Pass Your Next Series63 Certification Exam Easily & Hassle Free
Free FINRA Series63 Exam Question Practice Exams
NEW QUESTION # 20
Ms. Naivete gave Mr. Smooth, owner of Smooth Construction, $40,000 in return for a promissory note that promised to pay interest at the rate of 8% a quarter, with a repayment of principal at the end of two years. The money would be used by Mr. Smooth to rehab a few beach condo units that had been severely hurricane-damaged and that Mr. Smooth had been able to purchase for "pennies on the dollar," or so he said.
The first units would be completed within a month, and the rents would be used to make the interest payments.
The investment was almost as risk-free as U.S. government bonds, Mr. Smooth claimed. By the end of the second year, Ms. Naivete had received a lot of fast talk and only one of the promised interest payments.
Have there been any violation of securities laws in this instance?
- A. Both B and C are true statements.
- B. Yes. Mr. Smooth was required to register the promissory note before he offered it for sale.
- C. No. This was simply a loan transacted between two parties.
- D. Yes. Ms. Naivete has been defrauded by Mr. Smooth.
Answer: A
Explanation:
Explanation
Yes, there have been violations of securities laws in this instance; the promissory note required registration, and Ms. Naivete has been defrauded. Promissory notes are considered to be securities as defined by the Uniform Securities Act and, as such, must be registered with the state before they can be offered for sale.
Furthermore, a promissory note is a promise to repay, and Mr. Smooth has defaulted on this promise after telling Ms. Naivete that the investment was close to being risk-free. In essence, he took Ms. Naivete's money under false pretenses when he sold her the note, and that is the definition of fraud.
NEW QUESTION # 21
Gazillions is an investment adviser with offices in the state that is registered with the SEC and has $100 billion dollars under management. A client has filed a complaint asserting that the firm has been involved in fraudulent activities. In this case,
- A. Gazillions is in trouble for not registering with both the state and the SEC given the amount of money it has under management.
- B. Gazillions only has to answer to the state in which the complaint was filed.
- C. Gazillions has to answer to both the SEC and the state in which the complaint was filed.
- D. Gazillions only has to answer to the SEC regarding the allegations. Since it is a federal covered investment adviser, it need not respond to any state-issued requests for information.
Answer: C
Explanation:
Explanation
If Gazillions is operating as an SEC-registered adviser in a state, it must answer to both the SEC and the state in which the complaint has been filed, even though there is no requirement that it had to register with the state, given that it was a federal covered investment adviser. Allegations of fraud come under the state's authority as well, even if the adviser is a federal covered investment adviser.
NEW QUESTION # 22
Which of the following entities would be required to register with the state as a broker-dealer under the guidelines of the Uniform Securities Act (USA)?
- A. an underwriter with no offices in the state that is helping a firm that is incorporated within the state with the sale of its new bond issue to insurance companies.
- B. an agent who executes the purchase and sale of stocks and bonds for his clientsD.
- C. a credit union that operates within the state and provides loans to its members.
- D. None of the above entities would be required to register with the state as a broker-dealer under the guidelines of the Uniform Securities Act.
Answer: D
Explanation:
Explanation
Under the guidelines of the USA, none of the entities described in Selections A, B, or C would be required to register with the state as a broker-dealer since the term, as defined by the USA, does not include agents, savings institutions, or entities with no offices in the state who deal exclusively with issuers and/or other broker-dealers, financial institutions, insurance companies, pension funds, or insurance companies. Selections B and C refer to a financial institution and an agent, respectively. In the scenario described in Selection A, the underwriter has no offices in the state and is dealing exclusively with the issuer of the bonds and insurance companies.
NEW QUESTION # 23
You are an investment adviser to Mr. Crochety, an elderly man who lives solely on his social security income although he managed to accumulate an investment portfolio worth about $100,000 over the years. Mr.
