FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 311:

  Which of the following statements describes a characteristic of exchange-traded funds (ETFs)?

  A. ETFs are offered with front-end or back-end loads.
  B. ETFs are not permitted to be purchased on margin.
  C. ETFs are purchased and sold daily at net asset value (NAV).
  D. ETF expense ratios are generally lower than those of mutual funds.
  D. ETF expense ratios are generally lower than those of mutual funds.

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  Explanation

  ETF Expense Ratios: ETFs generally have lower expense ratios compared to mutual funds due to their passive management style.

  Incorrect Options:

  A: ETFs do not have sales loads; they are traded like stocks.

  B: ETFs can be purchased on margin, like other equities.

  C: ETFs are traded throughout the day at market prices, not NAV.

  SEC ETF Fact Sheet: SEC ETF Info.

• Question 312:

  Which of the following products provides both insurance protection and investment exposure?

  A. Term life insurance
  B. Fixed annuity
  C. Variable annuity
  D. Certificate of deposit
  C. Variable annuity

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  Explanation

  Variable annuities combine insurance features with investment subaccounts, causing values to fluctuate with market performance.

  References:

  SIE Study Guide, Insurance Products

• Question 313:

  Which of the following statements is true about U.S.

  government agency issues?

  A. They pay interest quarterly.
  B. They are traded only on the NYSE.
  C. They are backed by the full faith and credit of the U.S. government.
  D. They usually sell at a higher yield than Treasury securities of equal maturity.
  D. They usually sell at a higher yield than Treasury securities of equal maturity.

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  Explanation

  U.S. government agency securities (often called "agencies") typically offer investors a higher yield than U.S. Treasury securities of comparable maturity, which is why choice D is the best answer. Treasuries are direct obligations of the U.S. government and are widely regarded as having the lowest credit risk in the marketplace. Agency securities, however, vary by issuer and by the type of guarantee involved. Some agencies are backed by the full faith and credit of the U.S.

  government, but many are not; instead, they may have implicit support or support that is limited to the issuing agency's resources. Because the market generally views many agency issues as having slightly more credit or structural risk than Treasuries, investors often demand a yield premium as compensation. Choice C is incorrect as a blanket statement because not all agency issues carry full faith and credit backing. This distinction is a common SIE test point: candidates must recognize that "agency" does not automatically mean "Treasury-equivalent."

  Choice A is incorrect because interest payments on agency bonds are not universally quarterly; payment frequency can vary (many pay semiannually like Treasuries, but it depends on the issue).

  Choice B is incorrect because agencies are not restricted to trading on the NYSE; they commonly trade in the secondary market through dealer networks (often OTC), and trading venue depends on the specific product.

  This question is testing product knowledge: the relationship between credit/guarantee features and yield, and how securities with slightly greater perceived risk than Treasuries often trade at higher yields to attract buyers.

• Question 314:

  Which of the following statements best describes the market maker system of trading and execution?

  A. One market maker is responsible for maintaining a fair and orderly market for all market participants.
  B. Multiple market makers compete with each other in displaying bids and offers to the general marketplace.
  C. Individual market participants negotiate with each other to execute orders through a designated market maker.
  D. All orders are transmitted to a designated market maker for review before being displayed to the broader market.
  B. Multiple market makers compete with each other in displaying bids and offers to the general marketplace.

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  Explanation

  A market maker system is best described as multiple market makers competing by displaying bids and offers, which makes choice B correct. Market makers are firms (or participants) that stand ready to buy and sell a security on a regular and continuous basis by quoting two-sided markets-bid (what they will pay) and ask /offer (what they will sell for). In many market structures, multiple market makers post competing quotes, and the best displayed prices help form the national best bid and offer (NBBO) and promote liquidity and price discovery.

  Choice A is closer to the concept of a single designated liquidity provider (like a specialist model historically), but even where "designated market makers" exist, modern systems typically still involve competition and additional liquidity providers.

  Choice C is incorrect because negotiation between individual participants through a designated market maker is not the defining mechanism of a market maker system; market makers post continuous quotes rather than serving as a negotiation channel for each trade.

  Choice D is also incorrect because orders are not generally sent to one market maker "for review" before being displayed; orders can be routed to various venues, displayed in order books, or executed against quotes depending on market structure. For the SIE, the key takeaway is that market makers support liquidity by committing capital and quoting markets, and that competition among multiple market makers improves execution quality through tighter spreads and more robust depth. Understanding how bids/asks are displayed and how market participants interact with liquidity providers is central to market structure and trading knowledge.

• Question 315:

  Which of the following actions typically changes the cost basis of a mutual fund position that a customer holds?

  A. Transferring the mutual fund position via ACATS to another firm
  B. Upward movement in the net asset value (NAV) of the mutual fund
  C. The appointment of a new portfolio manager to oversee the mutual fund
  D. Reinvested dividends received from the mutual fund to purchase more shares
  D. Reinvested dividends received from the mutual fund to purchase more shares

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  Explanation

  A mutual fund investor's cost basis is generally the total amount invested in the position, adjusted for actions that add to or reduce the investor's investment in the fund. Reinvested dividends change cost basis because the dividends are used to purchase additional shares, which increases the investor's total invested amount. Even if the dividends are paid from the fund and immediately reinvested, the IRS treats them as distributed to the shareholder and then used to buy shares.

  As a result, reinvestment increases the number of shares owned and increases total basis by the amount reinvested. Therefore, D is correct. Choice A is incorrect because transferring a position via ACATS does not change the investor's economic investment; it is simply moving the account/position between firms. The cost basis should transfer as part of the record (subject to cost basis reporting rules), but the act of transfer itself does not change basis.

  Choice B is incorrect because NAV movement changes market value, not what the investor paid; unrealized appreciation does not change cost basis.

  Choice C is incorrect because a new portfolio manager may affect future performance, but it does not alter the historical amounts the investor contributed or reinvested; thus it does not change basis. For SIE purposes, the key relationship is:

  cost basis changes when the investor adds money (new purchases, dividend/cap gains reinvestments) or when basis is adjusted due to specific corporate/fund actions (like return of capital distributions in some contexts). Reinvested dividends are a standard, frequently tested basis-changing event because they affect taxable reporting and future gain/loss calculations upon redemption.

• Question 316:

  Which of the following characteristics is found in both qualified and nonqualified retirement plans?

  A. Tax deferral
  B. Tax deduction
  C. Nondiscrimination
  D. Creditor protection
  A. Tax deferral

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  Explanation

  The correct answer is A, Tax deferral. Both qualified and nonqualified retirement plans share the feature of tax-deferred growth, meaning that earnings within the account are not taxed until they are withdrawn. Step-by-step, in qualified plans (such as 401(k)s), contributions are often made with pre-tax dollars, and taxes are deferred until distribution. In nonqualified plans (such as annuities or certain deferred compensation plans), contributions are typically made with after-tax dollars, but the earnings still grow tax-deferred. This shared feature is the key similarity between the two types of plans. Choice B, tax deduction, applies mainly to qualified plans, where contributions may be tax-deductible. Nonqualified plans generally do not offer this benefit.

  Choice C, nondiscrimination, is a requirement only for qualified plans to ensure fairness among employees and prevent favoring highly compensated individuals.

  Choice D, creditor protection, is typically stronger in qualified plans under ERISA, but not consistently available in nonqualified plans. Therefore, the only characteristic common to both qualified and nonqualified retirement plans is tax-deferred growth, making Answer A correct.

• Question 317:

  An open-end mutual fund is best described as a type of investment company that pools money from multiple investors to purchase a portfolio of:

  A. diverse investments with intraday trading and pricing.
  B. diverse investments with end-of-day trading and pricing.
  C. cash equivalents and short-term debt instruments with end-of-day trading and pricing.
  D. illiquid investments with a set redemption schedule and a performance-based management fee.
  B. diverse investments with end-of-day trading and pricing.

