FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 211:

  If the market price of a corporate bond increases by one-half point, this is equal to which of the following amounts?

  A. $0.50
  B. $1.00
  C. $5.00
  D. $50.00
  C. $5.00

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  Explanation

  The correct answer is C, $5.00. Corporate bonds are quoted as a percentage of par value, with par typically being $1,000. One "point" in bond pricing equals 1% of par value, which is $10.

  Step-by-step: 1 point = 1% of $1,000 = $10 Therefore, 1/2 point = 0.5% of $1,000 = $5 This means that if a bond's price increases by one-half point, the dollar value increase per bond is $5. For example, if a bond moves from 100 (par) to 100.5, the price increases from $1,000 to $1,005. This confirms that a half-point change equals a $5 difference. Choice A ($0.50) and

  Choice B ($1.00) are far too small and reflect misunderstandings of bond pricing conventions.

  Choice D ($50.00) would represent a 5-point move, not a half-point move. Understanding how bond prices are quoted and converted into dollar amounts is a key concept in fixed-income markets tested on the SIE exam. Thus, one-half point equals $5.00, making Answer C correct.

• Question 212:

  Executing trades using the delivery versus payment (DVP) settlement process requires the buyer to make a cash payment by which of the following deadlines?

  A. On the 5th business day after execution
  B. Before or at the same time as securities being delivered
  C. No later than 3 days after the securities are delivered
  D. By the agreed-upon settlement date with the issuer
  B. Before or at the same time as securities being delivered

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  Explanation

  DVP Process: Ensures that payment occurs simultaneously with the delivery of securities, mitigating counterparty risk. Cash payment is made before or at the time of delivery.

  Incorrect Options:

  A: The T+5 timeline is not standard for DVP.

  C: Payment must occur at delivery, not after.

  D: Settlement date agreements with the issuer are irrelevant for DVP. FINRA Guidelines on DVP/RVP Transactions: FINRA DVP Info.

• Question 213:

  An individual investor has $300,000 in cash and $400,000 in securities held with a financially troubled SIPC member firm for which liquidation has begun.

  The individual investor's cash is protected for what amount?

  A. $150,000
  B. $250,000
  C. $300,000
  D. $700,000
  B. $250,000

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  Explanation

  SIPC Coverage Limits: Protects up to $500,000 per customer, including a maximum of $250,000 for cash. In this case, $300,000 in cash exceeds the SIPC limit, so only $250,000 is protected.

  Incorrect Options:

  A: $150,000 understates the SIPC limit for cash.

  C: The full $300,000 in cash is not protected.

  D: Total coverage exceeds SIPC limits.

  SIPC Coverage Details: SIPC Protection.

• Question 214:

  Company ABC announces a 1-for-3 reverse stock split. The customer owns 300 shares priced at $9.00 each.

  After the split, how many shares will the investor have and at what price?

  A. 100 shares at $27.00
  B. 150 shares at $18.00
  C. 200 shares at $13.50
  D. 900 shares at $3.00
  A. 100 shares at $27.00

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  Explanation

  A 1-for-3 reverse stock split means that shareholders will receive one new share for every three shares currently owned. Reverse splits reduce the number of shares outstanding while proportionally increasing the market price per share, leaving the investor's overall market value (ignoring market reactions and rounding) essentially unchanged at the moment of the split. In this question, the investor owns 300 shares at $9.00 each. Dividing the share count by 3 results in 100 shares after the reverse split (300 3 = 100). Because the split is reverse, the price is multiplied by 3 to keep the position value constant: $9.00 x 3 = $27.00 per share. Therefore, the investor will have 100 shares at $27.00, which is answer choice A. You can also verify by checking the total value before and after the split.

  Before: 300 x $9.00 = $2,700.

  After:

  100 x $27.00 = $2,700. This illustrates the central split principle tested on the SIE: stock splits and reverse splits change share count and per-share price, but do not inherently create gains or losses; instead, they adjust the number of shares and the price per share proportionally. Cost basis per share is adjusted accordingly (the total cost basis remains the same, but it is allocated across fewer shares at a higher per-share basis). Reverse splits are often used by issuers seeking to raise the trading price per share (for example, to meet listing requirements), and the SIE commonly tests the mechanical impact on share quantity, market price, and cost basis.

• Question 215:

  Which of the following is a reportable obligation with respect to an individual's Form U4?

  A. A speeding ticket
  B. A change of residential address
  C. A change of business telephone number
  D. A gambling-related misdemeanor charge
  D. A gambling-related misdemeanor charge

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  Explanation

  Form U4 Reporting Requirements: Registered persons must disclose criminal charges (excluding minor traffic violations) and material changes such as residential address changes. Gambling-related misdemeanors are considered reportable.

  Incorrect Options:

  Speeding Ticket: Typically not reportable unless it involves a felony.

  Business Telephone Number: Not material for Form U4. :

  FINRA Form U4 Instructions: FINRA Form U4.

• Question 216:

  A customer is evaluating two bonds with identical maturities and coupon rates, but one is rated AAA and the other is rated BBB.

  Which of the following statements is most accurate?

  A. The BBB bond will have a lower yield than the AAA bond.
  B. The BBB bond will have a higher yield than the AAA bond.
  C. Both bonds will have the same yield.
  D. The AAA bond will have a higher yield due to lower risk.
  B. The BBB bond will have a higher yield than the AAA bond.

