Series 7 practice questioneasyAccount Activity and Risks 1
Which statement is TRUE regarding account activity and risks?
- AA principal reviewing activity for possible churning would focus on turnover and cost-to-equity ratios✓ Correct answer
- BChurning can occur only in margin accounts
- CExcessive trading is acceptable if every trade individually made money
- DQuantitative suitability applies only to options accounts
Explanation
Why A — A principal reviewing activity for possible churning would focus on turnover and cost-to-equity ratios
Churning is excessive trading designed primarily to generate commissions. Supervisors often examine turnover and cost-to-equity ratios when reviewing suspicious activity.
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