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Series 6 Investment Company and Variable Contracts (Series6 ) Practice Tests & Test Prep by Exam Edge - Review


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Series 6 Invest Company Variable Contracts Exam - Reviews


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See why our users from 154 countries love us for their exam prep! Including 110 reviews for the Series 6 Investment Company and Variable Contracts exam.

Exam Edge is an industry leader in online test prep. We work with institutional partners to offer a wide array of practice tests that will help you prepare for your big exam. No matter how niche your field of interest might be, we're here to help you prepare for test day.

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Series 6 Invest Company Variable Contracts Exam - Test Reviews Sample Questions

Margin accounts may be used for which of the following?





Correct Answer:
options
margin accounts offer investors a way to borrow money from their broker to purchase securities. this type of account amplifies the buying power of the investor, allowing them to buy more shares than they could with just their available funds. however, there are specific regulations and conditions under which margin accounts can be used.

options trading is one area where margin accounts are frequently employed. options are contracts that give the buyer the right, but not the obligation, to buy (call option) or sell (put option) a security at a specific price within a certain period. while options themselves can be purchased on margin, the requirements to do so are generally stricter compared to purchasing regular stocks. broker-dealers often require a higher minimum account balance for those who wish to trade options on margin. this is because options trading can be highly speculative and poses a greater risk than traditional stock trading.

it's important to note that not all securities can be purchased on margin. initial public offerings (ipos) and stocks trading under $5 per share are typically excluded. ipos are excluded because they can be highly volatile shortly after they begin trading, which adds additional risk that brokerage firms are not willing to take on through margin lending. similarly, stocks trading under $5, often referred to as penny stocks, are excluded due to their high volatility and lower market capitalization, which make them risky investments.

regarding custodial accounts, which are established for minors under a guardian's management, margin trading is not permitted. these accounts must be operated as cash accounts. the rationale here is based on the risk profile of margin trading. since margin involves borrowing, it carries the risk of significant losses, which may not be suitable for custodial accounts intended to safeguard the financial interests of minors.

in summary, while margin accounts can expand an investor’s capabilities by providing additional capital for trading, they come with restrictions. options can be purchased on margin, but with strict requirements due to their speculative nature. on the other hand, buying ipos, penny stocks, or using margin in custodial accounts for minors is prohibited, reflecting the high-risk nature of these investments and the protective intent of regulations surrounding accounts for minors.

Which of the following is the suitability obligation which requires that the agent have a reasonable basis to believe that a recommendation is suitable for a particular customer based on his or her profile?





Correct Answer:
customer-specific suitability


the correct answer is "customer-specific suitability." this concept is one of the key obligations under the suitability requirements in financial and investment advisory services.

customer-specific suitability holds that an agent, such as a financial advisor or broker, must ensure that any investment recommendations made are appropriate for the individual receiving the recommendation, based on their unique financial situation, goals, and risk tolerance. this requirement necessitates that the advisor thoroughly understands the customer's financial profile, which includes factors such as age, other investments, financial status, tax status, investment objectives, other assets, and risk tolerance.

the obligation goes beyond general advisability of an investment; it must be particularly suited to the individual's circumstances. for instance, recommending a high-risk investment to a retiree with a need for stable, regular income might not be considered suitable under this requirement, even if such an investment could be suitable for other types of investors.

comparatively, reasonable-basis suitability is a broader obligation. it requires the advisor to perform due diligence on the investment products they recommend to ensure they are sound and potentially beneficial for some investors. this does not necessarily take into account the specific needs of individual customers but focuses more on the general viability and risks associated with the product.

thus, while reasonable-basis suitability ensures that a product is acceptable for at least some investors, customer-specific suitability goes a step further to tailor recommendations to the specific financial needs and circumstances of each client. this tailored approach is crucial in providing personal and effective investment advice, aligning investment strategies with individual objectives and risk profiles.