2023 Series 7 No-Fluff Study Guide with Practice Test Questions and Answers

Series 7

No-Fluff Study Guide

2023 – 2024 Simplified FINRA Series 7 study Guide with Over 300 Practice Test Questions and Answers

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Andre Knudsen

Copyright

Copyright © 2022 Andre Knudsen  

We reserve all of our rights. No portion of this publication may be recreated, distributed, or conveyed in any form or medium, which includes photocopying, documenting, or other mechanical or electronic procedures, without the written consent of the owner, except for brief quotation marks imbedded in critical reviews and certain other non-commercial uses that are permitted by copyright law. 

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Table of Contents

Copyright

Table of Contents

CHAPTER 1

What FINRA Series 7 Entails

Understanding the Series 7 Examinations

Series 7 Exam Requirements

Series 7 Exam Format

Exam Attempts Permitted for the Series 7

Financial Services Demanding a Series 7 License

Series 7 Professions

Series 7 License Requirements

Registration for the Series 7 Exam

Essential Information on the Series 7 Examination

Examining the Tested Subjects

FINRA Series 7 Post 2018 Updates

Revised Series 7 Examination Outline

Role of a Series 7 Licensee

Getting Ready for the Series 7 Exam

Chapter 2

What Is an Investment Bank?

How Investment Banks Operate

The Intermediary Function

Equity Security

What is Equity Research?

The function of Equity Research

Common Stock

Understanding voting rights of stockholders

Statutory (legal) voting

Voting cumulatively

Classes of shares that companies can sell

Preferred Stock

Types of Preferred Stock

CHAPTER 3

How Bonds are Issued into the Market

Municipal Bonds

General Obligation Bonds: Taxes as Bond Security

Analyzing GO bonds

Ascertaining Marketability

Debt Management

Collecting taxes, fees, and penalties

Revenue Bonds: Funding Utilities and Other Entities

Typical Attributes of Revenue Bonds

Evaluation of Revenue Bonds

Other Types of Municipal Bonds on the Examination

Various Municipal Bond Maturities

Various forms of Municipal Securities

Taxable Municipal Bonds

Municipal Notes

Municipal Fund Securities

Section 529 plans

ABLE accounts

Local Municipal Investment Pools

Municipal Fund Securities ads

CHAPTER 4

Options

Examining an Option

Regarding call options: the right to purchase

Examining put options: The right to sell

Getting your money back: in-the-money, at-the-money, and out-of-the-money options

Non-Equity Options

Index options

Option Premiums on Indexes

Timing of trading, settlement, and expiry

Yield-based Options

Foreign Currency Options

Contract Dimensions

Obtaining Extra Option Information

Options risk disclosure document (ODD)

Options Account Agreement (OAA)

The final transaction, final exercise, and expiration of an option

CHAPTER 5

Market Entry: Orders and Transactions

Purchasing in the new market

Purchasing in the secondary market

Making the Trade

The Auctioning of Securities on Stock Exchanges

Over-the-Counter Negotiations of Transactions

OTC Market Makers

Non-NASDAQ securities

Consolidation Quotation Service (CQS)

Understanding the Function of a Broker-Dealer

Firm versus Subject quotes

Traders

Orders Received from Customers

Recommending over-the-counter securities

Discussing order types

Stop order

Limit Order

Stop Limit Order

Market Maker Designation and Super Display Book (SDBK)

CHAPTER 6

Mutual Funds & Their Categories

Mutual Fund Net Asset Value (NAV) Per Unit

The Benefits of Investing in a Mutual Fund

Types of Mutual Funds

Taxes on Mutual Funds

How Capital Gains Are Divided After a Sale

Tax-Exempt Mutual Funds

Fees and Share Class of a Mutual Fund

12b-1 Fee

12b-1 Fee Broken Down

How are the 12b-1 fees utilized?

Mutual Fund Loads

Front-End Load

Back End Load

No-Load Funds

Share Class of a Mutual Fund

Class A

Class B Shares

How to Make Sense of Class B Shares

Share Classes' Right to Vote

Mutual Fund Class B Share

Shares in Class C

Class C Shares: What You Need to Know

Who should put their money into Class C shares?

