FINRA FINRA-SERIES-63 Online Practice Questions and Exam Preparation

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 1:

  In accordance with the Telephone Consumer Protection Act of 1991 (TCPA), if a prospective client requests to be put on your firm's Do-Not-Call (DNC) list, the client must be kept on that list for

  A. 1 year.
  B. 2 years.
  C. 5 years.
  D. 10 years.
  D. 10 years.

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  Explanation/Reference:

  If a prospective client requests being put on your firm's DNC list, you must keep that name on your list for 10 years, according to the TCPA.

• Question 2:

  "T + 3" refers to

  A. the form, also known as a "trade ticket," that is filled out when an order is entered into the market.
  B. the form that is filled out and sent to the client confirming that the trade has been executed.
  C. the fact that the settlement date will be three business days after the trade date, which is the "regular way settlement" for transactions involving stocks and corporate and municipal bonds.
  D. a procedure to minimize the potential for money laundering.
  C. the fact that the settlement date will be three business days after the trade date, which is the "regular way settlement" for transactions involving stocks and corporate and municipal bonds.

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  Explanation/Reference:

  "T + 3" is an abbreviation indicating that the settlement date will be three business days after the trade date, which is the "regular way settlement" for transactions involving stocks and corporate and municipal bonds.

• Question 3:

  Ms. Ding is an administrative assistant to the manager of a mutual fund. Most of her day is spent entering data onto a spreadsheet for her boss and answering phone calls. Some of the calls require her to provide information about the some of the fund's financial aspects, such as its closing net asset value on the previous day.

  What type of registration does Ms. Ding require in order to perform her duties?

  A. Ms. Ding needs to apply for registration as an agent since she is providing financial information.
  B. Ms. Ding needs to apply for registration as an investment adviser representative since she is providing information about a specific mutual fund.
  C. Ms. Ding will need to apply for registration as both an agent and an investment adviser representative in this case since she is providing information about a mutual fund.
  D. Ms. Ding does not need to apply for any type of registration. She is merely supplying information and is not engaged in the purchase or sale of the fund shares.
  D. Ms. Ding does not need to apply for any type of registration. She is merely supplying information and is not engaged in the purchase or sale of the fund shares.

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  Explanation/Reference:

  Since Ms. Ding is an administrative assistant who is merely providing some information about the fund and is not engaging in the purchase or sale of the fund shares, she does not need to apply for any type of registration. An employee who simply provides price and/or some other pertinent information to the public, but who does not engage in the purchase or sale of securities to the public and does not receive a commission based on the sale of securities is not considered to be an agent or an investment adviser.

• Question 4:

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

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  Explanation/Reference:

  An adviser that sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a "buy" is subject to criminal fraud charges for willfully deceiving its clients.

  The adviser who recommends the stock as a buy without disclosing the fact that it owns the stock is engaging in a prohibited activity for non-disclosure, but would be unlikely to face criminal fraud charges.

• Question 5:

  Which of the following practices would be prohibited in connection with the sale of investment company shares?

  I. selling a client shares of a load stock fund when a no load stock fund with the same investment objective exists

  II. selling the client shares of five SandP 500 Index mutual funds, offered by different fund families

  III.

  encouraging a client to swap his money between two funds in the same family without informing him that this creates a taxable event

  A. I, II, and III
  B. I and II only
  C. I and III only
  D. II and III only
  I. selling a client shares of a load stock fund when a no load stock fund with the same investment objective exists II. selling the client shares of five SandP 500 Index mutual funds, offered by different fund families III. encouraging a client to swap his money between two funds in the same family without informing him that this creates a taxable event
  D. II and III only

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  Explanation/Reference:

  The scenarios described in Selections II and III only would be prohibited. Five SandP 500 Index mutual funds, even if offered by different fund families, all have the same investment objective-duplicating the returns earned on the SandP 500 Index, and they will be invested in very similar stocks. Therefore, the client is getting little or no more diversification of risk by investing in five funds over investing in just one. The agent is just getting richer from more commissions. Encouraging a client to swap his money between two funds in the same family without informing the client that this creates a taxable event is not providing the client with "full and fair disclosure." It may well be in the client's best interest to make the switch, but he needs to be made aware of the tax consequences. It is not necessarily prohibited to sell a client shares of a load stock fund when a no load stock fund with the same investment objective exists as long as the agent believes that the load stock fund is a better investment for his client.

• Question 6:

  You execute a stock transaction for a client on Thursday, September 23rd. The settlement date on the order ticket will be

  A. Thursday, September 23rd.
  B. Monday, September 27th.
  C. Friday, September 24th.
  D. Tuesday, September 28th.
  D. Tuesday, September 28th.

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  Explanation/Reference:

  If you execute a stock transaction for a client on Thursday, September 23rd, the settlement date for that trade will be Tuesday, September 28th, which is T + 3, meaning three business days after the trade date.

• Question 7:

  A "market not held" order is

  A. an order in which the client tells the broker to use his own discretion in timing a purchase or sale in an attempt to get a better price.
  B. a prohibited activity in which an agent engages in the purchase or sale of securities that are not offered by his broker-dealer.
  C. an order to buy or sell a stock at a specified price, which differs from the current market price.
  D. an order to sell securities that the investor owns if the stock decreases by a certain amount from the current price.
  A. an order in which the client tells the broker to use his own discretion in timing a purchase or sale in an attempt to get a better price.

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  Explanation/Reference:

  A "market not held" order is one in which the client tells the broker to use his own discretion in timing a purchase or sale in an attempt to get a better price than the current market price. An order to buy or sell stock at a specified price is a limit order. An order to sell securities that the investor owns if the stock decreases by a certain amount is known as a stop sell order or a stop loss sell order.

• Question 8:

  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.

  the promised interest payments.

  Have there been any violation of securities laws in this instance?

  A. No. This was simply a loan transacted between two parties.
  B. Yes. Mr. Smooth was required to register the promissory note before he offered it for sale.
  C. Both B and C are true statements.
  A. No. This was simply a loan transacted between two parties.

• Question 9:

  Broker-Dealer Wheeler has no offices in the state. Wheeler does, however, sell corporate bonds from his portfolio to banks and insurance companies located in the state that purchase the bonds for their investment portfolios. He executes about twelve of these transactions a year. Wheeler profits from the price appreciation of the bonds during the time he held them, but receives no other form of compensation. Based on these facts,

  A. Wheeler must register as a broker-dealer in the state, but the securities do not need to be registered.
  B. Wheeler need not register in the state, and the securities are also exempt from registration.
  C. Wheeler must register as a broker-dealer in the state, and the securities must also be registered before they can be sold to in-state investors.
  D. Wheeler need not register in the state, but the securities must be registered before they can be sold to in-state investors.
  B. Wheeler need not register in the state, and the securities are also exempt from registration.

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  Explanation/Reference:

  Since Wheeler has no offices in the state and is selling bonds from his portfolio to institutional investors, Wheeler need not register in the state, and the securities are exempt from registration. Broker-dealers with no physical location in a state that are doing business with other broker-dealers or with institutional investors such as banks and insurance companies that do have offices in that state are exempted from registering in the state. Securities sales to institutional investors are exempt transactions, and securities sold in exempt transactions are themselves exempt from state registration requirements.

• Question 10:

  After passing the necessary exams, you must submit which of the following to the state Administrator when applying for registration as an agent?

  A. U-4
  B. Form ADV
  C. a recent photograph of yourself
  D. proof that you meet the state's minimum net capital requirement
  A. U-4

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  Explanation/Reference:

  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.