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SIE Exam Questions with 100%
Verified Answers Latest Versions
2025 Graded A+
The Federal Open Market Committee (FOMC) (ANS- buy or sell Treasury securities in the open market. Purchases add money to the economy, making the money available to lend more plentiful, and sales take money out of the economy, making money available to lend less plentiful. Reports of rising inventories generally occur during which period of the business cycle? (ANS- Contraction, due to a lack of consumer demand Who is exempt from registering with SIPC? (ANS- Those who deal exclusively with US Government securities (i.e.-Treasury bonds), exclusively municipality securities, and in redeemable investment company securities Retail investor (ANS- An individual who makes investments such as the purchase of securities for his or her account rather than for an organization Market maker (ANS- Any entity, individual or organization, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security When the Federal Reserve Board wants to expand (loosen) the money supply, it will
(ANS- buy Treasury securities from banks in the open market SROs functioning under the SEC include... (ANS- FINRA, MSRB and CBOE Mild inflation can (ANS- encourage growth and stimulate the economy Discount rate (ANS- The rate the FRB charges member banks Prime rate (ANS- The rate commercial banks (Wells Fargo) charges their most creditworthy investors (Lincoln Financial). Prime rate decreases when banks sell securities because there's money money in the market and don't need to charge as much. Raise the rate when they buy securities. 4 stages of the business cycle (ANS- expansion (recovery), peak (prosperity), contraction (decline), trough, and then expansion (recovery) again Securities Act of 1933 (ANS- (The Paper Act, Prospectus Act, New Issues Act) requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered. To contract or slow economic growth U.S. fiscal policy should be to (ANS- raise taxes and cut government spending for programs and development Out of the federal funds rate, discount rate, prime rate and broker call loan rate, which is the most volatile? (ANS- Federal funds rate because of the overnight offerings (short-term)
(ANS- see example on page 129 under dividends When must a suspicious activity report (SAR) be filed with FinCEN after noticing suspicious activity in an account? (ANS- within 30 calendar days, the client may not know he is subject to an SAR. When can corporate accounts trade on margin? (ANS- Only when it is not listed as being restricted for doing so. When securities are held in street name, who is the beneficial owner? (ANS- The security is put in the broker-dealers name, but the customer is still the beneficial owner. What are the requirements of a business continuity plan (BCP) if there is a major business disruption in the firm? (ANS- Data backup and recovery (hard and electronic copies), alternate business location for employees, and prompt customer access to funds and securities What securities can be purchased on margin? (ANS- Equities, bonds and warrants. Mutual funds cannot be purchased on margin, but can be used as collateral after being held for 30 days. Spin-off (ANS- When one company sells all of the shares of another it own Stagflation (ANS- When inflation and stagnation occur simultaneously: a period of high unemployment and lack of growth and business activity (stagnation) and high unemployment and lack of growth and business activity (inflation) Keynesian theory (ANS- Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand. Deflation
(ANS- a general decline in prices occurring during severe recessions and the unemployment rate is rising. Fourth market (ANS- market for institutional investors in which blocks of stock trade through electronic communications networks (ECNs) that are open 24 hours a day acting as agents bullish position are...
