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

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 91:

  Mr. Bigwig, CEO of HiGrowth Corporation, meets with the president of BigFee Investment Bankers and arranges for BigFee to underwrite an Initial Public Offering (IPO) for the firm. When the IPO comes to market, GetErDone Broker-Dealers is part of the selling group, which handles the sale of the stock to the public. In this scenario, which party is the issuer?

  A. HiGrowth Corporation
  B. Mr. Bigwig
  C. BigFee Investment Bankers
  D. GetErDone Broker-Dealers
  A. HiGrowth Corporation

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  Explanation/Reference:

  HiGrowth Corporation is the issuer in this instance. Its stock will be sold, and HiGrowth will receive the proceeds from the sale-less BigFee's underwriting spread. Mr. Bigwig is merely HiGrowth's representative in this instance.

• Question 92:

  Which of the following is a security as defined by the Uniform Securities Act (USA)?

  A. a debenture
  B. a futures option contract on wheat
  C. a term life insurance policy
  D. Both A and B are securities as defined by the Uniform Securities Act.
  D. Both A and B are securities as defined by the Uniform Securities Act.

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  Explanation/Reference:

  Both a debenture and a futures option contract on wheat are securities as defined by the USA. A debenture is a long-term, unsecured debt instrument and is specifically listed as a security in the Act. Although commodity futures contracts are not considered to be securities as defined by the Act, options on commodity futures contracts are.

• Question 93:

  Harry Lange manages the investment portfolio for the Fidelity Magellan Mutual Fund. Mr. Lange is a(n)

  A. broker-dealer.
  B. agent.
  C. investment adviser.
  D. investment company.
  C. investment adviser.

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  Explanation/Reference:

  If Harry Lange is managing the investment portfolio of Fidelity Magellan Mutual Fund, he is an investment adviser. He is making the investment decisions and receives a percentage of the assets under management as his compensation. He is not selling the mutual fund or the fund's investors anything, which is the job of a broker-dealer or an agent. Fidelity Magellan is the investment company.

• Question 94:

  An arrangement wherein a terminally ill person sells a second party his life insurance policy at a discount from its face value, giving the buyer the right to the policy's face value when the seller dies is called a:

  A. death warrant.
  B. viatical settlement.
  C. deceased option.
  D. life straddle.
  A. death warrant.
  B. viatical settlement.

• Question 95:

  Which of the following is an example of commingling?

  A. Sly is an agent with a broker-dealer who recently executed a stock purchase for his client and had the client make the check for the purchase out to Sly for deposit in Sly's broker-dealer account.
  B. In order to generate more commissions for herself Ms. Fox makes trades on some of her client's accounts and has the trade confirmations sent to a P.O box she owns.
  C. Mr. Hawk encourages his clients to leave their securities in "street name" with the broker-dealer for which Mr. Hawk works.
  D. All of the above are examples of commingling.
  A. Sly is an agent with a broker-dealer who recently executed a stock purchase for his client and had the client make the check for the purchase out to Sly for deposit in Sly's broker-dealer account.

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  Explanation/Reference:

  When Sly has his client pay for a stock purchase by making the check out to Sly himself, he has engaged in the prohibited practice of commingling. Ms. Fox is also engaged in a prohibited practice, but she is engaged in making unauthorized transactions. Mr. Hawk is doing nothing wrong. It is typical for clients to leave securities on deposit with their broker- dealers in what is called "street name." This makes it easier for the client to sell the securities later on since he physically will not have to deliver the securities to the broker, for one thing.

• Question 96:

  The net worth of a broker-dealer has fallen below the minimum net capital requirement specified by the state in which the broker-dealer is registered. This broker-dealer must notify the Administrator of this fact

  A. before the beginning of the next quarter.
  B. before the end of the month.
  C. by the close of business on the next business day.
  D. within a week's time.
  C. by the close of business on the next business day.

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  Explanation/Reference:

  When the net worth of a broker-dealer falls below the minimum net capital requirement specified by the state, the broker-dealer must notify the Administrator of this fact by the close of business on the next business day according to the Uniform Securities Act.

• Question 97:

  The settlement date refers to

  A. the date the order to purchase or sell the security is sent to the market.
  B. the date the buyer must pay for the securities purchased.
  C. the date the order to purchase or sell a security is actually executed. This may differ from the date that the order is sent to the market in the cases of limit or stop orders.
  D. the latest date on which broker-dealers can file their quarterly financial statements with the Administrator of the state.
  B. the date the buyer must pay for the securities purchased.

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  Explanation/Reference:

  The settlement date is the date that the buyer must pay for the securities purchased. For stocks and bonds other than U.S. Treasury securities, this date is the third business day after the trade. For U.S. Treasuries and options that sell on exchanges, the settlement date is the next business day.

• Question 98:

  Rich Quick is a broker-dealer registered in the state of Massachusetts. He occasionally trades on abnormalities he observes in bond yield spreads for his own account, short selling a bond that appears to be overpriced based on its yield and buying a bond that is identical in almost every respect except for the price, which is less than that of the other bond. He has been able to earn arbitrage profits 95% of the time when he does this. Rich Quick

  A. is in violation of securities laws. Arbitrage is a prohibited activity.
  B. is skilled if he is able to earn profits 95% of the time using this strategy.
  C. is trading on insider information, which is a violation of securities laws.
  D. engaged in a fraudulent activity.
  B. is skilled if he is able to earn profits 95% of the time using this strategy.

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  Explanation/Reference:

  If Rich Quick is able to earn profits 95% of the time by trading on abnormalities he observes in bond yield spreads, he is skilled. There is nothing illegal in what he is doing. Arbitrageurs attempt to earn profits when they observe what they believe to be mispriced securities, and this is an accepted activity. Rich is not using insider information; bond yields are publicly available information.

• Question 99:

  An agent cannot tell a client that a mutual fund is "no load" if the fund has

  I. a front-end load

  II. a contingent deferred sales load

  III.

  12b-1 fees

  A. I, II or III
  B. I or II only
  C. I only
  D. I or III only
  I. a front-end load II. a contingent deferred sales load III. 12b-1 fees
  B. I or II only

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  Explanation/Reference:

  If a fund has either Selection I or Selection II, an agent cannot tell a client it is "no load." If the fund has either a front-end load, a contingent deferred sales load, or both, the client must be told that the fund has a load. If the 12b-1 fees on a fund are 0.25% or less of the annual average net assets, it is not considered to be a load fund.

• Question 100:

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

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  Explanation/Reference:

  A broker-dealer of commodity futures contracts is guilty of nothing under the Uniform Securities Act since a commodity futures contract is not a security as defined by the USA. The broker-dealer may, however, find himself in trouble with the Commodity Futures Trading Commission, which is the regulatory agency of the futures market.