[Dec 08, 2023] Fully Updated Free Actual FINRA Series63 Exam Questions
Free Series63 Questions for FINRA Series63 Exam [Dec-2023]
NEW QUESTION # 53
No: 93
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. within a week's time.
- C. before the end of the month.
- D. by the close of business on the next business day.
Answer: D
Explanation:
Explanation
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.
NEW QUESTION # 54
An investment adviser suggests that his client, Arnold, a 74-year old gentleman, should consider a reallocation of the assets in his portfolio. The adviser tells Arnold that he has far too much invested in bonds, which don't earn as much as stocks. He advises Arnold to take 80% of the money he has in bonds and invest it in an aggressive growth mutual fund that has provided an average annual return of 40% over the past three years.
Arnold is impressed and follows this advice. Shortly thereafter, there is a steep drop in the market in general, and the net asset value of the aggressive growth mutual fund falls 85%.
Does Arnold have any remedies available to him?
- A. Yes. Arnold can sue for the amount of his losses, plus interest, as well as an amount assessed by the court for "pain and suffering."
- B. Yes. Arnold can sue for the amount of his losses, plus interest, court costs, and attorneys' fees.
- C. No. The investment adviser had no way of knowing that the market was going to fall when he provided the advice, so the adviser did not fail in his fiduciary responsibility to Arnold.
- D. No. Arnold had the choice and got greedy. As the old saying goes, "Bulls get rich, and bears get rich, but pigs get led to slaughter."
Answer: B
Explanation:
Explanation
If Arnold loses his money because he took the advice of his investment adviser and reallocated a large percentage of his money from bonds to an aggressive growth mutual fund, he can sue the investment adviser in civil court for the amount of his losses, plus interest, court costs, and attorneys' fees. The courts do not award damages for "pain and suffering" in these cases. The investment adviser failed in his fiduciary responsibility to Arnold in recommending that a 74-year old man reallocate a large percentage of his money from the relative safety of bonds to the much riskier investment of an aggressive growth mutual fund.
NEW QUESTION # 55
When selling shares in a closed-end investment company, an agent must inform the client of any
I. commissions
II. underwriting fees
III. miscellaneous offering expenses
- A. I and II only
- B. I, II and III
- C. I only
- D. I and III only
Answer: B
Explanation:
When selling shares in a closed-end investment company, an agent must inform the client of
any commissions, underwriting fees, or miscellaneous other offering expenses involved.
NEW QUESTION # 56
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 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 will be in violation of securities laws unless a waiver of compliance form is signed by the client
and submitted to the administrator. - C. Needy is in violation of securities laws by acting as an issuer of securities.
- D. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.
Answer: C
Explanation:
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 are 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.
NEW QUESTION # 57
An agent working for a broker-dealer mistakenly sends an investment adviser some bonds that the
adviser purchased on behalf of his client instead of directing the bonds to the financial institution that is
serving as the qualified custodian of the client's funds. If the investment adviser wants to avoid being
considered custodian of this client's account, what must the adviser do?
- A. Record what securities were sent, when he received them, and when he forwarded them--which must
be within twenty-four hours-to the qualified custodian of the client's funds. - B. Record what securities were sent, when he received them, and when he forwarded them--which must
be within three business days-to his client. - C. Record what securities were sent, when he received them, and when he forwarded them--which must
be within twenty-four hours-to his client. - D. Record what securities were sent, when he received them, and when he forwarded them--which
Answer: C
Explanation:
In order to avoid being considered custodian of his client's account, the investment adviser
needs to record what securities he had been sent, when he received them, and when he returned
them-which must be within three business days-to the sender.
NEW QUESTION # 58
Which of the following would fall under the definition of "agent," as defined by the Uniform Securities Act
(USA)?
- A. TrustUs Bank has a subsidiary operation that sells mutual funds to the public.
- B. Freedom broker-dealers executes the purchase and sale of securities for its customers.
- C. None of the above would fall under the definition of "agent," as defined by the Uniform Securities Act
(USA.) - D. Joe works as an administrative assistant for broker-dealer GetErDone, doing data entry, filing client
forms that contain confidential information, and directing calls to registered representatives of the firm.
Answer: C
Explanation:
None of the selections describe an "agent," as defined by the Uniform Securities Act (USA.)
Joe is not executing trades for clients of the broker-dealer, and clerical assistants are not classified as
agents. Agents must be individuals, so a firm like Freedom broker-dealers would not be considered an
agent. A bank is not an individual, and banks are even excluded from the definition of a broker-dealer.
NEW QUESTION # 59
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 broker?
