Futures Managed Funds Series 31 Exam Questions and Answers
Question 1. Which term best matches the following description: a hedge using short futures to reduce the risk of a decline in the value of
an asset the hedger owns or expects to sell?
A. Hedger
B. Short hedge
C. Futures exchange
D. Arbitrage
Correct Answer: B. Short hedge
Explanation: Short hedge is the correct concept because it is a hedge using short futures to reduce the risk of a decline in the value of an asset
the hedger owns or expects to sell. The wording in the question points to the defining feature rather than to a merely associated idea. The other
choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most
reliable way to identify Short hedge.
Question 2. Which statement about Discretionary authority is most accurate?
A. A standard unit used to express a small change in a foreign exchange rate, with the decimal position depending on the currency pair
B. An investment vehicle that combines participant funds to trade futures, options, swaps, or other commodity interests
C. The difference between a currency pair's bid and ask prices
D. Written authority permitting a qualified person to make specified trading decisions for a customer account
Correct Answer: D. Written authority permitting a qualified person to make specified trading decisions for a customer account
Explanation: Discretionary authority is correctly described as written authority permitting a qualified person to make specified trading decisions
for a customer account. That description captures the core characteristic tested by this item. The remaining descriptions belong to different
concepts and would lead to a different regulatory, product, accounting, or operational analysis. On exam questions, match the term to its defining
feature before considering secondary details.
Question 3. Which choice correctly distinguishes Retail forex transaction from Just and Equitable Principles of Trade?
A. Retail forex transaction: an off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex
regulatory framework; Just and Equitable Principles of Trade: NFA Compliance Rule 2-4's broad standard requiring members and
associates to observe high standards of commercial honor and just and equitable principles
B. Retail forex transaction: NFA Compliance Rule 2-4's broad standard requiring members and associates to observe high standards of
commercial honor and just and equitable principles; Just and Equitable Principles of Trade: an off-exchange foreign currency transaction
with an eligible retail customer that falls within the CFTC retail forex regulatory framework
C. Retail forex transaction: historical results produced by real trading in an account or pool, subject to accurate presentation and required
disclosures; Just and Equitable Principles of Trade: NFA Compliance Rule 2-4's broad standard requiring members and associates to
observe high standards of commercial honor and just and equitable principles
D. Retail forex transaction: an off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex
regulatory framework; Just and Equitable Principles of Trade: a standard unit used to express a small change in a foreign exchange rate,
with the decimal position depending on the currency pair
Correct Answer: A. Retail forex transaction: an off-exchange foreign currency transaction with an eligible retail customer that falls within the
CFTC retail forex regulatory framework; Just and Equitable Principles of Trade: NFA Compliance Rule 2-4's broad standard requiring members
and associates to observe high standards of commercial honor and just and equitable principles
Explanation: Retail forex transaction means an off-exchange foreign currency transaction with an eligible retail customer that falls within the
CFTC retail forex regulatory framework, whereas Just and Equitable Principles of Trade means NFA Compliance Rule 2-4's broad standard
requiring members and associates to observe high standards of commercial honor and just and equitable principles. The correct choice keeps
the two concepts separate and assigns each description to the proper term. The distractors either reverse the concepts or substitute a feature
belonging to another topic. That distinction matters because the two terms can lead to different regulatory, economic, or operational
consequences.
Question 4. A retail forex position moves 125 pips in the customer's favor. The pip value is $10.00 per lot and the customer holds 4 lots.
What is the gross profit from the move?
A. $1,250
B. $500.00
C. $5,000
D. $40.00
Correct Answer: C. $5,000
Explanation: Gross forex profit for this question equals the number of favorable pips multiplied by the pip value and the number of lots. 125
times $10.00 times 4 equals $5,000. The quoted exchange rate itself is not needed because the question directly provides the pip value. Actual
account results can also reflect spread, commissions, financing, slippage, and other dealer charges.
1
,Question 5. A managed futures professional is reviewing a situation described as follows: a quotation expressing the amount of foreign
currency obtainable for one unit of domestic currency from the chosen perspective. Which concept is most directly involved?
A. Promotional material
B. Hypothetical performance
C. NFA supervision rule
D. Indirect currency quote
Correct Answer: D. Indirect currency quote
Explanation: Indirect currency quote is the best answer because it is a quotation expressing the amount of foreign currency obtainable for one
unit of domestic currency from the chosen perspective. The scenario gives the managed futures professional facts that point directly to that
concept. The other choices can arise in related securities situations but do not fit the specific description provided. Applying the precise definition
to the facts is the best way to resolve this type of scenario.
