[UPDATED] FINRA Series63 Certification Exam Questions [Q56-Q80]

Q56. Which of the following is not one of the criteria for a security to be eligible for registration by notification?

The issuer must have preferred stockholders as well as common stockholders.

The issuer must have a net worth of $4 million, or its net income before tax for at least two of the

The issuer must never have defaulted on any bond or long-term lease obligation.

If the security to be issued is an equity interest in the firm, its offer price has to be at least $5 a

Q57. Ms. Muffet is employed by Spyder Broker-Dealers. Her job duties include providing price quotes and
executing purchases and sales for the firm’s clients. She is paid a salary plus commission. Ms. Muffet is

a broker-dealer.

an agent.

an investment adviser.

an investment adviser representative.

Q58. 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?

Yes. This is a legitimate request from a client, and you are required to follow the client’s instructions.

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.

Yes, as long as the son presents proper identification that proves his relationship to Mr. Sailor, such as a birth certificate.

Yes, as long as the son is at least 21 years old and not a minor child.

Q59. You had the misfortune of working as a registered agent for an unscrupulous broker-dealer. You weren’t privy to any of it, but apparently, your broker-dealer was guilty of some fraudulent activities and has had his license revoked. In this instance,

you can simply find another broker-dealer to hire you and have your license transferred to him.

you are no longer a licensed agent with the state and must reapply for a license in order to work for another broker-dealer.

the state Administrator will assign you and any other affected agents to work for other broker-dealers registered with the state.

you must wait until the broker-dealer’s day in court before you can work in the securities industry again because the Administrator will want to be certain that you knew nothing of it.

Q60. 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?

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.”

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.”

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.

Yes. Arnold can sue for the amount of his losses, plus interest, court costs, and attorneys’ fees.

Q61. Which of the following is a security as defined by the Uniform Securities Act (USA)?

a debenture

a futures option contract on wheat

a term life insurance policy

Both A and B are securities as defined by the Uniform Securities Act.

Q62. 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 acting as a dealer?

HiGrowth Corporation

Mr. Bigwig

BigFee Investment Bankers

GetErDone Broker-Dealers

Q63. Which of the following trades is illegal?

a short sale

a margin transaction

a market-not-held order

the sale of a mutual fund if the purchaser hasn’t received a prospectus

Q64. Which of the following is an example of commingling?

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.

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.

Mr. Hawk encourages his clients to leave their securities in “street name” with the broker-dealer for which Mr. Hawk works.

All of the above are examples of commingling.

Q65. 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?

Ms. Ding needs to apply for registration as an agent since she is providing financial information.

Ms. Ding needs to apply for registration as an investment adviser representative since she is providing information about a specific mutual fund.

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.

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.

Q66. Which of the following may be given to prospective investors during the “cooling off period?”

a tombstone advertisement

a final prospectus

a copy of the registration statement

all of the above

Q67. 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 S&P 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

I, II, and III

I and II only

I and III only

II and III only

Q68. Which of the following may an investment adviser not use in an attempt to solicit new clients?

testimonials of satisfied clients

a complete list of the stocks they have recommended in the past year, even if a statement is included that states that past performance is no guarantee of future performance

a free initial consultation, with no obligation on the part of the potential client

a free financial planning kit, with no obligation on the part of the potential client

Q69. Which of the following statements about agents is (are) false?

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.

When an agent has a change of address, both he and his broker-dealer affiliate must inform the
Administrator.

An agent must demonstrate a specific minimum level of financial stability for his registration application
to be accepted.

All of the above are false statements.

Q70. Ari Gaunt is a registered agent employed by Small &Associates Broker-Dealers. He has been notified of a hearing regarding the revocation of his license for making unauthorized trades on some of his clients’ accounts.
Which of the following statements is necessarily true?

If Ari is found guilty and has his license revoked, Small & Associates will have its license revoked as well and must reapply for reinstatement by filling out an application and paying the requisite filing fees.

If Ari is found guilty and has his license revoked, Small & Associates will be subject to a fine.

If Ari is found guilty and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days.

The Administrator of the state can assess Ari with both civil and criminal penalties.

