Uniform Securities Agent State Law Examination (Series_63) Free Practice Test

Question 1

Today's edition of the Wall Street Journal carried a front page story regarding a federal lawsuit that has
been filed against a software manufacturer for monopolistic practices. The CFO of the company called his
broker today and sold some of the shares he owns in the company. Which of the following statements are
true?
I. The CFO is guilty of illegal insider trading.
II. If the agent who effected the transaction for the CFO knew he was CFO of the software company, the
agent is guilty of illegal insider trading.
III. The broker-dealer for whom the agent works may have its license suspended or revoked if its agent
has knowingly executed this illegal insider trade for not having supervised the agent properly.

A. None of the statements is true.

B. I and II only

C. I only

D. I, II, and III

Correct Answer: A

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Question 2

Most individual state securities laws today are based on:

A. the Gramm-Leach-Bliley Act of 1999.

B. the Uniform Securities Act of 2002.

C. the Uniform Securities Act of 1956.

D. the National Securities Markets Improvement Act of 1996.

Correct Answer: C

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Question 3

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

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

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

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

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

Correct Answer: C

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Question 4

MoeMoney Investment Advisers, LLC is registered in the state of Texas, and its three offices are all
located in the greater Dallas-Fort Worth area. Five of its clients-all individuals-have relocated to Colorado
and all have indicated a desire to retain the services of MoeMoney. In order for this to be possible,

A. MoeMoney will need to apply for and be granted registration as an investment adviser representative in the state of Colorado.

B. each client will have to write a letter to the Administrator of the state of Colorado on MoeMoney's behalf.

C. Neither MoeMoney nor its clients need do anything.

D. MoeMoney will need to apply for and be granted registration as an investment adviser in the state of Colorado.

Correct Answer: C

Question 5

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. 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."

D. 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.

Correct Answer: B

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Question 6

D. Vious and Associates is a small broker-dealer trying to generate more business. To this end, the firm
had a professional four-color brochure printed that provides the years of industry experience of its
management along with other information. The firm's founder, Ms. D. Vious, is listed as having over 30
years of experience in the industry. Ms. D. Vious has worked for broker-dealers for over 30 years, but for
2 0 of those 30 years, she was a secretary. Has D. Vious violated any securities laws?

A. No. Technically, Ms. D. Vious does have over 30 years of experience in the industry, even though it was not in the capacity of an agent or a broker-dealer.

B. No. Ms. D. Vious' years of experience is not a material fact that would affect an investor's investment decision.

C. Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm.

D. No. Advertising brochures are not securities.

Correct Answer: C

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Question 7

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. Yes. The agent who executes your purchase order has engaged in illegal insider trading.

B. No. You are in no way related to your next-door neighbor's brother, and she could have been lying.

C. Yes. You, your neighbor, and her brother are all guilty of illegal insider trading.

D. Yes. You are guilty of illegal insider trading because you traded on information that had not yet been
made publicly available.

Correct Answer: D

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Question 8

A tombstone advertisement is

A. the only type of advertisement that an investment advisory firm is allowed to use.

B. an offer to sell a new security that is being issued by an Arizona firm.

C. the announcement of a new security that may become available for purchase.

D. an offer to sell a new security.

Correct Answer: C

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Question 9

Which of the following statements best explains the difference between an agent and a broker-dealer?

A. Agents are engaged exclusively in the purchase and sale of stocks whereas broker-dealers also buy
and sell bonds and option contracts.

B. A broker-dealer must be licensed in the state in which he conducts business, but there are no separate
licensing requirements for agents.

C. Agents conduct their business exclusively in the secondary market, while broker-dealers also operate
in the primary market.

D. An agent is an individual who represents a broker-dealer or an issuer and buys and sells securities he
does not own in return for a commission on the transactions he executes. A broker-dealer may also buy
and sell securities for his own portfolio, in which case the broker-dealer enjoys any price appreciation on
those securities.

Correct Answer: D

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Question 10

Under the NASAA Model Rules, the statute of limitations for civil liabilities is

A. three years after the discovery of the facts and four years after the violation, whichever is greater.

B. the earlier of three years after the discovery of facts and five years after the violation.

C. the earlier of two years after the discovery of the facts and four years after the violation.

D. the earlier of two years after the discovery of facts and three years after the sale.

Correct Answer: D

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Question 11

Which of the following would be an unsuitable recommendation for your 68-year-old client?

A. a high quality corporate bond fund

B. a deferred annuity

C. an S&P 500 Index mutual fund

D. a Treasury Inflation Protected Security (TIPS)

Correct Answer: B

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Question 12

Which of the following would be considered an "issuer" transaction?

A. Jacob calls his broker and places an order to purchase 100 shares of Hasbro, Inc. on the open market.

B. Kim sells an AT&T bond she holds that still has three years remaining to maturity.

C. None of the above is an "issuer" transaction.

D. Maria purchases 500 shares of Dodge and Cox's International Fund, a mutual fund investing in foreign
securities.

Correct Answer: D

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Question 13

Which of the following is an example of a non-issuer transaction?

A. IBM sells a new issue of bonds to an insurance company.

B. Google offers more shares of its stock for sale to the public.

C. NewCorp, which has been a privately held company, is engaging in an initial public offering (IPO) of its
stock.

D. Jose purchases a 10-year bond issued by Progress Energy when it has 6 years remaining to maturity.

Correct Answer: D

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FINRA Uniform Securities Agent State Law Examination (Series_63) Free Practice Test