Crochety recently got his hands on a business publication and read about the tax-free interest paid by municipal bonds. He calls you and instructs you to sell his other investments and invest all his money in a municipal bond portfolio, so that "the government doesn't get any more of my hard-earned money." You tell Mr. Crochety that you don't believe this is a wise move because he's in such a low tax bracket that municipal bonds are not a good investment for him, but he is insistent. Based on these facts, you should
- A. have Mr. Crochety sign a statement of investment policy that indicates that this transaction is being executed on the client's instructions and that you have advised the client against it.
- B. ignore Mr. Crochety's instruction since it is not in his best interest.
- C. call Mr. Crochety's relatives and suggest they have him examined for mental instability.
- D. require Mr. Crochety to sign an affidavit of liability waiver, indicating that you will not be held responsible for any adverse consequences of this decision.
Answer: A
Explanation:
Explanation
Given that you have advised Mr. Crochety that this is not a wise move and he still insists on it, you should protect yourself by getting it in writing. In no case, however, can you require a client to sign an affidavit of liability waver, nor can you refuse to follow his adamant instructions.
NEW QUESTION # 24
Nat Smart was employed as an investment adviser representative and sold many of his clients on a
municipal bond fund of which he was fond, telling his clients that the returns earned on it were completely
free from federal taxation. Unfortunately, he had some unhappy clients when, at the end of the year, they
discovered that they had to pay federal tax on the capital gains earned by the fund when it sold some of
the bonds it held. Nat was as surprised as they were. Based on these facts, which of the following
statements is necessarily true?
I. Because Nat was as surprised as they were, he is guiltless.
II. Nat is subject to civil liability payments.
III. Nat will be subject to the criminal penalties for fraud and may spend time in prison.
- A. I only
- B. III only
- C. II only
- D. II and III only
Answer: C
Explanation:
Only Selection II is an accurate statement. In telling his clients that the returns earned on a
municipal bond fund were totally tax-free, Nat misled the clients, whether intentionally or not. This
constitutes fraud, and Nat is, at a minimum subject to civil liability payments, so this is "necessarily" true.
Whether or not Nat will be subject to criminal penalties for fraud and spend time in prison depends on his
ability to prove that he had no knowledge that he was misleading his clients.
NEW QUESTION # 25
Stu Pede is an agent with broker-dealer Cavalier. A customer calls with a request to establish a classic IRA and asks for Stu's advice regarding where the money in the IRA should be invested. Stu suggests a municipal bond fund, explaining to his client that the interest income earned on it will be tax-free at the federal level, and some of it may even be tax-free at the state and local levels.
Has Stu engaged in any prohibited practices?
- A. Yes. Municipal bonds are not suitable investments for a classic IRA, and Stu can have his license revoked or suspended.
- B. Yes. Stu is an agent with a broker-dealer. He is not an investment adviser representative and is not allowed to make recommendations regarding investments to the firm's clients.
- C. No. Although Stu has given investment advice, it was solicited by the client, and Stu received no additional compensation for the advice.
- D. No. Although municipal bonds are not suitable investments for a classic IRA, Stu obviously didn't know this and is merely guilty of stupidity.
Answer: A
Explanation:
Explanation
Yes. When Stu recommends an investment in municipal bonds for a classic IRA account, he has made an unsuitable recommendation, which is a prohibited practice, and he can have his license revoked or suspended.
Municipal bonds are not suitable investments for a classic IRA because municipal bonds pay interest that is at least free from federal taxation, so they offer a lower yield than fully taxable bonds of similar risk. The money in a classic IRA grows tax-free anyway, so the client is getting a lower yield with no benefit.
NEW QUESTION # 26
Which of the following is not one of the criteria for a security to be eligible for registration by notification?
- A. If the security to be issued is an equity interest in the firm, its offer price has to be at least $5 a
- B. The issuer must have a net worth of $4 million, or its net income before tax for at least two of the
- C. The issuer must have preferred stockholders as well as common stockholders.
- D. The issuer must never have defaulted on any bond or long-term lease obligation.
