FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 351:

  Which of the following responses describes the purpose for a financial institution to provide a privacy policy to customers?

  A. To regulate the collection and protection of customers' public information
  B. To provide transparency regarding the potential use of customers' nonpublic personal information
  C. To acquire additional information about customers' assets and holdings for future solicitation and investing
  D. To automatically remove any state law provision to the opt-in or opt-out feature regarding customers' nonpublic information
  B. To provide transparency regarding the potential use of customers' nonpublic personal information

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  Explanation

  The primary purpose of delivering a privacy policy is to provide customers with clear disclosure about how a financial institution may collect, use, share, and safeguard nonpublic personal information (NPI) and what choices customers may have regarding sharing. That makes B correct. Under privacy requirements such as Regulation S-P (commonly tested on the SIE), firms must inform customers about their privacy practices and provide required notices so customers understand how their personal information is handled. Choice A is incorrect because privacy policies are not primarily about "public information"; the regulatory focus is on nonpublic personal information, such as account numbers, balances, transaction history, social security numbers, and other sensitive data.

  Choice C is incorrect because the purpose is not to gather more information for marketing or solicitation; it's to disclose practices and protect customer information.

  Choice D is incorrect because privacy policies do not automatically override state laws; privacy regulation involves both federal requirements and, in some cases, state provisions, and firms must comply with applicable laws rather than "removing" them.

  On the SIE, you should connect privacy policy delivery to three ideas: (1) disclosure of information-sharing practices, (2) customer rights (such as opt-out where applicable), and (3) safeguards-the firm's obligation to protect confidential customer information. This aligns with broader customer protection standards and the regulatory framework governing broker-dealer handling of client data.

• Question 352:

  A Treasury bill is issued under which of the following terms?

  A. At par
  B. At par plus interest
  C. At a discount
  D. At a stated rate of interest
  C. At a discount

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  Explanation

  Treasury bills (T-bills) are short-term debt securities issued at a discount to par value. The difference between the purchase price and the par value represents the investor's interest income, which is realized when the T-bill matures. C is correct because T-bills are issued at a discount and mature at par. A is incorrect because T-bills are not sold at par value. B and D are incorrect because T-bills do not pay periodic interest; the return is based on the discount.

  References:

  SIE Study Guide, Chapter 3: U.S. Treasury Securities

• Question 353:

  A customer will be out of the country for the next two months on business and asks his firm to hold his mail until he returns.

  Which of the following statements is true regarding this request?

  A. The firm is prohibited from holding the customer's mail under FINRA rules due to the personal information contained.
  B. The firm must receive written instructions from the customer that include the time period for the requested mail hold.
  C. The firm is permitted to hold the mail as long as the registered representative (RR) complies with the customer's oral instructions.
  D. At the discretion of the RR, the firm is permitted to hold the customer's mail provided it takes reasonable actions to ensure no tampering occurs with this mail.
  B. The firm must receive written instructions from the customer that include the time period for the requested mail hold.

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  Explanation

  FINRA Rule 3150: Permits firms to hold customer mail only with written instructions specifying the duration, which cannot exceed three months unless there are exceptional circumstances.

  Incorrect Options:

  A: Holding mail is not prohibited if done in compliance with FINRA rules.

  C & D: Oral instructions or RR discretion are not sufficient; written authorization is mandatory. FINRA Rule 3150 (Holding of Customer Mail): FINRA Rule 3150.

• Question 354:

  A customer ' s portfolio is 100% invested in Government National Mortgage Association (Ginnie Mae) mortgage-backed securities.

  To which of the following risks is the customer exposed?

  A. Credit
  B. Inflation
  C. Liquidity
  D. Currency
  B. Inflation

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  Explanation

  The correct answer is B, Inflation risk. Government National Mortgage Association (GNMA or Ginnie Mae) securities are backed by the full faith and credit of the U.S. government, meaning they have virtually no credit risk. Investors are assured of receiving both principal and interest payments even if borrowers default, eliminating choice A. However, like all fixed-income securities, Ginnie Mae mortgage-backed securities are subject to inflation risk, also known as purchasing power risk. Inflation erodes the real value of future interest payments and principal. If inflation rises, the fixed payments received from these securities will be worth less in real terms, reducing the investor's effective return. Choice C, Liquidity risk, is less applicable because GNMA securities are actively traded in the secondary market and generally have good liquidity.

  Choice D, Currency risk does not apply because these securities are denominated in U.S. dollars and are not exposed to foreign exchange fluctuations. Additionally, while not listed as an answer choice, GNMA securities are also subject to prepayment risk, meaning homeowners may pay off their mortgages early when interest rates fall. However, among the given options, inflation risk is the most relevant, making choice B the correct answer.

• Question 355:

  A municipal finance professional (MFP) is asked to contribute to the re-election campaign of an issuer official for whom the MFP is not entitled to vote. In making this contribution, the ability of the MFP ' s public finance department to conduct municipal securities business with the issuer is affected:

  A. only if the contribution is more than a minimum of $100.
  B. only if the contribution is more than a minimum of $250.
  C. only if the contribution is more than a minimum of $300.
  D. if any amount of money is contributed, no minimum required.
  D. if any amount of money is contributed, no minimum required.

