National Commodity Futures Examination (NCFE) Series 3 Practice Exam

Which of the following is prohibited for commodity pools?

Investing in equities. Lending pool assets. Engaging in short selling. Borrowing funds for margin.

Correct Answer:

Lending pool assets.

Explanation:

Lending pool assets is not allowed. A commodity pool is expected to keep its funds available for trading activities, margin requirements, and the defined investment plan of the pool. Lending the pool’s assets to others creates counterparty risk, complicates liquidity management, and could lead to misappropriation or difficulty meeting obligations. The other activities—investing in equities, short selling as part of a futures strategy, and borrowing for margin—are actions that pools can undertake within their approved investment guidelines and risk controls, depending on the pool’s stated strategy.

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