Answer: C
Explanation:
The issuer does not have to have both preferred stockholders and common shareholders in
order to be eligible for registration by notification. If, however, the issuer does use preferred stock
financing, it must not have missed a preferred stock dividend payment.
NEW QUESTION # 27
Mr. Noah Scruples is a registered representative with CanDo Broker-Dealers. A client calls and wants Noah to purchase shares of a mutual fund the client has read about. CanDo is not authorized by this particular fund to effect purchases or sales of the fund shares.
Can Noah execute the order anyway?
- A. No. This is a prohibited practice known as selling away.
- B. No. This would be considered money laundering, which is highly illegal.
- C. Yes. Since this is an unsolicited trade, Noah can execute the transaction on behalf of his client.
- D. No. This is a prohibited practice known as front running.
Answer: A
Explanation:
Explanation
No. If CanDo is not authorized to effect purchases and sales of the fund, Noah would be engaged in the prohibited practice known as selling away if he were to execute the order. If his broker-dealer is not authorized to trade a security, Noah can't either.
NEW QUESTION # 28
In which of the following scenarios is an investment adviser representative required to disclose the fact
that someone other than the representative performed the research on which his advice to the client is
based?
I. The investment adviser representative recommends the same asset allocation for his client that a buddy
of his did after his buddy had done some research for a client with similar characteristics.
II. The investment adviser representative provides a recommendation for his client based on research
provided by a broker-dealer that provides the investment adviser with its analysts' recommendations in
return for trades that the investment adviser executes using the services of the broker-dealer, as well as a
couple of other research sources he finds on the internet.
III. The investment adviser representative submitted his client's information to a data base that provided a
recommendation for the asset allocation of the client's investment monies that the adviser deemed was
sound and, therefore, recommended it to his client.
- A. I only
- B. I and III only
- C. II only
- D. III only
Answer: B
Explanation:
An investment adviser representative is required to disclose the fact that someone else
performed the research on which advice to the client is based in scenarios described in I and III only. If the
representative provides a recommendation to the client based solely on the recommendations provided
by others to whom he provided the data, he must disclose this. However, if the adviser representative has
based his recommendations on his own assessment of analysts' reports and recommendations, as is
suggested in Selection II, then there is no disclosure requirement.
NEW QUESTION # 29
Today's edition of the Wall Street Journal carried a front page story regarding a federal lawsuit that has been filed against a software manufacturer for monopolistic practices. The CFO of the company called his broker today and sold some of the shares he owns in the company.
Which of the following statements are true?
I. The CFO is guilty of illegal insider trading.
II. If the agent who effected the transaction for the CFO knew he was CFO of the software company, the agent is guilty of illegal insider trading.
III. The broker-dealer for whom the agent works may have its license suspended or revoked if its agent has knowingly executed this illegal insider trade for not having supervised the agent properly.
- A. I only
- B. I and II only
- C. None of the statements is true.
- D. I, II, and III
Answer: C
Explanation:
Explanation
If the CFO called his broker and sold some of the shares he owns today, none of the statements is true. Insider trading is only illegal if the insider trades on information that the public does not yet have. In this case, the information has already been made publicly available, so no one has done anything illegal. Insiders to the company are allowed to buy and sell shares of their firm's stock as long as they are not acting on private information.
NEW QUESTION # 30
You are an investment adviser representative. Your client, Mr. I. M. Pulse, calls you with what he thinks is
exciting news. He just passed a restaurant and saw Microsoft's Bill Gates having lunch with a local
entrepreneur who owns a small firm in the computer software industry that trades on the OTC pink sheets.
He is sure that this means Microsoft is negotiating a purchase of the smaller company and instructs you to
take the cash balance in his account and buy shares of the local company. You should
- A. call your supervisor and alert him immediately of Mr. Pulse's attempt to have you place an illegal order
on his behalf in case Mr. Pulse decides to place the order elsewhere. - B. advise Mr. Pulse that he may be jumping the gun, but place the order if he insists.
- C. do both A and B.
- D. tell Mr. I.M. Pulse that this would be an illegal insider trade and that you are unable to fulfill his request.
