SERIES 7 EXAM TUTOR - NEED TO PASS THE SERIES 7 EXAM?

We all know that gathering information about a customer is the foundation of forming a suitable investment recommendation.  Based on the series 7 content outline posted on FINRA's website, suitability covers at least 39% of the exam.  FINRA breaks down the exam topics based on job functions.  The two job functions directly related to suitability are below:

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The Acronym EPIC is sometimes used as a way to remember how to use currency options for hedging. EPIC stands for Exporters Buy Puts - Importers Buy Calls.  However, EPIC only works from the perspective of an American company.  If your perspective is from that of a foreign company, EPIC will not work.  It will  lead you to buy options on US dollars, a strategy which does not exist.  If you are dealing with a foreign company, you need to translate the US dollar risk into that of the foreign currency and hedge this risk.  If you have any questions, feel free to ask.

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If you have read through the initial part the the options material covered on the series 7 exam, you surely have discovered that buying calls on stocks is bullish.  With that said, are all call buyers bullish?  This answer to this question is... NO. When you buy a call that is a yield based option (interest rate option), your view on the bond market is bearish. You expect the yield on the underlying instrument to rise, not fall.  A rising yield implies a falling price.  Similarly, when you buy a call on the VIX, you are expressing a bearish view on the stock market (S&P 500 Index).  You expect the volatility of the Index to rise, which is normally associated with falling stock prices.  Think back to the end of 2008, the VIX was trading at all time highs while stock prices plummeted.

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Taxation is a very underrated topic on the series 7 exam but it is very important and perhaps one of the most important on the exam.  Here is why: it covers a wide variety of investment topics such as options, municipal bonds, treasuries, corporate bonds, limited partnerships, variable annuities, retirement accounts, convertible bonds, margin, equities, investment companies, etc. Taxation is also an important consideration for making investment recommendations. As you are getting closer to the exam date, a thorough review of taxation should be time well spent. 

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Many of us know that using the acronym EPIC for currency is a handy tool. In real life, EPIC is something great. Howver, for the series 7 exam and specifically for currency options, EPIC stands for Exporters use Puts while Importers use Calls. If you are a US firm exporting to a foreign country and getting paid in that country's currency, your risk is that the currency falls and as a result, the payment would be worth less.  To hedge this risk, the US exporter could buy puts on the foreign currency.  What if the exporter is a foreign country and would be paid in US Dollars.  You can't buy puts or calls on the US dollar. If the risk is a falling dollar, the same risk would be a rising foreign currency.  To protect against the rising foreign currency, the foreign exporter would buy calls on its own currency.

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