Q71. A broker-dealer is required to keep his records for how long?

at least three years

at least five years

at least seven years

broker-dealer is required to keep his records for as long as he is registered in the state.

Q72. Which of the following persons is required to maintain its records in accordance with state dictates and
meet the minimum net capital requirement imposed by the state?
I. federal covered adviser
II. state-registered investment adviser
III. investment adviser representative

I and II only

I, II, and III

II and III only

II only

Q73. 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

is in violation of securities laws. Arbitrage is a prohibited activity.

is skilled if he is able to earn profits 95% of the time using this strategy.

is trading on insider information, which is a violation of securities laws.

engaged in a fraudulent activity.

Q74. A bond issue has recently been registered with the state Administrator.
Which of the following statements are true?

An investor can feel secure in buying the bond because it has recently been registered, which means that the state Administrator finds it to be of sound quality at this point in time.

The bond may now be offered for sale in the state.

The issuer may now offer this bond for sale, and any other bonds that the issuer may want to offer for sale in the future will be able be sold after the issuer executes a notice filing.

Both A and B are true statements.

Q75. Erin is a registered agent who works for SecureMoney Brokers-dealers. One of her clients, Mrs. McTurk, is a recently-widowed woman who relies on Erin for advice about her investment portfolio. Mrs. McTurk reminds Erin of her own grandmother, and she is happy to provide guidance within the sphere of her own knowledge.
Based on these facts, which of the following statements is true?

SecureMoney Broker-dealers must register as an investment adviser since one of its employees is providing investment advice.

Erin must register as an investment adviser since she is providing investment advice.

SecureMoney Broker-dealers must register as an investment adviser since one of its employees is providing investment advice, and Erin must register as an investment adviser representative as the firm’s employee.

Neither SecureMoney Broker-dealers nor Erin must register as an investment adviser based on the facts provided.

Q76. A-2-Z Associates is a full service brokerage and is also in the investment advisory industry, charging its
clients for investment advice for additional remuneration. Which of the following statements is true?

A-2-Z can charge an individual client an advisory fee for its advice or a commission when it executes a
trade that the client makes based on that advice, but not both.

A-2-Z can charge the client both an advisory fee for its advice and a commission on any trade the client
makes based on the advice. This is all laid out in the advertising brochures full service brokerage firms
like A-2-Z provide their prospective clients.

A-2-Z can charge the client both an advisory fee for its advice and a commission for the execution of a
trade based on that advice, but it must inform the client of its potential conflict of interest in doing so and
get the client’s written consent.

A-2-Z can charge the client only an advisory fee when it is serving as an investment adviser; no
commissions may be collected.

Q77. Elizabeth is the owner of Lizbeth Investment Advisers, a small, state-registered investment advisory firm. She has decided that her firm needs a niche and has learned that a consulting group is coming to the area and offering a 3-day seminar on asset allocation for senior citizens offered by Advantage for Retirement Persons (ARP). The seminar will cost $1,000 per individual, but after attending the seminar, each attendee will receive a certificate verifying their involvement in the program. Elizabeth decides this is the niche she has been looking for and signs up herself and her three investment adviser representatives for the program. After attending the seminar and receiving their certificates, Elizabeth and her team can

represent themselves as certified senior citizen investment advisers.

have the words “Senior-Citizen Investment Specialists” printed on their business cards.

indicate that they are certified by the ARP program since money was paid for their attendance.

do none of the above.

Q78. An investment adviser
I. provides investment advice to clients.
II. sells securities to clients.
III. buys and sells securities in their clients’ accounts for the clients.

I only.

I and II only.

I and III only.

I, II, and III.

Q79. Your client calls you with a market order to purchase 500 shares of the stock of Oracle and asks when
payment will be due. If today is Wednesday, September 15th, you inform the client that payment is due on

Monday, September 20th.

Thursday, September 16th.

Friday, September 17th.

Saturday, September 18th.

Q80. Which of the following may be given to prospective investors during the “cooling off period?”

a tombstone advertisement

a final prospectus

a copy of the registration statement

all of the above

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