Answer: B
Explanation:
If Mr. Pulse wants you to place an order to buy a firm that he thinks will become a target of
Microsoft based on seeing Bill Gates and the owner of the firm dining together, you should, as his adviser,
inform him that he may be jumping the gun and drawing a false conclusion, but you should place the order
if he continues to insist. It is a legitimate order, and you are obligated to follow his instructions. It does not
constitute illegal insider trading because Mr. Pulse has no way of knowing what the two men were talking
about. They may just be old high school buddies catching up on the news.
NEW QUESTION # 31
Which of the following persons would not be required to register with the state as an agent under the guidelines of the Uniform Securities Act (USA)?
- A. Keith is a salaried employee of Middlesex County in Massachusetts who sells revenue bonds issued by the county to the public.
- B. John is employed by TrustUs Corporation to sell shares of the firm's stock to the firm's employees and receives a commission on the shares he sells.
- C. Stefan is a sales representative for SecureMoney Broker-Dealers and sells only mutual fund shares.
- D. Preetham is part-owner of SecureMoney Broker-Dealers and executes the purchase and sale of securities for the firm's customers.
Answer: A
Explanation:
Explanation
Keith would not have to register as an agent since he is a salaried employee of a county in Massachusetts selling county-issued bonds to the public. He is not representing a broker-dealer; he is not receiving a commission on the bonds he sells; and he is selling exempt (government-issued) securities. John receives a commission on his sales, so he is considered to be an agent. Stefan is a sales representative employed by a broker-dealer, which makes him an agent under USA guidelines. Even though Preetham is part-owner of the broker-dealer for which he is effecting transactions, he is acting as an agent in doing so.
NEW QUESTION # 32
For how long after the effective date is a security's registration valid?
- A. six months
- B. one year
- C. three months
- D. two years
Answer: B
Explanation:
Explanation
A security's registration is valid for one year after the effective date, which is the date the Administrator approves the registration. If the entire issue has not been sold in this time frame, the offering may be renewed.
NEW QUESTION # 33
After passing the necessary exams, you must submit which of the following to the state Administrator when applying for registration as an agent?
- A. proof that you meet the state's minimum net capital requirement
- B. a recent photograph of yourself
- C. Form ADV
- D. U-4
Answer: D
Explanation:
Explanation
When applying for registration as an agent, you will need to submit a U-4. No photograph is necessary. Form ADV is used to register as an investment adviser, and only broker-dealers and investment advisers must meet the state's minimum net capital requirement.
NEW QUESTION # 34
Desi Genuos is an agent with Broker-Dealer CanDo. A client has asked Desi to recommend a mutual fund that does not have a sales charge. Desi recommends a fund that has no front-end load although it does have a deferred sales load if the investor redeems his shares within the first three years of ownership, but the client has informed Desi that he is looking at this as a long-term investment. Based on these facts, Desi
- A. is in violation of NASAA rules regarding investment company shares.
- B. is not in violation of any rules since the fund has no front-end load and the deferred sales load will not apply to this client, given his indication that this is meant to be a long-term investment.
- C. will not be in violation of any NASAA rules as long as he has his client sign a "letter of intent."
- D. is not in violation of any rules because he is an agent of a broker-dealer and is not affiliated with the fund he has recommended in any manner.
Answer: A
Explanation:
Explanation
If Desi recommends a mutual fund that has a deferred sales load to a client who requests a mutual fund with no sales charge, he is in violation of NASAA rules regarding investment company shares. The NASAA rules specify that it is prohibited for an agent to state or imply that the investment has no sales charge if there is a deferred sales load involved. It doesn't matter if, in fact, the deferred load may never have to be paid by the client. A letter of intent involves a statement of intent by the investor to invest an amount that will meet a breakpoint that will entitle him to a lower load charge. This is not pertinent to this specific question.
NEW QUESTION # 35
......
Ace Series63 Certification with 251 Actual Questions: https://examboost.latestcram.com/Series63-exam-cram-questions.html
