FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 281:

  A customer is unhappy about a $5,000 loss in a stock that the registered representative (RR) recommended and threatens to call FINRA's Securities Helpline for Seniors about the matter.

  What is the most appropriate next step for the RR to take?

  A. The RR should notify their supervisor about the customer's dissatisfaction.
  B. The RR is permitted to reimburse the customer for the loss to resolve the customer's complaint.
  C. The RR should alert their compliance department to update their Form U4 with the complaint details.
  D. The RR should call FINRA's Securities Helpline for Seniors before the customer does and explain their side of the story.
  A. The RR should notify their supervisor about the customer's dissatisfaction.

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  Explanation

  Escalation Requirement: The RR must promptly notify their supervisor or compliance department about the customer's complaint as required by FINRA rules. Supervisors handle customer complaints according to firm procedures.

  Incorrect Options:

  B: Reimbursing the customer is not permissible without firm approval and may create compliance issues.

  C: Complaints requiring Form U4 updates involve specific allegations such as fraud, not general dissatisfaction.

  D: The RR should not contact FINRA directly; the firm will handle communications. FINRA Rule 4530 (Reporting Requirements): FINRA Rule 4530.

• Question 282:

  An investor purchases a call option.

  Which of the following rights does this provide?

  A. The right to sell a stock at a fixed price
  B. The obligation to buy a stock
  C. The right to buy a stock at a fixed price
  D. The obligation to sell a stock
  C. The right to buy a stock at a fixed price

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  Explanation

  Call Option: Gives the holder the right, but not the obligation, to buy the underlying security at the strike price.

  Incorrect Options:

  A: Describes a put option.

  B & D: Describe obligations of option sellers.

• Question 283:

  Assume that the economy is operating at nearly full capacity.

  The initial results of an oversupply of money are most likely to have the greatest impact on which of the following macroeconomic factors?

  A. Real output
  B. Inflation rate
  C. Velocity of money
  D. Unemployment rate
  B. Inflation rate

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  Explanation

  When an economy operates near full capacity, additional money in circulation leads to inflation, as demand exceeds the economy's ability to increase supply. B is correct because inflation is the primary impact when supply cannot keep up with excess demand. C is incorrect because velocity measures the rate at which money circulates, not the impact of oversupply. D is incorrect as unemployment is already low when the economy is at full capacity.

  References:

  SIE Study Guide, Chapter 2: Economic Indicators and Monetary Policy

• Question 284:

  Which of the following types of investment companies typically have surrender fees?

  A. Variable annuities
  B. No-load mutual funds
  C. Unit investment trusts (UITs)
  D. Exchange-traded funds (ETFs)
  A. Variable annuities

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  Explanation

  Variable annuities typically include surrender charges (surrender fees), especially during the early years of the contract. A surrender charge is a fee assessed if the owner withdraws funds above permitted free-withdrawal amounts or terminates the contract during a specified surrender period. This feature is common because variable annuities are insurance products that often involve significant distribution costs, and insurers structure surrender schedules to recoup those costs if the investor exits early. On the SIE, variable annuities are treated as packaged products/variable contracts with unique fee structures, including surrender charges and separate account expenses. By contrast, no-load mutual funds are designed specifically to have no sales charge (no front-end load and typically no deferred sales charge), though they may still have operating expenses in the expense ratio. UITs may involve sales charges at purchase, and they have a fixed portfolio that does not actively trade; they are not commonly characterized by surrender fees in the way variable annuities are. ETFs trade intraday on an exchange like stocks, and investors generally pay brokerage commissions and incur bid-ask spreads (and internal fund expenses), but ETFs do not impose surrender fees as an inherent product feature for secondary-market trades.

  The concept being tested is recognition of product-specific fees. Variable annuities commonly include multiple layers of cost: mortality and expense (M&E) charges, administrative fees, underlying subaccount expenses, and surrender charges. Surrender charges are a key distinguishing characteristic and a frequent exam point because they affect liquidity and time horizon suitability.

• Question 285:

  The Investment Company Act of 1940 requires that a minimum percentage of a fund's board members are "uninterested persons." This requirement is best described as an attempt to:

  A. include a diverse set of professional experiences on the board.
  B. expand the board's expertise beyond knowledge of investments.
  C. ensure that regulations are followed consistently across fund companies.
  D. ensure that board members have no material business relationship with the fund's advisers.
  D. ensure that board members have no material business relationship with the fund's advisers.

