FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 101:

  Which of the following responses best describes a short sale?

  A. A sale of securities that results in a loss
  B. A sale of securities that the investor does not own
  C. A sale of securities that results in an unsecured debit balance in the investor's account
  D. A sale of securities that the investor had purchased in his cash account but had not yet paid for
  B. A sale of securities that the investor does not own

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  Explanation

  Short Sale Definition: Involves selling borrowed securities with the expectation of repurchasing them at a lower price.

  Investor Ownership: Short sales do not involve securities already owned by the seller.

  Other Options: None of the other choices accurately define a short sale.

  SEC Regulation SHO (Short Selling): SEC Short Sales.

• Question 102:

  Which of the following investments typically provides the highest liquidity?

  A. Real estate
  B. Treasury securities
  C. Limited partnerships
  D. Hedge funds
  B. Treasury securities

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  Explanation

  Liquidity: Treasury securities are highly liquid due to active markets and government backing.

  Incorrect Options:

  A, C, and D: Less liquid investments.

• Question 103:

  Before an affiliate of an issuer is permitted to sell 10,000 shares of restricted securities, which of the following conditions must be met?

  A. The affiliate must have a holding period of six months.
  B. The company must be traded on a listed stock exchange.
  C. The issuer must notify FINRA of the proposed sale by submitting a Form 144.
  D. The shares to be sold must be less than 10% of the average daily trading volume (ADTV) of the security.
  A. The affiliate must have a holding period of six months.

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  Explanation

  Rule 144 Holding Period: Restricted securities held by affiliates require a six-month holding period before sale, provided the issuer is subject to SEC reporting requirements.

  Other Options:

  Notification to FINRA (C) is incorrect; Form 144 is submitted to the SEC, not FINRA. The 10% ADTV limitation (D) applies to the volume of shares sold, not the conditions for sale. SEC Rule 144 (Selling Restricted Securities): SEC Rule 144.

• Question 104:

  When making a mutual fund recommendation to a customer, a registered representative must consider all of the following factors except:

  A. the age of the customer.
  B. the tax status of the customer.
  C. the fund's independent ranking
  D. the investment objective of the fund.
  C. the fund's independent ranking

• Question 105:

  A registered representative (RR) wants to recommend a mortgage-backed security to his customer.

  Which of the following risks should the RR review with his customer?

  A. Market risk
  B. Liquidity risk
  C. Prepayment risk
  C. Prepayment risk

• Question 106:

  Class A and Class C shares of a mutual fund differ in which of the following ways?

  A. The expense ratio
  B. The net asset value (NAV)
  C. The underlying investments
  D. When the customer is permitted to purchase
  A. The expense ratio

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  Explanation

  Expense Ratio: Class A shares typically have lower ongoing expense ratios but higher front-end sales charges. Class C shares often have higher ongoing expense ratios but no front-end charges.

  Incorrect Options:

  B: NAV is determined daily and does not vary by share class.

  C: All share classes invest in the same underlying portfolio.

  D: Purchase timing is the same for all share classes.

  SEC Guidance on Mutual Fund Share Classes: SEC Fund Classes.

• Question 107:

  A registered representative who is terminated from a broker-dealer must notify FINRA of a residential address change for what period of time after termination?

  A. One year
  B. Two years
  C. Three years
  D. Six years
  B. Two years

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  Explanation

  FINRA Rule 1122: Requires that registered representatives update their residential address with FINRA for two years post-termination.

  Purpose: This ensures accurate records for potential regulatory inquiries during the statutory two-year period when a terminated individual remains subject to FINRA's jurisdiction. FINRA Rule 1122 (Filing False or Misleading Information): FINRA Rule 1122.

• Question 108:

  Which of the following investment vehicles is typically the least liquid?

  A. Hedge funds
  B. Listed options
  C. Open-end mutual funds
  D. Exchange-traded funds (ETFs)
  A. Hedge funds

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  Explanation

  Hedge funds are typically the least liquid among the listed choices, so A is correct. Hedge funds are often structured as private investment pools available only to eligible investors (commonly with higher minimums and restrictions). A hallmark feature is limited liquidity: many hedge funds impose lock-up periods, allow redemptions only at specified intervals (monthly/quarterly), and may apply gates or redemption restrictions, particularly during market stress. Because investors often cannot freely exit on demand, hedge funds are generally considered illiquid compared to exchange-traded or daily redeemable products. Listed options (choice B) are generally highly liquid when they trade on organized exchanges (especially for actively traded underlyings), with standardized terms and readily observable bid-ask markets-though liquidity can vary by strike/expiration and underlying. Open-end mutual funds (choice C) are typically very liquid because investors can redeem shares directly with the fund at NAV, generally on any business day (with proceeds delivered within standard timelines), subject to fund policies and possible fees. ETFs (choice D) trade intraday on exchanges like stocks, which usually provides substantial liquidity, and creation /redemption mechanisms help keep ETF market prices aligned with NAV. This question is testing an SIE product comparison: which vehicle generally has the greatest restrictions on redemption and secondary-market exit. Private pooled vehicles like hedge funds commonly restrict access and exit, making them least liquid. Even if some hedge funds allow periodic withdrawals, they remain far less liquid than instruments that trade continuously on exchanges or redeem daily at NAV.

• Question 109:

  A municipal securities dealer makes a political contribution of $990 to a local mayoral candidate.

  At the end of the quarter, to whom, if anyone, must the dealer report the contribution?

  A. SEC
  B. MSRB
  C. FINRA
  D. No disclosure required as the amount is below the reporting threshold
  B. MSRB

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  Explanation

  MSRB Rule G-37: Requires municipal securities dealers to report contributions to the MSRB, even if the amount is below the $1,000 threshold that would trigger a two-year prohibition on municipal business.

  Incorrect Options:

  SEC and FINRA: Not involved in reporting political contributions for municipal securities. : MSRB Rule G- 37 (Political Contributions): MSRB Rule G-37.

• Question 110:

  For up to how many business days is a firm initially permitted to place a temporary hold on disbursements for a specified adult account in which the firm reasonably believes financial exploitation has occurred?

  A. 3 business days
  B. 5 business days
  C. 10 business days
  D. 15 business days
  C. 10 business days

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  Explanation

  Temporary Hold Period: Under FINRA Rule 2165, a firm can initially place a hold on disbursements for up to 10 business days if financial exploitation is suspected.

  Additional Holds: The period may be extended by an additional 10 business days if warranted and allowed by state law.

  Incorrect Options:

  A & B: These are shorter than the permissible period.

  D: The initial hold period is capped at 10 business days. FINRA Rule 2165 (Financial Exploitation of Specified Adults): FINRA Rule 2165.