An Example of Class C Shares in the Real World

Exchange Traded Fund (ETF)

Factors that make ETFs different from Mutual funds

How do ETFs function?

Buying and Selling ETFs

ETF Expenses

ETFs' taxes

Types of ETFs

Pros of ETFs Investment

Chapter 7

Some Exam Series 7 Pitfalls to Avoid

Chapter 8

Ways to Begin Your Career Successfully

CHAPTER 9

Series 7 Practice Test Questions

Answers to Series 7 Test Questions

About the Author

CHAPTER 1

What FINRA Series 7 Entails

What is the Series 7 Exam?

The Financial Industry Regulatory Authority (FINRA) administers the General Securities Representative Examination, often known as the Series 7 test Financial professionals in the United States are expected to take and pass the Series 7 examination to obtain a license to trade in corporate securities, municipal fund securities, investment firm products, etc.

The majority of firms in the financial services sector demand candidates to have passed the Series 7 test as a condition of employment. The Securities Industry Essentials (SIE) test was implemented by FINRA in October 2018 to assess a candidate's understanding of fundamental financial principles.

Understanding the Series 7 Examinations

The Series 7 test is a licensure exam for stockbrokers and other financial services professionals who trade securities, excluding commodities and derivatives, such as stocks and bonds. The examination assesses a candidate's understanding of the duties of a broker, including the sale of corporate securities, investment firm products, government securities, options, variable annuities, packaged securities, direct participation programs, and municipal securities.

Those who pass the examination become formally registered representatives of the Financial Business Regulatory Authority, which in addition enhances their employability in the financial services industry. The Series 7 test does not include insurance products or real estate holdings. To sell real estate and insurance, brokers must pass further tests and get additional licenses.

In addition to possessing industry expertise, financial professionals who pass the Series 7 test must adhere to tougher regulations than unregistered brokers. The Financial Industry Regulatory Authority (FINRA) expects registered brokers to meet the highest standards of operation so their customers get the finest service.

Series 7 Exam Requirements

Candidates are required to pass the Securities Industry Essentials (SIE) test before taking the Series 7 exam, effective October 1, 2018. The SIE is an entry-level examination for brokers. Common themes, such as regulatory bodies and their functions, acceptable and undesirable industry practices, product knowledge, and the principles of securities trading, are examined. Candidates for the SIE test are not expected to be sponsored by a FINRA member company. However, FINRA stipulates that Series 7 applicants must be sponsored by a member company as one of the conditions for taking the test. For a candidate to be registered for the Series 7 test, the sponsoring business must submit Form U4 - Uniform Application for Security Industry Registration. The sponsoring company must, in addition, bear the cost of the Series 7 examination for the candidate. The core requisites for obtaining a securities trading license are the SIE and the Series 7 test, meaning, applicants must pass both assessments. Candidates are free to take both tests in any sequence, so long as they pass both exams within the allotted period.

Series 7 Exam Format

The Series 7 examination consists of 135 multiple-choice questions, which candidates must answer within 3 hours and 45 minutes. This means the applicant has one minute and forty-eight seconds per question. Candidates must acquire a passing score of 72% on the test to receive a practicing license.

After adopting the new Series 7 exam structure, the examination has become shorter and reasonably priced. Before October 1, 2018, there was no SIE test as a prerequisite to the Series 7 test; applicants were required to pass the Series 7 test to obtain a broker’s license. Then, they needed to answer 250 questions in six hours. In addition, applicants must pass both the SIE and Series 7 tests to get a broker's license.

Candidates who pass the Series 7 examination do not get physical certificates from FINRA. Instead, prospective employers may seek evidence of test completion via FINRA's Central Registration Depository (CRD). The Series 7 examination is also a requirement for the Series 24, Series 26, and Series 31 examinations.

Exam Attempts Permitted for the Series 7

If a candidate fails the Series 7 test on their first try, FINRA enables them to retake it 30 days later. There is no limit on the number of times a candidate may try to pass the test, although applicants who have taken the exam many times are subject to time limits.

An applicant is obliged to wait at least 30 days between tries for the first three attempts. After three failed attempts, the applicant must wait at least six months before retaking the examination.

