SIE – FOURTEENTH SIMULATION

#1. Which of the following statements best describes the role of the Federal Reserve Board (FRB)?

It insures customer deposits at commercial banks

It implements U.S. monetary policy and regulates the money supply

It writes rules for municipal securities dealers

It prosecutes criminal securities fraud cases in federal court

#2. Which of the following is a primary tool of the Federal Reserve to influence short-term interest rates?

Approving new securities offerings

Setting mutual fund expense ratios

Changing income tax brackets

Open market operations

#3. Which of the following best describes tightening monetary policy?

Increased government spending and tax cuts

Actions that increase the money supply and lower interest rates

Actions that decrease the money supply and raise interest rates

Reducing reserve requirements to stimulate lending

#4. Which of the following is generally a result of an easing monetary policy?

Immediate reduction in the federal budget deficit

Guaranteed rise in the value of the U.S. dollar

Higher short-term rates and reduced lending

Lower short-term interest rates and increased borrowing

#5. Which of the following is a responsibility of the Securities and Exchange Commission (SEC)?

Insuring municipal bond issues

Setting margin requirements for broker-dealers

Enforcing federal securities laws

Setting monetary policy for the U.S. economy

#6. Which of the following is TRUE regarding the role of the MSRB?

It writes rules for municipal securities dealers and advisors

It underwrites all municipal bond issues

It enforces its rules directly on firms

It sets interest rates for municipal bonds

#7. Which of the following is considered a broker-dealer under federal securities laws?

A registered investment company

A bank that accepts only FDIC-insured deposits

An issuer of municipal bonds only

A firm that effects securities transactions for others and/or for its own account

#8. Which of the following persons is required to register as a representative of a broker-dealer?

An intern who files records and never contacts customers

An individual who takes customer orders and receives commissions

A back-office employee who processes checks

A clerk who only performs data entry

#9. Which of the following would MOST likely be considered an associated person of a broker-dealer?

A bank loan officer with no securities duties

An employee who solicits securities transactions

A securities issuer’s CFO

A customer with a large margin account

#10. Which of the following actions requires updating Form U4 for a registered representative?

The representative changes their favorite investment product

The representative opens a new personal bank account

A customer changes their investment objective

A change in the representative’s reportable criminal history

#11. Which of the following occurs when a representative’s association with a firm ends?

The individual’s licenses become permanently invalid

The firm must file a new Form U4

FINRA automatically suspends the individual for 30 days

The firm must file Form U5

#12. Which of the following best describes the term statutory disqualification?

Automatic removal of a customer’s account privileges

Disqualification from association due to certain criminal or regulatory events

Expiration of a registration after two years

Termination of a firm’s membership for failing an exam

#13. Which of the following is generally prohibited for a registered representative without firm approval?

Participating in private securities transactions for compensation

Attending a firm-sponsored training seminar

Recommending diversified mutual funds

Maintaining a personal IRA at the same firm

#14. Which of the following is an example of an outside business activity that must be reported to a firm?

Serving as a paid consultant for another financial services company

Playing in a recreational sports league

Participating in a book club

Volunteering at a local charity on weekends

#15. Which of the following is considered a prohibited practice under FINRA rules?

Providing a prospectus to a new issue purchaser

Sharing in customer profits or losses without firm approval and proportional contribution

Receiving commissions from the employing broker-dealer

Recommending suitable investments based on client goals

#16. Which of the following situations is MOST likely an example of churning?

Implementing a buy-and-hold strategy over many years

Periodic rebalancing of a long-term portfolio

Excessive trading in a customer’s account primarily to generate commissions

Executing a one-time large sale to meet customer needs

#17. Which of the following activities is considered front-running and prohibited?

Executing a customer’s market order immediately

Recommending dollar-cost averaging for long-term investing

Entering a proprietary trade ahead of a large customer order

Routing an order to the best available market

#18. Which of the following is an example of a conflict of interest that must be disclosed to a customer?

The firm charges standard commissions

The firm is making a market in a security it is recommending

The firm executes trades through various exchanges

The firm provides quarterly statements

#19. Which of the following is TRUE regarding the prohibition on guarantees?