Interest payments for securities (ANS- corporate bond: pay semiannually inflation (ANS- Rising employment due to an increase in demand for goods and services best efforts underwriting types: (ANS- All or none: underwriter sells all of the shares or cancels the underwriting Mini-max: fixing a minimum/maxiumum (floor or ceiling) dollar amount to be sold in order to move forward with the entire offering market maker (ANS- A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security Prime rate (ANS- the rate charged to their most credit worthy corporate customers for unsecured loans, set by individual commercial banks balance of payments (ANS- the flow of money between the US and other countries trustee (ANS- An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services (i.e.- fiduciary appointed to manage assets in a trust) custodian (ANS- An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another (i.e.-Custodian of an account of a minor) Cooling-off period lasts... (ANS- 20 CALENDAR days, not business, since the SEC has received it When the FOMC buys treasury securities, interest rates will... (ANS- be lowered since the money supply is loosening and there is more money being pumped into the economy
What investment products are NOT covered by the FDIC? (ANS- Mutual funds, annuities, life insurance policies, and stocks/bonds.(An annuity with a self-directed IRA or mutual fund with a certificate of deposit are covered) Types of interest rates charged (ANS- Discount rate- FRB Federal Funds Rate- Large commercial banks to one another for overnight loans of $1M or more (short-term, most volatile) Prime Rate- Large commercial banks charge to credit worthy investors Broker Loan Rate- banks charge broker dealers on money they borrowed to lend to margin account customers Shelf offering registration (ANS- when issuers can raise money quickly when needed or when market conditions are just right by selling shares, the transaction does not have to happen immediately, can occur in the primary and secondary offerings Supply-side theory (ANS- Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes. Access equals delivery rule (ANS- Applies to the final prospectus and aftermarket prospectus delivery obligations. It does not apply to preliminary prospectuses. No prospectus can be delivered before the registration date A strong US dollar leads to.. (ANS- more affordablility for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit. prime brokerage account (ANS- a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers. Depository trust company (DTC) (ANS- serves the custody needs of securities industry participants in the US and a number of foreign countries as well.
FINRA regulates (ANS- all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons Syndicate (ANS- two or more broker-dealers (investment bankers) which work with an issuer through, for example, the registration process in the case of corporate securities and bring the issuer's securities to the market by selling them to investors. There are syndicates that specialize in underwriting municipal bonds. The members of a syndicate are also known as the underwriters or collectively the underwriting group. A depository (ANS- A business entity that performs the function of receiving and delivering payments and securities on behalf of both parties to a securities transaction What type of risk can be reduced through diversification? (ANS- Nonsystematic risk (i.e.-business, capital, financial, call, prepayment, currency, liquidity, regulatory, legislative, and political risk) What type of risk cannot be reduced through diversification? (ANS- Systematic risk (i.e.-market, interest rate, reinvestment, and inflation/purchasing power) Limited partnerships (ANS- An investment that allows for a share in the income, gains, losses, deductions, and tax credits of the business entity to pass through to investors The effect of continually rising retail prices on the investment returns of one's portfolio is best described as (ANS- Inflation risk Long call and long put (ANS- call buyer owns the right to buy shares (bullish), while the put buyer has the right to sell the shares (bearish) Short call and short put (ANS- call writer has the obligation to sell the shares (bearish), while the put writer has the obligation to buy the shares (bullish)
What does it mean when a fund is highly leveraged? (ANS- It means they are borrowing to purchase, or buying on margin. (i.e.- a hedge fund is highly leveraged) Penny stock (ANS- a non-Nasdaq listed (therefore, Bulletin Board or "OTC Pink") stock trading under $5 per share. If a stock is listed on an exchange or listed on Nasdaq, it is not a penny stock, regardless of price. T-bonds and T-notes pay interest .... (ANS- semiannually Why is a fixed security not considered a security? (ANS- because the annuity buyer assumes no investment risk, the insurance company does. They do, however, assume inflation risk. A convertible feature for a corporate bond allows (ANS- a bondholder to convert a debt instrument into securities that give the investor ownership rights What causes a mutual fund's NAV per share to fall? (ANS- when the fund pays a dividend to shareholders and when the market value of the portfolio declines American-style vs. European-style option (ANS- American: call or put buyers can exercise a contract any time BEFORE expiration European: call or put buyers can exercise a contract on the expiration day only (last day of trading) Where do tax deductions for real estate programs derive from? (ANS- mortgage interest paid and depreciation When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as (ANS- Treasury STRIPS What are the three yields used for debt instruments that all mean the same thing? (ANS- Nominal, stated and coupon yield, they are all fixed at the time the bond is issued