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  Explanation

  The correct answer is B, diverse investments with end-of-day trading and pricing. An open-end mutual fund pools money from many investors and invests in a diversified portfolio of securities, such as stocks, bonds, or other assets, depending on its investment objective. A key feature of open-end funds is that they are priced once per day, after the market closes, based on the fund's net asset value (NAV). Investors buy and redeem shares directly from the fund company, not in the secondary market. All transactions occur at the end-of-day NAV, regardless of when the order is placed during the trading day. Choice A is incorrect because intraday trading applies to exchange-traded funds (ETFs), not mutual funds.

  Choice C describes a money market fund, which is a specific type of mutual fund focused on short-term debt instruments, not all open-end funds.

  Choice D describes characteristics of hedge funds or private investments, which are illiquid and often charge performance fees. Thus, the defining features of open-end mutual funds are diversification and end-of-day pricing, making choice B the correct answer.

• Question 318:

  According to FINRA rules, under which of the following circumstances, if any, is a member firm permitted to send gifts to a registered representative of another member firm?

  A. Under no circumstances
  B. When the value of all gifts during a period of one year does not exceed $100
  C. When no single gift exceeds $100 and there is no limit on the number of gifts
  D. When no single gift exceeds $100 in value and the maximum value of all gifts per year equals $250
  B. When the value of all gifts during a period of one year does not exceed $100

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  Explanation

  FINRA Rule 3220: This rule limits gifts to $100 per person annually to prevent conflicts of interest.

  Aggregate Limit: There is no provision for exceeding the $100 annual limit, regardless of the number of gifts.

  Purpose: The rule ensures that gifts do not influence decisions or create unethical relationships.

  FINRA Rule 3220 (Influencing or Rewarding Employees of Others): FINRA Rule 3220.

• Question 319:

  Which of the following terms refers to the process in which the buying firm must pay for the securities and the selling firm must deliver the securities?

  A. Trade execution
  B. Corporate action
  C. Clearing the trade
  D. Settlement of the transaction
  D. Settlement of the transaction

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  Explanation

  The process where the buyer's side provides payment and the seller's side delivers securities is settlement, so the correct answer is D. Settlement is the final stage of a securities transaction's lifecycle. After a trade is executed, there are still operational steps required to complete it: confirming details, matching the trade between counterparties, and ensuring each party meets its obligations. Settlement specifically refers to the exchange of money for securities-delivery versus payment-so that ownership is transferred to the buyer and cash is transferred to the seller. Choice A, trade execution, is the moment the order is filled-when the buyer and seller agree on price and quantity in the market. Execution happens first, but it does not complete the transfer of funds and securities.

  Choice C, clearing, is the process that occurs between execution and settlement. Clearing includes trade comparison, confirmation, netting of obligations, and risk management steps performed by clearing agencies to ensure the trade can be settled efficiently and accurately.

  Choice B, corporate action, is unrelated; corporate actions are issuer events like stock splits, dividends, tender offers, and mergers that can affect securities positions. This is a heavily tested SIE market mechanics concept because it ties to customer account understanding, settlement time frames (e.g., T+1 for many securities in the U.S.), and the roles of clearing corporations and depositories (e.g., DTCC). Knowing the vocabulary-execution vs clearing vs settlement-helps you correctly interpret questions about when obligations arise and when ownership officially changes hands.

• Question 320:

  A company files a registration statement with the SEC to register a new Issue of securities. The company does not plan to sell all the registered shares at this time and instead plans to gradually sell new shares over a three-year period. This registration is called a:

  A. shelf registration.
  B. Rule 144 offering.
  C. best efforts offering.
  D. SEC Regulation S offering.
  A. shelf registration.