Practice SIE Questions Securities
Industry Essentials All Solved.
A broker-dealer's privacy notice must include all the following information, EXCEPT the? -
Answer Names of any other financial institutions with which the firm is affiliated:
A privacy notice is not required to include the names of any other financial institutions with
which the firm is affiliated.
The department of a brokerage firm that advises a corporation regarding the structure and
timing of a potential stock offering and also assists in the underwriting of securities is the? -
Answer Investment banking department:
The investment banking department of a brokerage firm assists issuers that intend to sell new
securities to the public. The sales department is involved buying and selling securities for
customers of the firm. The research department makes recommendations to customers as to
whether they should buy, hold, or sell a security. The operations department ensures that all of
the paperwork, funds, and securities transfers which are associated with a trade (or processing)
are handled efficiently and according to specific industry standards.
All of the following are likely to be found in the portfolio of a money-market fund, EXCEPT? -
Answer Common stock:
For a money-market fund, the underlying securities are short-term debt securities. Therefore,
common and preferred stock are not found in a money-market fund's portfolio.
Which of the following statements is NOT TRUE about selling stock short? - Answer The short
seller will receive any dividends that are paid while she is short the stock:
The short seller will NOT receive any dividends that are paid while she is short the stock. In fact,
the short seller is required to pay the dividend to the lender of the stock. Each of the other
statements are true. Shorting stock must be done in a margin account, the broker-dealer loans
the stock to the customer, and there is no set time by which the shares must be repurchased (as
long as the client maintains sufficient equity in the margin account).
On a confirmation to a customer, a FINRA member must disclose all of the following , EXCEPT? -
Answer Whether the broker-dealer is also an investment banker for the issuer of the security:
The customer confirmation must disclose whether the brokerage firm acted as a principal or
agent. If it acted as agent, the amount of the commission must be disclosed. Also, the broker-
,dealer must disclose or offer to disclose the time that the trade was executed. Whether the
broker-dealer is also an investment banker for the issuer of the security is disclosed in a
research report, but is not required on a confirmation.
For a bond owner, in which of the follow situations is call protection most valuable? - Answer
When bond prices are rising:
Call protection prevents an issuer from calling (i.e., buying back) their bonds. If bonds are
ultimately called, investors must sell their bonds back to the issuer. Bonds are most often called
when their prices have risen due to declining interest rates.
Which of the following securities is NOT backed by the credit of the U.S. government? - Answer
Federal National Mortgage Association (FNMA) bonds:
Federal National Mortgage Association (FNMA) bonds are issued by a privately owned
organization and are not backed by the U.S. government. All of the other choices are directly
backed by the U.S. government.
Which of the following is TRUE regarding the tax treatment of municipal bonds? - Answer
Interest is tax-free, but capital gains are taxable:
The interest paid on municipal bonds is federally tax-free; however, any resulting capital gains
are taxable.
A stock index call option is exercised. The writer must? - Answer Deliver cash:
When an index option is exercised, the writer must pay the buyer the in-the-money amount of
the option in cash.
In placing a stop-limit order, a customer should understand? - Answer The order can be
activated but may or may not be executed:
With reference to stop-limit orders, the order can be activated but may or may not be executed.
Unlike a stop order, a stop-limit order does not become a market order. Once it is activated, it
must satisfy the limit price, which may never occur. All of the other choices are not true of a
stop-limit order.
An increase in which of the following will likely result in the Federal Reserve Board
implementing an easy money policy? - Answer Unemployment:
, In an attempt to stimulate both spending and the economy, the FRB will likely pursue an easy
money policy when unemployment is increasing. Implementing a tight money policy is more
likely in periods of high inflation, represented by an increase in the CPI and personal incomes.
Money received by a corporation when it sells its stock above its par value is called? - Answer
Paid-in capital:
Money received by a corporation when it sells its stock above its par value is called capital
surplus or paid-in capital. This is different from earned surplus (retained earnings), which is
profits that have been retained by the company and have not been paid as dividends.
A registered representative's broker-dealer is an underwriter of an initial public offering of
stock. The RR's father-in-law may purchase? - Answer The IPO from a different broker-dealer:
A restricted person is not permitted to purchase any shares of a new issue unless an exemption
applies. There is no exemption for restricted persons to purchase limited quantities of an IPO.
An immediate family member of an employee (an RR) of a member firm may be a restricted
person. Immediate family members include a spouse, children, parents, siblings, in-laws, and
any other person who is materially supported by an employee of a member firm. An exception
exists if a nonsupported, immediate family member buys the IPO from a different broker-dealer.
There is no requirement to purchase the shares only from a selling group member.
Which of the following bonds results in the highest real interest rate? - Answer A bond yields
8% when inflation is at 3%:
The real interest rate, also referred to as the real rate of return, refers to a bond's yield after its
been adjusted for inflation (yield minus inflation rate). The highest real interest rate is realized
on a bond that yields 8% when the rate of inflation is 3%. This bond provides a real interest rate
of 5% (8% - 3%).
A company has been struggling and has failed to make the most recent interest payment on the
bonds that it has issued. This issuer's bondholders have experienced? - Answer Credit risk:
These bondholders have experienced credit risk of the issuer. Credit risk, also referred to as
default risk, is the risk that a bond issuer will not make interest and/or principal payments on its
bonds. Capital risk is the risk of losing all or a part of your investment. Reinvestment risk is the
result of not being able to reinvest at the same rate after a bond matures or is called. Liquidity
risk is realized when an investment cannot be disposed of quickly and at a price that's related to
recent transactions.
Which of the following entities is considered an eligible purchaser for a Rule 147 offering? -
Answer A corporation that has its principal office located in the state of the offering:
Industry Essentials All Solved.
