STC Series 7 Chapter 17 Practice
Exam 2025 With 100% Correct
Answers
Compared to selling short, buying a put option:
A. Requires a larger capital commitment
B. Has a larger loss potential
C. Does not require the client to arrange to borrow the stock
D. Requires a margin account - CORRECT ANSWER✔✔C. Does not require the client to arrange
to borrow the stock
Short selling requires the deposit of margin, whereas the premium on a put is usually
substantially less than the Regulation T margin requirement. On a short sale, the seller's risk is
unlimited, whereas on a put purchase, the risk is limited to the premium. Although a short sale
may be effected only if the stock can be borrowed under Regulation SHO, a put may be
purchased at any time. Puts can be purchased in a cash account, while selling short requires a
margin account.
ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a
customer's buy order. ABC has acted as a:
A. Dealer
B. Designated market maker
C. Agent
D. Underwriter - CORRECT ANSWER✔✔C. Agent
When a broker-dealer buys a security from a market maker (dealer) on behalf of its customer, it
is acting as a broker (agent).The client is charged a commission on the transaction. If the firm
bought the security for its own account, or sold the security to a client from its inventory, it is
acting as a dealer (principal). The client in this case is charged a markup or markdown.
,An investor purchased stock at $50 per share and the stock is now trading between $75 and
$77. The investor doesn't want to eliminate the position unless the stock drops significantly.
Which of the following orders is the MOST suitable for her to place?
A. Buy limit at $70
B. Sell limit at $70
C. Sell stop at $75
D. Sell stop at $70 - CORRECT ANSWER✔✔D. Sell stop at $70
Although the customer has a significant unrealized gain, there's still the possibility that it could
trend higher. If the investor wants to protect a portion of the gain, he should enter a sell stop
order, which will become a market order if the stop price is hit or traded through. Entering a sell
stop at $70 will serve this purpose. If he enters the sell stop at $75, it may very easily be
triggered by a small decrease in the stock's price, thereby eliminating his position. For that
reason, the sell stop at $70 is a better choice. A sell limit order is one that's entered above the
market price (i.e., not at $70). The customer is looking for an order that will result in selling his
stock in the event that it declines significantly; therefore, a buy order is of no benefit.
Which of the following lists assists a broker-dealer in making a reasonable determination that a
security is available to be borrowed from another broker-dealer in order to effect a short sale
transaction?
A. An Easy-to-Borrow List
B. A Hard-to-Borrow List
C. A Threshold Security List
D. A Restricted Stock Lis - CORRECT ANSWER✔✔A. An Easy-to-Borrow List
In order to aid in the process of locating securities, the SEC has accepted the use of Easy-to-
Borrow lists. These lists, which must be less than 24 hours old, provide reasonable grounds for
belief that a security on the list will be available to be borrowed. The securities on the list must
be readily available to avoid fails to deliver. Use of an Easy-to-Borrow list expedites the
fulfillment of the locate provision. A Hard-to-Borrow list refers to securities that a clearing
broker-dealer may have difficulty in borrowing.
Entering orders with the intent to cancel them just prior to execution is referred to as:
, A. Churning
C. Spoofing
C. Frontrunning
D. Trading ahead - CORRECT ANSWER✔✔C. Spoofing
Spoofing is the prohibited practice of entering orders with the intent to cancel them before
they're executed in an attempt to influence others to trade at those prices. When orders are
entered at increasing or decreasing prices to influence the direction, it's referred to as layering.`
Which of the following statements is FALSE regarding a broker-dealer acting as a market maker
in a stock?
A. It trades for its own account when buying and selling securities
B. It makes money by charging commissions for executing transactions
C. When making a market, it is acting as a principal
D. It must be prepared to honor the prices it quotes unless it clearly qualifies them - CORRECT
ANSWER✔✔B. It makes money by charging commissions for executing transactions
A market maker is a broker-dealer that stands ready to buy or sell a specific stock for its own
inventory (its own account). The price it is willing to pay for the stock is its bid price, while its
ask or offer price represents the price at which it is willing to sell stock (to other dealers). The
difference between the bid and offer prices is the spread, a source of market-maker profits.
As principals in transactions, market makers do not charge commissions. Commissions are
charged when firms act as brokers (agents). However, in transactions with retail customers,
market makers might charge a markup when selling (an increase in price above its offer price)
and a markdown when buying from customers (a decrease below its bid price).
Use the following quote to answer this question.
ABC 25.13 + .25 B 25 A 25.25
Excluding any markups, what price will a customer pay to purchase the security?
