Question 1

A hypothecation agreement refers to

Options :

A :

an agreement wherein a client gives his broker-dealer discretion to purchase securities that the broker-dealer deems appropriate in whatever quantity the broker-dealer feels appropriate and at a time and price the broker-dealer believes is a good deal.

B : an agreement that a client must sign prior to executing any short sales with the broker-dealer.

C :

an agreement signed by a client who is executing a margin transaction that allows the broker to hold the margined securities in street name as collateral for the loan.

D :

a document signed by a client indicating that he or she understands that some of the charts and examples presented in a broker-dealer’s advertising literature are based on hypothetical trades.

Answer: C

Question 2

Which of the following trades is illegal?

Options :

A : a short sale

B : a margin transaction

C : a market-not-held order

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

Answer: D

Question 3

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,

Options :

A : MoeMoney will need to apply for and be granted registration as an investment adviser 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 :

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

D : Neither MoeMoney nor its clients need do anything.

Answer: D

Question 4

Sam Shyster had his day in court-and lost. His license to do business as an investment adviser in the state has been revoked. What legitimate options does Sam have available to him now?

Options :

A : Sam can move to another state and apply for registration as an investment adviser there.

B : Sam has 45 days in which to file an appeal with the attorney general.

C : Sam can register with the SEC as an investment adviser, which will exempt him from state registration requirements.

D : Sam has 60 days to file an appeal of the decision in a court of law.

Answer: D

Question 5

Investment Adviser Foo Lish, LLC has begun serving as a custodian of its clients’ assets. Foo Lish, LLC must now I. file a new U-5 form with the Administrator. II. meet higher net capital requirements than before. III. file an updated Form ADV with the Administrator. IV. pay a CPA to do an annual unannounced audit of the firm.

Options :

A : I, II, III, and IV

B : II, III, and IV only

C : II and III only

D : I and II only

Answer: B