Currency transaction reports must be filed for cash transactions that exceed:

A) $25,000.

B) $50,000.

C) $100,000.

D) $10,000

Answer: D) $10,000

FinCEN Form 104, the Currency Transaction Report, is filed with the:

A) National Security Agency.

B) Internal Revenue Service.

C) Department of the Treasury.

D) Federal Bureau of Investigation (FBI).

Answer: B) Internal Revenue Service.

The currency reporting threshold for cash and equivalent instruments is:

A) over $5,000.

B) over $25,000.

C) over $10,000.

D) over $3,000.

Answer: C) over $10,000.

The NASAA Statement of Policy on Unethical and Dishonest Business Practices of Broker/Dealers and Agents contains an extensive list of prohibited practices, but concludes with the statement that the list is not inclusive. This means that even practices not specifically enumerated will be prohibited if they are in violation of the standards of ethical behavior. One such circumstance that may arise is an agent making an initial sale of shares of an open-end investment company in a quantity just below a breakpoint published in the fund's prospectus. In this case, the agent:

A) recognized the limitations of the client's ability to invest any further sum of money.

B) would violate those ethical standards by failing to disclose that adding a small amount to the purchase would save a significant amount of sales charge.

C) must explain the procedure for taking advantage of rights of accumulation on future purchases.

D) has violated the suitability standards by failing to explain the risks inherent in making an investment below a breakpoint.

Answer: B) would violate those ethical standards by failing to disclose that adding a small amount to the purchase would save a significant amount of sales charge.

If you were describing an investment that trades on an exchange with a price set by supply and demand, rather than its underlying value, it would be a (an):

A) open-end fund.

B) forward contract.

C) closed-end fund.

D) hedge fund.

Answer: C) closed-end fund.

When shares of a closed-end investment company are purchased by an investor, the price paid is based upon the:

A) net asset value plus commission.

B) current bid price.

C) current asking price.

D) net asset value.

Answer: C) current asking price.

Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that:

no contract may be terminated with more than 60 days notice in writing.

the initial contract is for a maximum of 1 year and then may be renewed on either an annual or biannual basis.

unless a specific exemption applies, the fund may not engage in margin trading.

the contract must be in writing.

A) I and IV.

B) I and III.

C) II and III.

D) II and IV.

Answer: A) I and IV.

Under the Investment Company Act of 1940, SEC Rule 12b-1 allows a fund to charge distribution and sales expenses to net assets as a percentage of the total assets. Normally, the cost of distribution of the shares is paid by the underwriter out of the sales load paid by the individual purchaser. For a fund to impose 12b-1 charges, which of the following conditions apply(ies)?

I. The board of directors has sole approval authority.

II. The majority of the outstanding shares has sole approval authority.

III. Both the board and the majority of outstanding shares must approve it.

IV. A distribution plan must be written.

A) III and IV.

B) I only.

C) I and III.

D) II and III.

Answer: A) III and IV.

Under the Investment Company Act of 1940, an affiliated person is prohibited from:

borrowing from the fund (money or property).

buying anything from the fund, except shares of the fund.

selling anything to the fund.

A) II and III.

B) I, II and III.

C) I and II.

D) I and III.

Answer: B) I, II and III.

Under the Investment Company Act of 1940, which of the following statements about advisory contracts between an investment company and an outside adviser is TRUE?

A) The contract must be established for a 1-year period and renewed annually thereafter.

B) The initial contract is effective once approved by the board of directors.

C) The contract may be in writing, or it may be oral if there are at least two witnesses to the agreement.

D) The contract may not be unilaterally assigned to another adviser.

Answer: D) The contract may not be unilaterally assigned to another adviser.

Under the Investment Company Act of 1940, which of the following statements is (are) TRUE about an investment company that wishes to contract with an outside investment adviser to manage its portfolio?

This is prohibited under the act.

Investment companies may employ outside advisers if a written contract is executed.

The initial contract must be approved by either the board of directors or a majority vote of the outstanding shares.

A) I, II and III.

B) II only.

C) I only.

D) II and III.

Answer: B) II only.

Under the Investment Company Act of 1940, which of the following statements regarding the investment objective of a mutual fund are TRUE?

Only the board of directors needs to approve changes in the investment objective.

The majority of outstanding shares must vote to approve changes in the investment objective.

The SEC must approve all changes in the investment objective.

The investment adviser does not set, but tries to meet, the investment objective.

A) II and IV.

B) I and II.

C) I and III.

D) III and IV.

Answer: A) II and IV.

Under the Investment Company Act of 1940, which of the following would be considered an affiliated person?

Persons who control, are controlled by, or share common control with the company.

Any officer, director, or employee of the company.

Persons who own or control 5% or more of the voting shares of the company.

A) I and III.

B) II and III.

C) III only.

D) I, II and III.

Answer: D) I, II and III.

Under the Investment Advisers Act of 1940, which of the following would meet the criteria of persons associated with an investment adviser?

A manager in an investment advisory firm who supervises 5 investment adviser representatives.

The individuals responsible for bringing new clients to an advisory firm.

A secretary in the advisory firm.

A) I and II.

B) I only.

C) I and III.

D) II only.

Answer: A) I and II.

The purpose of the Investment Advisers Act of 1940 is to provide:

A) a level playing field between investment advisers and broker/dealers.

B) standards at the federal level for the regulation of investment advisers.

C) standards among the various states for the regulation of investment advisers.

D) regulation for investment companies and their operations.

Answer: B) standards at the federal level for the regulation of investment advisers.

Under the Investment Company Act of 1940, which of the following statements regarding the renewal provisions of an investment adviser's contract is NOT true?

A) The renewal may be executed orally, provided it is done within 2 years of the initial contract.

B) The renewal must be approved by either a majority of the board or a majority of the shares.

C) The renewal must state the adviser's compensation.

D) The contract must be terminable upon not more than 60 days notice.

Answer: A) The renewal may be executed orally, provided it is done within 2 years of the initial contract.

Starflier Mutual Fund, regulated under the Investment Company Act of 1940, wishes to change its investment policy. It may do so with approval of:

A) a majority of the outstanding shares.

B) the fund's investment adviser.

C) a majority of the board of directors.

D) they do not need approval.

Answer: A) a majority of the outstanding shares.

What are the 3 classifications used to identify investment companies?

A) Face-amount certificate companies, management companies, and open-end companies.

B) Face-amount certificate companies, management companies, and closed-end companies.

C) Unit investment trusts, closed-end companies, and open-end companies.

D) Face-amount certificate companies, unit investment trusts, and management companies.

Answer: D) Face-amount certificate companies, unit investment trusts, and management companies.

Under the Investment Company Act of 1940, an investment company may initially retain the services of an investment adviser only with approval of:

A) the majority vote of the board of directors.

B) the chief executive officer of the investment company.

C) the majority vote of the outstanding shares and the board of directors.

D) the majority vote of the outstanding shares.

Answer: C) the majority vote of the outstanding shares and the board of directors.

Apart from those exempt or prohibited, anyone meeting the definition of investment adviser under the Investment Advisers Act of 1940 must:

A) be approved by the SEC.

B) register by coordination with the SEC.

C) register with the state in which the investment adviser has a business.

D) register with the SEC.

Answer: D) register with the SEC.