Question 6. A futures contract has a minimum price fluctuation of 0.25 per unit and a contract size of 5,000 units. What is the dollar value
of one tick for one contract?
A. $25.00
B. $12,500
C. $1,250
D. $20,000
Correct Answer: C. $1,250
Explanation: Tick value equals the minimum price fluctuation multiplied by the standardized contract size. Multiplying 0.25 by 5,000 units gives a
one-tick value of $1,250. Margin and notional value are separate concepts and do not replace the contract-size multiplier in this calculation.
Knowing tick value allows a trader or supervisor to translate price movement into dollar profit-and-loss exposure.
Question 7. A trader holds one short futures contract with a contract size of 50,000 units. The contract is entered at 25.00 and closed at
23.00, a favorable move of 2.00 per unit. What is the profit before fees?
A. $200.00
B. $100,000
C. $10,000
D. $1,250,000
Correct Answer: B. $100,000
Explanation: Futures profit or loss equals the favorable or adverse price change multiplied by the contract size and number of contracts. The
favorable move is 2.00 per unit, and multiplying by 50,000 units gives $100,000. The margin deposit is a performance bond and is not the
notional value used to calculate the contract's price-change profit or loss. For a short position the sign of the price change is reversed, but the
question states that the move is favorable.
Question 8. Which concept-and-description pairing is correctly matched?
A. Long futures position - a futures position that generally benefits when the contract price rises and loses when the contract price falls
B. Associated person of an NFA member - the FCM's own funds maintained in customer segregated accounts to help meet regulatory
segregation requirements
C. Exchange for related position - a block order entered for multiple customer accounts and later allocated according to a fair, nonpreferential
allocation methodology
D. Clearinghouse - the price paid by the buyer and received by the writer of an option on a futures contract
Correct Answer: A. Long futures position - a futures position that generally benefits when the contract price rises and loses when the contract
price falls
Explanation: Only the pairing for Long futures position is accurate: it is a futures position that generally benefits when the contract price rises
and loses when the contract price falls. Each incorrect choice attaches a valid-sounding description to the wrong concept. Because the
distractors are drawn from related exam material, they can appear plausible unless both parts of the pairing are checked. Verify the term and its
defining feature together before selecting a matched pair.
2
,Question 9. A candidate says Contract size and Tick value are interchangeable. Which response most accurately corrects that
statement?
A. They are identical because both mean the standardized quantity of the underlying commodity or financial measure represented by one
futures contract.
B. They are different: Contract size is the standardized quantity of the underlying commodity or financial measure represented by one futures
contract, while Tick value is the monetary gain or loss on one futures contract resulting from a one-tick price movement.
C. They are different only because Contract size is a person or organization that operates a commodity pool and solicits or accepts funds for
participation in that pool, while Tick value is the monetary gain or loss on one futures contract resulting from a one-tick price movement.
D. They are different only because Contract size is the standardized quantity of the underlying commodity or financial measure represented by
one futures contract, while Tick value is a registered counterparty authorized to engage in specified off-exchange retail foreign currency
transactions.
Correct Answer: B. They are different: Contract size is the standardized quantity of the underlying commodity or financial measure represented
by one futures contract, while Tick value is the monetary gain or loss on one futures contract resulting from a one-tick price movement.
Explanation: Contract size and Tick value are not interchangeable because the first is the standardized quantity of the underlying commodity or
financial measure represented by one futures contract and the second is the monetary gain or loss on one futures contract resulting from a
one-tick price movement. The correct response identifies the defining feature of each concept without blending them together. The other choices
either treat distinct concepts as identical or assign an unrelated definition to one of them. Comparison questions are best answered by isolating
the feature that changes the legal, economic, or operational result.
Question 10. Which answer correctly matches both Price limit and Futures option premium to their respective meanings?
