Series 7 Practice Test Questions

1.  A client has placed an order through a registered representative to buy 100,000 shares of ABC stock at $35, at the RR’s suggestion, the order was submitted as AON.   Why was the order done this way?

A. To inform the floor broker the order must be executed entirely by the end of the business day.
B. To be sure that the order, if not executed immediately, is canceled.
C. To save on commission.
D. As a note to the specialist to execute the order without regard to priority

2. A registered representative has a customer with a large long position in ABC stock. After reading the financial news, the RR is concerned about a retracement.  Which of the following strategies would best serve to protect the investor’s portfolio of ABC.

A. Buy puts on ABC
B. Sell calls on ABC
C. Sell puts on ABC
D. Buy calls on ABC

3. A customer’s margin account is as follows:

· Long 500 shares PDQ @ 50
· Short 200 shares FBN @ 30
· Credit balance = $14,000
· Debit balance = $15,000

What is the customers combined equity in her account?

A. $13,000
B. $18,000
C. $10,000
D. $6,000

4.   A customer’s long margin account is as follows:

CMV – $55,000
DR – $30,000
SMA – $5,000

After the customer withdraws the $5,000 SMA, this account is:

A. Rehypothecated
B. Subject to a maintenance call
C. Properly margined according to Reg. “T.”
D. Restricted

5. One of the simplest definitions of inflation may be stated as:

A. Low confidence and flat yield curves.
B. Too few dollars chasing too many goods.
C. Too many dollars chasing too few goods
D. Declining prices and interest rates.

6. When a limited partnership dissolves, which of the following is the order in which assets are distributed?

I. General Partners
II. Limited Partners
III. Secured creditors
IV. General creditors

A. I, III, IV, II
B. III, IV, II, I
C. IV, I, III, II
D. II, I, IV, III

7.  Mr. Smith and Mr. Brown are business partners. They have a  common account with the brokerage firm of JTP. During a trading day, Mr. Brown calls the RR who handles the account and directs him to sell 1,000 shares of FBN stock immediately at the market.  Which of the following actions must the RR take?

A. Execute the trade as quickly and accurately as possible
B. Clear trades in the account with the compliance department
C. Clear the trade with the supervising principal
D. Check with Mr. Smith before executing the order

Answer Key

1. C 
An All-Or-None (AON) order must be filled in its entirety or not at all. It differs from an Immediate-Or-Cancel or a Fill-Or-Kill, order in that it is not automatically canceled if not executed at once. If the entire order is executed with one transaction, the customer will save money on commissions compared with piecemeal execution.

2. A
The RR is concerned that the price of GBS will retrace.   By buying puts, the investor protects their position and fixed their selling price for the term of the option, called a long hedge.

3.  B
In this question the customer’s full account information is given so we just follow both formulas for account equity and add the result. Long account: Current market value – debit

= equity ($25,000-15,000 = $10,000). Short account: Credit – Market value short = equity
($14,000-6,000 = $8,000). For the total combined equity, add the two
($10,000+8,000)=$18, 0000

4. D
CMV-DR = EQ. With Reg. “T” at 50%, the EQ in the account should be $27,500. The
account equity is still above the SRO minimum maintenance level, but is below the Reg.

 5. C
This is a classic definition of inflation. When spending increases relative to the supply of
goods, prices rise along with interest rates. Mild inflation is associated with economic
growth and is typically matched by a growing stock market.

6. B
When a limited partnership dissolves, the secured creditors are paid before general
creditors. The limited partners, who contributed most of the funds, are paid before the general partners.

7. A 
The account is a tenants in common account. Any person who has signed the account
documents may make trades without reference to other parties. These accounts do not have
the flexibility of a JTWROS account in case of the death of one of the parties.

The Series 63 Exam covers knowledge and principles of the state securities regulation procedures in line with the Uniform Securities Act (including adopted amendments by NASAA and rules on ethical business practices).

Series 63 Practice Test Questions with Detailed Answers

1.  Under the Uniform Securities Act, the definition of “broker-dealer” includes:

I Securities issuers
II Any person who trades securities for their own or the accounts of others
III Financial institutions regulated under banking laws
IV Sales representatives who transact trades for broker-dealers

1. I & III
2. I, II & IV
3. II & IV
4. II only

2. Which of the following actions does the Uniform Securities Act permit for a registered sales representative?

1. Making trades in a state where the sales representative is registered, but the broker-dealer is not
2. Making trades in a state where the sales representative is not registered, as long as the broker-dealer is registered in that state
3. Offering investment advisory services as long as no separate fee is charged and the services are incidental to his or her brokerage services
4. Soliciting trades for non-exempt unregistered securities, as long as the sales representative is registered in the state

3. If an investment adviser representative terminates employment with a federal covered investment adviser, which of the following statements are true:

1. Both the federal covered adviser and the investment adviser representative must notify the Administrator within 30 days
2. The investment adviser representative must notify the Administrator promptly
3. Both the federal covered adviser and the investment adviser representative must notify the Administrator promptly
4. The federal covered adviser must notify the Administrator promptly.

