FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 171:

  Which of the following securities has the greatest investment risk?

  A. Blue chip stocks
  B. Corporate bonds
  C. Technology stocks
  D. Government bonds
  C. Technology stocks

  ---

  Explanation

  Technology stocks are considered high-risk investments due to their volatility and sensitivity to economic cycles, regulatory changes, and technological advancements. While they may offer significant growth potential, they carry greater risk than blue chip stocks, corporate bonds, or government bonds. C is correct because technology stocks are subject to high volatility and risk. A is incorrect because blue chip stocks are generally stable and lower-risk. B is incorrect because corporate bonds carry moderate risk, depending on the issuer's creditworthiness. D is incorrect because government bonds are considered low-risk due to the backing of the issuing government.

  References:

  SIE Study Guide, Chapter 6: Investment Risks

• Question 172:

  On settlement date, a customer is unable to pay for a purchase in his cash account. His position is liquidated.

  Which of the following statements is true according to Federal Reserve Regulation T?

  A. Only closing transactions are permitted.
  B. The customer is barred from trading for 30 days.
  C. The customer's account is frozen for 90 days.
  D. All related accounts are frozen for 90 days.
  C. The customer's account is frozen for 90 days.

  ---

  Explanation

  Federal Reserve Regulation T mandates that customers must pay for purchases in a cash account within two business days of settlement (T+4). If payment is not made, the brokerage firm must liquidate the securities and place the account on a 90-day restriction. C is correct because the customer's account is frozen for 90 days, during which all trades must be paid for in advance. A is incorrect as closing transactions are still permitted but require prepayment. B is incorrect because the restriction lasts for 90 days, not 30. D is incorrect as only the delinquent account, not related accounts, is frozen.

  References:

  Federal Reserve Regulation T

• Question 173:

  Interest rate risk is best minimized by purchasing municipal:

  A. revenue bonds.
  B. bonds at a discount.
  C. issues with short maturities.
  D. issues with the highest yield available.
  C. issues with short maturities.

  ---

  Explanation

  Interest rate risk-the risk that bond prices will decline when market interest rates rise-is best minimized by buying issues with short maturities, which makes choice C correct. The reason is that shorter-maturity bonds generally have lower duration, meaning they are less sensitive to changes in market rates. When rates rise, a short-term bond's price typically falls less than a long-term bond's price because investors will receive principal back sooner and can reinvest at the higher prevailing rates earlier.

  Choice A (revenue bonds) is incorrect because revenue vs. GO classification primarily relates to credit /repayment source, not interest rate sensitivity. Revenue bonds can still be long-term and can still have meaningful interest rate risk.

  Choice B (bonds at a discount) is not the best minimizer of interest rate risk; discount pricing affects yield relationships, but maturity and duration are the key determinants of price volatility due to rate moves.

  Choice D (highest yield available) is incorrect because higher-yielding munis may carry greater credit risk, longer maturities, call features, or other risks; chasing yield does not minimize interest rate risk and can increase it. This question targets a core SIE bond concept: price and interest rates move inversely, and the magnitude of price movement depends heavily on time to maturity (and related duration). Investors who are particularly concerned about rate increases often favor short-term municipal notes or shorter maturities to reduce price volatility. While call features and coupon levels also affect rate sensitivity, "short maturities" is the most direct and consistently correct answer for minimizing interest rate risk on the exam.

• Question 174:

  Which of the following individual brokerage account holdings would receive full SIPC coverage?

  A. $300,000 in cash and $200,000 in equities
  B. $500,000 in cash
  C. $500,000 in equities
  D. $250,000 in money market and $500,000 in equities
  C. $500,000 in equities

  ---

  Explanation

  The correct answer is C, $500,000 in equities. SIPC (Securities Investor Protection Corporation) provides protection for customers of failed broker-dealers up to $500,000 total per customer, including a maximum of $250,000 for cash. Step-by-step, SIPC coverage applies to securities (stocks, bonds, mutual funds) and limited cash held in brokerage accounts. The key limits are: Total coverage: $500,000 Cash sub-limit:

  $250,000 Now evaluate each choice: A: $300,000 cash exceeds the $250,000 cash limit, so $50,000 would be uncovered. B: $500,000 in cash exceeds the $250,000 limit, leaving $250,000 uncovered. C: $500,000 in equities is fully covered because securities can be protected up to the full $500,000 limit.

  D: Total is $750,000, which exceeds SIPC limits, so not fully covered. Thus, only the account consisting entirely of $500,000 in securities (equities) falls within SIPC coverage limits without exceeding either the total or cash sub-limit. Therefore, Answer C is correct.

• Question 175:

  When trading equities, which of the following responses best describes the term " settlement date "?

