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Review Questions for the Series 7 Securities Licensing Exam: The Secondary Market

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This chapter includes sample questions from the Series 7 Securities Licensing Exam, with detailed answers to help you study.
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  1. The American Stock Exchange is most commonly noted for which of the following securities that trade there?

  2. I. Oil and gas companies

    II. Foreign stocks

    III. Options

    IV. Dually listed NYSE stocks

    1. I and III

    2. I, II, and III

    3. I, III, and IV

    4. IV only

  3. Which of the following situations constitutes a dual listing for an underlying security?

    1. A stock listed on the NYSE and the AMEX.

    2. A stock listed on the NYSE and the OTC.

    3. A stock listed on the NYSE and a regional exchange.

    4. All the above choices represent a dual listing.

  4. Which of the following exchanges is representative of a major exchange in the United States?

  5. I. NYSE

    II. AMEX

    III. OTC

    IV. Regional exchanges

    1. I only

    2. I and II

    3. I, II, and III

    4. All of the above

  6. The National Association of Securities Dealers (NASD) enforces the rules and regulations for which of the following exchanges?

  7. I. The NYSE

    II. The AMEX

    III. The OTC

    IV. The CBOE

    1. I only

    2. I, II, and III

    3. III only

    4. III and IV

  8. The Over-the-Counter market is set up as which of the following types of markets?

    1. An auction market

    2. A negotiated market

    3. A specialist market

    4. A regional market

  9. If a broker/dealer in Tokyo, Japan, wants to buy 1000 shares of General Motors when the NYSE is closed, where can he get his order filled?

    1. He would have to wait for the NYSE to open for business to get his order filled.

    2. He could go to the first market of the secondary market.

    3. He could go to the second market of the secondary market.

    4. He could go to the third market of the secondary market.

  10. An NYSE member firm receives an order from a trader in London at 7:00 p.m. New York time to purchase 500 shares of IBM at the best possible price immediately. Which of the following scenarios best describes what the NYSE member could do in handling the trade?

    1. He would sell the stock out of the inventory account of the firm to the London trader.

    2. He would not be able to execute the order for the London trader.

    3. He would go to the specialist who handles IBM for execution.

    4. He would forward the trade to the Instinet Market.

  11. Which of the following statements regarding the Instinet Market are true?

  12. I. It provides trading between large institutional investors.

    II. It is registered with the SEC as a stock exchange.

    III. It was created to save on brokerage commissions.

    IV. It is part of the fourth market of the secondary market.

    1. I only

    2. I and III

    3. I, II, and III

    4. I, II, III, and IV

  13. A broker/dealer that sells a security out of its own inventory to a customer in the OTC market is acting as a what?

    1. Broker

    2. Account executive

    3. Dealer

    4. Trader

  14. Which of the following statements are true regarding Over-the-Counter broker/dealers?

  15. I. All broker/dealers maintain an inventory of every Over-the-Counter security.

    II. A majority of initial public offerings are brought to the market by OTC brokers.

    III. All broker/dealers must be a member of the NASD.

    IV. They can only sell securities for which they are a market maker to their customers.

    1. I and IV

    2. II and III

    3. I, III, and IV

    4. I, II, III, and IV

  16. The Maloney Act of 1938 was designed to regulate which of the following exchanges?

    1. NYSE

    2. AMEX

    3. CBOE

    4. OTC

  17. The NASD was created by the approval of which of the following entities?

    1. NYSE

    2. Securities and Exchange Commission

    3. Federal Reserve Board

    4. U.S. Treasury

  18. Securities that do not meet the listing requirements of the NASDAQ system have their quoted prices printed in what?

    1. Yellow sheets

    2. Pink sheets

    3. Blue sheets

    4. The Wall Street Journal

  19. When an Over-the-Counter broker/dealer executes an order for its client, which of the following information is required on the confirmation that is sent to the client?

  20. I. The price of the security

    II. The role the broker/dealer acted as

    III. The commission, if any, that was charged

    IV. The name of the security that was bought or sold

    1. I and II

    2. I, II, and III

    3. I, III, and IV

    4. I, II, III, and IV

  21. The highest price that an individual is willing to pay for an OTC stock is known as what?

    1. Bid

    2. Ask

    3. Spread

    4. Markup

  22. The lowest price at which an individual is willing to sell a security in the OTC market is known as what?

    1. Bid

    2. Ask

    3. Spread

    4. Markdown

  23. Stocks that have a wide spread in the market are considered securities that have which of the following characteristics?

    1. High volume and widely traded

    2. Low volume and thinly traded

    3. High volume and thinly traded

    4. Low volume and widely traded

  24. The Security Act of 1934 was established to regulate all the following actions except what?

    1. Requires all nonexempt securities to be registered with the SEC

    2. Prohibits the manipulation of a stock's price

    3. Requires that all exchanges and members register with the SEC

    4. Establishes regulations that govern margin accounts

  25. The Securities and Exchange Commission was created to regulate the securities industry under which of the following acts of government legislation?

    1. Securities Act of 1933

    2. Securities Act of 1934

    3. Trust Indenture Act of 1939

    4. Maloney Act of 1938

  26. Which of the following statements are true regarding the regulation of margin accounts in the brokerage industry?

  27. I. Margin is the amount that a customer must deposit with his or her broker when purchasing securities in a margin account.

    II. Margin is the amount that a customer can borrow in his or her margin account when purchasing securities.

    III. Regulation T covers the extension of credit to customers by brokers, dealers, and members.

    IV. Regulation U covers the limit on the amount of credit that a bank may extend a customer to purchase margined securities.

    1. I only

    2. II and III

    3. I, III, and IV

    4. I, II, III, and IV

  28. The short sale rule under the Act of 1934 states that all the following are true except what?

    1. The Regulation T requirement on a short sale is 50%.

    2. A short sale can only happen on a minus tick.

    3. A short sale can happen on a plus tick or a zero plus tick.

    4. The customer must borrow stock when selling short.

  29. Tom Gordon enters an order with his broker to sell short 100 shares of QVC. Which of the following trades will trigger his short sale of QVC stock?

  30. 33 1/8...33...33 1/4 ...33 1/4 ...33 1/2 sld...33 5/8...33 3/8...

    1. 33 1/8

    2. 33

    3. 33 1/4

    4. 33 1/2 sld

  31. Which of the following entities is not required to register with the SEC?

    1. The AMEX

    2. An NYSE member firm

    3. GNMA

    4. A stockbroker

  32. The authority to establish margin requirements was given to which of the following entities under the Securities Act of 1934?

    1. NYSE

    2. NASD

    3. FRB

    4. SEC

  33. Rule 10-B-5 under the Insider Trading and Enforcement Act of 1988 states which of the following to be true?

    1. Mutual funds can charge shareholders for advertising costs incurred.

    2. It limits the definition of insiders to officers and directors only.

    3. It is considered a catch-all fraud rule.

    4. If convicted of fraud, an individual could receive a maximum of 10 years and a minimum of 5 years in jail.

Quick Check Answer Key

  1. B

  2. C

  3. B

  4. C

  5. B

  6. D

  7. B

  8. D

  9. C

  10. B

  11. D

  12. B

  13. B

  14. D

  15. A

  16. B

  17. B

  18. A

  19. B

  20. C

  21. B

  22. C

  23. C

  24. C

  25. C

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