FINRA Series 3 Practice Test

Answer choices

1. A. Use only chart formations and moving-average crossovers while deliberately excluding supply-and-demand information.
2. B. Assume the most recent settlement price already guarantees the next price movement and perform no additional analysis.
3. C. Evaluate supply, demand, inventories, production, consumption, policy, weather or macroeconomic factors that can change the commodity's economic value.
4. D. Choose the position with the lowest exchange margin.

Wrong-answer review

• A. Use only chart formations and moving-average crossovers while deliberately excluding supply-and-demand information.: Incorrect. Chart patterns are technical rather than fundamental analysis.
• B. Assume the most recent settlement price already guarantees the next price movement and perform no additional analysis.: Incorrect. Market prices do not guarantee future movements.
• D. Choose the position with the lowest exchange margin.: Incorrect. Margin size is a risk-management input, not a fundamental valuation process.

Answer choices

1. A. The short call eliminates all downside risk on the long futures position while preserving unlimited upside.
2. B. The position becomes risk-free because futures and option premiums are guaranteed to offset exactly.
3. C. The long futures position is automatically closed when the call is written.
4. D. The call premium provides income and some downside cushion, but the short call limits upside participation above the strike.

Answer choices

1. A. Leave the defective routing logic active until the next scheduled annual audit so the firm can collect a larger error sample while customer orders continue through the same known-defective control until the next scheduled review.
2. B. Tell customers to resubmit orders repeatedly because technology errors are outside the Member's supervision obligations.
3. C. Delete the error logs to prevent duplicate alerts.
4. D. Contain the malfunction, use a controlled fallback process, investigate the root cause, document the incident, and validate controls before normal automated routing resumes.

Answer choices

1. A. An intermarket futures spread because different option expirations automatically mean different exchanges.
2. B. An option calendar spread because the options share a strike/underlying but have different expirations.
3. C. A covered call because the trader owns the physical commodity rather than another option.
4. D. A risk-free conversion.

Answer choices

1. A. Short futures: sell futures now because short futures gain as the commodity price rises.
2. B. No futures position can hedge an anticipated purchase until the physical commodity is already owned.
3. C. Long futures: buy futures now and later offset them when the cash purchase is made.
4. D. A short cash position with no futures.

Answer choices

1. A. A loss of $2,700, debited through daily settlement.
2. B. A gain of $1,350, because only half of the price move is recognized before expiration.
3. C. A loss of $5,400, because initial margin doubles every daily settlement adjustment.
4. D. No variation is recognized until the position is offset.

Answer choices

1. A. A loss of $2,700, because the direction of the price change is unfavorable to the stated position.
2. B. A profit of $0.54, because contract size is excluded from futures P/L.
3. C. Zero, because futures gains are not realized when a position is offset.
4. D. A profit of $2,700.

Answer choices

1. A. The differential narrows toward zero, because buying any spread profits only when its quoted difference contracts.
2. B. The deferred-minus-nearby differential increases from 0.30 toward 0.55.
3. C. Both legs remain exactly unchanged, because a spread gains only when no prices move.
4. D. The nearby contract expires with no open interest.

Answer choices

1. A. As proof of a regulatory violation because moving averages cannot be used in futures analysis.
2. B. As a guarantee the next settlement price will be higher.
3. C. As a technical trend signal that should be evaluated with other market evidence and risk controls, not as a guaranteed forecast.
4. D. As a calculation of basis.

Answer choices

1. A. 11.1%, because ending equity rather than starting margin equity must always be the denominator.
2. B. 15.0%, because dollar P/L is divided by 100 regardless of account size.
3. C. It cannot be calculated from margin equity and P/L.
4. D. 12.5%.