FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 1:

  Which of the following is considered nonpublic information?

  A. Customer's name
  B. Customer's address
  C. Customer's net worth
  D. Customer's telephone number
  C. Customer's net worth

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  Explanation

  Nonpublic Information: A customer's net worth is nonpublic personal information that requires confidentiality under Regulation S-P.

  Incorrect Options:

  A, B, and D: Names, addresses, and phone numbers may be public unless linked to specific financial or personal details.

  SEC Regulation S-P (Privacy of Consumer Financial Information): SEC Regulation S-P.

• Question 2:

  Which of the following is an example of a derivative security?

  A. Common stock
  B. Corporate bond
  C. Option contract
  D. Certificate of deposit
  C. Option contract

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  Explanation

  Derivatives: Securities whose value is derived from an underlying asset, such as options.

  Incorrect Options:

  A, B, and D: Primary securities.

• Question 3:

  Which of the following types of debt securities has the highest liquidity?

  A. Treasury bonds
  B. Mortgage bonds
  C. Municipal bonds
  D. Corporate bonds
  A. Treasury bonds

• Question 4:

  A registered representative wants to open an account for himself at a different financial institution.

  Under FINRA rules, which of the following accounts requires prior written consent from his employing broker-dealer?

  A. A 529 savings plan account established for his grandchild
  B. Mutual fund accounts held directly with the fund company
  C. Variable contracts registered under the Investment Company Act
  D. An investment advisory account in which securities transactions are effected
  D. An investment advisory account in which securities transactions are effected

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  Explanation

  FINRA Rule 3210: Requires registered representatives to obtain written consent from their employing broker-dealer before opening accounts at other financial institutions if securities transactions will occur.

  Incorrect Options:

  A, B, and C: These accounts are exempt because they do not involve direct securities transactions requiring monitoring. : FINRA Rule 3210 (Accounts at Other Institutions): FINRA Rule 3210.

• Question 5:

  A customer purchases a bond at par.

  Which of the following statements is true regarding its yield?

  A. Yield to maturity equals coupon rate
  B. Yield to maturity is greater than coupon rate
  C. Yield to maturity is less than coupon rate
  D. Yield is unaffected by price
  A. Yield to maturity equals coupon rate

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  Explanation

  Bond at Par: When a bond is purchased at par value, its yield to maturity equals its coupon rate.

  Incorrect Options:

  B & C: Apply to discount and premium bonds.

  D: Yield is directly affected by price.

• Question 6:

  A mutual fund prospectus discloses the following sales charges to purchase fund shares: Amount / Rate $100 to $24,999 # 8% $25,000 to $49,999 # 7% $50,000 to $99,999 # 6% $100,000 and above # 5%.

  Which of the following purchase amounts may be suspected as a breakpoint sale violation?

  A. $26,000
  B. $55,000
  C. $99,000
  D. $101,000
  C. $99,000

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  Explanation

  The correct answer is C, $99,000. A breakpoint sale violation occurs when a registered representative fails to inform a customer about available sales charge discounts (breakpoints) for larger mutual fund purchases. These discounts reduce the front-end load as the investment amount increases. Looking at the breakpoint schedule, a significant reduction occurs at $100,000, where the sales charge drops from 6% to 5%. If a customer invests $99,000, they fall just short of the breakpoint and pay a higher sales charge than necessary. This raises a red flag because the RR should consider strategies such as: Informing the client to invest slightly more (e.g., $100,000) to qualify for a lower sales charge Using a Letter of Intent (LOI) to reach the breakpoint over time Applying rights of accumulation if applicable Choices A ($26,000) and B ($55,000) are not suspicious because they are not just below a major breakpoint threshold.

  Choice D ($101,000) already qualifies for the lower 5% charge. Thus, $99,000 is most indicative of a potential breakpoint sale violation, making

  choice C correct.

• Question 7:

  A registered representative constructs a portfolio of stocks that replicates the S&P 500 Index (SPX). He then regularly buys and sells SPX options to profit off changes in implied volatility. This is an example of:

  A. day trading.
  B. Index rebalancing.
  C. active management
  D. passive management.
  C. active management

• Question 8:

  A customer calls his registered representative (RR) with a request to hold all mail for the next six weeks. During the call, the RR checks his files and finds a letter from the customer for a similar request made the prior year. Despite a suggestion to convert to electronic statements via the firm website, the customer prefers paper statements. Holding this customer ' s mail is:

  A. permissible if the customer provides written instructions.
  B. permissible because the customer previously authorized holding mail.
  C. not permissible because the request is for more than one month.
  D. not permissible because the customer opted out of electronic statement delivery.
  A. permissible if the customer provides written instructions.

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  Explanation

  The correct answer is A, permissible if the customer provides written instructions. Under FINRA rules, specifically regarding holding customer mail, a firm may hold mail for a customer only if proper written authorization is obtained and certain conditions are met. Step-by-step, firms must receive current written instructions from the customer specifying the time period for holding mail. While FINRA generally limits mail holds to no more than three months, a six-week (approximately 1.5 months) request is well within the allowable timeframe. Therefore, the duration itself is not a violation. Choice B is incorrect because prior authorization does not carry forward-each mail hold request requires new written instructions.

  Choice C is incorrect because the allowable limit is three months, not one month.

  Choice D is incorrect because opting out of electronic delivery does not prohibit mail holding; customers still have the right to request mail be held.

• Question 9:

  Which of the following actions requires prior written customer authorization?

  A. Opening a cash account
  B. Executing a discretionary trade
  C. Sending trade confirmations
  D. Providing investment education
  B. Executing a discretionary trade

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  Explanation

  Discretionary trading authority requires written authorization from the customer and approval by the firm.

  References:

  FINRA Discretionary Account Rules

• Question 10:

  Which of the following activities is a responsibility of a mutual fund transfer agent?

  A. Underwriting new shares of securities
  B. Distributing the fund's prospectus to investors
  C. Maintaining custody of the fund's securities
  D. Maintaining records of shareholder purchases and redemptions
  D. Maintaining records of shareholder purchases and redemptions

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  Explanation

  A transfer agent is responsible for maintaining accurate records of shareholder purchases, redemptions, and account balances. They also handle the issuance and cancellation of shares and ensure shareholders receive appropriate distributions.

  D is correct because maintaining shareholder records is a core duty of a transfer agent. A is incorrect because underwriting is the responsibility of a broker-dealer. B is incorrect because distributing the prospectus is handled by the fund's distributor. C is incorrect because custody of securities is the role of a custodian, not the transfer agent.

  References:

  SIE Study Guide, Chapter 5: Investment Companies