A. Price limit -> the price paid by the buyer and received by the writer of an option on a futures contract; Futures option premium -> an
exchange-imposed limit on the amount a futures contract price may move during a trading session under specified conditions
B. Price limit -> a futures position that generally benefits when the contract price rises and loses when the contract price falls; Futures option
premium -> the price paid by the buyer and received by the writer of an option on a futures contract
C. Price limit -> an exchange-imposed limit on the amount a futures contract price may move during a trading session under specified
conditions; Futures option premium -> the price paid by the buyer and received by the writer of an option on a futures contract
D. Price limit -> an exchange-imposed limit on the amount a futures contract price may move during a trading session under specified
conditions; Futures option premium -> an individual who solicits orders, customers, or customer funds, or supervises such persons, for
specified futures industry registrants
Correct Answer: C. Price limit -> an exchange-imposed limit on the amount a futures contract price may move during a trading session under
specified conditions; Futures option premium -> the price paid by the buyer and received by the writer of an option on a futures contract
Explanation: The correct match identifies Price limit as an exchange-imposed limit on the amount a futures contract price may move during a
trading session under specified conditions and Futures option premium as the price paid by the buyer and received by the writer of an option on a
futures contract. Both halves of the selected option are therefore accurate. Each distractor contains at least one mismatched definition even
though the language is drawn from a related topic. When an answer choice contains two propositions, verify each proposition independently
before selecting it.
Question 11. Which term best matches the following description: an individual who solicits orders, customers, or customer funds, or
supervises such persons, for specified futures industry registrants?
A. Associated person of an NFA member
B. Give-up
C. Short futures position
D. High-water mark
Correct Answer: A. Associated person of an NFA member
Explanation: Associated person of an NFA member is the correct concept because it is an individual who solicits orders, customers, or customer
funds, or supervises such persons, for specified futures industry registrants. The wording in the question points to the defining feature rather than
to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Associated person of an NFA member.
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, Question 12. Which statement about Retail forex transaction is most accurate?
A. A limited futures proficiency path for qualifying securities representatives whose futures activity is restricted to soliciting managed futures
funds or accounts and supervising such activity
B. A market structure in which more distant futures prices are above nearer prices or spot prices, often reflecting carrying costs and
expectations
C. A standardized exchange-traded agreement obligating parties to buy or sell a specified quantity of an underlying commodity or financial
instrument at a future time under contract terms
D. An off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex regulatory framework
Correct Answer: D. An off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex
regulatory framework
Explanation: Retail forex transaction is correctly described as an off-exchange foreign currency transaction with an eligible retail customer that
falls within the CFTC retail forex regulatory framework. That description captures the core characteristic tested by this item. The remaining
descriptions belong to different concepts and would lead to a different regulatory, product, accounting, or operational analysis. On exam
questions, match the term to its defining feature before considering secondary details.
Question 13. Which choice correctly distinguishes Principal of an NFA member from Option on futures?
A. Principal of an NFA member: an option giving the holder the right to assume a futures position at a specified strike price under the contract
terms; Option on futures: an individual or entity meeting ownership, control, management, or specified title criteria requiring disclosure and,
in some cases, registration status
B. Principal of an NFA member: a privately negotiated agreement for future purchase or sale that is generally customized and carries direct
counterparty credit exposure; Option on futures: an option giving the holder the right to assume a futures position at a specified strike price
under the contract terms
C. Principal of an NFA member: an individual or entity meeting ownership, control, management, or specified title criteria requiring disclosure
and, in some cases, registration status; Option on futures: the total number of outstanding futures or options contracts that have not been
offset, exercised, or otherwise terminated
D. Principal of an NFA member: an individual or entity meeting ownership, control, management, or specified title criteria requiring disclosure
and, in some cases, registration status; Option on futures: an option giving the holder the right to assume a futures position at a specified
strike price under the contract terms
Correct Answer: D. Principal of an NFA member: an individual or entity meeting ownership, control, management, or specified title criteria
requiring disclosure and, in some cases, registration status; Option on futures: an option giving the holder the right to assume a futures position
at a specified strike price under the contract terms
Explanation: Principal of an NFA member means an individual or entity meeting ownership, control, management, or specified title criteria
requiring disclosure and, in some cases, registration status, whereas Option on futures means an option giving the holder the right to assume a
futures position at a specified strike price under the contract terms. The correct choice keeps the two concepts separate and assigns each
description to the proper term. The distractors either reverse the concepts or substitute a feature belonging to another topic. That distinction
matters because the two terms can lead to different regulatory, economic, or operational consequences.
Question 14. Which term best matches the following description: oversight of restricted information flows between business units such as
investment banking, research, sales, and trading?
A. Written supervisory procedures
B. Training plan
C. Information barrier supervision
D. Office of supervisory jurisdiction
Correct Answer: C. Information barrier supervision
Explanation: Information barrier supervision is the correct concept because it is oversight of restricted information flows between business units
such as investment banking, research, sales, and trading. The wording in the question points to the defining feature rather than to a merely
associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that
defining feature is the most reliable way to identify Information barrier supervision.
