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

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 111:

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

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  Explanation/Reference:

  An issue of commercial paper with a $100,000 denomination and a maturity of five months with an AA rating from Standard and Poors meets the requirements for an "exempt security." A short-term security, with no more than 270 days to maturity, that has a denomination of at least $50,000, and has a rating of AAA, AA, or A from a recognized rating agency is exempt from registration with the state Administrator.

• Question 112:

  Which of the following statements regarding the registration of broker-dealers and investment advisers is true?

  A. Investment advisers are required to register with both the state and the SEC, while broker-dealers may be registered with only one or the other.
  B. Investment advisers must always be registered with the SEC to conduct business; broker-dealers may be registered with either an individual state or the SEC or both.
  C. Investment advisers are required either to be registered with a state or with the SEC, while broker-dealers must be registered both with the SEC and the state.
  D. Both investment advisers and broker-dealers must be registered with the SEC and with the states in which they have offices.
  C. Investment advisers are required either to be registered with a state or with the SEC, while broker-dealers must be registered both with the SEC and the state.

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  Explanation/Reference:

  The true statement is C: Investment advisers are required either to be registered with a state or with the SEC, but broker-dealers must be registered with both the SEC and the state. Investment advisers who are federal covered do not need to be registered with the state as well, but they do have to execute a notice filing with the Administrator of any state in which they have an office.

• Question 113:

  The maximum monetary civil liability that a person who has violated a securities law can be expected to pay is

  A. the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees + any state-determined "pain and suffering" award.
  B. the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees + any state-determined "pain and suffering" award - any income the victim has received on the investment.
  C. the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees - any income the victim has received on the investment.
  D. the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees + any income the victim has received on the investment.
  C. the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees - any income the victim has received on the investment.

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  Explanation/Reference:

  The maximum monetary civil liability that a person who has violated a securities law can be expected to pay is the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees - any income the victim has received on the investment. The monetary liability is reduced by any dividends, interest income, or capital gains the investor may have received. Monetary awards for pain and suffering are not considered.

• Question 114:

  Needy Investment Advisers, LLC needs a loan. One of its wealthier clients has offered to lend the firm the money at the prime rate of interest. A promissory note is drawn up stipulating the terms of the loan. Based on these facts,

  A. Needy will be in violation of securities laws unless a waiver of compliance form is signed by the client and submitted to the administrator.
  B. Needy is in violation of securities laws by acting as an issuer of securities.
  C. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.
  D. Needy is not in danger of violating any securities laws since the loan was unsolicited and has been properly executed via a promissory note.
  B. Needy is in violation of securities laws by acting as an issuer of securities.

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  Explanation/Reference:

  In accepting a loan from a wealthy client, Needy is in violation of securities laws by acting as an issuer of securities. Under NASAA Model Rules, investment advisers may not borrow money from clients unless the client is in the business of lending money, as would be the case if the client were a financial institution. It doesn't matter if the client is in agreement with the loan; waiver of compliance agreements is prohibited by both the NASAA Model Rules and the Investment Advisers Act of 1940. Nor does it matter that the loan was unsolicited and formalized with a promissory note.

• Question 115:

  The discretionary powers over a clients' accounts differ between broker-dealers and investment advisers in that

  A. An investment adviser can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas a broker-dealer must require that written authority for the transaction is in the mail before proceeding with the transaction.
  B. An investment adviser can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas a broker-dealer must require that written authority for the transaction is provided before the transaction even takes place.
  C. A broker-dealer can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas an investment adviser must require that written authority for the transaction is in the mail before proceeding with the transaction.
  D. A broker-dealer can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas an investment adviser must require that written authority for the transaction is provided before the transaction even takes place.
  B. An investment adviser can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas a broker-dealer must require that written authority for the transaction is provided before the transaction even takes place.

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  Explanation/Reference:

  The discretionary powers of a broker-dealer and an investment banker differ in that an investment adviser is allowed to execute a discretionary transaction for a client upon receiving verbal authority only, as long as it is followed up with a written authorization within 10 days, whereas a broker-dealer is prohibited from executing a discretionary transaction unless it has already received written authority for that transaction.

• Question 116:

  An investment adviser representative with Capital Investment Advisors, Inc. advised his client to invest $5,000 in bonds of a firm that the adviser claimed was an investment "almost as risk-free as investing in U.S. government bonds; maybe even more so, given the magnitude of the government deficit these days." The client paid a total of $200 for this advice. The bonds paid interest at the rate of 6%, with semiannual payments, and the client received $300 in interest payments before the firm went belly-up at the end of a year, and its bonds were deemed worthless. The client has filed suit, and its attorneys' fees and court costs are expected to be $1,000. When the investment is a bond, the state has recently been assessing an interest rate equal to the interest rate paid by the security as an equitable interest payment guideline in civil penalties.

  The maximum the client can expect in civil penalties is

  A. $5,900.
  B. $6,200.
  C. $5,200.
  D. $6,000.
  B. $6,200.

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  Explanation/Reference:

  The maximum amount the client can expect in civil penalties in this case is $6,200. In civil court, the client is awarded the cost of the investment plus any attorneys' fees and court costs, plus any interest that the state deems appropriate, less any income earned on the investment. In this instance, the only income is the interest that the client earned, which is identical to the interest that the Administrator mandates the investment adviser pay, so that is a wash. The investment advisory fee is included as part of the investor's cost, so the client can sue for the recovery of his original investment of $5,000 plus the $200 he paid for the investment advice plus the court costs and attorneys' fees of $1,000, or $6,200 total.

