Free and Premium FINRA SIE Dumps Questions Answers

Step by Step Explanation:

Regular-Way Settlement: For equity securities, settlement occurs on a T+2 basis, meaning two business days after the trade date.

Calculation:

Trade Date (T): Thursday, August 2.

T+2 Settlement: Excludes weekends, so settlement falls on Monday, August 6.

Incorrect Options:

A: Reflects T+1, not the correct settlement cycle.

C & D: Extend beyond the standard T+2 cycle.

References:

FINRA and SEC Settlement Rules: SEC Settlement Rules.

Step by Step Explanation:

PIPE Offerings: Typically priced below the current market value to incentivize institutional investors to participate in these transactions.

Discount: The discounted price compensates for the potential illiquidity and risk associated with PIPE offerings.

POP/Market Value: These do not apply to private offerings structured as PIPE transactions.

References:

SEC PIPE Offering Guidance: SEC PIPE Offerings.

Purchasing power risk, also known as inflation risk, occurs when inflation reduces the real value of a fixed-income stream. Fixed payments (e.g., bond interest or annuity payments) lose buying power as inflation rises.

D is correctbecause inflation directly affects fixed income by eroding purchasing power.

Ais incorrect because market risk relates to fluctuations in market prices, not inflation.

Bis incorrect because economic risk generally refers to broader economic downturns.

Cis incorrect because interest rate risk involves changes in bond prices due to interest rate movements, not inflation.

The announcement of negative regulatory changes introducesunsystematic risk, specific to the technology sector. Diversification into unrelated sectors can reduce exposure to this risk.

A is correctbecause uncorrelated holdings reduce portfolio risk.

Bis incorrect because adding more microchip companies increases exposure to sector-specific risk.

Cdoes not address the core issue of over-concentration.

Dis the opposite of mitigating risk.

Step by Step Explanation:

Form U4 Reporting Requirements: Registered persons must disclose criminal charges (excluding minor traffic violations) and material changes such as residential address changes. Gambling-related misdemeanors are considered reportable.

Incorrect Options:

Speeding Ticket: Typically not reportable unless it involves a felony.

Business Telephone Number: Not material for Form U4.

References:

FINRA Form U4 Instructions: FINRA Form U4.

Step by Step Explanation:

Telemarketing Rules (FINRA Rule 3230): Require firms to check the National Do Not Call Registry before contacting individuals, even if those individuals provide their contact information voluntarily.

Incorrect Options:

A: Approval isn’t required for individual follow-ups; compliance with the registry is.

B: While calls must be limited to appropriate hours, the registry check is still mandatory.

C: Written consent does not override the registry requirement.

References:

FINRA Rule 3230 (Telemarketing): FINRA Rule 3230.

Treasury stock refers to shares that were issued by a company and subsequently repurchased by the company. These shares are held in the company’s treasury and are not considered outstanding.

C is correctbecause treasury stock is stock reacquired by the issuer.

Ais incorrect because authorized but unissued stock has never been issued.

Bis incorrect because restricted stock refers to shares issued with restrictions on transferability, not reacquired stock.

Dis incorrect because it incorrectly refers to government securities, not corporate stock.

Redeemable securities are those that can be sold back to the issuer.

D is correctbecause unit investment trusts (UITs) issue redeemable securities.

Cis incorrect because closed-end fund shares are traded on secondary markets, not redeemable.

AandBdo not meet the definition of redeemable securities.

Under FINRA Rule 2210, firms must avoid making predictions or projections of future investment performance.

B is correctbecause it involves prohibited predictive statements.

A,C, andDare acceptable under FINRA guidelines, as they do not involve prohibited content.

FINRA Rule 3220 prohibits member firms from giving gifts exceeding $100 per individual per year to ensure that gifts do not influence business conduct. The rule applies to gifts given in connection with the firm’s business.

C is correctbecause it adheres to FINRA’s $100 annual limit.

Ais incorrect because the total value of gifts must also not exceed $100 annually.

Bis incorrect as there is no $200 limit.

Dis incorrect as gifts are allowed within the $100 limit.

A limit order to buy allows the investor to specify the maximum price he is willing to pay for the stock. The order will only execute if the stock price falls to or below the specified price.

B is correctbecause a limit order to buy aligns with the investor’s desire to secure a better price.

Ais incorrect because a limit order to sell is used when an investor wants to sell at a minimum price.

CandDare incorrect because market orders execute at the current market price, not at a preferred price.

Step by Step Explanation:

Call Provision: This allows the issuer to redeem bonds before their maturity date, usually at a premium to the par value, which benefits the issuer in a declining interest rate environment.

Put Provision: Allows bondholders, not issuers, to sell the bond back to the issuer.

Conversion: Relates to convertible bonds that can be converted into equity.

Defeasement: Refers to the removal of a bond issuer’s obligation by setting aside cash or securities to cover the debt.

