FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 201:

  Which of the following risks is most closely associated with long-term fixed-income securities?

  A. Liquidity risk
  B. Interest rate risk
  C. Currency risk
  D. Political risk
  B. Interest rate risk

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  Explanation

  Long-term fixed-income securities are more sensitive to changes in interest rates. As rates rise, prices of long-term bonds decline more significantly than short-term bonds.

  Incorrect Options:

  A: Liquidity varies by issuer and market.

  C and D: These apply primarily to international securities.

  References:

  SIE Study Guide, Interest Rate Risk

• Question 202:

  Which of the following is a primary function of the SEC?

  A. Guarantee investment returns
  B. Enforce securities laws and protect investors
  C. Set interest rates
  D. Issue corporate bonds
  B. Enforce securities laws and protect investors

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  Explanation

  SEC Role: Enforces federal securities laws, regulates markets, and protects investors.

  Incorrect Options:

  A: No guarantees.

  C: Federal Reserve function.

  D: Corporations issue bonds.

• Question 203:

  A customer purchased $80,000 of Fund XYZ two years ago. He now wants to buy $50,000 of Fund LMN offered within the same fund family, which offers a $100,000 breakpoint under right of accumulation.

  Which of the following statements is true?

  A. The additional investment qualifies for a $100,000 breakpoint.
  B. Each fund requires contributions of $100,000 to qualify for a breakpoint.
  C. The customer must sign a new letter of intent to receive the $100,000 breakpoint on the additional purchase.
  D. The customer will receive a sales charge discount on his next purchase after the account balance of the fund reaches $100,000.
  A. The additional investment qualifies for a $100,000 breakpoint.

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  Explanation

  Right of Accumulation: Allows an investor to combine the value of existing investments within the same fund family to qualify for a breakpoint (reduced sales charge) on new purchases.

  Current Holdings: $80,000

  New Purchase: $50,000

  Total: $130,000, qualifying for the $100,000 breakpoint.

  Incorrect Options:

  B: Contributions from all funds within the same family can be aggregated.

  C: A new letter of intent is unnecessary; right of accumulation applies automatically.

  D: Discounts apply immediately, not retroactively.

  FINRA Guidance on Breakpoints: FINRA Breakpoints.

• Question 204:

  An investor buys 100 shares of a stock at $50.00 per share. The company declares a 10% stock dividend.

  What will the investor's cost basis per share be following the payment of the dividend?

  A. $45.00
  B. $45.45
  C. $50.00
  D. $50.50
  B. $45.45

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  Explanation

  A stock dividend increases the number of shares owned without affecting the total cost basis. The new cost basis per share is calculated by dividing the original total investment by the new number of shares: Original total investment = 100 shares ?$50.00 = $5,000

  After a 10% stock dividend, the investor owns 110 shares.

  New cost basis = $5,000 ?110 shares = $45.45 per share.

  B is correct because it reflects the adjusted cost basis per share.

  References:

  IRS Publication 550: Investment Income and Expenses

• Question 205:

  Which of the following regulations are aimed at protecting individuals at the state level?

  A. Blue-sky laws
  B. The Truth in Lending Act
  C. Federal Reserve Regulation T
  D. Know-your-customer standards
  A. Blue-sky laws

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  Explanation

  The correct answer is A, Blue-sky laws. Blue-sky laws are state-level securities regulations designed to protect investors from fraud and unethical practices in the sale of securities. Each state has its own securities regulator and rules governing the registration of securities, broker-dealers, and investment advisers operating within that state. Step-by-step, Blue-sky laws require securities offerings to be registered at the state level unless exempt, and they also mandate disclosure and anti-fraud provisions to ensure investors receive accurate information. These laws complement federal regulations but specifically focus on local investor protection. Choice B, the Truth in Lending Act, is a federal law that governs disclosure of credit terms for consumers, not securities regulation.

  Choice C, Regulation T, is also federal and issued by the Federal Reserve to regulate margin requirements for securities purchases.

  Choice D, Know-your-customer (KYC) standards, are industry rules enforced by FINRA and other regulators, but they are not state-specific laws. Thus, the only regulation aimed specifically at protecting individuals at the state level is Blue-sky laws, making Answer A correct.

• Question 206:

  A broker-dealer (BD) is underwriting an initial public offering (IPO).

  According to industry rules, which of the following customers is eligible to participate in the IPO?