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  Explanation

  The correct answer is D, if any amount of money is contributed, no minimum required. This question tests knowledge of MSRB Rule G-37, which governs political contributions by municipal finance professionals (MFPs). The rule is designed to prevent "pay-to-play" practices, where firms make political contributions to win municipal underwriting business. Under Rule G-37, an MFP is allowed to contribute up to $250 per election to an issuer official only if the MFP is entitled to vote for that official. However, in this scenario, the MFP is not entitled to vote for the issuer official. Therefore, any contribution-regardless of size-triggers restrictions. Specifically, even a small contribution (e.g., $1) would result in a two-year ban on the broker-dealer's ability to engage in negotiated municipal securities business with that issuer. This strict rule ensures that firms cannot circumvent regulations by making small contributions. Choices A, B, and C are incorrect because the $250 threshold only applies when the MFP is eligible to vote. Since that condition is not met here, there is no permissible minimum contribution amount. Thus, any contribution triggers the restriction, making choice D correct.

• Question 356:

  A customer writes a call for XYZ stock with a strike price of $35 and receives a premium of $7. The stock is currently trading at $40.

  What is the time value of this option?

  A. $0
  B. $2
  C. $5
  D. $7
  B. $2

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  Explanation

  An option's premium consists of intrinsic value and time value: Intrinsic value = Current stock price - Strike price = $40 - $35 = $5. Time value = Total premium - Intrinsic value = $7 - $5 = $2.

  B is correct because $2 represents the time value.

  A, C, and D are incorrect because they miscalculate the time value based on the option's total premium.

  References:

  SIE Study Guide, Chapter 8: Options Pricing

• Question 357:

  An investor holds 1,000 shares of a stock with a total cost basis of $5,000 in his account when a 1-for-5 reverse stock split is announced.

  What will be the investor's total cost basis after the payable date of the reverse split?

  A. $1,000
  B. $2,500
  C. $5,000
  D. $25,000
  C. $5,000

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  Explanation

  Cost Basis in Reverse Split: The total cost basis remains unchanged in a reverse stock split. Only the number of shares and price per share adjust.

  Pre-Split: 1,000 shares at $5 each = $5,000.

  Post-Split: 200 shares at $25 each = $5,000.

  Incorrect Options:

  A, B, and D: Do not reflect the unchanged total cost basis.

  IRS Guidance on Stock Splits: IRS Stock Split Info.

• Question 358:

  In performing fundamental analysis of an equity, which of the following elements should an investor consider?

  A. Chart patterns
  B. Moving average
  C. Financial statements
  D. Resistance and support levels
  C. Financial statements

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  Explanation

  Fundamental analysis focuses on evaluating a company's financial health and potential for growth by analyzing its financial statements, such as the income statement, balance sheet, and cash flow statement. C is correct because financial statements provide the data necessary for fundamental analysis. A and B are incorrect because chart patterns and moving averages are tools of technical analysis, not fundamental analysis. D is incorrect because resistance and support levels are also part of technical analysis.

  References:

  SIE Study Guide, Chapter 6: Fundamental Analysis

• Question 359:

  Which of the following entities is an investment company?

  A. A variable annuity
  B. A private equity fund
  C. A unit investment trust (UIT)
  D. A real estate investment trust (REIT)
  C. A unit investment trust (UIT)

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  Explanation

  The correct answer is C, A unit investment trust (UIT). Under the Investment Company Act of 1940, an investment company is defined as a company that pools investor funds to invest in securities portfolios. UITs are one of the three types of registered investment companies, along with mutual funds (open-end) and closed-end funds. Step-by-step, a UIT is a fixed portfolio of securities that is professionally selected but not actively managed. Once created, the portfolio generally remains unchanged for the life of the trust. Investors purchase units representing an ownership interest in that portfolio. Choice A, a variable annuity, is an insurance product, although it may invest in subaccounts that resemble mutual funds.

  Choice B, a private equity fund, is typically privately offered and exempt from registration under the Investment Company Act, so it is not considered a registered investment company.

  Choice D, a REIT, is a company that invests in real estate and is not classified as an investment company under the Act. Thus, among the choices, only a UIT qualifies as a registered investment company, making Answer C correct.

• Question 360:

  Which of the following types of accounts permits an investor to borrow money from a broker-dealer to help pay for a trade?

  A. Cash
  B. Margin
  C. An individual retirement account (IRA)
  D. Delivery versus payment (DVP) / receive versus payment (RVP)
  B. Margin

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  Explanation

  Margin Accounts: Allow investors to borrow funds to purchase securities, with the securities serving as collateral for the loan.

  Cash Accounts: Require full payment for securities purchased.

  IRAs: Do not permit borrowing due to their tax-advantaged status.

  DVP/RVP: Settlement mechanisms, not account types for borrowing.

  FINRA Rule 4210 (Margin Requirements): FINRA Rule 4210.