Series 63 practice questioneasyDefinition of security - promissory notes
A manufacturer issues a 90-day promissory note to a supplier with the intention of repaying the debt in goods rather than cash. Under the Uniform Securities Act, how is this instrument MOST likely classified?
- AIt is not a security because repayment is in goods, not cash.✓ Correct answer
- BIt is a security because its primary purpose is investment rather than a commercial purchase
- CIt is not a security unless it is traded on a secondary market.
- DIt is a security solely because its maturity is longer than nine months
Explanation
Why A — It is not a security because repayment is in goods, not cash.
An ordinary short-term note given in a commercial supplier transaction and repayable in goods is least likely to be treated as an investment security. Notes are analyzed in context; the Howey investment-contract test is not the test for every promissory note.
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