond to written complaints
within 30 calendar days and maintain records of all complaints .
Question 3
Which of the following is NOT considered a branch office under FINRA rules?
,A) A location where a registered representative conducts business 40 days per year
B) A location where a registered representative conducts business 25 days per year
C) The firm's main headquarters
D) A remote location used for 15 business days annually
Answer: D) A remote location used for 15 business days annually
Rationale: Under FINRA rules, a location is not
considered a branch office if it is used for fewer than 30 business days in any calendar year. A
location used for 25 days would not qualify as a branch office, but 40 days would trigger branch
office status .
Question 4
A registered representative must send a trade confirmation on or before the settlement date in
all of the following situations EXCEPT:
A) Customer purchases common stock
B) Customer sells a mutual fund
C) Customer purchases shares through a dividend reinvestment plan
D) Customer purchases a when-issued municipal bond
Answer: C) Customer purchases shares through a dividend reinvestment
plan
Rationale: For dividend reinvestment plans, a
quarterly account statement may replace an immediate trade confirmation if the customer has
, received advance written notice. For all other transactions, confirmations must be sent on or
before settlement date .
Question 5
What is the maximum initial margin requirement under Regulation T for purchasing fully
marginable stock?
A) 25%
B) 40%
C) 50%
D) 75%
Answer: C) 50%
Rationale: Regulation T requires a 50% initial margin
deposit for purchasing fully marginable securities. The remaining 50% may be borrowed from
the broker-dealer .
Question 6
An investor deposits $20,000 cash into a new margin account. What is the maximum amount of
fully marginable stock the investor can purchase?
A) $20,000
