FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 361:

  A customer wants income that is exempt from federal income tax.

  Which security best meets this objective?

  A. Corporate bond
  B. Treasury note
  C. Municipal bond
  D. Preferred stock
  C. Municipal bond

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  Explanation

  Interest income from municipal bonds is generally exempt from federal income tax, making them suitable for tax-sensitive investors.

  References:

  SIE Study Guide, Municipal Securities

• Question 362:

  Which of the following securities is marginable at settlement of a purchase?

  A. Right
  B. Warrant
  C. Corporate bond
  D. Money market fund
  C. Corporate bond

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  Explanation

  A corporate bond is generally marginable at settlement, making choice C correct. Under margin rules, many exchange-listed equities and a broad range of fixed-income securities can be purchased on margin once the trade settles, subject to firm policies, Reg T requirements, and whether the security is eligible. Corporate bonds-especially those that are widely traded and meet eligibility standards-are commonly marginable, and for SIE purposes they are a standard example of a margin-eligible security. A right (choice A) is a short-lived privilege issued to existing shareholders to purchase additional shares, often at a subscription price, within a limited time window. Rights are not typically used as classic margin securities in the way standard listed stocks or bonds are, and their short duration and special characteristics make them a poor match for "marginable at settlement" in exam terms. A warrant (choice B) is a long-term instrument that gives the holder the right to buy stock at a stated price; warrants can trade, but they are not the standard "go-to" marginable instrument on the SIE and are often treated as special securities with firm-specific margin treatment. A money market fund (choice D) is designed to maintain a stable NAV and is frequently used as a cash equivalent; it is not typically treated as a marginable security for borrowing purposes in the same way as marginable stocks and bonds. The SIE tests margin basics at a conceptual level: what types of securities can be financed in a margin account and when. "At settlement" language points you to the idea that margin eligibility is tied to the security and completion of the trade, not that every product is eligible immediately upon execution. The clearest correct choice here is corporate

• Question 363:

  A registered representative of Firm ABC plans to give a gift to the treasurer of Company XYZ as a thank you for recent transactions.

  If no other gifts were given to the treasurer during the year, which of the following gifts would violate FINRA rules?

  A. $75 bottle of wine
  B. $90 concert ticket
  C. $100 sports event ticket
  D. $125 store gift card
  D. $125 store gift card

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  Explanation

  FINRA's gifts rule (commonly tested as the $100 per person per year limit) restricts the value of gifts that a member or associated person may give to any one person where the gift is in relation to the recipient's business. The key test concept is: gifts tied to business cannot exceed $100 annually per recipient (with certain distinctions for bona fide personal gifts and "ordinary and usual business entertainment"). In this question, the gifts are explicitly "as a thank you for recent transactions," so the business-related gift limit applies. A $125 store gift card exceeds $100, making choice D the violation. Choices A ($75), B ($90), and C ($100) are at or below the typical annual limit, so they would not violate the $100 threshold (assuming they are gifts-not entertainment-and there are no other gifts to that recipient in the year). The $100 sports event ticket is right at the limit and is generally permissible as a gift under the cap, again assuming no other gifts and treating it as a gift rather than business entertainment. A common SIE nuance: business entertainment (like taking a client to a game where the RR is present) is often treated differently from a "gift" because it is not simply handing something over-however, a ticket given without the RR attending can be treated as a gift. This question is testing the straightforward dollar cap, not the entertainment distinction. Because the only option that clearly breaches the cap is $125, that is the correct answer. The broader compliance theme is managing conflicts and improper influence: the gifts rule helps prevent business decisions from being swayed by excessive personal benefit.

• Question 364:

  Which of the following best describes systematic risk?

  A. Risk unique to a single issuer
  B. Risk eliminated through diversification
  C. Risk affecting the entire market
  D. Risk caused by poor management
  C. Risk affecting the entire market

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  Explanation

  Systematic risk affects the entire market or economy and cannot be diversified away. Examples include recession and interest rate changes.

  References:

  SIE Study Guide, Risk Concepts

• Question 365:

  An investor sells 100 shares of common stock that she holds in her account.

  Which of the following terms best describes the type of sale this investor has made?

  A. Long
  B. Short
  C. Covered
  D. Uncovered
  A. Long

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  Explanation

  The correct answer is A, Long. When an investor sells shares that they already own in their account, this is referred to as selling a long position or simply a long sale. A long position means the investor previously purchased and owns the securities, so when they sell, they are delivering shares they already possess. In contrast, a short sale (choice

  B. occurs when an investor sells shares they do not own, typically borrowing them from a broker-dealer with the intention of buying them back later at a lower price. This is fundamentally different from selling owned shares. Choice C, Covered, and D, Uncovered, are terms more commonly associated with options trading, not stock transactions. For example, a covered call involves owning the underlying stock while selling call options against it. These terms are not used to describe straightforward stock sales. Because the investor in this scenario is selling shares already held in her account, the transaction is clearly a long sale, making choice A the correct answer.

• Question 366:

  A registered representative (RR) is permitted to borrow money from a customer under which of the following circumstances, if ever?

  A. The customer is the RR ' s sister.
  B. The customer is also a coworker.
  C. The customer provides a letter of instruction permitting it.
  D. It is never permissible to borrow money from a customer.
  A. The customer is the RR ' s sister.