Guarantees are permitted if disclosed in writing

Guarantees are allowed for experienced investors

Representatives may not guarantee against losses in a customer’s account

Representatives may guarantee only bond investments

#20. Which of the following statements regarding insider trading is TRUE?

Trading based on material nonpublic information is prohibited by law

It is only prohibited in primary market offerings

It is allowed if the trade benefits the issuer

It is allowed if profits are donated to charity

#21. Which of the following is considered material nonpublic information?

Historical quarterly earnings posted on the website

Widely reported analyst opinions

Public industry forecasts from a government agency

Unannounced merger negotiations of a public company

#22. Which of the following is the maximum civil penalty for insider trading under federal law?

A permanent bar from all employment

Up to three times the profit gained or loss avoided

Forfeiture of SIPC coverage only

A fixed $10,000 fine

#23. Which of the following BEST describes pump-and-dump activity?

Recommending blue-chip stocks to conservative clients

Reinvesting dividends in a mutual fund

Buying low and selling high after thorough research

Spreading false information to inflate a stock price and then selling

#24. Which of the following practices involves placing both buy and sell orders to give the appearance of trading activity without changing ownership?

Matched orders

Best execution

Cross trades

Dollar-cost averaging

#25. Which of the following is TRUE about Regulation SP privacy rules?

Regulation SP applies only to institutional clients

Privacy notices are required only upon request

Firms may freely sell customer data without notice

Firms must protect customers’ nonpublic personal information

#26. Which of the following is generally included in a firm’s business continuity plan (BCP)?

Guaranteed repayment of client losses after a disaster

Elimination of the need for recordkeeping

Automatic government bailout processes

Procedures for maintaining operations during significant business disruptions

#27. Which of the following is TRUE about a firm’s anti-money laundering (AML) program?

It eliminates the need for customer identification

It is optional for small firms

It must include ongoing employee training and independent testing

It must be approved by SIPC

#28. Which of the following triggers a Currency Transaction Report (CTR)?

Cash deposits exceeding $10,000 in a single business day

Any withdrawal from a retirement account

Any foreign currency exchange transaction

A $5,000 wire transfer between two banks

#29. Which of the following is TRUE about a Suspicious Activity Report (SAR)?

It must be disclosed to the customer involved

It is optional unless requested by the customer

It replaces any need for record retention

It must be filed when a transaction appears to involve funds from illegal activity

#30. Which of the following describes a customer who refuses to provide required identity documents at account opening?

The firm may open the account after 90 days

The firm may open the account with reduced services

The firm may accept only cash deposits for that account

The firm must not open the account if identity cannot be verified

#31. Which of the following is TRUE regarding books and records maintained by broker-dealers?

They may be destroyed at the firm’s discretion

They are optional for firms with fewer than 10 employees

They must be kept only while an account is open

They must be preserved for specific periods as required by regulation

#32. Which of the following is the minimum period customer account records must generally be retained after account closure?

One year

Two months

Six years

Twenty years

#33. Which of the following is TRUE regarding customer complaints received in writing?

They apply only if the customer threatens legal action

They must be retained and tracked according to regulatory requirements

They do not need to be documented if resolved quickly

They can be discarded after a verbal response

#34. Which of the following accurately describes correspondence under FINRA rules?

Written or electronic communications to 25 or fewer retail investors in a 30-day period

Any letter sent to institutional investors only

Website content accessible to the general public

Television commercials aired nationwide

#35. Retail communication is defined as any written communication distributed to:

Any number of institutional investors

Only existing customers, not prospects

Exactly 25 retail investors in a year

More than 25 retail investors in a 30-day period

#36. Which of the following communications would be considered institutional?

A social media post aimed at the public

A performance report sent exclusively to pension funds and insurance companies

A brochure mailed to 500 retail households

An email to 10 individual investors

#37. Which of the following is a key requirement for retail communications about mutual funds?

