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NEW QUESTION # 71
A broker-dealer of commodity futures contracts has been profiting by trading for its own account either before or after executing a client's trade on the same commodity, depending on which will be most advantageous.
Under the Uniform Securities Act, the broker-dealer is guilty of
- A. churning.
- B. fraud.
- C. nothing. The Uniform Securities Act (USA) deals only with securities, and a commodity futures contract is not a security.
- D. unauthorized transactions.
Answer: C
Explanation:
Explanation
A broker-dealer of commodity futures contracts is guilty of nothing under the Uniform Securities Act since a commodity futures contract is not a security as defined by the USA. The broker-dealer may, however, find himself in trouble with the Commodity Futures Trading Commission, which is the regulatory agency of the futures market.
NEW QUESTION # 72
Which of the following would be an unsuitable recommendation for your 68-year-old client?
- A. a deferred annuity
- B. an S&P 500 Index mutual fund
- C. a high quality corporate bond fund
- D. a Treasury Inflation Protected Security (TIPS)
Answer: A
Explanation:
Explanation
A deferred annuity would be an unsuitable recommendation for your 68-year-old client. These annuities charge significant penalties for early withdrawals-and "early" can mean before 10 years, or even longer. A
68-year-old client may have the need to withdraw his money early to make medical payments.
NEW QUESTION # 73
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?
- A. Yes, as long as the son presents proper identification that proves his relationship to Mr. Sailor, such as
a birth certificate. - B. Yes. This is a legitimate request from a client, and you are required to follow the client's instructions.
- C. 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. - D. Yes, as long as the son is at least 21 years old and not a minor child.
Answer: C
Explanation:
No, you cannot execute this transaction 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. Otherwise, you will be
executing an order from an unauthorized third party, which is a prohibited practice, and you can lose your
license for doing so.
NEW QUESTION # 74
Which of the following is not a security, as defined by the Uniform Securities Act?
I. an option contract
II. a futures contract on gold
III. a 401K plan
IV. a variable annuity
- A. None of the selections listed are securities.
- B. Only Selections II and III are not securities.
- C. Selections II, III and IV are not securities.
- D. Only Selection III is not a security.
Answer: B
Explanation:
Only Selections II and III are not securities. Neither retirement plans nor commodity futures
contracts are deemed to be securities by the Uniform Securities Act. A 401K plan may be invested in
securities, but it is not a security itself. A gold futures contract is a contract between two parties for the
delivery of the underlying asset, gold. The profits (or losses) are not dependent on the performance of an
outside party, which is a critical element, based on a 1946 U.S. Supreme Court decision, which defines a
security as "an investment of money. . . with profits to come solely from the efforts of others."
NEW QUESTION # 75
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. 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."
- B. 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.
- C. Yes. Arnold can sue for the amount of his losses, plus interest, court costs, and attorneys' fees.
- D. 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."
Answer: C
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 # 76
Which of the following constitutes a non-punitive order?
- A. registration cancellation
- B. summary license suspension
- C. All of the above are punitive orders.
- D. registration denial
Answer: A
Explanation:
Explanation
Registration cancellation is a non-punitive order. The Administrator issues a cancellation order if a registered person dies, becomes mentally incompetent, is no longer in business, or is unable to be located.
NEW QUESTION # 77
Which of the following would meet the requirements for an "exempt security?"
- A. a $500,000 promissory note that matures in two years
- B. commercial paper with a $100,000 face value and a maturity of five months that is rated AA by Standard and Poors
- C. a $25,000 promissory note that matures in three months
- D. commercial paper with a $200,000 face value and a maturity of three months that is rated BB by Standard and Poors
Answer: B
Explanation:
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 # 78
Which of the following statements regarding an investment adviser representative who has an office in the
state is true?
- A. Regardless of whether the investment adviser is registered with the SEC or is registered with the state,
all investment adviser representatives of the firm must be registered with the state if they have offices in
the state. - B. If an investment adviser representative is registered with the SEC, he or she need not obtain state
registration, regardless of whether the investment adviser representative has an office in the state. - C. If the investment adviser is registered with the SEC, then neither the investment adviser nor any of its
affiliated investment adviser representative needs to be registered with the state. - D. If the investment adviser that the investment adviser representative is affiliated with is itself registered
with the state, then the investment adviser representative does not need to apply for a separate
registration, regardless of whether the investment adviser representative has an office in the state.
Answer: A
Explanation:
Regardless of whether the investment adviser is register with the SEC or is itself registered
with the state, all of its investment adviser representatives (IARs) are required to register with the state if
they operate a place of business in the state.
NEW QUESTION # 79
Nat Smart was employed as an investment adviser representative and sold many of his clients on a
municipal bond fund of which he was fond, telling his clients that the returns earned on it were completely
free from federal taxation. Unfortunately, he had some unhappy clients when, at the end of the year, they
discovered that they had to pay federal tax on the capital gains earned by the fund when it sold some of
the bonds it held. Nat was as surprised as they were. Based on these facts, which of the following
statements is necessarily true?
I. Because Nat was as surprised as they were, he is guiltless.
II. Nat is subject to civil liability payments.
III. Nat will be subject to the criminal penalties for fraud and may spend time in prison.
- A. I only
- B. III only
- C. II only
- D. II and III only
Answer: C
Explanation:
Only Selection II is an accurate statement. In telling his clients that the returns earned on a
municipal bond fund were totally tax-free, Nat misled the clients, whether intentionally or not. This
constitutes fraud, and Nat is, at a minimum subject to civil liability payments, so this is "necessarily" true.
Whether or not Nat will be subject to criminal penalties for fraud and spend time in prison depends on his
ability to prove that he had no knowledge that he was misleading his clients.
NEW QUESTION # 80
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. To purchase shares of their own company is considered to be illegal insider trading.