Financial Services Demanding a Series 7 License

If you pass the Series 7 test, you will be authorized to sell:

●  Stocks and bonds

●  Mutual funds

●  Options

●  Variable contracts

●  Municipal securities

●  Rights and licenses

●  Money market funds

●  Exchange-traded funds

●  Hedge funds

●  Real estate investment trusts

●  And a whole lot more

A few financial goods and services, like life insurance and real estate, need certifications or licenses in addition to the Series 7. For the majority of other positions, Series 7 is required.

Series 7 Professions

Series 7 certification is required for most employment in the financial industry. For example, if your goal is to become a stockbroker, Series 7 is your beginning point. You may also pursue a career in investment banking, financial planning, or estate planning. Alternatively, you can become a research analyst and provide your company's decision-makers with the information they need to make educated choices.

A Series 7 may be required for some personal-banking roles at retail banks. You can even pursue a job with a significant corporation outside the financial industry, managing the firm's assets and holdings. Although Series 7 provides a doorway to the financial sector, your career path may need additional certifications or licenses.

Series 7 License Requirements

FINRA, the Financial Sector Regulatory Authority, administers the Series 7 test, and most other examinations about the financial industry. Before you take the Series 7 test, you must locate a FINRA member company that will sponsor your application and hire you as a trainee. Under some conditions, associates of non-FINRA businesses or persons unaffiliated with an investment company can also register for and take the test.

Other Requirements

Depending on the state of your prospective employer and your chosen job path, you may be required to complete additional tests. These are usually prerequisites for the Series 7 exam; thus, it does not matter which order they are taken as long as both are passed.

In some states, you must also pass the Series 63 State Law Exam in addition to Series 7 to do business. Suppose your profession will concentrate on offering advice for a fee rather than receiving a commission on sales, in that case, you will need to take Series 65, often known as the Uniform Investment Adviser Law Exam.

If you intend to give fee-based advice and commission-based sales, you may take the Series 66 test. This test is a combination of Series 63 and Series 65. You may also be required to complete other important tests depending on your chosen professional route.

Registration for the Series 7 Exam

Unfortunately, you cannot just register for the test by contacting FINRA. You must be sponsored, which might be a catch-22 in situations where a company will not employ you until you acquire a Series 7 license. Here are some steps to take toward registering for the examination: 

Ask your manager or director of human resources for information on how to take the test and get licensed. Brokerage businesses, as well as certain banks and insurance companies, will support office assistants.

Complete Form U4 (Uniform Application for Securities Industry Registration or Transfer). Go to the FINRA registration site and complete the form after your firm has created your account and provided you with a username and password. In addition to the 10-year employment, education, and residence history, the form notes any financial concerns or criminal actions that must be described in detail - not providing all the required information results in automatic application rejection.

Get your fingerprints taken. The Financial Industry Regulatory Authority (FINRA) fingerprints all applicants to conduct a comprehensive background check on licensed persons, ensuring that those dealing with consumer funds are upstanding citizens. FINRA or your head of human resources may give you the nearest local fingerprinting site, often a notary of public offices. Fingerprinting typically costs between $10 and $20.

Apply for the Series 7 examination. Human resources have a list of acceptable courses in your region and will immediately register you. Nationally approved testing facilities for Series 7 include Pearson Testing Center and Prometric Testing Center.

Study for and get a score of at least 70% on the examination. If you do not pass the test, you can repeat it after waiting at least 30 days. The testing facility instantly transmits exam results to FINRA through electronic transmission.

Register for Series 63, the Uniform Securities Agent State Law Examination. This exam permits you to register in any of the fifty states without having to complete separate state tests.

Return to your FINRA account and finish the registration process. You must pick the state or states in which you desire to operate. You must register in each state where you solicit and pay the associated fees. State fees per state vary from $25 to $285.

Essential Information on the Series 7 Examination

Passing Score: To receive a Series 7 license, you must earn a minimum score of 72 percent (equal to a C- grade). As a general guideline, you should score at least 80-85 percent on your practice examinations to ensure that you are well prepared for the actual exam while studying for your license.

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