A broker-dealer's privacy notice must include all the following information, EXCEPT the? -
Answer Names of any other financial institutions with which the firm is affiliated:
A privacy notice is not required to include the names of any other financial institutions with
which the firm is affiliated.
The department of a brokerage firm that advises a corporation regarding the structure and
timing of a potential stock offering and also assists in the underwriting of securities is the? -
Answer Investment banking department:
The investment banking department of a brokerage firm assists issuers that intend to sell new
securities to the public. The sales department is involved buying and selling securities for
customers of the firm. The research department makes recommendations to customers as to
whether they should buy, hold, or sell a security. The operations department ensures that all of
the paperwork, funds, and securities transfers which are associated with a trade (or processing)
are handled efficiently and according to specific industry standards.
All of the following are likely to be found in the portfolio of a money-market fund, EXCEPT? -
Answer Common stock:
For a money-market fund, the underlying securities are short-term debt securities. Therefore,
common and preferred stock are not found in a money-market fund's portfolio.
Which of the following statements is NOT TRUE about selling stock short? - Answer The short
seller will receive any dividends that are paid while she is short the stock:
The short seller will NOT receive any dividends that are paid while she is short the stock. In fact,
the short seller is required to pay the dividend to the lender of the stock. Each of the other
statements are true. Shorting stock must be done in a margin account, the broker-dealer loans
the stock to the customer, and there is no set time by which the shares must be repurchased (as
long as the client maintains sufficient equity in the margin account).
On a confirmation to a customer, a FINRA member must disclose all of the following , EXCEPT? -
Answer Whether the broker-dealer is also an investment banker for the issuer of the security:
The customer confirmation must disclose whether the brokerage firm acted as a principal or
agent. If it acted as agent, the amount of the commission must be disclosed. Also, the broker-
,dealer must disclose or offer to disclose the time that the trade was executed. Whether the
broker-dealer is also an investment banker for the issuer of the security is disclosed in a
research report, but is not required on a confirmation.
For a bond owner, in which of the follow situations is call protection most valuable? - Answer
When bond prices are rising:
Call protection prevents an issuer from calling (i.e., buying back) their bonds. If bonds are
ultimately called, investors must sell their bonds back to the issuer. Bonds are most often called
when their prices have risen due to declining interest rates.
Which of the following securities is NOT backed by the credit of the U.S. government? - Answer
Federal National Mortgage Association (FNMA) bonds:
Federal National Mortgage Association (FNMA) bonds are issued by a privately owned
organization and are not backed by the U.S. government. All of the other choices are directly
backed by the U.S. government.
Which of the following is TRUE regarding the tax treatment of municipal bonds? - Answer
Interest is tax-free, but capital gains are taxable:
The interest paid on municipal bonds is federally tax-free; however, any resulting capital gains
are taxable.
A stock index call option is exercised. The writer must? - Answer Deliver cash:
When an index option is exercised, the writer must pay the buyer the in-the-money amount of
the option in cash.
In placing a stop-limit order, a customer should understand? - Answer The order can be
activated but may or may not be executed:
With reference to stop-limit orders, the order can be activated but may or may not be executed.
Unlike a stop order, a stop-limit order does not become a market order. Once it is activated, it
must satisfy the limit price, which may never occur. All of the other choices are not true of a
stop-limit order.
An increase in which of the following will likely result in the Federal Reserve Board
implementing an easy money policy? - Answer Unemployment:
, In an attempt to stimulate both spending and the economy, the FRB will likely pursue an easy
money policy when unemployment is increasing. Implementing a tight money policy is more
likely in periods of high inflation, represented by an increase in the CPI and personal incomes.
Money received by a corporation when it sells its stock above its par value is called? - Answer
Paid-in capital:
Money received by a corporation when it sells its stock above its par value is called capital
surplus or paid-in capital. This is different from earned surplus (retained earnings), which is
profits that have been retained by the company and have not been paid as dividends.
A registered representative's broker-dealer is an underwriter of an initial public offering of
stock. The RR's father-in-law may purchase? - Answer The IPO from a different broker-dealer:
A restricted person is not permitted to purchase any shares of a new issue unless an exemption
applies. There is no exemption for restricted persons to purchase limited quantities of an IPO.
An immediate family member of an employee (an RR) of a member firm may be a restricted
person. Immediate family members include a spouse, children, parents, siblings, in-laws, and
any other person who is materially supported by an employee of a member firm. An exception
exists if a nonsupported, immediate family member buys the IPO from a different broker-dealer.
There is no requirement to purchase the shares only from a selling group member.
Which of the following bonds results in the highest real interest rate? - Answer A bond yields
8% when inflation is at 3%:
The real interest rate, also referred to as the real rate of return, refers to a bond's yield after its
been adjusted for inflation (yield minus inflation rate). The highest real interest rate is realized
on a bond that yields 8% when the rate of inflation is 3%. This bond provides a real interest rate
of 5% (8% - 3%).
A company has been struggling and has failed to make the most recent interest payment on the
bonds that it has issued. This issuer's bondholders have experienced? - Answer Credit risk:
These bondholders have experienced credit risk of the issuer. Credit risk, also referred to as
default risk, is the risk that a bond issuer will not make interest and/or principal payments on its
bonds. Capital risk is the risk of losing all or a part of your investment. Reinvestment risk is the
result of not being able to reinvest at the same rate after a bond matures or is called. Liquidity
risk is realized when an investment cannot be disposed of quickly and at a price that's related to
recent transactions.
Which of the following entities is considered an eligible purchaser for a Rule 147 offering? -
Answer A corporation that has its principal office located in the state of the offering:
