FINRA SIE Dumps

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.

References:

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

Step by Step Explanation:

Breakeven Calculation: For covered call writing, breakeven is the stock purchase price minus the premium received.

Purchase Price = $50

Premium Received = $8

Breakeven = $50 - $8 = $42.

Other Options:

B, C, and D: Incorrect because they do not reflect the proper calculation of stock price minus the premium.

References:

Options Clearing Corporation (OCC) Education: OCC Options Guidance.

Step by Step Explanation:

REIT Requirements: REITs must invest at least 75% of their total assets in real estate to qualify for favorable tax treatment under IRS regulations.

90% Rule: Refers to the distribution requirement for taxable income, not asset allocation.

100% Rule: There is no requirement to allocate 100% of assets to real estate.

References:

IRS Publication 542 (Real Estate Investment Trusts): IRS REIT Guidelines.

Step by Step Explanation:

MSRB Rule G-37: Requires municipal securities dealers to report contributions to the MSRB, even if the amount is below the $1,000 threshold that would trigger a two-year prohibition on municipal business.

Incorrect Options:

SEC and FINRA: Not involved in reporting political contributions for municipal securities.

References:

MSRB Rule G-37 (Political Contributions): MSRB Rule G-37.

Step by Step Explanation:

Variable Life Insurance: The cash value depends on the performance of the underlying investment options.

Fluctuating Market Conditions: Since the cash value is linked to market performance, fluctuations directly impact its value.

Beneficiary/Death Benefit Changes: These do not directly impact the cash value unless they involve additional costs or changes to premiums.

References:

SEC Bulletin on Variable Life Insurance: SEC Variable Insurance.

Step by Step Explanation:

Prohibition on Signing Customer Names: It is never permissible to sign a customer's name without written authorization (POA) due to legal and ethical concerns. Unauthorized signing constitutes forgery and violates FINRA rules.

Incorrect Options:

A: Firm principal approval does not override this prohibition.

B: Verbal authorization is insufficient.

C: Discretionary authority does not allow unauthorized signing.

References:

FINRA Rule 4512 (Customer Account Information): FINRA Rule 4512.

Step by Step Explanation:

Dividend Reinvestment Plans (DRIPs): These allow investors to automatically reinvest income distributed by the mutual fund to purchase additional shares.

Dollar Cost Averaging: Refers to systematic investments over time, not directly tied to income distributions.

Capital Gains Reinvestment: Involves reinvesting profits from the sale of fund holdings, which is distinct from dividend reinvestment.

References:

FINRA Mutual Fund Features: FINRA Mutual Funds.

Step by Step Explanation:

Consumer Discretionary Sector: Includes products and services that are not essential, such as luxury items, travel, and entertainment. Revenues increase as disposable income rises during economic expansion.

Consumer Staples and Utilities: These sectors are defensive and less impacted by economic cycles.

Healthcare: Also less correlated with economic cycles due to its essential nature.

References:

SEC and FINRA Guidance on Sectors: Investopedia Sector Overview.

Step by Step Explanation:

Inverse Relationship: Bond prices and interest rates have an inverse relationship. When interest rates fall, existing bonds with higher coupon rates become more valuable, leading to an increase in market value.

Incorrect Options:

A: Market value decreases as interest rates increase.

C: Interest rates and bond values move inversely, not in the same direction.

D: Interest rates are not constant; they fluctuate over time.

References:

SEC Municipal Bonds Overview: SEC Municipal Bonds.

Step by Step Explanation:

Summary Prospectus Content: Must include key information such as the fund’s investment objectives, risks, fees, and past performance. This helps investors make informed decisions.

Incorrect Options:

A: Projected returns are speculative and not included in the prospectus.

C & D: Detailed portfolio holdings and control persons are included in the full prospectus, not the summary.

References:

SEC Rule 498 (Summary Prospectuses): SEC Prospectus Requirements.

Step by Step Explanation:

Interest Rate Risk: Treasury securities are sensitive to changes in interest rates. When rates rise, Treasury prices fall, exposing investors to price risk.

Incorrect Options:

Credit Risk: Virtually nonexistent for Treasuries, as they are backed by the U.S. government.