Risks do not need to be discussed if the fund is diversified

Only the fund name must be shown

Performance data must be accompanied by appropriate disclosures

Future returns may be guaranteed if stated clearly

#38. Which of the following statements about public appearances by registered representatives is TRUE?

They may include guarantees of investment performance

They are subject to firm supervision and may be considered retail communication

They are exempt from all communications rules

They require SEC preapproval

#39. Which of the following is a general requirement for recommendations made on social media by registered persons?

They may be made without firm knowledge

They are considered personal opinions and not regulated

They must comply with suitability and communications rules

They are exempt from recordkeeping requirements

#40. Which of the following BEST describes the concept of suitability?

All customers must be offered the same products

Recommendations must be appropriate based on the customer’s investment profile

Recommendations must guarantee positive returns

Suitable recommendations eliminate all investment risk

#41. Which of the following client factors is most important when assessing risk tolerance?

Client’s marital status alone

Ability and willingness to endure declines in account value

Client’s favorite investment magazine

Client’s preferred sports team

#42. Which of the following is TRUE when a customer refuses to provide certain financial details?

Suitability rules no longer apply

No transactions of any kind are permitted

The account must be closed immediately

The representative must base recommendations only on available information

#43. Which of the following would typically warrant updating a customer’s investment profile?

The firm changes its name

The customer updates email preferences

The market has a normal fluctuation

The customer retires and begins drawing income from investments

#44. Which of the following is a key principle of Regulation Best Interest (Reg BI)?

Reg BI eliminates the need for suitability analysis

Broker-dealers may prioritize firm compensation over customer benefit

Reg BI applies only to institutional customers

Broker-dealers must act in the retail customer’s best interest when making recommendations

#45. Form CRS is intended to:

Summarize only the firm’s trading revenues

Serve as a contract guaranteeing investment results

Provide a brief, plain-language summary of the firm–customer relationship

Replace all other disclosures and prospectuses

#46. Which of the following customers would be MOST suitable for an aggressive growth fund?

A client who states they cannot tolerate any loss

A client saving for a home purchase in 6 months

A retiree needing steady income and capital preservation

A young professional with stable income and high risk tolerance

#47. Which of the following is MOST appropriate for a client who expects to need access to funds in 3 months?

Speculative small-cap stock portfolio

High-quality money market mutual fund

Long-term municipal bond fund

Direct investment in illiquid limited partnerships

#48. Which of the following would generally be MOST appropriate for a client primarily concerned with preservation of capital?

High-yield bond fund

Short-term U.S. Treasury securities

Aggressive sector rotation strategy

Leveraged emerging markets ETF

#49. Which of the following portfolios is MOST suitable for a moderate investor seeking income and some growth?

100% small-cap speculative stocks

All assets in cash and no securities

Entire portfolio in cryptocurrencies

Blend of high-quality bonds and large-cap dividend-paying stocks

#50. Which of the following describes a primary benefit of diversification across industries?

Eliminates market-wide downturns

Removes all credit risk from bonds

Guarantees positive returns annually

Reduces the impact of poor performance in any single industry

#51. Which of the following is TRUE regarding asset allocation for an older investor close to retirement?

100% allocation to speculative stocks is recommended

Age should never be considered in allocation decisions

A higher allocation to fixed-income and lower allocation to equities is often appropriate

All assets should be in illiquid alternatives

#52. Which of the following investments exposes an investor to both market risk and currency risk?

International equity mutual fund

Domestic Treasury bill

Stable value fund invested only in U.S. securities

FDIC-insured bank savings account

#53. Which of the following is a primary reason to include some equities in a long-term retirement portfolio?

Eliminate all volatility in the account

Guarantee fixed income payments

Qualify automatically for government guarantees

Provide potential for growth that can outpace inflation

#54. Which of the following is TRUE with respect to liquidity needs in portfolio construction?

Short-term liquidity needs are best met with cash or cash equivalents

Illiquid investments are ideal for emergency funds

Liquidity needs are irrelevant for suitability

Long-term CDs are the only liquid investments

#55. Which of the following statements about non-systematic risk is TRUE?