References:

SEC Guide on Callable Bonds: SEC Callable Bonds.

Step by Step Explanation:

Hypothecation Agreement: Required for margin accounts, it authorizes the broker-dealer to use the customer's margin securities as collateral to secure loans for funding customer transactions.

Incorrect Options:

A: Sharing customer information is regulated under privacy rules (Regulation S-P).

B: Unauthorized trading violates securities laws.

C: Selling unpaid securities in cash accounts pertains to Regulation T, not hypothecation agreements.

References:

FINRA Margin Account Rules: FINRA Rule 4210.

Step by Step 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.

References:

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

Step by Step Explanation:

Balance Sheet Definition: Shows a company’s financial position at a specific point in time, listing assets, liabilities, and shareholders' equity (net worth).

Other Financial Statements:

Profit and Loss Statement: Summarizes revenues and expenses over a period.

Cash Flow Statement: Tracks cash inflows and outflows.

References:

SEC Guide to Financial Statements: SEC Financials.

Step by Step Explanation:

Discount Bonds: These are issued or traded below par value. Over time, their price moves closer to par as they approach maturity, assuming yields remain constant.

Other Options:

Par Value Changes: The par value of a bond does not change over time; only its price fluctuates.

References:

SEC and FINRA Bond Basics: SEC Discount Bonds.

XYZ bonds have a yield higher than the coupon rate, indicating that their market price has decreased due to concerns about the issuer's creditworthiness.

A is correctbecause the high yield suggests elevated credit risk.

Bis incorrect because domestic utility companies are unlikely to face political risk.

Cis irrelevant as the bonds are denominated in U.S. dollars.

Dis incorrect as prepayment risk is associated with callable bonds, not noncallable bonds.

Step by Step Explanation:

Reverse Split Calculation: A 1-for-2 reverse split reduces the number of shares by half while doubling the price per share.

Pre-Split Holdings: 100 shares at $5.00 = $500.

Post-Split Holdings: 50 shares at $10.00 = $500.

Incorrect Options: The total value remains unchanged; only the number of shares and price per share adjust.

References:

FINRA Corporate Actions Guidance: FINRA Reverse Splits.

The annual interest on a bond is calculated based on thecoupon rateand the bond’s par value.

Coupon rate = 4.0%.

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

A is correctbecause the coupon rate determines the annual interest.

B,C, andDare incorrect because they reflect incorrect calculations. The current yield, YTM, and tax-equivalent yield do not affect the bond’s fixed coupon payments.

SEC Regulation A provides a registration exemption for smaller public offerings but includes a "bad actor" disqualification. If certain key parties, such as the issuer, underwriter, or affiliates, have been involved in securities violations, the exemption is forfeited.

B is correctbecause underwriters are considered essential participants, and their status as bad actors disqualifies the offering.

A,C, andDare incorrect because custodians, transfer agents, and clearing corporations are not included in the "bad actor" provisions of Regulation A.

Step by Step 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.

References:

FINRA Rule 4530 (Reporting Requirements): FINRA Rule 4530.

Step by Step Explanation:

Prohibition on Signing Customer Names: It is never permissible to sign a customer's name without written authorization (POA) due to legal and ethical concerns. Unauthorized signing constitutes forgery and violates FINRA rules.

Incorrect Options:

A: Firm principal approval does not override this prohibition.

B: Verbal authorization is insufficient.

C: Discretionary authority does not allow unauthorized signing.

References:

FINRA Rule 4512 (Customer Account Information): FINRA Rule 4512.

High-income bond mutual funds typically invest in lower-rated (junk) bonds that offer higher yields. These bonds are exposed to significant credit risk, as issuers may default on their payments.

A is correctbecause credit risk is the primary concern with high-yield bonds.

Bis incorrect as political risk is more relevant for international investments.

Cis incorrect because taxability risk is not specific to bond mutual funds.

Dis incorrect because purchasing power risk is more relevant for fixed-income investments during inflationary periods but is not the primary risk here.

Step by Step Explanation:

SIPC Coverage Limits: Protects up to $500,000 per customer, including a maximum of $250,000 for cash.

In this case, $300,000 in cash exceeds the SIPC limit, so only $250,000 is protected.

Incorrect Options:

A: $150,000 understates the SIPC limit for cash.

C: The full $300,000 in cash is not protected.

D: Total coverage exceeds SIPC limits.

References:

SIPC Coverage Details:SIPC Protection.

Form U4 (Uniform Application for Securities Industry Registration or Transfer) requires disclosure of any felony convictions, regardless of whether they are securities-related. A felony conviction for drunk driving falls under this requirement.

B is correctbecause a felony conviction must be reported on Form U4.

Ais incorrect as misdemeanor speeding tickets do not require disclosure unless they involve fraud, theft, or dishonesty.