- A. HiGrowth Corporation
- B. Mr. Bigwig
- C. GetErDone Broker-Dealers
- D. BigFee Investment Bankers
Answer: C
Explanation:
GetErDone Broker-Dealers is the broker in this scenario. GetErDone is simply finding buyers
for the securities and receives a commission for doing so. GetErDone is not itself purchasing the
securities in the scenario described. It would be considered unethical for the broker-dealer to do so since
they are required to make a bona fide public offering of all of the securities allotted to them for distribution
under NASAA Model Rules.
NEW QUESTION # 60
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 not in danger of violating any securities laws since the loan was unsolicited and has been properly executed via a promissory note.
- C. Needy is in violation of securities laws by acting as an issuer of securities.
- D. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.
Answer: C
Explanation:
Explanation
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.
NEW QUESTION # 61
For how long after the effective date is a security's registration valid?
- A. six months
- B. two years
- C. three months
- D. one year
Answer: D
Explanation:
Explanation
A security's registration is valid for one year after the effective date, which is the date the Administrator approves the registration. If the entire issue has not been sold in this time frame, the offering may be renewed.
NEW QUESTION # 62
Your next-door neighbor's brother works for a large pharmaceutical company and confided in her that one
of the company's chemists has just discovered a compound that will cure baldness and that the firm plans
to make the discovery public later in the week. Your next-door neighbor passes this information on to you
over a cup of coffee the next morning. You immediately call your broker and place an order to buy shares
of the company's stock. Has any illegal insider trading taken place?
- A. No. You are in no way related to your next-door neighbor's brother, and she could have been lying.
- B. Yes. You are guilty of illegal insider trading because you traded on information that had not yet been
made publicly available. - C. Yes. You, your neighbor, and her brother are all guilty of illegal insider trading.
- D. Yes. The agent who executes your purchase order has engaged in illegal insider trading.
Answer: B
Explanation:
Yes. You are guilty of illegal insider trading because you traded on information that was not
yet public. Your neighbor and her brother did not execute any trades based on the information, so they're
innocent, as is the agent who executed your purchase order, who had no way of knowing that you had
insider knowledge when you placed the order.
NEW QUESTION # 63
Investment Adviser Foo Lish, LLC has begun serving as a custodian of its clients' assets. Foo Lish, LLC must now
I. file a new U-5 form with the Administrator.
II. meet higher net capital requirements than before.
III. file an updated Form ADV with the Administrator.
IV. pay a CPA to do an annual unannounced audit of the firm.
- A. I and II only
- B. I, II, III, and IV
- C. II, III, and IV only
- D. II and III only
Answer: C
Explanation:
Explanation
Selections II, III, and IV are correct. When Foo Lish begins serving as a custodian of its clients' assets, it must file an updated Form ADV with the Administrator, meet higher net capital requirements than before, and pay a CPA to do an annual unannounced audit of the firm. The U-5 form is filed when a representative leaves the firm.
NEW QUESTION # 64
Which of the following statements would not be in violation of NASAA rules regarding the sale of
investment company shares?
I. "Investing your money in shares of this money market mutual fund is identical to putting your money in a
savings account at a bank, except the money market fund provides a higher return."
II. "Our U.S. government bond fund is invested only in government bonds issued by the U.S. government
and is, therefore, a risk-free investment."
III. "You are investing $22,000 in this fund today. The fund has a 5% load at this investment level, but if
you sign a letter of intent to invest another $3,000 within the next 13 months, your load will be reduced to
4 %. If something comes up and you can't invest the extra $3,000 within 13 months, you will only need to
pay the difference in the two loads."
- A. I and II only
- B. III only
- C. I only
- D. I, II, and III
Answer: B
Explanation:
Only Selection III would not violate NASAA rules regarding the sale of investment company
shares because it is the only true statement. If a fund has a breakpoint at $25,000 that triggers a reduced
front-end load and allows an investor to receive the reduced load charge if the investor signs a letter of
intent stipulating that the additional investment will be made within 13 months, the only penalty to the
investor who doesn't meet the breakpoint is payment of the difference in the two loads. Investing in shares
of a money market mutual fund is not identical to putting money in a savings account at a bank. The bank
account is insured by the FDIC in most cases; the money market mutual fund is not insured by the FDIC,
and the investor can lose money (although, to date, money market mutual funds have covered any losses
that they've experienced and not passed those losses onto their investors.) A U.S. government bond fund
that is invested only in U.S. government bonds is free from default-risk, but it is still subject to interest rate
risk. If interest rates increase, the value of the bonds in these funds-and therefore the fund itself-will
decrease.
NEW QUESTION # 65
Which of the following would meet the requirements for an "exempt security?"
