Free FINRA SIE Practice Exam with Questions & Answers | Set: 8

Step by Step Explanation:

Blue-Chip Stock Mutual Funds: Invest in large, established companies that typically provide stable dividend income and potential for capital appreciation.

Incorrect Options:

A: Growth stocks prioritize capital appreciation, not income.

B: Money market accounts focus on safety and liquidity, not capital gains.

D: STRIPS provide fixed income without capital gains potential.

FINRA Investment Product Education: FINRA Investment Guidance.

The Securities Act of 1933 is built on the principle of full and fair disclosure in the primary (new issue) market. Under this framework, the SEC’s core authority is to require that material (pertinent) information be disclosed to investors so they can make informed decisions. That makes C correct. The SEC enforces registration and disclosure requirements by reviewing filings for completeness and compliance, and it can delay effectiveness or take action when disclosure is deficient. The key idea tested on the SIE is that U.S. securities regulation is disclosure-based, not merit-based.

Choice A is incorrect because the SEC does not “approve” registration statements in the sense of endorsing them; a registration statement becomes effective, but effectiveness is not an SEC “approval” of the offering. Choice B is incorrect because the SEC does not approve a security based on its investment merits—meaning the SEC does not judge whether a security is a good investment or safe for investors. Choice D is incorrect because the SEC does not “pass on” (vouch for) the accuracy of statements in a prospectus as an investment endorsement; instead, issuers and underwriters are responsible for the truthfulness and completeness of disclosures, and they may face liability for material misstatements or omissions.

For SIE purposes, remember the clean distinction: the SEC’s role is to ensure that investors receive required disclosures, not to guarantee outcomes. This is why prospectuses carry language indicating that the SEC has not approved or disapproved the securities or passed upon the merits—reinforcing that the investor must evaluate the disclosed risks and information.

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:

Suspicious Activity: The use of multiple money orders, lack of investment activity, and request to wire funds to another firm raise red flags for potential money laundering.

FINRA Rules: The RR should escalate the issue by reporting internally and potentially filing a Suspicious Activity Report (SAR).

Incorrect Options:

A: Denying the request without investigation may violate customer instructions.

B: Freezing the account requires a valid legal or regulatory basis.

D: Processing the request without investigation could facilitate illegal activity.

FINRA Anti-Money Laundering (AML) Guidance: FINRA AML Rules.

Form U4 (Uniform Application for Securities Industry Registration or Transfer) requires disclosure of any felony convictions, regardless of whether they are securities-related. A felony conviction for drunk driving falls under this requirement.

B is correct because a felony conviction must be reported on Form U4.

A is incorrect as misdemeanor speeding tickets do not require disclosure unless they involve fraud, theft, or dishonesty.

C is incorrect as bench warrants are not reportable unless they lead to a conviction.

D is incorrect because gross misdemeanors (except those involving fraud or dishonesty) do not require reporting.

Step by Step Explanation:

Federal Funds Rate: The rate at which depository institutions lend reserves to each other overnight. It is set by the Federal Open Market Committee (FOMC).

Other Rates:

Prime Rate: Rate banks charge their most creditworthy customers.

Discount Rate: Rate the Federal Reserve charges banks for borrowing directly from it.

LIBOR: Interbank lending rate used internationally, now being phased out.

Federal Reserve Explanation of Rates: Federal Funds Rate.

The correct answer is Monetarist, which centers on the idea that the money supply is a primary driver of economic activity, inflation, and overall growth. Monetarists argue that changes in the quantity of money in circulation significantly influence aggregate demand and price levels over time. In practice, this links closely to the role of a central bank (in the U.S., the Federal Reserve) in influencing economic conditions through monetary tools that affect the availability and cost of money and credit. For SIE purposes, the key takeaway is that monetarist thinking emphasizes controlling money supply growth to promote stable economic expansion and manage inflation.

This differs from Keynesian theory, which typically emphasizes fiscal policy (government spending and taxation) and total demand management as the main lever for stabilizing the economy, especially during recessions. While Keynesians also recognize monetary policy, they usually place more focus on government intervention through budget policy to influence employment and output. Supply-side approaches focus more on policies intended to increase production incentives (e.g., lowering taxes and reducing regulation to stimulate investment and labor supply), rather than treating money supply as the central driver. Demand-pull is not a broad “model” in the same sense; it is most commonly associated with a type of inflation where rising demand outpaces supply, pushing prices upward.

The FINRA SIE outline includes principal economic theories (including Keynesian and Monetarist) and tests candidates’ ability to identify which framework aligns with a described belief about what drives growth and market conditions.