  A. The official date that the investor formally owns the securities purchased
  B. The date on which a customer executes an order to buy or sell an equity
  C. The last date by which a customer is permitted to cancel a trade for any reason
  D. The final date by which a broker-dealer must liquidate a customer position that was executed but never paid for
  A. The official date that the investor formally owns the securities purchased

  ---

  Explanation

  The correct answer is A, The official date that the investor formally owns the securities purchased. The settlement date is the date on which the securities transaction is completed-meaning the buyer pays for the securities and the seller delivers them. It is at this point that legal ownership transfers from seller to buyer. For most equity trades, settlement currently occurs on a T+1 basis (trade date plus one business day), though historically it was T+2. This is an important concept tested on the SIE exam because it impacts when payment is due and when ownership rights begin. Choice B describes the trade date, which is when the order is executed, not settled.

  Choice C is incorrect because there is no such general rule allowing cancellation of trades after execution.

  Once a trade is executed, it is binding.

  Choice D refers to Regulation T payment rules, which deal with when a broker-dealer must act if a customer fails to pay, not the definition of settlement. Understanding the distinction between trade date and settlement date is critical, as many regulatory requirements, such as payment deadlines and ownership rights, are tied to the settlement date.

• Question 176:

  At a prospecting event, a registered representative (RR) provides cards for attendees to write down their contact information if they want to have a follow-up meeting with her.

  Which of the following actions should the RR take in this situation to comply with telemarketing rules?

  A. Obtain the broker-dealer's approval before making a call
  B. Limit contact with prospects to between 9 a.m. and 9 p.m.
  C. Contact the prospects at will since they provided express written consent
  D. Prior to contacting the prospects, check all of the names on the cards to make sure they are not on the National Do Not Call Registry
  D. Prior to contacting the prospects, check all of the names on the cards to make sure they are not on the National Do Not Call Registry

  ---

  Explanation

  Telemarketing Rules (FINRA Rule 3230): Require firms to check the National Do Not Call Registry before contacting individuals, even if those individuals provide their contact information voluntarily.

  Incorrect Options:

  A: Approval isn't required for individual follow-ups; compliance with the registry is.

  B: While calls must be limited to appropriate hours, the registry check is still mandatory.

  C: Written consent does not override the registry requirement.

  FINRA Rule 3230 (Telemarketing): FINRA Rule 3230.

• Question 177:

  An investor wants to purchase additional mutual fund shares with income distributed by the fund.

  Which of the following fund options permits this?

  A. Asset reallocation
  B. Dollar cost averaging
  C. Dividend reinvestment
  D. Capital gains reinvestment
  C. Dividend reinvestment

  ---

  Explanation

  Dividend Reinvestment Plans (DRIPs): These allow investors to automatically reinvest income distributed by the mutual fund to purchase additional shares.

  Dollar Cost Averaging: Refers to systematic investments over time, not directly tied to income distributions.

  Capital Gains Reinvestment: Involves reinvesting profits from the sale of fund holdings, which is distinct from dividend reinvestment. :

  FINRA Mutual Fund Features: FINRA Mutual Funds.

• Question 178:

  Which of the following best describes liquidity risk?

  A. Risk of issuer default
  B. Risk of price fluctuation
  C. Risk of inability to sell quickly at fair value
  D. Risk of inflation eroding returns
  C. Risk of inability to sell quickly at fair value

  ---

  Explanation

  Liquidity Risk: The risk that an investor cannot quickly sell an investment without significantly affecting its price.

  Incorrect Options:

  A: Credit risk.

  B: Market risk.

  D: Inflation risk.

• Question 179:

  Which of the following statements concerning nonqualified deferred compensation plans is true?

  A. They are governed by ERISA rules.
  B. Such plans must be reviewed with the IRS.
  C. The deferred compensation must be held in escrow at a bank.
  D. A failure of the business could lead to nonpayment of the deferred compensation.
  D. A failure of the business could lead to nonpayment of the deferred compensation.

  ---

  Explanation

  Nonqualified deferred compensation (NQDC) plans allow employees to defer income until a future date. D is correct because NQDC funds remain part of the company's general assets, which creditors may claim if the company goes bankrupt. A is incorrect as NQDC plans are not subject to ERISA rules. B is incorrect because these plans do not require IRS review. C is incorrect as NQDC assets are not required to be held in escrow.

  References:

  IRS Code Section 409A

• Question 180:

  A registered representative (RR) at a member firm is the subject of a statutory disqualification.

  Which of the following statements is true?

  A. The RR is prohibited from soliciting business but is permitted to accept unsolicited orders.
  B. The RR is prohibited from any association or employment with a member firm unless he obtains a waiver.
  C. The RR is prohibited from employment by a member firm in any registered capacity but is permitted to be employed in an unregistered capacity.
  D. A statutory disqualification, although reportable to CRD, does not affect employment in the securities industry.
  B. The RR is prohibited from any association or employment with a member firm unless he obtains a waiver.

  ---

  Explanation

  A statutory disqualification occurs if an RR has been convicted of certain crimes, violated securities laws, or been barred by a regulatory authority. Under FINRA rules, the RR cannot associate with a member firm in any capacity unless they obtain a waiver from FINRA.

  B is correct because the disqualified person must obtain a waiver to continue employment. A and C are incorrect because the RR is not allowed to associate with the firm in any capacity without a waiver.

  D is incorrect because statutory disqualification directly affects the RR's employment status.