4
Question 1. Which term best matches the following description: a hedge using short futures to reduce the risk of a decline in the value of
an asset the hedger owns or expects to sell?
A. Hedger
B. Short hedge
C. Futures exchange
D. Arbitrage
Correct Answer: B. Short hedge
Explanation: Short hedge is the correct concept because it is a hedge using short futures to reduce the risk of a decline in the value of an asset
the hedger owns or expects to sell. The wording in the question points to the defining feature rather than to a merely associated idea. The other
choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most
reliable way to identify Short hedge.
Question 2. Which statement about Discretionary authority is most accurate?
A. A standard unit used to express a small change in a foreign exchange rate, with the decimal position depending on the currency pair
B. An investment vehicle that combines participant funds to trade futures, options, swaps, or other commodity interests
C. The difference between a currency pair's bid and ask prices
D. Written authority permitting a qualified person to make specified trading decisions for a customer account
Correct Answer: D. Written authority permitting a qualified person to make specified trading decisions for a customer account
Explanation: Discretionary authority is correctly described as written authority permitting a qualified person to make specified trading decisions
for a customer account. That description captures the core characteristic tested by this item. The remaining descriptions belong to different
concepts and would lead to a different regulatory, product, accounting, or operational analysis. On exam questions, match the term to its defining
feature before considering secondary details.
Question 3. Which choice correctly distinguishes Retail forex transaction from Just and Equitable Principles of Trade?
A. Retail forex transaction: an off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex
regulatory framework; Just and Equitable Principles of Trade: NFA Compliance Rule 2-4's broad standard requiring members and
associates to observe high standards of commercial honor and just and equitable principles
B. Retail forex transaction: NFA Compliance Rule 2-4's broad standard requiring members and associates to observe high standards of
commercial honor and just and equitable principles; Just and Equitable Principles of Trade: an off-exchange foreign currency transaction
with an eligible retail customer that falls within the CFTC retail forex regulatory framework
C. Retail forex transaction: historical results produced by real trading in an account or pool, subject to accurate presentation and required
disclosures; Just and Equitable Principles of Trade: NFA Compliance Rule 2-4's broad standard requiring members and associates to
observe high standards of commercial honor and just and equitable principles
D. Retail forex transaction: an off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex
regulatory framework; Just and Equitable Principles of Trade: a standard unit used to express a small change in a foreign exchange rate,
with the decimal position depending on the currency pair
Correct Answer: A. Retail forex transaction: an off-exchange foreign currency transaction with an eligible retail customer that falls within the
CFTC retail forex regulatory framework; Just and Equitable Principles of Trade: NFA Compliance Rule 2-4's broad standard requiring members
and associates to observe high standards of commercial honor and just and equitable principles
Explanation: Retail forex transaction means an off-exchange foreign currency transaction with an eligible retail customer that falls within the
CFTC retail forex regulatory framework, whereas Just and Equitable Principles of Trade means NFA Compliance Rule 2-4's broad standard
requiring members and associates to observe high standards of commercial honor and just and equitable principles. The correct choice keeps
the two concepts separate and assigns each description to the proper term. The distractors either reverse the concepts or substitute a feature
belonging to another topic. That distinction matters because the two terms can lead to different regulatory, economic, or operational
consequences.
Question 4. A retail forex position moves 125 pips in the customer's favor. The pip value is $10.00 per lot and the customer holds 4 lots.
What is the gross profit from the move?
A. $1,250
B. $500.00
C. $5,000
D. $40.00
Correct Answer: C. $5,000
Explanation: Gross forex profit for this question equals the number of favorable pips multiplied by the pip value and the number of lots. 125
times $10.00 times 4 equals $5,000. The quoted exchange rate itself is not needed because the question directly provides the pip value. Actual
account results can also reflect spread, commissions, financing, slippage, and other dealer charges.
1
,Question 5. A managed futures professional is reviewing a situation described as follows: a quotation expressing the amount of foreign
currency obtainable for one unit of domestic currency from the chosen perspective. Which concept is most directly involved?
A. Promotional material
B. Hypothetical performance
C. NFA supervision rule
D. Indirect currency quote
Correct Answer: D. Indirect currency quote
Explanation: Indirect currency quote is the best answer because it is a quotation expressing the amount of foreign currency obtainable for one
unit of domestic currency from the chosen perspective. The scenario gives the managed futures professional facts that point directly to that
concept. The other choices can arise in related securities situations but do not fit the specific description provided. Applying the precise definition
to the facts is the best way to resolve this type of scenario.
