SIE Exam Practice Questions and Answers: Master the Securities Industry Essentials

### Which of the following entities is primarily responsible for regulating the securities industry in the United States? - [ ] Financial Industry Regulatory Authority (FINRA) - [x] Securities and Exchange Commission (SEC) - [ ] Federal Reserve Board - [ ] North American Securities Administrators Association (NASAA) > **Explanation:** The Securities and Exchange Commission (SEis the primary regulatory authority overseeing the securities industry in the United States. While FINRA is a self-regulatory organization, the SEC holds the ultimate regulatory authority. ### A customer wishes to invest in a mutual fund that tracks the S&P 500 Index and can be traded throughout the day on an exchange. Which investment is most suitable? - [ ] Closed-End Fund - [x] Exchange-Traded Fund (ETF) - [ ] Open-End Mutual Fund - [ ] Unit Investment Trust (UIT) > **Explanation:** Exchange-Traded Funds (ETFs) track indexes like the S&P 500 and can be traded on exchanges throughout the day, similar to stocks. Open-end mutual funds are priced at the end of the trading day, and closed-end funds and UITs have different trading characteristics. ### Which of the following best describes the function of the primary market? - [x] It is where new securities are issued and sold for the first time. - [ ] It is where existing securities are traded among investors. - [ ] It is where securities are traded over-the-counter. - [ ] It is where futures and options are traded. > **Explanation:** The primary market is where new securities are issued and sold to investors for the first time. The secondary market is where existing securities are traded among investors. ### What is the primary purpose of the Securities Act of 1933? - [ ] To regulate the trading of securities after they have been issued - [x] To ensure full and fair disclosure in the issuance of securities - [ ] To establish the Securities and Exchange Commission (SEC) - [ ] To regulate insider trading > **Explanation:** The Securities Act of 1933 aims to ensure that investors receive significant and accurate information regarding securities being offered for public sale, thereby ensuring full and fair disclosure. ### Question 5: Which of the following is a characteristic of a money market instrument? - [x] Short-term maturity - [ ] High risk - [ ] Long-term investment - [ ] High yield > **Explanation:** Money market instruments are characterized by their short-term maturities, typically less than one year, and are generally considered low-risk investments. ### An investor holding a call option has the right to: - [ ] Sell the underlying asset at the strike price - [x] Buy the underlying asset at the strike price - [ ] Buy the underlying asset at the market price - [ ] Sell the underlying asset at the market price > **Explanation:** A call option gives the holder the right, but not the obligation, to buy the underlying asset at a specified strike price before the expiration date. ### Which of the following is considered a self-regulatory organization (SRO)? - [ ] Securities and Exchange Commission (SEC) - [x] Financial Industry Regulatory Authority (FINRA) - [ ] Federal Reserve Board - [ ] Department of Treasury > **Explanation:** FINRA is a self-regulatory organization responsible for overseeing brokerage firms and exchange markets. The SEC, Federal Reserve Board, and Department of Treasury are government entities. ### A bond with a face value of $1,000 is trading at 105. What is the bond's current market price? - [ ] $1,000 - [ ] $1,005 - [x] $1,050 - [ ] $1,150 > **Explanation:** A bond trading at 105 is priced at 105% of its face value. Therefore, the current market price is 105% of $1,000, which equals $1,050. ### What is the primary risk associated with investing in a fixed annuity? - [ ] Market risk - [ ] Credit risk - [x] Inflation risk - [ ] Liquidity risk > **Explanation:** The primary risk associated with fixed annuities is inflation risk, as the fixed payments may lose purchasing power over time due to inflation. Fixed annuities are generally not subject to market risk. ### Which of the following actions is considered insider trading? - [ ] Trading securities based on publicly available information - [x] Trading securities based on material non-public information - [ ] Trading securities based on technical analysis - [ ] Trading securities based on fundamental analysis > **Explanation:** Insider trading involves buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non-public information about the security.