Free Uniform Investment Adviser Law Examination Practice Questions

Sample Practice Questions

Try these 10 sample questions from the Uniform Investment Adviser Law Examination practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1During which business cycle phase does real GDP decline?

   1. A. Expansion
   2. B. Peak
   3. C. Contraction
   4. D. Trough

   Answer: C

   Explanation: The St. Louis Fed defines contraction as "A period when real GDP declines; a period of economic decline." A peak precedes the decline, and a trough precedes the next expansion.

   Reference: All About the Business Cycle: Where Do Recessions Come From? — Glossary, Contraction

2. 2Which deposit feature distinguishes a demand deposit from a time deposit?

   1. A. Payment only at a stated maturity
   2. B. Payment on demand without required advance notice
   3. C. Payment only after a market sale
   4. D. Payment when the issuer calls the deposit

   Answer: B

   Explanation: For deposit-insurance classification, the FDIC defines "demand deposits" as "deposits payable on demand and for which the IDI does not reserve the right to require advance notice of an intended withdrawal." A fixed maturity or issuer call is a different timing condition, while selling a security is not withdrawing a deposit.

   Reference: FDIC, Financial Institution Employee's Guide to Deposit Insurance: Government Accounts — Accounts Held in an Out-of-state IDI, definition of demand deposits

3. 3An adviser learns that a client operates a business alone without forming a separate legal entity. Which client structure does this describe?

   1. A. A sole proprietorship
   2. B. A limited liability company
   3. C. A limited partnership
   4. D. A C corporation

   Answer: A

   Explanation: SBA says, "Sole proprietorships do not produce a separate business entity." The client's business and personal assets are therefore not separated by that structure, unlike the listed entity forms.

   Reference: Launch your business – U.S. Small Business Administration — Review common business structures, Sole proprietorship

4. 4Which compensated professional activity most directly fits the general investment-adviser description?

   1. A. Regularly advising clients about securities for compensation
   2. B. Giving one unpaid securities opinion to a friend outside a business
   3. C. Executing client securities trades without offering investment advice
   4. D. Regularly advising on nonsecurities business operations for a fee

   Answer: A

   Explanation: The SEC defines an investment adviser as one "in the business of giving advice about securities to clients." Regular compensated securities advice fits that description; an isolated unpaid opinion lacks a business, transaction execution is brokerage, and nonsecurities operations advice lacks the securities subject.

   Reference: Investment Advisers: What You Need to Know Before Choosing One — What is an investment adviser?

5. 5What should an adviser infer about the timing of business cycle expansions from their past durations?

   1. A. Every expansion lasts about the same number of quarters.
   2. B. An expansion ends when it reaches its historical average length.
   3. C. An expansion lasts until real GDP reaches a preset level.
   4. D. Past duration alone does not fix when an expansion will end.

   Answer: D

   Explanation: The St. Louis Fed states, "But there is nothing “regular” about the business cycle." Its discussion explains why an expansion has no fixed lifespan. Past duration alone cannot determine when it ends.

   Reference: All About the Business Cycle: Where Do Recessions Come From? — Stages of the Business Cycle, introductory paragraph

6. 6A bank customer wants to place a fixed sum for a stated term in exchange for interest. Which cash equivalent has those defining terms?

   1. A. Demand deposit
   2. B. Certificate of deposit
   3. C. Treasury bill
   4. D. Commercial paper

   Answer: B

   Explanation: Investor.gov defines a CD as "a savings account that holds a fixed amount of money for a fixed period of time" and says the issuing bank pays interest. Demand deposits are payable on demand; Treasury bills and commercial paper are securities, not this bank savings account.

   Reference: SEC Investor.gov, Certificates of Deposit (CDs) — What are certificates of deposit?

7. 7In a limited partnership, which partner ordinarily has unlimited liability under the structure described by SBA?

   1. A. The general partner
   2. B. Every limited partner
   3. C. Only a passive limited partner
   4. D. All partners equally

   Answer: A

   Explanation: SBA states, "Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability." The general partner bears the unlimited liability, while limited partners generally do not.

   Reference: Launch your business – U.S. Small Business Administration — Review common business structures, Partnership

8. 8An adviser is already registered with the SEC. A state requires a copy of the adviser's SEC-filed Form ADV for notice purposes. What is this state submission called?

   1. A. A second state investment-adviser registration
   2. B. A state notice filing
   3. C. A state registration of the adviser's securities offering
   4. D. An individual representative's state registration application

   Answer: B

   Explanation: NASAA explains that states may require an SEC-registered adviser to supply copies of SEC-filed documents for notice purposes, and states, "These filings are called notice filings." This is a state notice submission, not a second SEC registration.

   Reference: Notice Filing and Transition Explanation — Overview, SEC-registered adviser state document copies

9. 9Which set of decisions is fiscal policy in the United States?

   1. A. Congressional and administration decisions on taxes and spending
   2. B. Federal Reserve decisions on overnight bank interest rates
   3. C. Bank decisions on the rates offered to depositors
   4. D. Investor decisions on the timing of bond purchases

   Answer: A

   Explanation: The Federal Reserve states, "Fiscal policy refers to the tax and spending policies of a national government." It adds that U.S. fiscal decisions are made by Congress and the Administration, whereas the Fed conducts monetary policy.

   Reference: What is the difference between monetary policy and fiscal policy, and how are they related? — Answer, first paragraph

10. 10A corporation issues a short-term promissory note to raise cash for current transactions. What instrument is this?

    1. A. Commercial paper
    2. B. Treasury bill
    3. C. Bank certificate of deposit
    4. D. Municipal revenue bond

    Answer: A

    Explanation: The Federal Reserve says, "Commercial paper (CP) consists of short-term, promissory notes issued primarily by corporations." It also says companies use CP to raise cash for current transactions. The other named instruments have different issuers or are bank deposits.

    Reference: Federal Reserve Board, About Commercial Paper — About Commercial Paper