Question 6. A futures contract has a minimum price fluctuation of 0.25 per unit and a contract size of 5,000 units. What is the dollar value
of one tick for one contract?
A. $25.00
B. $12,500
C. $1,250
D. $20,000
Correct Answer: C. $1,250
Explanation: Tick value equals the minimum price fluctuation multiplied by the standardized contract size. Multiplying 0.25 by 5,000 units gives a
one-tick value of $1,250. Margin and notional value are separate concepts and do not replace the contract-size multiplier in this calculation.
Knowing tick value allows a trader or supervisor to translate price movement into dollar profit-and-loss exposure.
Question 7. A trader holds one short futures contract with a contract size of 50,000 units. The contract is entered at 25.00 and closed at
23.00, a favorable move of 2.00 per unit. What is the profit before fees?
A. $200.00
B. $100,000
C. $10,000
D. $1,250,000
Correct Answer: B. $100,000
Explanation: Futures profit or loss equals the favorable or adverse price change multiplied by the contract size and number of contracts. The
favorable move is 2.00 per unit, and multiplying by 50,000 units gives $100,000. The margin deposit is a performance bond and is not the
notional value used to calculate the contract's price-change profit or loss. For a short position the sign of the price change is reversed, but the
question states that the move is favorable.
Question 8. Which concept-and-description pairing is correctly matched?
A. Long futures position - a futures position that generally benefits when the contract price rises and loses when the contract price falls
B. Associated person of an NFA member - the FCM's own funds maintained in customer segregated accounts to help meet regulatory
segregation requirements
C. Exchange for related position - a block order entered for multiple customer accounts and later allocated according to a fair, nonpreferential
allocation methodology
D. Clearinghouse - the price paid by the buyer and received by the writer of an option on a futures contract
Correct Answer: A. Long futures position - a futures position that generally benefits when the contract price rises and loses when the contract
price falls
Explanation: Only the pairing for Long futures position is accurate: it is a futures position that generally benefits when the contract price rises
and loses when the contract price falls. Each incorrect choice attaches a valid-sounding description to the wrong concept. Because the
distractors are drawn from related exam material, they can appear plausible unless both parts of the pairing are checked. Verify the term and its
defining feature together before selecting a matched pair.
2
,Question 9. A candidate says Contract size and Tick value are interchangeable. Which response most accurately corrects that
statement?
A. They are identical because both mean the standardized quantity of the underlying commodity or financial measure represented by one
futures contract.
B. They are different: Contract size is the standardized quantity of the underlying commodity or financial measure represented by one futures
contract, while Tick value is the monetary gain or loss on one futures contract resulting from a one-tick price movement.
C. They are different only because Contract size is a person or organization that operates a commodity pool and solicits or accepts funds for
participation in that pool, while Tick value is the monetary gain or loss on one futures contract resulting from a one-tick price movement.
D. They are different only because Contract size is the standardized quantity of the underlying commodity or financial measure represented by
one futures contract, while Tick value is a registered counterparty authorized to engage in specified off-exchange retail foreign currency
transactions.
Correct Answer: B. They are different: Contract size is the standardized quantity of the underlying commodity or financial measure represented
by one futures contract, while Tick value is the monetary gain or loss on one futures contract resulting from a one-tick price movement.
Explanation: Contract size and Tick value are not interchangeable because the first is the standardized quantity of the underlying commodity or
financial measure represented by one futures contract and the second is the monetary gain or loss on one futures contract resulting from a
one-tick price movement. The correct response identifies the defining feature of each concept without blending them together. The other choices
either treat distinct concepts as identical or assign an unrelated definition to one of them. Comparison questions are best answered by isolating
the feature that changes the legal, economic, or operational result.
Question 10. Which answer correctly matches both Price limit and Futures option premium to their respective meanings?