Cis incorrect as bench warrants are not reportable unless they lead to a conviction.

Dis incorrect because gross misdemeanors (except those involving fraud or dishonesty) do not require reporting.

The Options Clearing Corporation (OCC) is responsible for issuing and guaranteeing the performance of listed options contracts, including Long-term Equity Anticipation Securities (LEAPS), which are long-term options.

D is correctbecause LEAPS are a type of listed options contract cleared by the OCC.

Ais incorrect because listed stocks are not options contracts.

Bis incorrect because over-the-counter bonds are not cleared by the OCC.

Cis incorrect because ETFs are not options, though ETF options may be cleared by the OCC.

Regulation S-P mandates that broker-dealers disclose how they collect, protect, and share customers’ nonpublic personal information. The privacy notice must include:

The categories of information collected.

The firm’s policies for safeguarding data.

Opt-out rights for sharing information with unaffiliated third parties.

D is correctbecause privacy notices must describe policies for protecting customer information.

A,B, andCare incorrect because they do not relate to the required elements of Regulation S-P privacy notices.

The federal funds rate, which is the interest rate banks charge each other for overnight loans, changes frequently due to daily fluctuations in bank reserves and market conditions.

D is correctas it is the most sensitive to short-term market forces.

A,B, andCchange less frequently.

Currency devaluation reduces the value of a country’s currency relative to others, making its exports cheaper and more competitive internationally. This stimulates demand for the country’s goods and services.

D is correctbecause devaluation reduces export costs, encouraging foreign buyers.

Ais incorrect because devaluation can increase inflation by raising the cost of imported goods.

Bis incorrect because GDP often rises due to increased export demand.

Cis incorrect because imports become more expensive after devaluation, reducing demand.

A covered call involves selling a call option on a stock the investor already owns. The strategy generates income in the form of the premium collected for selling the call, providing additional returns on the stock position.

D is correctbecause the primary goal of a covered call is to generate income.

Ais incorrect because covered calls do not hedge against large declines in the stock price.

Bis incorrect because speculation involves taking higher risks, not a covered call’s conservative strategy.

Cis incorrect because no strategy guarantees a profit.

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 correctbecause a call option profits directly from a stock price increase.

Ais incorrect because a put option profits from a stock price decline.

CandDare incorrect because selling options limits profit potential and exposes the seller to significant risk if the stock moves unfavorably.

Step by Step Explanation:

Trust Accounts: Provide the account owner (trustee) full control over distributions and investment decisions. Suitable for complex estate planning needs.

Incorrect Options:

UTMA: Transfers control to the minor upon reaching the age of majority.

529 Plan: Used for educational savings, with limited control over distributions.

CD: A fixed-term deposit, not an account type for managing distributions.

References:

SEC and FINRA Guidelines on Trusts: FINRA Trust Accounts.

Step by Step Explanation:

DVP Process: Ensures that payment occurs simultaneously with the delivery of securities, mitigating counterparty risk. Cash payment is made before or at the time of delivery.

Incorrect Options:

A: The T+5 timeline is not standard for DVP.

C: Payment must occur at delivery, not after.

D: Settlement date agreements with the issuer are irrelevant for DVP.

References:

FINRA Guidelines on DVP/RVP Transactions: FINRA DVP Info.

Step by Step 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.

References:

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

FINRA prohibits the payment of referral fees or splitting of commissions with individuals who are not registered with a broker-dealer. However, taking a friend out to dinner as a gesture of gratitude is allowed, as it does not involve cash or monetary compensation directly tied to the referral.

C is correctbecause non-monetary expressions of gratitude (like a dinner) are permitted under FINRA rules.

Ais incorrect because commission splitting with unregistered individuals is prohibited.

Bis incorrect because paying referral fees is also prohibited without registration.

Dis incorrect because giving prepaid credit cards tied to commission income violates compensation rules.

Step by Step Explanation:

European-Style Options: Can only be exercised on their expiration date, unlike American-style options, which can be exercised any time before expiration.

Incorrect Options:

A: Not accurate; the exercise must occur specifically on the expiration date.

C: Options cannot be exercised after expiration.

D: The expiration date depends on the option contract, not a specific weekday.

References:

Options Clearing Corporation (OCC) Guidelines:OCC European Options.

The cost basis of a stock represents the purchase price and does not include dividends received. Taxes paid on dividends also do not affect the cost basis.

Original purchase price per share =$20.00.

Dividends and taxes on dividends do not adjust the stock’s cost basis.

A is correctbecause the cost basis remains $20.00.

B,C, andDincorrectly assume that dividends or taxes change the cost basis.

Step by Step 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 exceptionalcircumstances.

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.

References:

FINRA Rule 3150 (Holding of Customer Mail): FINRA Rule 3150.