• Question 117:

  George Geek is a computer programmer who tired of working for others and started his own company. He convinced forty investors that he could design software that would rival Microsoft, and sold them each a 10% partnership interest in his firm for $25,000. He designed and printed up the partnership certificates himself. George told the investors that he had a product that was on the verge of being marketable and that when it did-within the next two months-revenues would pour into the company, and he would begin paying dividends. He told them they could expect a 20% return on their money this year, with even higher returns in the years to come. As it turned out, George wasn't quite the programmer he thought he was, and he wasn't able to get all the bugs out of the program to make it marketable within the promised two months.

  Within a year, George had tired of the project and was too busy picking up chicks in his new Corvette when he wasn't on the island of St. Bart overseeing the construction of his new beach mansion-and picking up chicks. His activities, of course, were financed by the extremely generous "salary" he paid himself from the investors' monies.

  Under the Uniform Securities Act, do the investors have any civil claims against George?

  A. Yes. They can sue George for the return of their original investment, plus interest. George would also have to pay their court costs and attorneys' fees and any amounts assessed by the court for "pain and suffering" on the parts of the clients.
  B. No. It wasn't George's fault that he was unable to do what he promised. Even if it wasn't for.
  C. Yes. They can sue George for the return of their original investment, plus interest. George would.
  D. No. The Uniform Securities Act only involves securities laws and partnership interests are not.
  C. Yes. They can sue George for the return of their original investment, plus interest. George would.

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  Explanation/Reference:

  Yes. The investors have a civil claim against George under the Uniform Securities Act and can sue for the return of their original investment, plus interest, reasonable attorneys' fees, and court costs. There is no provision for pain and suffering. Partnership interests fall under the definition of securities, so the Uniform Securities Act does apply, and George sold the interests illegally. As securities, they were required to be registered with the state before they could be sold.

• Question 118:

  Until yesterday Maddie was a registered agent employed by the broker-dealer, QuikDeals. Yesterday afternoon, issues that had been brewing between her and another employee of the firm came to a head, and Maddie impulsively quit her job.

  At this point,

  A. Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration application.
  B. Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration application.
  C. Maddie will have to file a new application for registration with the Administrator upon finding employment with another broker-dealer since she is no longer considered to be a registered agent by the state.
  D. Maddie is required to call all of her clients at QuikDeals to inform them she is no longer employed there.
  C. Maddie will have to file a new application for registration with the Administrator upon finding employment with another broker-dealer since she is no longer considered to be a registered agent by the state.

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  Explanation/Reference:

  When Maddie quit her job, her status as a state-registered securities agent was automatically terminated, and she will need to file a new application for registration with the Administrator upon obtaining a position with another broker-dealer. If she does so within thirty days, her registration will become effective as soon as she has filed her application and paid her application fee. While she is required to notify the Administrator that she has terminated her employment with QuikDeals, there is no requirement that she contact any of her clients at QuikDeals.

• Question 119:

  Mr. Sailor is cruising through the Bahamas when he learns that a healthcare company in which he owns stock is being sued by former patients, doctors, nurses, and even the federal government. He doesn't have his broker's number handy, and he doesn't have internet access, so he calls his son and tells him to call the broker and instruct the broker to sell his shares. As a registered agent for his broker, you take the call.

  Should you execute this transaction?

  A. Yes. This is a legitimate request from a client, and you are required to follow the client's instructions.
  B. No, not unless you and your broker-dealer have a written document that gives Mr. Sailor's son the power-of-attorney to trade on his account.
  C. Yes, as long as the son presents proper identification that proves his relationship to Mr. Sailor, such as a birth certificate.
  D. Yes, as long as the son is at least 21 years old and not a minor child.
  B. No, not unless you and your broker-dealer have a written document that gives Mr. Sailor's son the power-of-attorney to trade on his account.

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  Explanation/Reference:

  No, you cannot execute this transaction unless you and your broker-dealer have a written document that gives Mr. Sailor's son the power-of-attorney to trade on his account. Otherwise, you will be executing an order from an unauthorized third party, which is a prohibited practice, and you can lose your license for doing so.

• Question 120:

  Which of the following conditions is necessary for an act involving securities fraud to be considered criminal and subject to criminal penalties?

  A. The act extended across state lines.
  B. The perpetrator willfully committed the fraudulent act.
  C. The victim(s) lost a combined total of at least $25,000 because of the act.
  D. The Administrator decides to send the case to criminal court.
  B. The perpetrator willfully committed the fraudulent act.

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  Explanation/Reference:

  In order for an act of fraud to be considered criminal, the perpetrator must have willfully committed the fraudulent act. In this case, the Administrator will probably ask the court to impose criminal penalties, but an Administrator can't cause an act of fraud to be criminal by sending it to the criminal court system. If an agent misleads a customer regarding the returns to be expected on an investment but hasn't deliberately done so, it is still fraud, but not criminal fraud, regardless of how much the victims lost.