Free Practice Questions for FINRA SIE Exam

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 correct as it is the most sensitive to short-term market forces.

A, B, and C change less frequently.

Step by Step Explanation:

Securitization: The process of pooling financial assets, such as mortgage loans, and creating asset-backed securities that investors can buy.

Incorrect Options:

B: Hypothecation refers to pledging assets as collateral.

C & D: Loan and claim processing are administrative terms, not related to the creation of securities.

SEC Guidance on Asset-Backed Securities: SEC ABS Info.

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 correct because inflation directly affects fixed income by eroding purchasing power.

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

B is incorrect because economic risk generally refers to broader economic downturns.

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

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 correct because the cost basis remains $20.00.

B, C, and D incorrectly assume that dividends or taxes change the cost basis.

Refunding involves replacing existing debt with new debt, usually to take advantage of lower interest rates.

B is correct because the company issues new bonds to pay off the existing debt.

A is incorrect as refunding involves issuing debt, not equity.

C is incorrect because the company is not obligated to buy back bonds at a discount.

D is incorrect because a sinking fund is used for gradual repayment, not refunding.

Under FINRA Rule 2150, registered representatives may share in profits and losses in a customer’s account if:

The customer provides written consent.

The arrangement is approved by the RR’s firm.

The sharing is proportional to the RR's financial contribution.

C is correct because it aligns with FINRA requirements.

A, B, and D are incorrect because they do not meet the necessary conditions for sharing.

Step by Step Explanation:

403(b) Accounts: These tax-advantaged retirement plans are specifically for employees of public schools, tax-exempt organizations, and certain other nonprofit employers, such as hospitals.

Incorrect Options:

Volunteer Workers: Ineligible unless they are also employees.

Small Business Owners and Military Personnel: These groups typically qualify for other retirement plans, not 403(b).

IRS Publication 571 (403(b) Plans): IRS 403(b) Guidance.

U.S. government agency securities (often called “agencies”) typically offer investors a higher yield than U.S. Treasury securities of comparable maturity, which is why choice D is the best answer. Treasuries are direct obligations of the U.S. government and are widely regarded as having the lowest credit risk in the marketplace. Agency securities, however, vary by issuer and by the type of guarantee involved. Some agencies are backed by the full faith and credit of the U.S. government, but many are not; instead, they may have implicit support or support that is limited to the issuing agency’s resources. Because the market generally views many agency issues as having slightly more credit or structural risk than Treasuries, investors often demand a yield premium as compensation.

Choice C is incorrect as a blanket statement because not all agency issues carry full faith and credit backing. This distinction is a common SIE test point: candidates must recognize that “agency” does not automatically mean “Treasury-equivalent.” Choice A is incorrect because interest payments on agency bonds are not universally quarterly; payment frequency can vary (many pay semiannually like Treasuries, but it depends on the issue). Choice B is incorrect because agencies are not restricted to trading on the NYSE; they commonly trade in the secondary market through dealer networks (often OTC), and trading venue depends on the specific product.

This question is testing product knowledge: the relationship between credit/guarantee features and yield, and how securities with slightly greater perceived risk than Treasuries often trade at higher yields to attract buyers.

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.

FINRA Guidelines on Joint Accounts: FINRA Joint Accounts.

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

A is correct because uncorrelated holdings reduce portfolio risk.

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

C does not address the core issue of over-concentration.

D is the opposite of mitigating risk.