Unit 1 Quiz Flashcards
As defined in the Uniform Securities Act, which of the following is not a state?
A) Utah
B) New Mexico
C) Ontario
D) Puerto Rico
C) Ontario
[Ontario is a Canadian province, not a state. The term state includes Puerto Rice, Washington DC, and any territory or possession of the United States.]
Mammoth Corporation owns a controlling interest in five different corporations in diversified industries. Mammoth is most likely ___.
A) a mutual fund
B) a bank
C) a hedge fund
D) a holding company
D) a holding company
[The distinguishing characteristic of a holding company is that it maintains an ownership interest in other companies for the purpose of controlling them. Hedge funds and mutual funds do not look for control. Most large banks are owned by bank holding companies.]
As found in the Series 63 examination, which of the following terms is synonymous with retail client?
A) Accredited investor
B) Existing customer
C) Noninstitutional investor
D) Qualified Purchaser
C) Noninstitutional investor
[A retail client is an individual investor rather than an institution such as a bank, insurance company, or investment company. Although some retail investors are accredited or qualified, those terms will usually apply to institutional investors. Depending on the nature of your business, all of your existing clients may be retail; however, institutions can be existing clients as well.]
As found in the Uniform Securities Act, which of the following would not be an issuer?
A) A finance company offering promissory notes
B) A person who has proposed to issue a security but has not yet issued it
C) A smelter producing gold bullion for sale to investors
D) A metal refinery whose stock is traded in the OTC market
C) A smelter producing gold bullion for sale to investors
[Gold bullion is a commodity; it is not a security. One of the oddities in the USA’s definition is that those who have proposed to issue a security are issuers. Regardless of the nature of the company’s business, the fact that there are shares of stock trading publicly means the metal refinery had to see the. Promissory notes are included int he definition of security.]
A clients of a broker-dealer discovers that the agent handling the account has forged the customer’s signature on several checks and taken the money. In the event the agent cannot provide the funds to repay the customer, protection is offered in the form of ___.
A) a surety bond
B) a court hearing
C) a garnishment of the agents pay
D) FDIC insurance
A) a surety bond
[Broker-dealers protect their customers by purchasing a surety bond. This is a form of insurance policy that pays the claimant (the customer) for cases like this. FDIC insurance is limited to banking institutions.]
A broker-dealer has offered a security to a customer. If the customer accepts the offer, the broker-dealer has made ___.
A) an offer to sell
B) a sale
C) a transaction
D) a purchase
B) sale
[The first step was the offer to sell. The acceptance of the offer means there is a sale by the dealer to the customer. Isn’t it also a transaction? Yes it is, but on the exam, when you are faced with two possible answers that could be right, only one of them is a more complete response. In this case, a transaction could be a buy or sell, so answering that a sale took place is more accurate.]
The term qualified client would include a natural person who has ___.
A) a net worth, together with their spouse but excluding the equity in a primary residence, exceeding $1M
B) a net worth, together with their spouse but excluding the equity in a primary residence, exceeding $2.2M
C) had net income of at $200K for each of the two previous years with an expectation of meeting that in the current year
D) no less than $2.2M under the management of the specified investment adviser
B) a net worth, together with their spouse but excluding the equity in a primary residence, exceeding $2.2M
[A qualified client can either be a natural person that has at least $1.1M under the investment advisor’s management or has a net worth (spouse can be included) of more than $2.2M exclusive of the equity in a primary residence. It is the accredited investor who has $200K annual income or $1M net worth requirement.]
The Uniform Securities Act would consider an agent’s deliberate attempt to deceive a customer to be ___.
A) unethical
B) prohibited
C) fraud
D) deceit
C) fraud
[Fraud is the deliberate or willful attempt to deceive a person. Yes it is deceitful, prohibited, and unethical, but the legal term for this activity is fraud.]
Under the Uniform Securities Act (USA) a person is best defined as ___.
A) an adult human being
B) a human being
C) a party that is subject to federal income tax
D) an individual or entity considered able to enter into an enforceable contract
D) an individual or entity considered able to enter into an enforceable contract
[According the USA, a person is a competent, adult individual or an entity that is able to enter into an enforceable contract.]
A membership organization offering a facility to trade stocks for its members is ___.
A) a stock market
B) a stock exchange
C) FINRA
D) the SEC
B) a stock exchange
[A stock exchange is one part of the stock market. It is where members trade securities listed on that exchange. The best known example is the New York Stock Exchange. FINRA is a membership organization, but it has nothing to do with buying and selling securities. The SEC is the federal regulator of the industry.]
Because the Series 63 is a law exam, it is incumbent on Series 63 students to recognize the difference between several similar terms. For example, in which of these cases would a person not be defined as a broker-dealer?
A) The person limits its securities business to securities listed on a stock exchange
B) The person is excluded from the definition of a broker-dealer
C) The person is exempt from registration as a broker-dealer
D) The person limits its securities business to a single state
B) The person is excluded from the definition of a broker-dealer
[When one is excluded from the definition, none of the rules and regulations applying to that term affect the person. One can be a broker-dealer yet be exempt from registration. The person is still a BD but does not have to register (is exempt). Limiting the business to a single state or a single securities marketplace has no impact on the definition.]
Which of the following is not included in the Uniform Securities Act’s definition of a state?
A) New York
B) New Hampshire
C) New Jersey
D) New Brunswick
D) New Brunswick
[New Brunswick is a Canadian province.]
Which of the following is included in the Uniform Securities Act’s definition of a person?
A) A natural person deemed mentally incompetent
B) A minor
C) An unincorporated association
D) A natural person since deceased
C) An unincorporated association
[For testing purposes, please remember the three nonpersons: the three incorrect choices here.]
Which of the following is not a person as defined by the Uniform Securities Act?
A) A nine-year-old child actor whose earning exceed $200k per year
B) A small city outside of Toronto, Ontario, that maintains an investment account at a brokerage house to invest surplus funds
C) A small unincorporated investment club
D) XYZ Dry Cleaners, Inc. whose shareholders all work on the premises and also offer financial advice to customers who request it.
A) A nine-year-old child actor whose earning exceed $200k per year
[Person refers to an individual, corporation, association, joint-stock company, trust, unincorporated organization, government, or political subdivision of a government. A minor child is not a person legally capable of entering into contracts. Adults must open custodial accounts on behalf of minor children.]
A broker-dealer has offered a security to a customer. If the customer accepts the offer, the broker-dealer has made ___.
A) a sale
B) a purchase
C) a transaction
D) an offer to sell
A) a sale
[The first step was the offer to sell. The acceptance of the offer means there is a sale by the dealer to the customer. Isn’t it also a transaction? Yes, it is, but on the exam, when you are faced with two possible answers that could be right, only one of them is a more complete response. In this case, a transaction could be a buy or a sell, so answering that a sale took place is more accurate.]