A preemptive right for existing shareholders is best described as (ANS- the right to purchase shares in an amount that would keep a shareholder's proportionate ownership in the corporation unchanged when a company issues additional shares When is settlement for options trading? (ANS- The next business day, the day after the trade date, T + 1 (i.e.-If someone purchased a call on Tuesday, December 5, the settlement for that trade would be on Wednesday, December 6.) capital market vs money market instruments (ANS- capital market: intermediate to long-term, equity or debt securities with maturities of one year or more money market: short-term, highly liquid, high-yielding debt securities, to corporations, banks, broker-dealers, government municipalities, US government, maturities of 1 year or less, higher degree of safety, no interest payments (purchase at discount and mature at face value) Types of money market instruments (ANS- Certificates of deposit (CDs), Bankers' Acceptances (BAs), Commercial paper, US Treasury bills, Repurchase Agreements (REPOs), and Federal Funds What are ad valorem taxes? (ANS- real estate taxes issued by local municipalities (towns, cities, or counties -- never states) What is capital risk? (ANS- the potential for an investor to lose some or all of their money (the invested capital) under circumstances unrelated to an issuer's financial stability (i.e.-least likely when they invest in securities backed by the government, but likely when they invest in derivative products like options or businesses like DPPs) What are depletion allowances? (ANS- Tax deductions that compensate an oil and gas program for the decreasing supply of the resource after it is taken out of the ground and sold Limited partnerships consist of... (ANS- a large group of investors contributing a small sum
While options accounts are initially approved by the branch office manager (BOM), they must ultimately be approved by the... (ANS- Reigistered options principal (ROP) in a promptly manner When the current yield is higher than the coupon, what does this mean? (ANS- The bond was purchased at a discount When a bond is being sold with current interest rates lower than coupon, what does this mean? (ANS- The bond was sold at a premium How are ETFs priced? (ANS- by supply and demand where transactions prices may be higher or lower than the fund's NAV What is market timing? (ANS- Short-term purchases and sales of a mutual fund to take advantage of price fluctuation What is the most common form of direct participation programs (DPPs)? (ANS- Limited partnerships (LPs): business entities allowing for the economic consequences of the business to flow through to the individual investors (partners). What is the one option contract with unlimited loss potential? (ANS- A short call, it is bearish and wants to see the price of the stock rise What do federal funds represent? (ANS- the amount by which a bank exceeds its required deposits to be held on reserve at the FRB What are the steps for opening a new options account? (ANS- Obtain essential facts from the customer, get approval from the branch manager, enter the initial order, then obtain a signed options agreement What are anticipation notes? (ANS- Short-term municipal obligations that generate funds for a municipality that expects alternate longer-term financing (i.e.-TANs, RANs, TRANs, BANs, CLNs, GANs)
What must happen in order to sell short? (ANS- The shares must be borrowed, or located in order to borrow. What does Regulation S-P consider nonpublic information? (ANS- a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie (a home address is not included as nonpublic information) What is the threshold for triggered suspicious activity and is grounds for filing an SAR (as compared to a CTR)? (ANS- At least $5,000 in funds or assets. A CTR is triggered by amounts greater than $10,000 in funds or assets What is a tender offer? (ANS- When a company offers to buy outstanding securities for cash or for cash plus other securities from its stockholders or bondholders What is a buy-back? (ANS- Sometimes referred to as a repurchase, is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors. What information is contained on the trade confirmation sent to the investor at or on the settlement date? (ANS- The commission charged on the agency transaction and the CUSIP number What would require a loan consent form? (ANS- A customer has given permission for securities in an investment account to be used for the purpose of other customers who want to borrow them in order to sell those securities short What is a municipal financial professional (MFP)? (ANS- an employee of a FINRA member engaged in municipal security representative activities such as underwriting and trading What dose the NAC (National Adjudicatory Council) do? (ANS- establishes the rules, regulations, and membership eligibility standards for registration with the SEC.