A. 25
Exam 2025 With 100% Correct
Answers
Compared to selling short, buying a put option:
A. Requires a larger capital commitment
B. Has a larger loss potential
C. Does not require the client to arrange to borrow the stock
D. Requires a margin account - CORRECT ANSWER✔✔C. Does not require the client to arrange
to borrow the stock
Short selling requires the deposit of margin, whereas the premium on a put is usually
substantially less than the Regulation T margin requirement. On a short sale, the seller's risk is
unlimited, whereas on a put purchase, the risk is limited to the premium. Although a short sale
may be effected only if the stock can be borrowed under Regulation SHO, a put may be
purchased at any time. Puts can be purchased in a cash account, while selling short requires a
margin account.
ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a
customer's buy order. ABC has acted as a:
A. Dealer
B. Designated market maker
C. Agent
D. Underwriter - CORRECT ANSWER✔✔C. Agent
When a broker-dealer buys a security from a market maker (dealer) on behalf of its customer, it
is acting as a broker (agent).The client is charged a commission on the transaction. If the firm
bought the security for its own account, or sold the security to a client from its inventory, it is
acting as a dealer (principal). The client in this case is charged a markup or markdown.
,An investor purchased stock at $50 per share and the stock is now trading between $75 and
$77. The investor doesn't want to eliminate the position unless the stock drops significantly.
Which of the following orders is the MOST suitable for her to place?
A. Buy limit at $70
B. Sell limit at $70
C. Sell stop at $75
D. Sell stop at $70 - CORRECT ANSWER✔✔D. Sell stop at $70
Although the customer has a significant unrealized gain, there's still the possibility that it could
trend higher. If the investor wants to protect a portion of the gain, he should enter a sell stop
order, which will become a market order if the stop price is hit or traded through. Entering a sell
stop at $70 will serve this purpose. If he enters the sell stop at $75, it may very easily be
triggered by a small decrease in the stock's price, thereby eliminating his position. For that
reason, the sell stop at $70 is a better choice. A sell limit order is one that's entered above the
market price (i.e., not at $70). The customer is looking for an order that will result in selling his
stock in the event that it declines significantly; therefore, a buy order is of no benefit.
Which of the following lists assists a broker-dealer in making a reasonable determination that a
security is available to be borrowed from another broker-dealer in order to effect a short sale
transaction?
A. An Easy-to-Borrow List
B. A Hard-to-Borrow List
C. A Threshold Security List
D. A Restricted Stock Lis - CORRECT ANSWER✔✔A. An Easy-to-Borrow List
In order to aid in the process of locating securities, the SEC has accepted the use of Easy-to-
Borrow lists. These lists, which must be less than 24 hours old, provide reasonable grounds for
belief that a security on the list will be available to be borrowed. The securities on the list must
be readily available to avoid fails to deliver. Use of an Easy-to-Borrow list expedites the
fulfillment of the locate provision. A Hard-to-Borrow list refers to securities that a clearing
broker-dealer may have difficulty in borrowing.
Entering orders with the intent to cancel them just prior to execution is referred to as:
, A. Churning
C. Spoofing
C. Frontrunning
D. Trading ahead - CORRECT ANSWER✔✔C. Spoofing
Spoofing is the prohibited practice of entering orders with the intent to cancel them before
they're executed in an attempt to influence others to trade at those prices. When orders are
entered at increasing or decreasing prices to influence the direction, it's referred to as layering.`
Which of the following statements is FALSE regarding a broker-dealer acting as a market maker
in a stock?
A. It trades for its own account when buying and selling securities
B. It makes money by charging commissions for executing transactions
C. When making a market, it is acting as a principal
D. It must be prepared to honor the prices it quotes unless it clearly qualifies them - CORRECT
ANSWER✔✔B. It makes money by charging commissions for executing transactions
A market maker is a broker-dealer that stands ready to buy or sell a specific stock for its own
inventory (its own account). The price it is willing to pay for the stock is its bid price, while its
ask or offer price represents the price at which it is willing to sell stock (to other dealers). The
difference between the bid and offer prices is the spread, a source of market-maker profits.
As principals in transactions, market makers do not charge commissions. Commissions are
charged when firms act as brokers (agents). However, in transactions with retail customers,
market makers might charge a markup when selling (an increase in price above its offer price)
and a markdown when buying from customers (a decrease below its bid price).
Use the following quote to answer this question.
ABC 25.13 + .25 B 25 A 25.25
Excluding any markups, what price will a customer pay to purchase the security?
A. 25