- B. 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.
- C. 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.
- D. 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.
Answer: C
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 # 81
You have passed the necessary exams (congratulations!) and are applying for registration as a securities
agent. It is already the end of September. Therefore, you must pay
- A. the full annual fee, and your license will expire on September 30th next year.
- B. the full annual fee, and your license will expire on December 31st next year.
- C. one-fourth of the annual fee required since only one quarter of the year remains.
- D. the full annual fee, and your license will expire on December 31st this year.
Answer: D
Explanation:
Once you have passed the necessary exams and are applying for registration as an agent,
you must pay the full annual fee and your license will expire on December 31st of the current year, no
matter how late in the year it is.
NEW QUESTION # 82
You are a registered agent with a large brokerage firm. Your client is a very busy woman. She is interested in purchasing 500 shares of Google, but she thinks this morning's opening price is too high. She's going to be in meetings and then on a transatlantic flight. She wants the purchase to take place today because she believes Google's price is just going to keep rising with only the occasional daily ups and downs. She wants you to use your discretion and try to get her the best price for the stock in today's trading session.
Which of the following statements are true?
- A. You tell her you can enter it for her as a "market not held" order.
- B. You have to tell her that you can't do this without a signed discretionary authorization from her, and there's none on file.
- C. You tell her to have her secretary type up a discretionary authorization for her to sign and drop in the mail before she boards the plane. As long as the written authorization is in the mail, you can place the order.
- D. You tell her that you can do this for her, but only if you execute it as a margin transaction.
Answer: A
Explanation:
Explanation
You can tell her that you will be able to execute this for her as a "market not held" order that permits you to use your discretion in timing the purchase in order to try to get a better price than currently exists. As long as you are only being requested to use your discretion in the timing and price of the transaction, and not in the actual security being traded or the size of the trade, you do not need written authorization. However, if written authorization is required, you must have it in your hand before you can effect a transaction. In other words, it isn't good enough for it to be in the mail.
NEW QUESTION # 83
Mina is a new agent with SecureMoney Broker-Dealers and is struggling to make ends meet. She gets a
job as a receptionist at a fitness club on the weekends to generate more income. Which of the following is
true?
- A. Mina should have notified SecureMoney in writing before signing on to work at the fitness club.
- B. Because the job as a receptionist at a fitness club has nothing to do with the world of finance, Mina has
done nothing inappropriate. - C. Mina simply needs to tell her immediate supervisor at SecureMoney about her new job.
- D. Mina needs to send notice to the state Administrator informing him of her extracurricular activity.
Answer: A
Explanation:
Mina should have notified SecureMoney in writing before taking on the job at the fitness club.
Regardless of whether the job has anything to do with finance, an agent must notify her broker-dealer in
writing prior to engaging in any extracurricular activity for which she gets paid. She is not required to send
any notice to the Administrator, however.
NEW QUESTION # 84
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. before the end of the month.
- C. within a week's time.
- 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 # 85
A "notice filing" refers to
- A. the right of an issuer to run tombstone ads in the newspapers and other publications upon filing a
registration application with the state Administrator. - B. a document that the issuer must file with the SEC informing the SEC that the firm has applied to the
state for registration of its new security. - C. notification to the public by the issuer or its underwriters that the issue is being sold on an "all or
nothing" basis. - D. the filing by a federal covered investment adviser of forms already filed with the SEC along with a
consent to service of process with the state Administrator.
Answer: D
Explanation:
A "notice filing" refers to the filing by a federal covered investment adviser of forms filed with
the SEC along with a consent to service of process with the state Administrator. The notice filing must be
accompanied by the requisite state filing fee as well.
NEW QUESTION # 86
In an arrangement between MoeMoney Investment Advisers and one of the firm's clients, the YourMoney mutual fund, part of MoeMoney's compensation is based how the fund performs compared to the S&P 500 Index. If the return on the fund exceeds the return on the index, MoeMoney gets a bonus. The S&P 500 had a return of negative 8% this year, and the fund returned a negative 2%, so MoeMoney invoiced the client for the bonus.
Has MoeMoney violated any securities laws?
- A. Yes. Under no circumstances can a bonus be part of an investment adviser's compensation package according to the Uniform Securities Act.
- B. No. The fund beat the return on the S&P 500 Index, so MoeMoney is entitled to the bonus, based on its agreement with YourMoney.
- C. Yes. It is a violation of the Uniform Securities Act for an investment adviser to earn a bonus if a portfolio it manages loses money.
- D. Yes. An investment adviser's compensation cannot be based on the capital appreciation of the portfolio.
Answer: B
Explanation:
Explanation
No. MoeMoney has not violated any securities laws. Even though the fund's return was negative, it still beat the return on the S&P 500 Index, and MoeMoney is entitled to the bonus. The Uniform Securities Act does not prohibit compensation agreements like this one as long as the client is a sophisticated investor, such as a mutual fund. This would not be permitted if the client were your average individual investor.
NEW QUESTION # 87
The Turnover Corporation, a firm with 25,000 employees, has recently hired 50 new employees, many of
whom have been hired to replace middle-level managers who have retired. Turnover has omitted this fact
from its prospectus. Turnover is guilty of
- A. misusing insider information.
- B. fraud.
- C. misrepresentation.
- D. nothing. The hiring of 50 new employees by a firm with 25,000 employees is not a material fact.
Answer: D
Explanation:
Turnover is guilty of nothing when it hires 50 new employees, but doesn't include this
information in its prospectus because this is not a material fact. Most of the employees have been hired to
replace middle-level managers who have retired, and these employees wouldn't be considered significant
enough to affect the price of the stock in any way. If Turnover had hired a new CEO, that would be a
material fact that must be disclosed.
NEW QUESTION # 88
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