SIE - Test Questions, Multiple Choice
with explanations
NYSE-listed stock transactions generally take place on the floor of the NYSE. However, when
they occur off the floor, this is referred to as a: - Answer Third-market transaction
Explanation:
Brokerage firms often transact in exchange-listed securities directly with their institutional
customers, without the involvement of a formal exchange. This is known as a third-market
transaction and is often done for trading efficiency, better execution, and/or better price,
though the transaction is still reported to the NYSE ticker tape as promptly as if it had taken
place on the floor.
When investment securities are referred to as exempt, this generally refers to exemption from
what? - Answer SEC registration
Explanation:
Securities such as U.S. Government bonds and bonds issued by states, counties, and cities,
otherwise called municipal bonds, do not have to be registered with the Securities & Exchange
Commission (SEC). They are thus referred to as exempt securities.
Hedge funds and mutual funds are two examples of which type of investor? - Answer
Institutional investors
Explanation:
institutional investors are large investors that are considered sophisticated enough to make
their own investment decisions. They can only be legal entities, such as real estate investment
trusts, venture capital funds, insurance companies, credit unions, banks, pension funds, hedge
funds, and mutual funds.
Investor A holds 100 shares of Company XYZ in his personal brokerage account. He decides to
sell these shares for a profit. This transaction will take place on the: - Answer Secondary
market
Explanation:
The secondary market is what most people know as the "stock market." It facilitates
transactions in existing securities that are not sold directly by the issuer. Investors purchase
these securities from other investors through accounts held by brokerage firms like Fidelity or
Charles Schwab.
,The term 'disclaimer' is most often associated with - Answer The fact that the government
cannot guarantee the accuracy of the information in a prospectus
Explanation:
The SEC reviews the information in a registration statement, it does not approve or disapprove
of the information, nor does it guarantee the accuracy of the information disclosures. Therefore
no sales agent can say to a prospect that these are 'government approved' securities.
SIPC, the securities investor protection corporation is:
A. An insurance entity which protects investors investments again market losses up to $500,000
B. An insurance entity which protects investors who are sold worthless securities
C. A Congressional guarantee against losses in the securities markets
D. None of the above - Answer D. None of the above
Explanation:
SIPC was set up to protect customer ACCOUNTS in the event of a broker-dealer bankruptcy, not
protect investments against loss. Be careful of the wording in this question. Cash & securities in
customer accounts are 'insured' up to $500,000 in the event the B/D goes bankrupt and the
cash and securities can't be located and properly returned to the customer.
In most cases, Federal Securities Laws:
A. Supersede State securities laws
B. Are subordinate to State securities laws
C. Are given the same weight as State securities laws
D. None of the above - Answer A. Supersede State securities laws
Explanation:
Federal securities laws typically supersede State laws.
Which of the following are not considered money market securities?
A. T-bills
B. Commercial Paper
C. Reverse Repos
D. ADRs - Answer D. ADRs
,Explanation:
Since the 'money market' includes short term debt instruments only, and since ADRs represent
ownership (equity) in foreign stocks, ADRs are not debt.
When a corporation goes public, it is issuing:
A. Common stock
B. Preferred stock
C. Convertible bonds
D. Any of the above - Answer A. Common stock
Explanation:
Going public means sharing equity ownership (common stock) with public investors, for the first
time (Initial public offering, IPO).
The term 'issuer' most often refers to:
A. A corporation seeking to raise additional capital for expansion or modernization purposes
B. A business which prints up securities certificates such as bonds and stocks
C. A business which has satisfied the listing requirements of one or more approved stock
exchanges
D. A business, a municipality, or a federal governmental entity which is seeking to raise capital
from the sale of securities. - Answer D. A business, a municipality, or a federal governmental
entity which is seeking to raise capital from the sale of securities.
Explanation:
Whether one considers answers A, B, or C partially accurate, the last answer, D is the most
complete therefore best answer.
Every publicly-traded corporation is required to have a transfer agent and a registrar. The
primary distinction between the two is:
A. They are not different --- they perform the same function
B. The registrar keeps the record of all stock and bond holders
C. The transfer agent transmits the payment for securities from the purchaser to the seller in all
secondary market trades.
, D. The transfer agent ensures that dividend payments go out to all registered owners of record
on the payable date. - Answer D. The transfer agent ensures that dividend payments go out to
all registered owners of record on the payable date.
Explanation:
This is one of the functions of a Transfer Agent. Registrars make sure that a company does not
issue more shares than authorized in the Charter.
One of the more attractive features of common stock is that:
A. One cannot lose more than one's investment
B. The stockholders have the right to vote on quarterly dividends
C. The stockholders have the right to choose Officers
D. Any of the above - Answer A. One cannot lose more than one's investment
Explanation:
You cannot lose more than you've put at risk. A common stockholder cannot be held liable for
any debts of the corporation, therefore they have limited liability.
When the market price of a company's common stock has reached triple digits ($100 or above),
the Board of Directors may elect to declare which of the below to make the shares more
affordable?
A. Reverse stock split
B. A stock split
C. A stock dividend
D. Any of the above - Answer B. A stock split
Explanation:
Splitting a stock provides each shareholder with more shares and the CMV (current market
value) of the stock will decline proportionately. Because of the reduced price in the market, it
becomes more 'affordable.'
