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Series 3 Test Questions

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Series 3 Test Questions According to NFA Rule 2-30 (know your customer), what information do you need to know about them? - ANS - According to Rule 2-30, the representative should know at least the customer's name, address, occupation, annual income, net worth, approximate age, and previous investment/futures trading experience. Educational background is not required Offset of a short futures position occurs with - ANS - Buying the futures intramarket Stop orders can be used to initiate/close positions - ANS - True. A sell stop order (placed below the current market) can be used to limit losses, protect profits on long positions, or establish a short position. A buy stop order (placed above the current market) can be used to limit losses, protect profits on a short position, or establish a long position When yields on short-term maturities are lower than yields on long-term maturities, the yield curve is said to be inverted - ANS - False. that is a normal yield curve A trader anticipates a sharp rise in interest rates. Which of the following trades in T-bond futures options would likely produce the greatest gain? - ANS - Long Put. The trader anticipates a rise in rates, which means a decrease in prices. The best downside play in options is to buy a put. Writing a call will be profitable, but gain is limited to the premium received. A savings and loan intends to issue $4 million in CDs in 3 months. The issue is based on the purchase of an equivalent amount of mortgages from its customers. To hedge the purchase of the mortgages, the savings and loan could - ANS - The savings and loan is going to buy mortgages, so it should buy futures today. The S&L's risk is that mortgage rates will go down (price up). In this case, buy 4 $1 million T-bill futures. Delta is defined as the change in the premium of an option - ANS - Delta measures the responsiveness of a change in an option premium with a given change in the price of the underlying futures contract. Copies of written customer complaints must be forwarded to the CFTC before their final disposition. - ANS - Copies must be forwarded to the NFA, not the CFTC. A T-bond Jul 96 call for 1.8 has how much time value when the underlying futures contract is quoted at 96.8? - ANS - 96.8-96 = .8, .8/32 = .250, .250 * $1,000 = $250 = Intrinsic value Premium = 1.8 -> 8/64 = .125 + 1 = 1.125 * 1,000 = $1,125 (Cost of Premium) $1,125 - $250 = $875 Under what circumstances can a registered commodities representative handle a discretionary account? - ANS - The requirements for a discretionary account are 2 years of continuous registration as an RCR, a written agreement from the customer on file, and a record system identifying each trade as discretionary. This does not apply to accounts for family members of the RCR If a CTA discovers that there are errors in its disclosure document, the errors must be corrected within 21 calendar days of discovery. - ANS - True. Normally, once an error is discovered, the document cannot be used until corrected A conservative growth fund manager has a common stock portfolio worth $2.4 million with a beta coefficient of 1.25. The S&P 500 (1 pt = $500) Mar 300 futures option is available for a hedge. Which do you, as an RCR, recommend? - ANS - Market value to hedge = portfolio value $2.4 million beta coefficient 1.25 = $3 million S: $500 300 strike = $150,000. $3 million/

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