Prospectus vs. official document (ANS- Prospectus : the full disclosure document for nonexempt securities Official document: the full disclosure document for exempt securities What are considered investment companies under the Investment Act of 1940? (ANS- Face amount certificates, unit investment trusts, and management companies (both open and closed) What can you do in hedge funds that you can't in mutual funds? (ANS- Use borrowed money to purchase securities (purchasing on margin) and take short positions in NYSE listed stocks (selling short) What does it mean when an option is at "parity" (ANS- When the premium equals intrinsic value (i.e.-"XYZ stock is traded on the NYSE. An investor notices that the XYZ October 45 puts are selling for 2½ when the XYZ stock is quoted at $42.50.) Investors who are bullish on a stock should buy ..... (ANS- Calls (look at chart) Investors who are bearish on a stock should buy .....(ANS- Puts (look at chart) Out of the following, which are not backed by the full faith of the government? : Treasury bonds, bill, STRIPS, or receipts? (ANS- Treasury receipts because they are issued by the broker-dealer, therefore their backing is only as good as the credit rating of the broker-dealer that issued them Why is it easier for municipalities to issue revenue bonds, as opposed to general obligation (GO) bonds? (ANS- Voter approval is not required because revenue bonds are designed to be self-supporting from the revenue derived from the project funded by the fund and they are not constrained by a statutory debt limit since they are not backed by taxes like GO bonds are What is a debenture? (ANS- An unsecured debt (not backed by corporate assets) obligated of a corporation, backed only by its word and general creditworthiness.
discount, lowest interest rate risk because they are short-term, and their maturities are 4, 13, 26 and 52 weeks. What are the rules for penny stocks? (ANS- They are only used in solicited transactions, prospective investors are always given a stock disclosure document before any transactions take place due to their greater perceived risk, a signed suitability statement is NOT required for established customers and statements of account activity are required monthly when an account holds a penny stock What constitutes an established customer? (ANS- They have held an account with the broker-dealer for at least one year (and has made a deposit of funds or securities) OR has made at least 3 penny stock purchases of different issuers on different days What is the maximum potential loss for a short put? (ANS- The risk is if the stock falls ... so if an investor shorts 2 DEF January 55 puts at a premium of 2 each when the market price of DEF is 56.25, the max potential loss is 55 - 2 = 53 x 100 shares = 5,300 x 2 contracts = $10,600 max potential loss initial market price doesn't matter here What is the maximum gain for any short position (call or put) (ANS- The premium (i.e.-An investor short a January 30 call at 4 has a maximum gain potential of 4 points at $400 - This would occur if, at expiration, the contract was at or out of the money and, therefore, left unexercised) What do tax credits do for real estate program partners? (ANS- They reduce tax liability dollar for dollar, which makes them more beneficial than tax deductions, which only reduce taxable income What debt instrument pays no periodic interest? (ANS- Treasury STRIPS because they are sold at a deep discount and mature at par What is inflation risk? (ANS- When prices are continually rising, reducing purchasing power that one's investment returns will have
How is the coupon rate for a bond calculated? (ANS- As a percentage of par, usually $1,000 for a bond Automatic exercise will occur at expiration for any equity option contract that is in the money by at least (ANS- 0. What are the 3 types of real estate direct participation programs? (ANS- raw land, new construction and existing properties What is financial risk? (ANS- relates to those companies that use debt financing (leverage), Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company's debt obligations. U.S. consumers are increasing their imports of foreign-made goods. On this data alone, one might expect gross domestic product (GDP) to (ANS- decrease because you have to assume that when foreign imports are coming in, it is likely that production of U.S. goods will fall off, leading to a decrease in the GDP. Limited partnerships sold publicly via a prospectus offering would be expected to have (ANS- a large group of investors, each contributing a small sum A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares? (ANS- 25 additional shares. This investor must thus go from owning 100 shares out of 1,000,000 to 125 shares out of 1,250,000. An investor holds a 6% callable bond purchased at 105. If the issuer calls the bond before maturity, the yield to call realized by the investor would be (ANS- less than the coupon because they purchased the bond at a premium (105, bonds sell at 100) Political risk is more associated with (ANS- emerging economies, but could occur even in highly developed ones