Step by Step Explanation:

FINRA Rule 2210: Firms are prohibited from suggesting or implying FINRA's endorsement or approval in any advertising materials.

Approvals: Even if a principal or FINRA approves the content, such a statement remains impermissible.

Key Point: FINRA's role is to regulate, not to endorse firms or their marketing.

References:

FINRA Rule 2210 (Communications with the Public): FINRA Rule 2210.

Step by Step Explanation:

Interest Rate Risk: Treasury securities are sensitive to changes in interest rates. When rates rise, Treasury prices fall, exposing investors to price risk.

Incorrect Options:

Credit Risk: Virtually nonexistent for Treasuries, as they are backed by the U.S. government.

Liquidity Risk: Treasuries are highly liquid.

Prepayment Risk: Applies to mortgage-backed securities, not Treasuries.

References:

SEC Bond Risk Disclosures: SEC Treasury Risks.

FINRA Rule 2360 requires that customers receive theOptions Disclosure Document (ODD), published by the Options Clearing Corporation (OCC), before they are approved to trade options. The ODD explains the risks and characteristics of options trading.

D is correctbecause the ODD is mandatory for options account approval.

Ais incorrect because a prospectus is not specific to options trading.

Bis incorrect because the MSRB Investor Brochure applies to municipal securities.

Cis incorrect because a margin disclosure statement is required only for margin accounts.

The quote indicates that the market maker is willing to buy 500 shares at $39.05 (bid) and sell 1,000 shares at $39.15 (ask). Market makers are required to honor their quoted size for orders that fall within their bid/ask prices.

D is correctbecause the market maker is obligated to sell at least 1,000 shares at $39.15 as it falls within the quoted size and price.

Bis incorrect because the bid is at $39.05, not $39.00.

Cis incorrect because $39.10 does not match the ask price.

Ais invalid as a stop order would not activate at $39.00.

An option is considered "at the money" when the current price of the underlying asset (or index level) equals the option’s strike price.

B is correctbecause the index level equals the strike price.

Ais incorrect because "in the money" requires the option to have intrinsic value (e.g., for a call, the index level must be above the strike price).

Cis incorrect because "out of the money" applies when the index level is below the strike price (for calls) or above it (for puts).

Dis incorrect because "at the money" options have no intrinsic value.

Step by Step Explanation:

Tenants in Common: In this arrangement, each tenant owns a fractional interest in the account's assets, which can be unequal depending on the agreement.

Income Distribution: Income is distributed based on ownership percentage, not necessarily equally.

Redemption Requests: Only the owner of the fractional interest has authority to request redemption for their portion.

Estate Taxation: Upon the death of a tenant, only their fractional interest is taxable in their estate.

References:

FINRA Guidelines on Joint Accounts: FINRA Joint Accounts.

CMOs are divided into tranches, which are portions of the pool of mortgage-backed securities. Each tranche has its own characteristics, including coupon rate, maturity date, and credit rating, tailored to meet the needs of different investors.

C is correctbecause tranches represent slices of the investment with specific terms.

Ais incorrect because the yield depends on prepayment rates and interest rate changes.

Bis incorrect as average life is an estimate, not a defining characteristic of a tranche.

Dis incorrect because underwriting is unrelated to the definition of a tranche.

Equity securities represent ownership in a company, and preferred stock is a type of equity security that pays dividends and has priority over common stock in liquidation.

A is correctbecause preferred stock is an equity security.

Bis incorrect because commercial paper is a short-term debt security.

Cis incorrect because certificates of deposit (CDs) are fixed-income banking products.

Dis incorrect because exchange-traded notes (ETNs) are unsecured debt securities.

Step by Step Explanation:

General Obligation (GO) Bonds: Backed by the full faith and credit of the issuing municipality, relying on its taxing power for repayment.

Revenue Bonds: Supported by revenues from a specific project or source.

Treasury Bonds: Issued by the federal government.

Corporate Bonds: Issued by corporations, not municipalities.

References:

SEC Municipal Bond Guide: SEC GO Bonds.

Step by Step Explanation:

Variable Life Insurance: The cash value depends on the performance of the underlying investment options.

Fluctuating Market Conditions: Since the cash value is linked to market performance, fluctuations directly impact its value.

Beneficiary/Death Benefit Changes: These do not directly impact the cash value unless they involve additional costs or changes to premiums.

References:

SEC Bulletin on Variable Life Insurance: SEC Variable Insurance.

The Securities Investor Protection Corporation (SIPC) protects customers if a broker-dealer fails due to insolvency. Coverage applies to cash and securities in customer accounts, up to $500,000total, including $250,000 for cash.

A is correctbecause SIPC’s purpose is to protect against losses arising from a broker-dealer’s insolvency.

Bis incorrect because SIPC does not guarantee investment performance.

Cis incorrect because SIPC does not cover market losses.

Dis incorrect because futures contracts are not covered under SIPC.