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  Explanation

  The correct answer is A, The customer is the RR's sister. Under FINRA rules (Rule 3240), borrowing from or lending to customers is generally prohibited, unless specific exceptions apply and firm approval is obtained. One key exception is when the customer is an immediate family member, which includes relationships such as parents, children, siblings, and spouses. In this scenario, since the customer is the RR's sister, the borrowing may be permitted, provided the firm's policies allow it and proper written approval is obtained. This type of relationship reduces the risk of exploitation or conflict of interest that the rule is designed to prevent. Choice B, coworker, is incorrect because simply working together does not qualify as an exception under FINRA rules.

  Choice C, a letter of instruction, is also incorrect because written permission from the customer alone does not override regulatory restrictions-firm approval and qualifying conditions are required.

  Choice D is incorrect because while borrowing is generally restricted, it is not absolutely prohibited in all cases-there are limited exceptions, such as immediate family relationships. Thus, borrowing is permissible in this case due to the familial relationship, making

  choice A correct.

• Question 367:

  Which of the following actions will best hedge a short put?

  A. Buying the stock
  B. Selling short the stock
  C. Selling a put with an earlier expiration
  D. Buying a call with a higher strike price
  A. Buying the stock

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  Explanation

  The correct answer is A, Buying the stock. A short put position means the investor has sold (written) a put option and is obligated to buy the underlying stock at the strike price if the option is exercised. The primary risk is that the stock price falls significantly, forcing the writer to purchase shares at a price above market value. Step-by-step, the best hedge is to own the underlying stock. If the investor already owns the stock, then being assigned on the short put simply results in acquiring more shares, which can offset losses or align with their investment strategy. More importantly, owning the stock reduces the overall directional risk exposure. Choice B (selling short the stock) would increase risk because it creates a bearish position, which is inconsistent with the bullish/neutral nature of a short put.

  Choice C (selling another put) increases exposure and risk rather than hedging.

  Choice D (buying a call) does not effectively hedge downside risk from a falling stock price. Thus, the most appropriate hedge for a short put is to buy or own the underlying stock, making Answer A correct.

• Question 368:

  Which of the following statements describes a characteristic of non-traded real estate investment trusts (REITs)?

  A. They have limited liquidity.
  B. They are private securities.
  C. They are listed on an exchange.
  D. They strike a daily net asset value (NAV).
  A. They have limited liquidity.

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  Explanation

  A key characteristic of non-traded (non-exchange-listed) REITs is limited liquidity, making A correct. Unlike publicly traded REITs that trade on exchanges and can be sold during market hours, non-traded REIT shares do not have an active public secondary market. Investors often must rely on limited redemption programs (if offered) or wait for a liquidity event (such as listing, merger, or liquidation), which can take years. As a result, investors may face difficulty selling shares quickly or at a predictable price, which is the essence of liquidity risk. Choice B is misleading because many non-traded REITs are still registered securities sold via broker-dealers; "non-traded" does not automatically mean "private." Some non-traded REITs are registered but not exchange listed.

  Choice C is the opposite of non-traded: if it is listed on an exchange, it is a traded REIT.

  Choice D describes open-end funds that calculate a daily NAV for purchases/redemptions; non-traded REITs do not function like mutual funds with daily NAV transactions (even though some may provide periodic valuations, that is not the defining "strike daily NAV" feature tested on the SIE). This question tests product knowledge and risk recognition: non-traded REITs may offer income potential and real estate exposure, but the trade-off is often reduced transparency, higher fees, and notably limited liquidity compared with exchange-traded REITs or ETFs.

• Question 369:

  A partnership investing in undeveloped land is primarily seeking:

  A. operational income.
  B. capital appreciation.
  C. accelerated depreciation.
  D. investment interest deduction.
  B. capital appreciation.

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  Explanation

  The correct answer is B, Capital appreciation. A partnership that invests in undeveloped land is typically focused on the expectation that the land will increase in value over time, rather than generating immediate income. Since undeveloped land does not produce rent or operating cash flow, there is little to no operational income, making choice A incorrect. Additionally, accelerated depreciation (choice

  C. does not apply because land itself is not depreciable under tax rules. Depreciation applies to improvements like buildings, not raw land. Therefore, tax benefits associated with depreciation are not a primary objective of this type of investment. Choice D, investment interest deduction, is not a primary investment goal but rather a potential tax consideration depending on how the investment is financed. Investors in undeveloped land partnerships are typically speculating that the property will become more valuable due to factors such as urban expansion, zoning changes, infrastructure development, or increased demand. Once the land appreciates, it can be sold at a profit, generating capital gains. Thus, the primary objective is long-term growth in value, making capital appreciation the correct answer.

• Question 370:

  An investor owns $10,000 par value of a municipal bond with the following rates:

  4.0% coupon rate

  5.0% current yield

  4.5% yield to maturity (YTM) 6.5% tax-equivalent yield.

  What amount of interest should the investor expect to receive each year?

  A. $400
  B. $450
  C. $500
  D. $650
  A. $400

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  Explanation

  The annual interest on a bond is calculated based on the coupon rate and the bond's par value.

  Coupon rate = 4.0%.

  Annual interest = $10,000 (par value) ?4.0% = $400.

  A is correct because the coupon rate determines the annual interest. B, , and D are incorrect because they reflect incorrect calculations. The current yield, YTM, and tax-equivalent yield do not affect the bond's fixed coupon payments.

  References:

  SIE Study Guide, Chapter 3: Municipal Bonds