FREE SIE Knowledge Questions and Answers

Question 1

FINRA's Rule 3220 was created primarily to:

Accepted Answer

forbid presents and gratuities from one business to another.

Answer

FINRA Rule 3220, also known as the Gifts and Gratuities Rule, was established to prevent undue influence and maintain fair business practices within the securities industry. It primarily forbids member firms or their associated persons from giving gifts or gratuities exceeding $100 per year to employees of other firms if the gift is related to the business of the recipient's employer. This rule aims to ensure that business decisions are made objectively, free from the sway of excessive gifts.

Question 2

Which answer accurately sums up a margin account?

Accepted Answer

Brokers lend money to investors, who use it for trading.

Answer

A margin account is a brokerage account that allows an investor to borrow money from their broker-dealer to purchase securities. The securities bought with the borrowed funds serve as collateral for the loan. This leverage can amplify returns but also increases potential losses, as investors are still responsible for repaying the loan plus interest, regardless of the investment's performance.

Question 3

Which of the following factors largely affects an option contract's price?

Accepted Answer

The linked stock's share price

Answer

The price of an option contract is primarily determined by the price of its underlying asset, which is typically a stock. As the underlying stock's price moves, the intrinsic value of the option changes, directly impacting its premium. Other factors like time to expiration, volatility, and interest rates also play a role, but the linked stock's share price is the most fundamental determinant.

Question 4

Which of these describes an Exchange-traded fund's (ETF) drawback?

Accepted Answer

Expenses of trading versus stocks

Answer

While Exchange-Traded Funds (ETFs) offer many advantages like diversification and often lower expense ratios than mutual funds, they do have a drawback related to trading costs. Unlike mutual funds, which are typically bought and sold once a day at their net asset value, ETFs are traded on exchanges throughout the day like individual stocks. This means that each purchase or sale of an ETF incurs trading expenses, such as commissions or bid-ask spreads, which can add up for frequent traders.

Question 5

The following are some of the main reasons why investors engage in passive ETF investing:

Accepted Answer

have longer-term gains and save more money than you would from alternative trading methods' higher fees.

Answer

Investors engage in passive ETF investing primarily to achieve longer-term gains by tracking a market index rather than actively trying to outperform it. This strategy typically involves lower trading activity and, consequently, lower management fees compared to actively managed funds or frequent trading methods. The goal is to benefit from market growth over time while minimizing costs, which often leads to better net returns in the long run.

SIE - Securities Industry Essentials Practice Test

SIE - Securities Industry Essentials Practice Test

FREE SIE Knowledge Questions and Answers