FINRA-SERIES-63 Online Practice Questions and Answers

While on vacation in Colorado, Mr. Moneybags became interested in the stock of a company called SafeAway, which designs and installs customized high-tech security systems in the multimillion dollar mansions located in Colorado's pricier ski resort areas, such as Vail and Aspen. Upon returning to his home in Boston, he calls his broker-dealer with an order to purchase 10,000 shares of the stock, which he learned trades in the over- the-counter market. Fast Eddie, a registered agent with his broker-dealer, discovers that SafeAway's stock is registered only in the states of Colorado and Wyoming. Neither Fast Eddie nor his broker-dealer are registered to do business in either of those states. Under these circumstances,

A. Fast Eddie cannot effect Mr. Moneybags purchase of SafeAway stock since neither he nor his broker are registered to do business in Colorado or Wyoming, and SafeAway stock is not registered for sale in the state of Massachusetts.

B. Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is a private placement.

C. Fast Eddie should contact a broker-dealer that is registered in either Colorado or Wyoming and negotiate a finder's fee for referring Mr. Moneybags to them.

D. Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is an unsolicited transaction.

Elizabeth is the owner of Lizbeth Investment Advisers, a small, state-registered investment advisory firm. She has decided that her firm needs a niche and has learned that a consulting group is coming to the area and offering a 3-day seminar on asset allocation for senior citizens offered by Advantage for Retirement Persons (ARP). The seminar will cost $1,000 per individual, but after attending the seminar, each attendee will receive a certificate verifying their involvement in the program. Elizabeth decides this is the niche she has been looking for and signs up herself and her three investment adviser representatives for the program. After attending the seminar and receiving their certificates, Elizabeth and her team can

A. represent themselves as certified senior citizen investment advisers.

B. have the words "Senior-Citizen Investment Specialists" printed on their business cards.

C. indicate that they are certified by the ARP program since money was paid for their attendance.

D. do none of the above.

Which of the following would not be a prohibited activity for a broker-dealer?

I. A broker-dealer tells a client that a municipal revenue bond offered by the city of Boston, Massachusetts is almost risk-free because it is backed by the taxes paid to the city, and the city generates a lot of tax dollars.

II. A broker-dealer sells a client some bonds that the broker-dealer has in its portfolio, after informing the client that it is acting as a seller in the transaction.

III. A broker-dealer purchases some stock that a client is selling for its own portfolio, after informing the client that it is acting as a buyer in the transaction.

IV.

A broker-dealer purchases 1,000 shares of Southwest Airlines for a client who calls and asks the broker-dealer to buy some shares of a domestic airline stock at a good price for him and receives written discretionary authority from the client two days later, prior to the settlement date.

A.

I only

B.

II and III only

C.

I and IV only

D.

II, III and IV only

The Administrator of a state can deny an application if

A. the application is missing information.

B. the registrant has been enjoined from engaging in activities involving securities in another state.

C. the Administrator determines the applicant is not financially solvent.

D. any of the above is true.

Which of the following compensation arrangements between an investment adviser and an individual client with a net worth of $600,000 would be disallowed?

A. The client agrees to pay the investment adviser an hourly fee of $60.00.

B. The investment adviser will receive 0.1% of the total value of the client's assets under management as of the end of each month.

C. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each quarter.

D. All of the above are legitimate compensation arrangements between and investment adviser and an individual client with a net worth of $600,000.

A broker-dealer of commodity futures contracts has been profiting by trading for its own account either before or after executing a client's trade on the same commodity, depending on which will be most advantageous. Under the Uniform Securities Act, the broker-dealer is guilty of

A. fraud.

B. churning.

C. unauthorized transactions.

D. nothing. The Uniform Securities Act (USA) deals only with securities, and a commodity futures contract is not a security.

MoeMoney Investment Advisers, LLC is registered in the state of Texas, and its three offices are all located in the greater Dallas-Fort Worth area. Five of its clients-all individuals-have relocated to Colorado and all have indicated a desire to retain the services of MoeMoney. In order for this to be possible,

A. MoeMoney will need to apply for and be granted registration as an investment adviser in the state of Colorado.

B. each client will have to write a letter to the Administrator of the state of Colorado on MoeMoney's behalf.

C. MoeMoney will need to apply for and be granted registration as an investment adviser representative in the state of Colorado.

D. Neither MoeMoney nor its clients need do anything.

Which of the following would meet the requirements for an "exempt security?"

A. a $500,000 promissory note that matures in two years

B. commercial paper with a $100,000 face value and a maturity of five months that is rated AA by Standard and Poors

C. a $25,000 promissory note that matures in three months

D. commercial paper with a $200,000 face value and a maturity of three months that is rated BB by Standard and Poors

In which of the following scenarios will the investment adviser be subject to criminal fraud charges?

A. An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a "buy" without disclosing the fact that it owns the stock.

B. An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a "buy," disclosing the fact that it owns the stock

C. An adviser sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a "buy."

D. all of the above. It is considered criminal fraud for an investment adviser to make any recommendations on a security in which it has or plans to have a position.

Under the NASAA Model Rules, which of the following must an investment adviser provide its clients with at least once a year?

A. the total number of agency cross transactions completed for the client during the period

B. the total amount of commissions or other compensation that the investment adviser received or expects to receive in connection with agency cross transactions performed for the client during the period

C. the number of any complaints that each of its investment adviser representatives has received during the period

D. both A and B