When a corporate Board announces a 10% stock dividend, shareholders know they will be
receiving:
A. more shares
B. money
with explanations
NYSE-listed stock transactions generally take place on the floor of the NYSE. However, when
they occur off the floor, this is referred to as a: - Answer Third-market transaction
Explanation:
Brokerage firms often transact in exchange-listed securities directly with their institutional
customers, without the involvement of a formal exchange. This is known as a third-market
transaction and is often done for trading efficiency, better execution, and/or better price,
though the transaction is still reported to the NYSE ticker tape as promptly as if it had taken
place on the floor.
When investment securities are referred to as exempt, this generally refers to exemption from
what? - Answer SEC registration
Explanation:
Securities such as U.S. Government bonds and bonds issued by states, counties, and cities,
otherwise called municipal bonds, do not have to be registered with the Securities & Exchange
Commission (SEC). They are thus referred to as exempt securities.
Hedge funds and mutual funds are two examples of which type of investor? - Answer
Institutional investors
Explanation:
institutional investors are large investors that are considered sophisticated enough to make
their own investment decisions. They can only be legal entities, such as real estate investment
trusts, venture capital funds, insurance companies, credit unions, banks, pension funds, hedge
funds, and mutual funds.
Investor A holds 100 shares of Company XYZ in his personal brokerage account. He decides to
sell these shares for a profit. This transaction will take place on the: - Answer Secondary
market
Explanation:
The secondary market is what most people know as the "stock market." It facilitates
transactions in existing securities that are not sold directly by the issuer. Investors purchase
these securities from other investors through accounts held by brokerage firms like Fidelity or
Charles Schwab.
,The term 'disclaimer' is most often associated with - Answer The fact that the government
cannot guarantee the accuracy of the information in a prospectus
Explanation:
The SEC reviews the information in a registration statement, it does not approve or disapprove
of the information, nor does it guarantee the accuracy of the information disclosures. Therefore
no sales agent can say to a prospect that these are 'government approved' securities.
SIPC, the securities investor protection corporation is:
A. An insurance entity which protects investors investments again market losses up to $500,000
B. An insurance entity which protects investors who are sold worthless securities
C. A Congressional guarantee against losses in the securities markets
D. None of the above - Answer D. None of the above
Explanation:
SIPC was set up to protect customer ACCOUNTS in the event of a broker-dealer bankruptcy, not
protect investments against loss. Be careful of the wording in this question. Cash & securities in
customer accounts are 'insured' up to $500,000 in the event the B/D goes bankrupt and the
cash and securities can't be located and properly returned to the customer.
In most cases, Federal Securities Laws:
A. Supersede State securities laws
B. Are subordinate to State securities laws
C. Are given the same weight as State securities laws
D. None of the above - Answer A. Supersede State securities laws
Explanation:
Federal securities laws typically supersede State laws.
Which of the following are not considered money market securities?
A. T-bills
B. Commercial Paper
C. Reverse Repos
D. ADRs - Answer D. ADRs
,Explanation:
Since the 'money market' includes short term debt instruments only, and since ADRs represent
ownership (equity) in foreign stocks, ADRs are not debt.
When a corporation goes public, it is issuing:
A. Common stock
B. Preferred stock
C. Convertible bonds
D. Any of the above - Answer A. Common stock
Explanation:
Going public means sharing equity ownership (common stock) with public investors, for the first
time (Initial public offering, IPO).
The term 'issuer' most often refers to:
A. A corporation seeking to raise additional capital for expansion or modernization purposes
B. A business which prints up securities certificates such as bonds and stocks
C. A business which has satisfied the listing requirements of one or more approved stock
exchanges
D. A business, a municipality, or a federal governmental entity which is seeking to raise capital
from the sale of securities. - Answer D. A business, a municipality, or a federal governmental
entity which is seeking to raise capital from the sale of securities.
Explanation:
Whether one considers answers A, B, or C partially accurate, the last answer, D is the most
complete therefore best answer.
Every publicly-traded corporation is required to have a transfer agent and a registrar. The
primary distinction between the two is:
A. They are not different --- they perform the same function
B. The registrar keeps the record of all stock and bond holders
C. The transfer agent transmits the payment for securities from the purchaser to the seller in all
secondary market trades.
, D. The transfer agent ensures that dividend payments go out to all registered owners of record
on the payable date. - Answer D. The transfer agent ensures that dividend payments go out to
all registered owners of record on the payable date.
Explanation:
This is one of the functions of a Transfer Agent. Registrars make sure that a company does not
issue more shares than authorized in the Charter.
One of the more attractive features of common stock is that:
A. One cannot lose more than one's investment
B. The stockholders have the right to vote on quarterly dividends
C. The stockholders have the right to choose Officers
D. Any of the above - Answer A. One cannot lose more than one's investment
Explanation:
You cannot lose more than you've put at risk. A common stockholder cannot be held liable for
any debts of the corporation, therefore they have limited liability.
When the market price of a company's common stock has reached triple digits ($100 or above),
the Board of Directors may elect to declare which of the below to make the shares more
affordable?
A. Reverse stock split
B. A stock split
C. A stock dividend
D. Any of the above - Answer B. A stock split
Explanation:
Splitting a stock provides each shareholder with more shares and the CMV (current market
value) of the stock will decline proportionately. Because of the reduced price in the market, it
becomes more 'affordable.'
When a corporate Board announces a 10% stock dividend, shareholders know they will be
receiving:
A. more shares
B. money