  A. An unregistered sales assistant employed by the BD
  B. The BD's branch office manager's unemployed spouse
  C. A customer of the BD who is the president of a local bank
  D. The chief financial officer of a fast-food chain, whose brother is a registered representative employed by the BD
  C. A customer of the BD who is the president of a local bank

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  Explanation

  FINRA Rule 5130 restricts participation in IPOs for certain individuals (e.g., restricted persons) to prevent potential conflicts of interest. Restricted persons include employees of broker-dealers and their immediate family members.

  C is correct because the president of a local bank is not considered a restricted person under FINRA Rule 5130.

  A is incorrect because employees (registered or not) of broker-dealers are restricted. B is incorrect because immediate family members of broker-dealer employees are restricted, even if unemployed. D is incorrect because the immediate family of a registered representative is restricted.

  References:

  FINRA Rule 5130 (Restrictions on the Purchase and Sale of IPOs)

• Question 207:

  Under which of the following circumstances, if any, is it permissible for an individual without a Power of Attorney (POA) to sign a customer's name on their behalf?

  A. Upon approval by a firm principal
  B. Upon receipt of verbal authorization provided that written authorization is subsequently provided
  C. When accounts are fully discretionary
  D. Never permissible to sign a customer's name on their behalf
  D. Never permissible to sign a customer's name on their behalf

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  Explanation

  Prohibition on Signing Customer Names: It is never permissible to sign a customer's name without written authorization (POA) due to legal and ethical concerns. Unauthorized signing constitutes forgery and violates FINRA rules.

  Incorrect Options:

  A: Firm principal approval does not override this prohibition.

  B: Verbal authorization is insufficient.

  C: Discretionary authority does not allow unauthorized signing. FINRA Rule 4512 (Customer Account Information): FINRA Rule 4512.

• Question 208:

  A customer purchases $3,000 of XYZ, which settles today in a margin account. The customer has no other positions or balances.

  According to initial margin requirements, what is the amount of the required deposit?

  A. $1,500
  B. $2,000
  C. $2,500
  D. $3,000
  B. $2,000

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  Explanation

  Under Federal Reserve Regulation T, customers must deposit at least 50% of the purchase price for margin trades. However, the minimum deposit requirement is $2,000, regardless of the 50% rule, if the account is below this threshold. 50% of $3,000 = $1,500.

  Since $1,500 is less than the $2,000 minimum, the customer must deposit the full $2,000. B is correct because $2,000 is the required minimum deposit. A is incorrect because the $1,500 calculation does not meet the minimum. C and D are incorrect because they exceed the minimum deposit requirement.

  References:

  Federal Reserve Regulation T

  SIE Study Guide, Chapter 4: Margin Accounts

• Question 209:

  Which of the following entities issues certificates of deposit (CDs)?

  A. FDIC
  B. Banks
  C. Broker-dealers
  D. Federal Reserve
  B. Banks

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  Explanation

  Certificates of Deposit (CDs) are time deposit accounts issued by banks, offering fixed interest rates for a specified term. CDs are insured by the FDIC up to $250,000 per depositor, but the issuing entity is the bank itself. B is correct because banks issue CDs. A is incorrect because the FDIC insures CDs but does not issue them. C is incorrect because broker-dealers may facilitate the purchase of CDs but do not issue them. D is incorrect because the Federal Reserve does not issue CDs; it manages monetary policy.

  References:

  SIE Study Guide, Chapter 4: Banking Products

• Question 210:

  Under which of the following circumstances, if any, is a registered representative (RR) permitted to share in the profits and losses of security interests that the RR has purchased jointly with a customer?

  A. Only when the customer is an accredited investor
  B. Only if the RR's firm is also a participant in the sharing arrangement
  C. When the profits and losses are proportionate to the amount contributed by the RR
  D. Under no circumstances
  C. When the profits and losses are proportionate to the amount contributed by the RR

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  Explanation

  Under FINRA Rule 2150, registered representatives may share in profits and losses in a customer's account if: The customer provides written consent.

  The arrangement is approved by the RR's firm.

  The sharing is proportional to the RR's financial contribution.

  C is correct because it aligns with FINRA requirements.

  A, B, and D are incorrect because they do not meet the necessary conditions for sharing.

  References:

  FINRA Rule 2150 (Sharing in Accounts

  Prohibitions)