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Home FINRA Series 63

FINRA Series 63 Exam Practice Questions (P. 2)

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Question #6
Blue Sky Laws are designed to:
  1. A
    protect investors from fraud in their securities market transactions.
  2. B
    protect agents, broker-dealers, and investment advisers and their representatives from spurious allegations of fraudulent activity.
  3. C
    enhance the tourism industry within a state.
  4. D
    favor investment in companies that engage in environmentally friendly practices.

Correct Answer:
A
The main purpose of Blue Sky Laws is to protect individual investors from fraud in their securities market transactions. Requiring the registration of new security issues and the registration of those persons who advise individual investors as well as those involved in the purchase and sale of securities to the public are just some of the regulations designed to do this. There are no provisions designed to protect agents, broker-dealers, or investment advisers and their representatives in any regard.

Question #7
An individual who represents a broker-dealer in the buying and selling of securities is called a(n):
  1. A
    underwriter
  2. B
    issuer
  3. C
    agent
  4. D
    administrator

Correct Answer:
C
An individual who represents a broker-dealer in buying and selling securities is called an agent or a registered representative. An agent may also work for an issuer, which refers to the entity that is selling securities to raise money for itself. An underwriter is the entity that aids the issuer in bringing the new securities to market. Administrator is the title many states use to refer to the official in charge of enforcing the state's securities regulations.

Question #8
Which of the following statements best explains the difference between an agent and a broker-dealer?
  1. A
    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.
  2. B
    A broker-dealer must be licensed in the state in which he conducts business, but there are no separate licensing requirements for agents.
  3. C
    Agents are engaged exclusively in the purchase and sale of stocks whereas broker-dealers also buy and sell bonds and option contracts.
  4. D
    Agents conduct their business exclusively in the secondary market, while broker-dealers also operate in the primary market.

Correct Answer:
A
The main difference between an agent and a broker-dealer is that an agent represents either a broker-dealer or an issuer and buys and sells securities he doesn't own, receiving a commission for the trades he executes. A broker-dealer, when functioning as a dealer, is buying and selling for his own portfolio, thereby profiting from any price appreciation in the assets in his portfolio. Both agents and broker-dealers must meet state licensing requirements; both engage in the purchase and sale of stocks, bonds, and option contracts; and both operate in both the primary and secondary markets.

Question #9
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?
  1. A
    Rich will have to register as an investment adviser since his publication will include investment recommendations.
  2. 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.
  3. 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.
  4. 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.

Correct Answer:
D
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 #10
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?
  1. A
    SecureMoney Broker-dealers must register as an investment adviser since one of its employees is providing investment advice.
  2. B
    Erin must register as an investment adviser since she is providing investment advice.
  3. C
    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.
  4. D
    Neither SecureMoney Broker-dealers nor Erin must register as an investment adviser based on the facts provided.

Correct Answer:
D
Neither SecureMoney Broker-dealers nor Erin must register as an investment adviser based on the facts provided since neither the broker-dealer nor
Erin is receiving any compensation for the advice Erin is giving Mrs. McTurk. In this instance, the advice provided is considered incidental to the broker-dealer business.

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