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  Explanation

  The Investment Company Act of 1940 emphasizes shareholder protection through governance standards, including requirements that a fund's board include a minimum percentage of "uninterested" (independent) persons. The purpose is to reduce adviser dominance and mitigate conflicts that can arise when the fund's adviser or affiliated parties effectively control oversight. "Uninterested" generally means the director has no material business relationship with the fund's adviser, principal underwriter, or key affiliates that would compromise independent judgment. Therefore, the best description is D. Choices A and B are plausible-sounding governance benefits, but they are not the regulatory intent being tested. The rule is not primarily about diversity of professional experience or broadening expertise; it is about independence from adviser influence.

  Choice C is too general and doesn't capture the targeted problem: the Act's board independence provisions are designed to ensure the board can objectively evaluate matters that directly affect shareholders, such as advisory contracts, fee arrangements, compliance oversight, and potential self-dealing. On the SIE, this ties directly to the theme of conflicts of interest in investment companies. Mutual fund advisers are paid fees based on assets under management, creating incentives that might not always align with shareholders. Independent directors are intended to serve as a check by reviewing and approving key arrangements and providing meaningful oversight. The exam often connects this governance concept to broader investor protections: disclosure, fiduciary oversight, limitations on affiliated transactions, and the idea that fund boards should represent shareholder interests rather than adviser interests.

• Question 286:

  Which of the following company details is included on a balance sheet?

  A. Revenues and expenses
  B. Earnings at a specific point in time
  C. Assets, debts and number of investors
  D. Assets, debts and the amount invested in the company
  D. Assets, debts and the amount invested in the company

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  Explanation

  A balance sheet provides a snapshot of a company's financial position at a specific point in time by showing what the company owns and owes, and the residual value attributable to owners. The core balance sheet equation is Assets = Liabilities + Shareholders' Equity. That is why the best description among the choices is "assets, debts, and the amount invested in the company"-assets correspond to resources owned, debts correspond to liabilities owed, and the "amount invested" corresponds to equity (often including paid-in capital and retained earnings). This aligns with how fundamental analysis uses financial statements to evaluate issuer health, leverage, and capitalization. Choice A (revenues and expenses) describes an income statement, which measures operating performance over a period of time (e.g., a quarter or a year), not a point-in-time snapshot.

  Choice B is misleading: while a balance sheet is indeed "at a specific point in time," it does not show "earnings" at a point in time. Earnings are generated over a period and appear on the income statement; the balance sheet may reflect accumulated earnings through retained earnings, but it is not an earnings statement.

  Choice C is incorrect because the balance sheet does not include the "number of investors" as a standard line item. Public companies disclose shares outstanding elsewhere, but investor count is not a balance sheet category. For SIE purposes, the key is recognizing which statement answers which question: balance sheet = financial position (assets, liabilities, equity), income statement = profitability (revenue, expenses, net income), and cash flow statement = sources/uses of cash.

• Question 287:

  Which of the following best describes a margin account?

  A. An account that prohibits borrowing
  B. An account used only for options trading
  C. An account that allows borrowing to purchase securities
  D. An account limited to mutual funds
  C. An account that allows borrowing to purchase securities

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  Explanation

  Margin Account: Allows investors to borrow funds from a broker-dealer to purchase securities, increasing potential returns and risks.

  Incorrect Options:

  A, B, and D: Incorrect definitions.

• Question 288:

  Which of the following transactions is most profitable if executed prior to a significant rise in a company's stock price?

  A. Buying a put option
  B. Buying a call option
  C. Selling a put option
  D. Selling a call option
  B. Buying a call option

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  Explanation

  Buying a call option gives the investor the right to purchase the stock at a fixed price (strike price). If the stock's price rises significantly, the value of the call option increases, allowing the investor to profit. B is correct because a call option profits directly from a stock price increase. A is incorrect because a put option profits from a stock price decline. C and D are incorrect because selling options limits profit potential and exposes the seller to significant risk if the stock moves unfavorably.

  References:

  SIE Study Guide, Chapter 8: Options Strategies

• Question 289:

  Which of the following functions is a responsibility of the IRS?

  A. Pass tax laws
  B. Administer tax laws
  C. Regulate brokerage accounts
  D. Approve securities regulations
  B. Administer tax laws

• Question 290:

  Which of the following responses best characterizes a money market mutual fund?

  A. It pays a fixed rate of return.
  B. Its price is fixed at $1 per share.
  C. Its underlying investments are short term.
  D. Its yield always exceeds a savings account rate.
  C. Its underlying investments are short term.

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  Explanation

  Money market mutual funds invest in highly liquid, short-term debt instruments, such as Treasury bills, commercial paper, and certificates of deposit. While the funds aim to maintain a stable $1 NAV, this is not guaranteed. C is correct because the fund's investments are short term. A is incorrect because the rate of return is not fixed; it varies with market interest rates. B is incorrect because while the fund tries to maintain a $1 NAV, it is not guaranteed. D is incorrect because yields do not always exceed those of savings accounts.