Series 7 Exam Question 291: Answer and Explanation

Question: 291

Which TWO of the following are TRUE relating to a firm that sells securities out of its own inventory?

I. It is acting as a broker.

II. It is acting as a dealer.

III. It charges a commission.

IV. It charges a markup.

• A. I and III
• B. I and IV
• C. II and III
• D. II and IV

Correct Answer: D

Explanation:

D. When a securities firm buys securities for or sells securities from its own inventory, it is acting as a dealer (principal or market maker). When a dealer sells securities from its own inventory, it charges a price that includes a markup. When a dealer purchases securities for its inventory, it charges a markdown.