FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 41:

  A selling group member in an initial public offering (IPO) has the primary responsibility for which of the following obligations related to the IPO ' s prospectus?

  A. Preparing the prospectus
  B. Distributing the prospectus to prospective investors
  C. Ensuring that the prospectus is filed with the SEC
  D. Ensuring that the information in the prospectus is accurate and complete
  B. Distributing the prospectus to prospective investors

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  Explanation

  The correct answer is B, Distributing the prospectus to prospective investors. In an IPO, responsibilities are divided among various participants, including the issuer, underwriters, and selling group members. A selling group member is part of the distribution network and is primarily responsible for selling the securities to the public and delivering the prospectus to potential investors. The prospectus is a legal disclosure document that must be provided to investors before or at the time of sale. Selling group members play a key role in ensuring that investors receive this document so they can make informed decisions. Choice A, preparing the prospectus, is the responsibility of the issuer, along with assistance from the lead underwriter and legal counsel.

  Choice C, ensuring filing with the SEC, is also the issuer's responsibility.

  Choice D, ensuring accuracy and completeness, falls on the issuer and underwriters, who are liable for disclosures under securities laws. Thus, the selling group's primary role is distribution, not creation or verification of the prospectus.

  Therefore, choice B is correct.

• Question 42:

  A registered representative must complete which of the following activities when entering a discretionary trade?

  A. Only exercise discretion over market orders
  B. Indicate that discretion was exercised on the order ticket to be identified for supervisory review
  C. Obtain authorization from the customer before each discretionary order is entered
  D. Receive instructions from the customer as to the price at which to buy or sell a security
  B. Indicate that discretion was exercised on the order ticket to be identified for supervisory review

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  Explanation

  FINRA Rule 3260 requires that discretionary trades be approved by the customer in writing and reviewed by the supervising firm. The order ticket must indicate that discretion was exercised to ensure proper oversight. B is correct because marking the order ticket ensures compliance with supervisory requirements. A is incorrect because discretionary authority is not limited to market orders. C is incorrect as discretionary trades do not require pre-approval for each trade but require prior written authorization. D is incorrect because discretionary authority allows the RR to decide on price and timing without specific customer instructions.

  References:

  FINRA Rule 3260 (Discretionary Accounts)

• Question 43:

  A market maker displays the following ABC stock quote: 25.05 - 25.15 (7x5J. Based upon the quote displayed, the market maker sells all the available shares of a 1,200-share market order to buy ABC stock.

  How many shares must be sold at the price of $25.15?

  A. 200
  B. 500
  C. 700
  D. 1200
  B. 500

• Question 44:

  A customer wants to reduce the impact of market volatility on their portfolio.

  Which strategy is most appropriate?

  A. Concentration in one sector
  B. Diversification across asset classes
  C. Increasing leverage
  D. Speculative trading
  B. Diversification across asset classes

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  Explanation

  Diversification: Reduces unsystematic risk by spreading investments across different assets.

  Incorrect Options:

  A, C, and D: Increase risk rather than reduce it.

• Question 45:

  Beta coefficient is a measure of:

  A. The volatility of the broad stock market.
  B. Only the upside participation of an individual stock.
  C. The liquidity of an individual stock relative to the sector average.
  D. The volatility of an individual stock relative to the broad stock market.
  D. The volatility of an individual stock relative to the broad stock market.

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  Explanation

  The beta coefficient measures the sensitivity of a stock's returns relative to the overall market (usually the S&P 500). A beta of: 1.0 indicates the stock moves in line with the market.

  Greater than 1.0 suggests the stock is more volatile than the market.

  Less than 1.0 suggests the stock is less volatile.

  D is correct because beta specifically compares the volatility of a stock to the market. A is incorrect as beta does not measure the market's volatility. B is incorrect as beta considers both upside and downside movements.

  C is incorrect as beta does not measure liquidity.

  References:

  SIE Study Guide, Chapter 6: Portfolio Management

• Question 46:

  Which of the following orders guarantees execution but not price?

  A. Limit order
  B. Stop order
  C. Market order
  D. Stop-limit order
  C. Market order

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  Explanation

  A market order is executed immediately at the best available price, ensuring execution but not guaranteeing the price received.

  References:

  SIE Study Guide, Order Types

• Question 47:

  Which of the following terms describes failure to honor a firm quote?

  A. Freeriding
  B. Backing away
  C. Interpositioning
  D. Market manipulation
  B. Backing away

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  Explanation

  Backing Away: Refers to the failure of a market maker to honor a firm quote when a customer attempts to trade at that price. It is a violation of market rules.

  Incorrect Options:

  Freeriding: Involves selling securities before paying for them in a cash account.

  Interpositioning: Involves unnecessary intermediaries in trades, which can harm customers.

  Market Manipulation: Covers a range of deceptive practices, such as wash trading or spoofing, not specific to honoring quotes.

  FINRA Rule 5220 (Firm Quote Rule): FINRA Rule 5220.

• Question 48:

  Which of the following parties Is permitted to purchase a security in an Initial public offering (IPO)?

  A. A registered representative's (RR's) brother-in-law
  B. An RR of a broker-dealer (BD) not involved in the underwriting
  C. A BD not affiliated with the syndicate for the IPO
  D. A mutual fund portfolio manager buying for the fund's portfolio
  D. A mutual fund portfolio manager buying for the fund's portfolio

• Question 49:

  Which of the following statements is true regarding ETFs?

  A. They are purchased at NAV only
  B. They trade intraday on exchanges
  C. They have fixed maturity dates
  D. They are redeemable only by issuers
  B. They trade intraday on exchanges

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  Explanation

  Exchange-traded funds trade throughout the day on exchanges at market prices, similar to stocks.

  References:

  SIE Study Guide, Investment Companies

• Question 50:

  Which of the following products is redeemable at net asset value (NAV)?

  A. Corporate stock
  B. Municipal bonds
  C. Options contracts
  D. Open-end mutual funds
  D. Open-end mutual funds

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  Explanation

  Open-end mutual funds are redeemable securities, meaning investors can sell their shares back to the fund at the NAV.

  D is correct because mutual funds allow redemption at NAV.

  A, B, and C are not redeemable securities.

  References:

  Investment Company Act of 1940, Section 2(a)(32)