 4. An unregistered employee of a registered broker-dealer may only sell securities

1. If the transaction is exempt
2. In unsolicited transactions
3. If the securities are exempt
4. None of the Above

5. Under the Uniform Securities Act, the Administrator of California may examine the financial books and records of all of the following, except

1. The branch office of a broker-dealer inCaliforniawhose main office is inIllinois
2. A broker-dealer inIllinoisthat has noCaliforniabranches and doesn’t trade inCalifornia
3. The main office inIllinoisof theCaliforniabranch referred to above
4. Investment adviser’s office in California

6.  Under the Uniform Securities Act, which investment adviser representatives do not have to register with the Administrator?

1. Those that work for a federal covered adviser but have only clerical duties
2. Those that work for a federal covered investment adviser
3. Those that work for an investment adviser registered with the Administrator
4. Those that are a partner of an investment adviser firm registered with the Administrator

7. Under the Uniform Securities Act, when a sales representative wants to withdraw their registration, which of the following statements would be true?

I The sales representative must notify the Administrator
II The broker-dealer must notify the Administrator
III In case of a customer complaint, the Administrator can apply penalties over the agent for one year from the withdrawal date
IV The withdrawals becomes effective 30 days after date of notification

1. I only
2. I, II, III & IV
3. II & IV
4. I, II & IV

8. Under the Uniform Securities Act, registration requirements for an investment adviser representative may include all of the following except

1. Posting a surety bond
2. Filing a consent to service of process
3. Passing a qualification exam
4. All of the Above

9. Which of the following statements are true about registration with the Administrator?

I. Federal covered investment advisers with a place of business in the state must file notice in the state.
II. Investment advisers with a place of business in the state that are not registered with the SEC must register in the state
III. Investment adviser representative’s with a place of business in the state, who work for an investment adviser who is not registered with the SEC, must register in the state.
IV. Investment adviser representatives with a place of business in the state, who work for an investment adviser who is registered with the SEC, must register in the state.

1. II & III
2. II & IV
3. I, II, III & IV
4. I, II & III

10. Under the Uniform Securities Act, certain investment advisers with no place of business in the state are exempt from registration. These include advisers whose only clients are

I Broker-dealers
II Other investment advisers
III Insurance companies
IV Investment companies

1. I, II, III & IV
2. I, II & IV
3. I & II
4. III & IV

11. How long is a broker-dealer’s registration in effect?

1. A set period of time which may vary from state to state
2. For two years
3. For one year
4. Administrator may make certain changes to the basic provisions of the Act

 12. All of the following information must be disclosed by an investment adviser to a potential client under the brochure rule except

1. Types of investments offered by the investment adviser
2. The investment adviser’s investment policies
3. The investment adviser’s investment practices
4. States where the investment adviser is registered

Answer Key

1. A
The Uniform Securities Act does not consider sales representatives, banks and securities issuers broker-dealers. Sales representatives are registered representatives of broker-dealers.
2. C
A sales representative may not make trades in a State unless both the sales representative and the broker-dealer are registered in that State.

A sales representative may not solicit trades for non-exempt unregistered securities, although the Act permits unregistered exempt securities such as municipal bonds.

Sales representatives are permitted to provide investment advisory services, as long as no separate fee is received and the services are incidental to the brokerage services.

3. B
The federally covered investment adviser would not have to notify the State as they are not registered with the State. The investment adviser representative must notify the Administrator promptly of the termination.

 4. D
In order to sell securities, the employee must register, and the type of security or transaction is irrelevant. The only non-registered person who may sell securities is one who meets an exemption such as an individual that represents an issuer.

 5. B
The Administrator has jurisdiction over investment advisers, broker-dealers and sales representatives located in the state or involved with securities offers directed into the state. However, the Administrator has no jurisdiction over an office located outside the state, which has no branch office or securities activities within the state.

6. D
Upon registration with the Administrator as an investment adviser, all partners, directors or officers of the firm are automatically registered  as investment adviser representatives.

7. B
Registration is not considered terminated for one year after expiry without legal action. The Administrator retains jurisdiction during that time.

