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

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 231:

  The trade confirmation must be received by the customer no later than

  A. one week after the settlement date.
  B. the settlement date.
  C. the day after the trade takes place.
  D. five business days after the settlement date.
  B. the settlement date.

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  Explanation/Reference:

  Trade confirmations must be received by the customer no later than the settlement date.

• Question 232:

  The current yield on a bond fund refers to

  A. the percentage increase in the fund's net asset value.
  B. the return that the fund earned because of the capital appreciation of the securities in the fund.
  C. the total return that the fund has earned over the most recent 12-month period.
  D. the return that the fund earned based only on the interest income it received.
  D. the return that the fund earned based only on the interest income it received.

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  Explanation/Reference:

  The current yield on a bond fund is the return that the fund earned from interest income only. The return from interest income plus the return due to the capital appreciation of the securities make up the total return earned by the fund. The investor's total return is equal to the return on the income received from the fund plus any change in the net asset value of the fund.

• Question 233:

  Which of the following persons falls under the definition of "broker-dealer," as defined by the Uniform Securities Act (USA)?

  A. Marge is a loan officer at Treadwater Bank and Trust.
  B. Juan 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. Michaela is employed by GetErDone broker-dealers and sells both exempt and non- exempt securities to GetErDone's clients.
  D. MyTrades is a sole proprietorship owned by Nathan Newmoney, who has established the firm solely to make trades on his own account, thereby avoiding the commissions he would have to pay a middleman.
  D. MyTrades is a sole proprietorship owned by Nathan Newmoney, who has established the firm solely to make trades on his own account, thereby avoiding the commissions he would have to pay a middleman.

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  Explanation/Reference:

  MyTrades falls under the definition of "broker-dealer," as defined by the Uniform Securities Act since Nathan Newmoney is engaged in trading on his own account. The USA defines a broker-dealer as any person that conducts securities transactions on its own account or for others. Both Juan and Michaela are "agents" under the USA definition, and agents are specifically excluded from the definition of a broker-dealer. Marge is also excluded from the definition since she is a loan officer at a bank.

• Question 234:

  Which of the following does not describe a prohibited practice for investment advisers?

  I. The adviser sells its non-institutional clients securities that it has issued.

  II. The adviser makes a discretionary trade for a client after receiving verbal authorization only and does not receive written authorization from the client within 10 business days of doing so.

  III.

  The investment adviser requires an advisory fee of $300 to be paid in advance at the beginning of each quarter.

  A. None of the selections describe prohibited practices.
  B. I only
  C. I and III only
  D. II and III only
  I. The adviser sells its non-institutional clients securities that it has issued. II. The adviser makes a discretionary trade for a client after receiving verbal authorization only and does not receive written authorization from the client within 10 business days of doing so. III. The investment adviser requires an advisory fee of $300 to be paid in advance at the beginning of each quarter.
  D. II and III only

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  Explanation/Reference:

  Selections II and III do not describe prohibited practices. If an adviser makes a discretionary trade for a client after having received verbal authorization to do so and does not receive written authorization from the client within 10 business days of doing so, the adviser is limited to making recommendations to the client and executing unsolicited trades only, but he has not engaged in a prohibited practice, and this is the scenario described in Selection II. There is no provision that prohibits an adviser from requiring an advisory fee to be paid in advance as long as it is reasonable, as described in Selection III. An adviser is not permitted to sell its non-institutional clients securities it has issued itself because of the significant conflict of interest involved. The exception is if the client is an institution that is in the business of lending money, but Selection I specifically indicates "non-institutional clients."

• Question 235:

  Which of the following does not need to be included in an investment advisory contract?

  A. the term of the contract
  B. the total amount of money that the investment adviser currently has under management
  C. the advisory fees and the formula used to compute them
  D. a statement that the contract cannot be assigned to another party without the client's consent
  B. the total amount of money that the investment adviser currently has under management

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  Explanation/Reference:

  The amount of money that the investment adviser currently has under management need not be included in an investment advisory contract. The contract does have to include the term of the contract, the advisory fees and the formula used to compute them, and a statement that the contract cannot be assigned to another party without the client's consent, along with other information.

• Question 236:

  Rich Writewell wants to begin publishing an independent weekly financial newsletter that will provide investment recommendations as well as other financial news items to the general public. Rich hopes that his newsletter will achieve nationwide circulation within a few months.

  Which of the following statements is true?

  A. Rich will have to register as an investment adviser since his publication will include investment recommendations.
  B. Rich will have to register as an investment adviser only if he sells this newsletter to the public. If the publication is to be distributed free of charge, he will not have to register.
  C. Rich may be exempt from registering as an investment adviser if he is a lawyer, accountant, engineer, or teacher. Otherwise, he will have to register.
  D. Rich will not have to register as an investment adviser since he is publishing a legitimate financial newsletter for distribution to the general public.
  D. Rich will not have to register as an investment adviser since he is publishing a legitimate financial newsletter for distribution to the general public.

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  Explanation/Reference:

  Rich will not have to register as an investment adviser since he is publishing a legitimate financial newsletter that will be distributed to the general public. The definition of the term "investment adviser" excludes publishers of bona fide business or financial publications that are published regularly and have general circulation.

• Question 237:

  Which of the following trades is illegal?

  A. a short sale
  B. a margin transaction
  C. a market-not-held order
  D. the sale of a mutual fund if the purchaser hasn't received a prospectus
  D. the sale of a mutual fund if the purchaser hasn't received a prospectus

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  Explanation/Reference:

  It is illegal to sell a mutual fund if the purchaser hasn't received a prospectus. The purchaser must receive this no later than the date on which the trade confirmation is due. Short sales, margin transactions, and market-not-held orders are all legitimate.

• Question 238:

  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. tell Mr. I.M. Pulse that this would be an illegal insider trade and that you are unable to fulfill his request.
  B. 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.
  C. advise Mr. Pulse that he may be jumping the gun, but place the order if he insists.
  D. do both A and B.
  C. advise Mr. Pulse that he may be jumping the gun, but place the order if he insists.

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  Explanation/Reference:

  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.

• Question 239:

  Treadwater Bank and Trust is selling a portfolio of municipal bonds it owns to the SafeRisk Insurance Corporation. Under the Uniform Securities Act (USA), in this transaction Treadwater is defined as a

  A. broker-dealer.
  B. agent.
  C. issuer.
  D. none of the above.
  D. none of the above.

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  Explanation/Reference:

  When Treadwater Bank and Trust sells municipal bonds it owns to SafeRisk, it does not meet the USA definition of a broker-dealer, an agent, or an issuer. As a bank, Treadwater is automatically excluded as a broker-dealer. Nor can Treadwater be defined as an agent since an agent can only be an individual. Treadwater is not the issuer of the securities; the state and local governments that originally issued the securities are.

• Question 240:

  Which of the following is not one of the criteria for a security to be eligible for registration by notification?

  A. The issuer must have preferred stockholders as well as common stockholders.
  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 never have defaulted on any bond or long-term lease obligation.
  D. If the security to be issued is an equity interest in the firm, its offer price has to be at least $5 a
  A. The issuer must have preferred stockholders as well as common stockholders.

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  Explanation/Reference:

  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.