Free Futures Managed Funds Examination Practice Questions

Sample Practice Questions

Try these 10 sample questions from the Futures Managed Funds Examination practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A prospective pool participant wants the formal document describing the pool's strategy, risks, commissions, fees, and performance before investing. Which document should the solicitor identify?

   1. A. Disclosure document
   2. B. Subscription agreement
   3. C. Periodic account statement
   4. D. Certified annual report

   Answer: A

   Explanation: "A statement that must be provided to prospective customers that describes trading strategy, potential risk, commissions, fees, performance, and other relevant information." The document supplies information for evaluating the investment; it does not guarantee results, certify solvency, or insure returns.

   Reference: CFTC Futures Glossary — Glossary, Directional Trading / Disclosure Document

2. 2A retail customer timely requests NFA arbitration of a futures-related dispute against an NFA Member CTA. The dispute meets the Code's other eligibility conditions. What is the CTA's obligation?

   1. A. Require the customer to sue in federal court
   2. B. Submit the dispute to NFA arbitration
   3. C. Require the customer to seek CFTC reparations
   4. D. Require a new post-dispute arbitration agreement

   Answer: B

   Explanation: "Except as provided in Sections 5 and 6 of this Code with respect to timeliness requirements, the following disputes shall be arbitrated under this Code if the dispute involves commodity futures contracts: (i) a dispute for which arbitration is sought by a customer against a Member or employee thereof, or Associate, provided that: (A) the customer is not an FCM, floor broker, Member or Associate; (B) the dispute does not solely involve cash market transactions that are not part of or directly connected with a commodity futures transaction; and (C) if brought against a Member or employee thereof, the Member is an FCM, an RFED, an IB, a CPO, a CTA or an LTM." This eligible customer-requested futures dispute against a Member CTA is mandatory arbitration; federal litigation, reparations, or a new agreement cannot be imposed instead.

   Reference: NFA Code of Arbitration — Code of Arbitration §2(a)(1)(i)

3. 3A nonexempt commodity pool began its fiscal year with $800,000 net assets. What is the minimum ordinary frequency for participant Account Statements?

   1. A. Monthly
   2. B. Quarterly
   3. C. Semiannually
   4. D. Annually

   Answer: A

   Explanation: "The Account Statement must be distributed at least monthly in the case of pools with net assets of more than $500,000 at the beginning of the pool's fiscal year, and otherwise at least quarterly;" The pool exceeds the $500,000 threshold, so monthly rather than quarterly reporting applies.

   Reference: CFTC Regulations, 17 CFR Part 4 — 17 CFR 4.22(b)

4. 4A pool charges a monthly management fee of one-twelfth of 1% of NAV. With a $600,000 monthly fee base, what is that month's fee?

   1. A. $50
   2. B. $6,000
   3. C. $500
   4. D. $72,000

   Answer: C

   Explanation: "a monthly management fee of 1/12 of 1% of Net Asset Value." $600,000 × .01 ÷ 12 = $500. $50 uses .001 instead of .01; $6,000 omits division by twelve; $72,000 multiplies rather than divides by twelve.

   Reference: Disclosure Documents: A Guide for CPOs — Sample Break-Even Analysis, note 4, p. 17

5. 5An AP opens a U.S. individual's ordinary futures account. Which financial information is part of the Rule 2-30(c) minimum?

   1. A. Initial margin and maintenance requirements
   2. B. Realized trading profits and losses
   3. C. Liquid net worth and number of dependents
   4. D. Current estimated annual income and net worth

   Answer: D

   Explanation: "For customers who are individuals, the customer's current estimated annual income and net worth." For an ordinary individual futures customer, paragraph(c)(2) requires estimated annual income and net worth. Margin and prior results are different financial measures; liquid net worth and dependents are additional security-futures information.

   Reference: NFA Compliance Rules — Rule 2-30(c)(2)

6. 6A CTA elects to show upfront charges in a dilution table. Where should the table be highlighted?

   1. A. After the final supplemental performance page
   2. B. In the next annual audited report
   3. C. In the first monthly brokerage statement
   4. D. On the disclosure document's cover page

   Answer: D

   Explanation: "the dilution table should be highlighted in a tabular format on the cover page of the disclosure document." The table belongs prominently on the document's cover rather than in later reports.

   Reference: NFA Interpretive Notices — Interpretive Notice 9006, A

7. 7An AP posts a standardized message soliciting pool subscriptions in a closed online group containing current and prospective customers. How is the message classified under NFA's guidance?

   1. A. Routine customer correspondence
   2. B. An account-specific trade confirmation
   3. C. A required regulatory filing
   4. D. Promotional material

   Answer: D

   Explanation: "a closed community that includes current and potential customers, falls within the definition of promotional material" A standardized solicitation in a closed customer group is promotional material. Routine correspondence, confirmations and regulatory filings are different communication classes.

   Reference: NFA Interpretive Notices — Notice 9037, Websites and Social Media

8. 8A solicitor is reviewing a public pool's two-part disclosure package. Where must the CPO place voluntarily included information that the CFTC, SEC, and state securities administrators do not require?

   1. A. Cover-page cautionary statement
   2. B. Statement of Additional Information
   3. C. Principal risk-factor discussion
   4. D. Required performance capsule

   Answer: B

   Explanation: "Any information the CPO elects to disclose that is not specifically required by the CFTC, the SEC, or state securities administrators must appear in the SAI." Voluntary supplemental information belongs in the SAI, rather than in required parts of the disclosure document.

   Reference: Disclosure Documents: A Guide for CPOs — General Disclosure Document Guidelines for Commodity Pools, p. 5

9. 9A client first knew of the transaction underlying an NFA arbitration claim today. Under the Code's ordinary eligibility limit, how long does the client have for NFA to receive the claim or notice of intent?

   1. A. One year
   2. B. Three years
   3. C. Two years
   4. D. Six years

   Answer: C

   Explanation: "within two years from the date when the party filing the Arbitration Claim knew or should have known of the act or transaction that is the subject of the controversy." The two-year period is tied to actual or constructive knowledge, rather than a longer court limitation period.

   Reference: NFA Code of Arbitration — Code of Arbitration §5

10. 10A nonexempt CPO is preparing an ordinary periodic Account Statement. No exception applies. What is the maximum delivery interval after the reporting period ends?

    1. A. 15 calendar days
    2. B. 30 calendar days
    3. C. 45 calendar days
    4. D. 90 calendar days

    Answer: B

    Explanation: "within 30 calendar days after the last date of the reporting period" Ordinary Account Statements are due within 30 calendar days.

    Reference: CFTC Regulations, 17 CFR Part 4 — 17 CFR 4.22(a)