- A. commercial paper with a $200,000 face value and a maturity of three months that is rated BB by
Standard and Poors - B. a $25,000 promissory note that matures in three months
- C. a $500,000 promissory note that matures in two years
- D. commercial paper with a $100,000 face value and a maturity of five months that is rated AA by
Standard and Poors
Answer: D
Explanation:
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.
NEW QUESTION # 66
You are a registered agent with a broker-dealer. One of your clients visits you and wants you to sell some
of the U.S. government bonds she owns and purchase shares of a specific aggressive growth mutual fund
for her with the proceeds. Your client is a mentally-competent, 84-year-old woman but, based on your
other knowledge of her situation, you believe it to be an unwise move. You should
- A. nod politely, but not execute the transactions since they are not in her best interest.
- B. advise her that you don't believe this is in her best interest, but execute the required transactions if she
insists. - C. call the mutual fund and tell them that they must convince this client that an investment in their fund is
not in her best interest, under penalty of law. - D. turn the matter over to your supervisor.
Answer: B
Explanation:
If, as a registered agent with a broker-dealer, you receive an order from a client that you
don't believe is in her best interests, you should tell her that, but you must still execute the transactions if
she insists. You may not legally ignore her instructions, nor should you bother either the mutual fund or
your supervisor with this, given the facts as provided; you should deal with it yourself.
NEW QUESTION # 67
When selling shares in a closed-end investment company, an agent must inform the client of any
I. commissions
II. underwriting fees
III. miscellaneous offering expenses
- A. I and II only
- B. I, II and III
- C. I only
- D. I and III only
Answer: B
Explanation:
Explanation
When selling shares in a closed-end investment company, an agent must inform the client of any commissions, underwriting fees, or miscellaneous other offering expenses involved.
NEW QUESTION # 68
Which of the following trades is illegal?
- A. a margin transaction
- B. a short sale
- C. the sale of a mutual fund if the purchaser hasn't received a prospectus
- D. a market-not-held order
Answer: C
Explanation:
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.
NEW QUESTION # 69
Which of the following statements about agents is (are) false?
- A. An agent must demonstrate a specific minimum level of financial stability for his registration application to be accepted.
- B. All of the above are false statements.
- C. If an agent files for bankruptcy, the Administrator may elect to terminate that agent's registration if the Administrator believes it is "in the public interest" to do so.
- D. When an agent has a change of address, both he and his broker-dealer affiliate must inform the Administrator.
Answer: A
Explanation:
Explanation
The statement that an agent must demonstrate a specific minimum level of financial stability for his registration application to be accepted is false. The Administrator may require an agent to post a bond, but there are no specific minimum financial requisites that must be met. The Administrator also has the right to terminate an agent's registration if the agent becomes bankrupt. Both the agent and his broker-dealer affiliate are required to inform the Administrator whenever there is a change in the agent's personal information, such as a name change or a change of address.
NEW QUESTION # 70
Painting the tape refers to
- A. the practice of buying large amounts of a security to drive its price up artificially.
- B. the prohibited practice of excessively trading on a client's account that is used by some broker-dealers and/or their agents to generate more commissions for themselves.
- C. the unethical practice of investment advisers who issue "buy" recommendations for stocks that they own themselves without disclosing the fact.
- D. the illegal activity of a group of investors who buy and sell a security among themselves to create an artificially high volume of trading in hopes of luring investors to buy the security.
Answer: D
Explanation:
Explanation
Painting the tape refers to the illegal activity of a group of investors who buy and sell a security among themselves to create an artificially high volume of trading in hopes of luring investors to buy the security. This is an attempt to manipulate the market and, as such, is illegal.
NEW QUESTION # 71
Shady Corporation's executives are concerned over the firm's steadily declining stock price and decide to do something about it. They each decide to make significantly large purchases of their firm's stock in order to stabilize and hopefully even to drive up its price, reasoning that they can sell the stock for the higher price down the road and profit from the transaction. You are a broker-dealer for the firm's executives.
Are Shady's executives planning to do anything illegal?
- A. Yes. Although it is not illegal for them to purchase shares of their firm's stock, they cannot do so in order to try to manipulate the price of the stock.
- B. No. As long as they follow the rules and report their purchases to the SEC, it is not illegal for them to purchase shares of their firm's stock.
- C. No. It's a win-win. They are using their own money to buy stock of their firm, and this can help drive the stock price up and put profits in their pockets.
- D. Yes. To purchase shares of their own company is considered to be illegal insider trading.