A. Price limit -> the price paid by the buyer and received by the writer of an option on a futures contract; Futures option premium -> an
exchange-imposed limit on the amount a futures contract price may move during a trading session under specified conditions
B. Price limit -> a futures position that generally benefits when the contract price rises and loses when the contract price falls; Futures option
premium -> the price paid by the buyer and received by the writer of an option on a futures contract
C. Price limit -> an exchange-imposed limit on the amount a futures contract price may move during a trading session under specified
conditions; Futures option premium -> the price paid by the buyer and received by the writer of an option on a futures contract
D. Price limit -> an exchange-imposed limit on the amount a futures contract price may move during a trading session under specified
conditions; Futures option premium -> an individual who solicits orders, customers, or customer funds, or supervises such persons, for
specified futures industry registrants
Correct Answer: C. Price limit -> an exchange-imposed limit on the amount a futures contract price may move during a trading session under
specified conditions; Futures option premium -> the price paid by the buyer and received by the writer of an option on a futures contract
Explanation: The correct match identifies Price limit as an exchange-imposed limit on the amount a futures contract price may move during a
trading session under specified conditions and Futures option premium as the price paid by the buyer and received by the writer of an option on a
futures contract. Both halves of the selected option are therefore accurate. Each distractor contains at least one mismatched definition even
though the language is drawn from a related topic. When an answer choice contains two propositions, verify each proposition independently
before selecting it.
Question 11. Which term best matches the following description: an individual who solicits orders, customers, or customer funds, or
supervises such persons, for specified futures industry registrants?
A. Associated person of an NFA member
B. Give-up
C. Short futures position
D. High-water mark
Correct Answer: A. Associated person of an NFA member
Explanation: Associated person of an NFA member is the correct concept because it is an individual who solicits orders, customers, or customer
funds, or supervises such persons, for specified futures industry registrants. The wording in the question points to the defining feature rather than
to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Associated person of an NFA member.
3
, Question 12. Which statement about Retail forex transaction is most accurate?
A. A limited futures proficiency path for qualifying securities representatives whose futures activity is restricted to soliciting managed futures
funds or accounts and supervising such activity
B. A market structure in which more distant futures prices are above nearer prices or spot prices, often reflecting carrying costs and
expectations
C. A standardized exchange-traded agreement obligating parties to buy or sell a specified quantity of an underlying commodity or financial
instrument at a future time under contract terms
D. An off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex regulatory framework
Correct Answer: D. An off-exchange foreign currency transaction with an eligible retail customer that falls within the CFTC retail forex
regulatory framework
Explanation: Retail forex transaction is correctly described as an off-exchange foreign currency transaction with an eligible retail customer that
falls within the CFTC retail forex regulatory framework. That description captures the core characteristic tested by this item. The remaining
descriptions belong to different concepts and would lead to a different regulatory, product, accounting, or operational analysis. On exam
questions, match the term to its defining feature before considering secondary details.
Question 13. Which choice correctly distinguishes Principal of an NFA member from Option on futures?
A. Principal of an NFA member: an option giving the holder the right to assume a futures position at a specified strike price under the contract
terms; Option on futures: an individual or entity meeting ownership, control, management, or specified title criteria requiring disclosure and,
in some cases, registration status
B. Principal of an NFA member: a privately negotiated agreement for future purchase or sale that is generally customized and carries direct
counterparty credit exposure; Option on futures: an option giving the holder the right to assume a futures position at a specified strike price
under the contract terms
C. Principal of an NFA member: an individual or entity meeting ownership, control, management, or specified title criteria requiring disclosure
and, in some cases, registration status; Option on futures: the total number of outstanding futures or options contracts that have not been
offset, exercised, or otherwise terminated
D. Principal of an NFA member: an individual or entity meeting ownership, control, management, or specified title criteria requiring disclosure
and, in some cases, registration status; Option on futures: an option giving the holder the right to assume a futures position at a specified
strike price under the contract terms
Correct Answer: D. Principal of an NFA member: an individual or entity meeting ownership, control, management, or specified title criteria
requiring disclosure and, in some cases, registration status; Option on futures: an option giving the holder the right to assume a futures position
at a specified strike price under the contract terms
Explanation: Principal of an NFA member means an individual or entity meeting ownership, control, management, or specified title criteria
requiring disclosure and, in some cases, registration status, whereas Option on futures means an option giving the holder the right to assume a
futures position at a specified strike price under the contract terms. The correct choice keeps the two concepts separate and assigns each
description to the proper term. The distractors either reverse the concepts or substitute a feature belonging to another topic. That distinction
matters because the two terms can lead to different regulatory, economic, or operational consequences.
Question 14. Which term best matches the following description: oversight of restricted information flows between business units such as
investment banking, research, sales, and trading?
A. Written supervisory procedures
B. Training plan
C. Information barrier supervision
D. Office of supervisory jurisdiction
Correct Answer: C. Information barrier supervision
Explanation: Information barrier supervision is the correct concept because it is oversight of restricted information flows between business units
such as investment banking, research, sales, and trading. The wording in the question points to the defining feature rather than to a merely
associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that
defining feature is the most reliable way to identify Information barrier supervision.
4