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  Explanation

  Credit Risk and Yield: Bonds with lower credit ratings (e.g., BBB) carry higher default risk compared to higher-rated bonds (e.g., AAA). Investors demand higher yields as compensation for this increased risk.

  Incorrect Options:

  A & D: Higher-rated bonds offer lower yields due to lower risk.

  C: Yield differs based on credit quality.

• Question 217:

  Which of the following statements is consistent with Keynesian economic theory?

  A. Free trade and small government are most critical to a strong economy.
  B. A dollar of fiscal stimulus creates more than a dollar of economic growth.
  C. Low levels of inflation and wages will induce employers to make capital investments.
  D. Monetary policy has greater impact than fiscal policy in stimulating economic growth.
  B. A dollar of fiscal stimulus creates more than a dollar of economic growth.

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  Explanation

  The correct answer is B, A dollar of fiscal stimulus creates more than a dollar of economic growth. This reflects the core Keynesian concept known as the multiplier effect. According to Keynesian economic theory, government spending can stimulate economic activity beyond the initial amount spent. For example, if the government spends money on infrastructure, workers and suppliers receive income, which they then spend, creating additional rounds of economic activity.

  Keynesians believe that during periods of economic slowdown or recession, active government intervention through fiscal policy (such as increased government spending or tax cuts) is necessary to boost demand and reduce unemployment.

  This contrasts with classical or free-market theories. Choice A reflects classical economic theory, which emphasizes limited government and free markets.

  Choice C aligns more with supply-side economics, which focuses on incentives for production.

  Choice D is incorrect because Keynesian theory generally places greater emphasis on fiscal policy rather than monetary policy as the primary tool for economic stabilization. Thus, the multiplier effect described in choice B is a fundamental principle of Keynesian economics and the best answer.

• Question 218:

  Which of the following terms describes an activity associated with money laundering?

  A. Hedging
  B. Layering
  C. Front running
  D. Insider trading
  B. Layering

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  Explanation

  Layering is one of the classic stages of money laundering, so B is correct. Money laundering generally involves moving illicit proceeds through the financial system to make the funds appear legitimate. The process is commonly described in stages: placement (introducing illegal funds into the financial system), layering (creating complex layers of transactions to obscure the source and ownership), and integration (reintroducing the funds into the economy as seemingly legitimate assets). Layering specifically refers to using multiple transactions-often rapid, complex, and sometimes across different accounts, institutions, or jurisdictions-to break the audit trail. Examples include frequent wire transfers, moving funds through multiple accounts, buying and selling financial instruments to create transactional "noise," or converting into different instruments to make tracing more difficult. Choice A, hedging, is a legitimate investment risk management technique used to reduce exposure to market movements. Choice C, front running, is a prohibited trading practice involving trading ahead of customer orders or anticipated market-moving events for personal benefit.

  Choice D, insider trading, involves trading on material nonpublic information and is an anti-fraud violation. None of these are money laundering activities; they are unrelated concepts that appear elsewhere on the SIE (trading practices and prohibited activities). On the SIE, AML questions frequently test your ability to recognize the terminology of money laundering and the role of broker-dealer AML programs, suspicious activity reporting, and red flags. "Layering" is a key vocabulary term and is strongly associated with attempts to conceal the origin of funds.

• Question 219:

  Which of the following responses best describes the primary strategy that an investor uses when selling a covered call?

  A. Hedging
  B. Speculation
  C. Profit guarantee
  D. Income generation
  D. Income generation

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  Explanation

  A covered call involves selling a call option on a stock the investor already owns. The strategy generates income in the form of the premium collected for selling the call, providing additional returns on the stock position. D is correct because the primary goal of a covered call is to generate income. A is incorrect because covered calls do not hedge against large declines in the stock price. B is incorrect because speculation involves taking higher risks, not a covered call's conservative strategy. C is incorrect because no strategy guarantees a profit.

  References:

  SIE Study Guide, Chapter 8: Options Strategies

• Question 220:

  Which of the following self-regulatory organizations (SROs) is responsible for regulating the municipal securities market?

  A. Cboe
  B. FINRA
  C. The NYSE
  D. The MSRB
  D. The MSRB

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  Explanation

  The correct answer is D, The MSRB (Municipal Securities Rulemaking Board). The MSRB is the primary self-regulatory organization responsible for writing and establishing rules governing the municipal securities market. Step-by-step, the MSRB creates rules that apply to broker-dealers, banks, and municipal advisors involved in underwriting, trading, and advising on municipal securities. Its goal is to ensure fair practices, transparency, and investor protection in the municipal market. However, it is important to understand that the MSRB does not enforce its rules. Enforcement responsibility lies with other regulators, primarily FINRA and the SEC. This distinction is frequently tested on the SIE exam. Choice A, Cboe, is an exchange that focuses primarily on options trading and does not regulate municipal securities.

  Choice B, FINRA, enforces rules and oversees broker-dealers but does not specifically create municipal securities rules.

  Choice C, the NYSE, is a stock exchange and not responsible for municipal market regulation. Thus, the SRO specifically tasked with regulating (rulemaking for) the municipal securities market is the MSRB, making Answer D correct.