Answer: A
Explanation:
Explanation
Yes. Although it is not illegal for Shady's executives to purchase shares of their firm's stock, in this case they are planning to do something illegal in deciding to make significantly large purchases of their firm's stock in order to manipulate the price. This is an example of price pegging.
NEW QUESTION # 72
No: 167
A "market not held" order is
- A. a prohibited activity in which an agent engages in the purchase or sale of securities that are not offered by his broker-dealer.
- B. an order to sell securities that the investor owns if the stock decreases by a certain amount from the current price.
- C. an order to buy or sell a stock at a specified price, which differs from the current market price.
- D. 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.
Answer: D
Explanation:
Explanation
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.
NEW QUESTION # 73
Which of the following describes an investment adviser that is not required to register with the state Administrator?
- A. MoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals.
- B. CanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under management.
- C. Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.
- D. Financial Freedom Investment Advisers has no offices in the state although it does advise six wealthy individuals who are residents of the state.
Answer: C
Explanation:
Explanation
Buckeye Investment Advisers is not required to register with the state Administrator since it has no offices in the state and provides portfolio management services to an institutional investor within the state. Both MoeMoney and Financial Freedom must register since they advise more than 5 individual clients. It doesn't matter in that case whether they have offices within the state or not. CanDo is registered only as a broker-dealer, but it has begun offering investment advice for a fee, so it must also register with the state as an investment adviser.
NEW QUESTION # 74
Sam Shade had his agent's license revoked by the state of Washington for repeatedly making misleading claims about various investment to investors. He had had it with all the rain anyway and decided to move to the sunshine state of Florida. His brother-in-law was a computer whiz who made money on the side (more than his day job provided, in fact) by supplying illegal immigrants with official-looking documentation, including social security numbers. Sam Shade became Ian Creed in a few clicks of the mouse. As Ian Creed, Sam was hired by Sunny Investment Advisers, an investment adviser firm located in the Florida Keys, in a clerical role. As such, Sam/Ian had access to the confidential information of the firm's clients, which he and his brother-in-law utilized for the purpose of identity theft. Under the Uniform Securities Act guidelines, when Sam and his brother-in-law are caught in their illegal activities,
- A. Sunny Investment Advisers will be subject to both criminal prosecution and civil penalties for employing an individual whose license had been revoked by the Administrator of another state since it obviously did not use due diligence in hiring Ian Creed, aka Sam Shade.
- B. Sunny Investment Advisers will not be held liable if it can prove that there was no way it could have or should have known of the revocation of Sam Shade's (aka Ian Creed) license.
- C. Sunny Investment Advisers will be subject to civil penalties for employing an individual whose license had been revoked by the Administrator of another state.
- D. Sunny Investment Advisers will be subject to criminal prosecution for employing an individual whose license had been revoked by the Administrator of another state since it obviously did not use due diligence in hiring Ian Creed, aka Sam Shade.
Answer: B
Explanation:
Explanation
When Sam and his brother-in-law are caught, Sunny Investment Advisers will not be held liable if it can prove that there was no way it could have or should have known of Sam Shade/Ian Creed's license revocation. The drafters of the Uniform Securities Act were cognizant of the fact that employees can be remarkably deceptive when applying for a position, and because of this the Act indicates that the investment adviser must either
"have known or should have known" of the Administrator's adverse decision against the employee in order to itself be deemed liable.
NEW QUESTION # 75
A broker-dealer is required to keep his records for how long?
- A. at least seven years
- B. broker-dealer is required to keep his records for as long as he is registered in the state.
- C. at least three years
- D. at least five years
Answer: C
Explanation:
Explanation
A broker dealer is required to keep his records at least three years.
NEW QUESTION # 76
Mr. Teche is an agent with broker-dealer CanDo, and his only compensation is the commissions he earns
on trades he executes. He has applied for and been granted an adjunct teaching position with a local
university that will allow him to earn money while he is establishing himself. Which of the following
statements are true?
- A. Mr. Teche is, in essence, an independent contractor with broker-dealer CanDo and can engage in any
other business activity at will. - B. CanDo can deny Mr. Teche permission to accept the adjunct teaching position.
- C. Both A and B are true.
- D. As an agent with broker-dealer CanDo, Mr. Teche must notify CanDo in writing of this position prior to
accepting it.
Answer: C
Explanation:
Both statements A and B are true. As an agent for broker-dealer CanDo, Mr. Teche is
required to inform CanDo in writing before accepting any outside position that will provide him with
additional compensation, and CanDo has the right to deny Mr. Teche the permission to accept this
position.
NEW QUESTION # 77
......
Validate your Series63 Exam Preparation with Series63 Practice Test: https://braindumps.getvalidtest.com/Series63-brain-dumps.html