It can be reduced through diversification

It applies only to government bonds

It cannot be mitigated by holding many securities

It impacts the entire market simultaneously

#56. Which of the following is the BEST example of non-systematic risk?

A company’s earnings disappointment causing its stock price to fall

An unexpected interest-rate hike by the Fed

A broad market decline due to recession

An inflation spike affecting all assets

#57. Which of the following is a leading economic indicator?

Corporate profits after tax

Stock market index levels

Average duration of unemployment

Personal income after taxes

#58. Which of the following is typically categorized as a coincident economic indicator?

Prime interest rate

Building permits for new housing

New orders for consumer goods

Industrial production

#59. Which of the following measures is generally considered a lagging economic indicator?

Manufacturers’ new orders

Average duration of unemployment

Money supply

New housing starts

#60. Which of the following most accurately describes gross domestic product (GDP)?

Total income of all citizens worldwide

Total tax revenue collected by the government

Total value of all goods imported by a country

Total value of all goods and services produced within a country

#61. Which of the following is TRUE during a period of stagflation?

The economy experiences stagnant growth and rising prices

Rapid GDP expansion and falling interest rates

Declining prices and strong employment

High growth and low inflation

#62. Which form of tax is generally considered progressive?

Federal income tax

Sales tax on groceries

Gasoline excise tax

Flat local head tax

#63. Which of the following is an example of a regressive tax?

Sales tax on consumer goods

Estate tax

Alternative minimum tax

Graduated income tax

#64. Which of the following investments would be MOST appropriate to hedge against inflation over the long term?

A diversified portfolio of common stocks

Fixed annuity with level payments

Long-term fixed-rate bonds only

Short-term bank CDs held to maturity

#65. Which of the following describes interest-rate risk?

Risk that an issuer will default on payments

Risk that securities cannot be sold quickly

Risk that inflation will fall over time

Risk that bond prices will decline when market interest rates rise

#66. Which of the following is TRUE about reinvestment risk?

It is the risk of having to reinvest proceeds at lower interest rates

It is eliminated by holding zero-coupon bonds

It applies only to stocks

It has no effect on bond funds

#67. Which of the following investors faces the greatest credit risk?

Holder of a long-term, below-investment-grade corporate bond

Shareholder of a money market mutual fund holding T-bills

Investor in an FDIC-insured savings account

Owner of a U.S. Treasury note

#68. Which of the following is TRUE about liquidity risk?

It applies only to mutual funds

It is eliminated by buying long-term bonds

It is higher for securities that trade infrequently in the secondary market

It is greatest for large-cap exchange-listed stocks

#69. Which of the following best describes political risk?

Risk that government actions or instability will negatively impact investments

Risk that inflation will decline too quickly

Risk that an individual company’s earnings will fall

Risk of interest-rate fluctuations

#70. Which of the following investors is MOST exposed to currency risk?

Investor in a U.S. Treasury bond fund

U.S. investor holding foreign bonds denominated in local currency

Investor in a domestic money market fund

Investor in domestic large-cap stocks only

#71. Which of the following is TRUE regarding systematic risk?

It impacts only foreign securities

It applies only to high-yield investments

It affects nearly all securities and cannot be diversified away

It can be eliminated by purchasing municipal bonds

#72. Which of the following statements about diversification is TRUE?

It prevents losses during recessions

It ensures market risk is eliminated

It guarantees positive returns over time

It reduces exposure to company-specific risk

#73. Which of the following investors would be MOST appropriate for an international equity fund?

An investor with no tolerance for volatility

An investor who wants only FDIC-insured products

An investor seeking growth and willing to accept political and currency risk

An investor who needs principal protection in the short term

#74. Which of the following is typically the primary investment objective of an income-oriented investor?

Speculative trading gains over short periods

Regular cash flow from dividends or interest

Maximum capital appreciation regardless of risk

Capital preservation with no income

#75. Which of the following is MOST appropriate for a client whose objective is long-term capital growth and who can tolerate substantial price swings?

Short-term investment-grade bond fund

Treasury money market fund

Aggressive growth stock fund

Bank savings account

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