8. B
An investment adviser representative may be required to pass an exam, file a consent to service of process and post a surety bond.

9. C
III & IV are correct, since investment adviser representatives register at the State level, not the federal level.  II is correct since an investment adviser who does not register with the SEC must register with the State. I is correct since even though the State cannot require a federally registered investment advisers to register, they can require a notice filing.

10. A
Investment advisers with no place of business in the State, and who do not deal with the public are not required to register.

11. A
Most broker-dealer registrations are in effect for one year, the time frame does vary from State to State.

12. D
The brochure rule requires the investment adviser to provide the ADV Part II (or a brochure disclosing the same information) to potential clients. The ADV Part II does contain information such as the adviser’s background, experience, investment policies and practices, as well as types of investments. However, basic registration information such as States where the adviser is registered is contained in the ADV Part I, which is not required to be given to clients.

Paper might not quite be a relic of the past, but more and more tests are being given via computer technology, instead of the old standby of paper-and-pencils.  And for a good reason:  Computer tests are more efficient, and faster to take and grade.  A number of financial related exams are computer based –  the Certified Internal Auditor Exam (CIA), Certified Treasury Professional (CTP), Fundamental Payroll Certification (FPC), Certified Payroll Exam, and the Life Health Insurance Certification.    If you’re soon to test, there are two main kinds of computer exams you might encounter. First is the computer-based exam (or CBE).  This one mirrors a paper test to an extent. That’s because everyone gets the same questions, in the same order.  Also, just as on a paper test, you can do the questions in any order you want, on a CBE, you can jump back and forth between questions.

The other main category of computer tests is the CAT, or computer adaptive test. The CAT is an exam that has questions which become harder or easier, depending on how well you do on previous questions.  The result is that test-takers are not able to jump around from one question to another; the items must be answered in the order in which they are presented. Here’s how the CAT works:  You are presented with a question. Get it right, and future questions get harder. Get it wrong, and they get easier.  In essence, the test becomes customized for each individual—providing each test-taker a slightly different exam.  More on CAT tests from Wikipedia.

Four Helpful Tips for Computerized Tests

Since most students will at some time face a computerized test, here are some tips that will help you do better on them.

1)                Practice, practice, practice. The same advice that applies to paper exams applies to computerized tests:  You need to practice before you take the real thing. Fortunately, most major computer tests have practice materials that have been produced that will aid you.  You can buy them at local bookstores, or the cost-conscious can often find them at the local public or school library. But here’s a suggestion: Find one with a CD ROM; it does a better job of simulating the computerized test.

2)                Use scratch paper. It stands to reason that you’ll need scratch paper for more difficult math problems. But there are other places where it will help you, too.  For instance, scratch paper is helpful for taking notes, copying diagrams, and other items that will assist you with discovering the answers to various items.

3)                Keep an eye on the time.  Both CAT and CBE test forms usually have timed sections. In many cases, the test will provide an on-screen clock so you can better track how long you’ve spent on an item, and how much time you have left. Don’t spend too much time on one or two questions, and remember: Always pace yourself!

4)                Research the test’s rules before you arrive at the testing location. This way, you won’t be caught off-guard.

Here is a tutorial for computer based exams.  The exact computer environment may differ depending on the test, but this tutorial covers the basics.

There are 2 main certifications for payroll – the Certified Payroll Professional of CPP, and the Fundamental Payroll Certification.

Both are administered by the American Payroll Association.  (http://www.americanpayroll.org).  The APA has over 20,000 members and provides extensive support to all members with regular meetings across theUS as well as a magazine Paytech.   Membership is $219 for one year or $438 for two years.

The Fundamental Payroll Certification is the entry level certification for payroll.  In addition, it is recommended for sales people who interact with the payroll industry and Computer programmers or analysts who interact with payroll departments.

The Certified Payroll Professional is for payroll professionals.

The eligibility requirements for both exams correspond to the level different levels.

Fundamental Payroll Eligibility 

Candidates for the FPC must have completed a minimum 2 month course of study based on the FPC exam content.

Certified Payroll Professional Eligibility

Eligibility for the CPP is more complex with full details here.   Essentially candidates must complete 3 of the last 5 years working in a payroll capacity or take specified courses in the last 24 months.

Candidate Exam booklets for both certifications are available from the APA Website.

About the Exams

The FPC has 100 questions which must be answered in 3 hours and the CPP has 165 questions which must be answered in 4 hours.

For course content, see our Payroll Certification Pages

Fundamental Payroll Certification and Study Guide
Certified Payroll Professional Certification and Study Guide