Liquidity Risk: Treasuries are highly liquid.

Prepayment Risk: Applies to mortgage-backed securities, not Treasuries.

References:

SEC Bond Risk Disclosures: SEC Treasury Risks.

Step by Step Explanation:

Common Stock: Holders of common stock typically have voting rights, which allow them to participate in decisions like electing the board of directors or approving major corporate actions.

Other Securities:

Preferred Stock: Usually does not carry voting rights.

Corporate and Convertible Bonds: Debt instruments, so they do not confer voting rights.

References:

SEC Guide on Stock Voting Rights: SEC Voting Rights.

Step by Step Explanation:

ADRs: Represent foreign securities but are issued in the U.S. and quoted in U.S. dollars, making them easier for American investors to trade.

Incorrect Options:

B: ADRs are quoted in U.S. dollars, not foreign currencies.

C & D: ADRs represent foreign securities held by U.S. banks, not foreign banks.

References:

SEC Bulletin on ADRs: SEC ADR Overview.

Step by Step Explanation:

Backing Away: Refers to the failure of a market maker to honor a firm quote when a customer attempts to trade at that price. It is a violation of market rules.

Incorrect Options:

Freeriding: Involves selling securities before paying for them in a cash account.

Interpositioning: Involves unnecessary intermediaries in trades, which can harm customers.

Market Manipulation: Covers a range of deceptive practices, such as wash trading or spoofing, not specific to honoring quotes.

References:

FINRA Rule 5220 (Firm Quote Rule): FINRA Rule 5220.

Step by Step Explanation:

Private Securities Transactions: Under FINRA Rule 3280, RRs must obtain written approval from their employing firm before participating in the sale of securities outside the firm.

Promissory Notes: These are typically considered securities, requiring prior approval.

Incorrect Options:

A & C: Notification alone is insufficient; written approval is required.

D: Promissory notes are generally treated as securities under federal law.

References:

FINRA Rule 3280 (Private Securities Transactions): FINRA Rule 3280.

Step by Step Explanation:

PIPE Offerings: Typically priced below the current market value to incentivize institutional investors to participate in these transactions.

Discount: The discounted price compensates for the potential illiquidity and risk associated with PIPE offerings.

POP/Market Value: These do not apply to private offerings structured as PIPE transactions.

References:

SEC PIPE Offering Guidance: SEC PIPE Offerings.

Step by Step Explanation:

Cost Basis in Reverse Split: The total cost basis remains unchanged in a reverse stock split. Only the number of shares and price per share adjust.

Pre-Split: 1,000 shares at $5 each = $5,000.

Post-Split: 200 shares at $25 each = $5,000.

Incorrect Options:

A, B, and D: Do not reflect the unchanged total cost basis.

References:

IRS Guidance on Stock Splits: IRS Stock Split Info.

Step by Step Explanation:

Debentures: Corporate bonds not backed by physical assets or collateral. They rely on the issuer’s creditworthiness.

Incorrect Options:

B: Trust certificates are a legacy term for bonds backed by a trust.

C: Collateral trust bonds are secured by financial assets.

D: GO bonds are issued by municipalities, not corporations.

References:

SEC Guide on Corporate Bonds: SEC Corporate Bonds.

Step by Step Explanation:

FINRA Rule 3240: Permits borrowing or lending arrangements between RRs and customers under specific conditions, including familial relationships, provided the arrangement complies with the firm’s policies.

Incorrect Options:

A: FINRA approval is not required; firm approval is.

B: A written agreement alone is insufficient without firm approval.

C: Commercially reasonable terms are not the sole criterion for permissibility.

References:

FINRA Rule 3240 (Borrowing from or Lending to Customers): FINRA Rule 3240.

Step by Step Explanation:

Regulatory Element Requirement: Newly registered persons must complete the Continuing Education (CE) Regulatory Element on the second anniversary of their initial registration and every three years thereafter.

Incorrect Options:

A: The requirement begins on the second anniversary, not the following calendar year.

D: The cycle is every three years, not five.

References:

FINRA Rule 1240 (Continuing Education): FINRA Rule 1240.

Step by Step Explanation:

Warrants: These are long-term options issued by a company that give the holder the right to buy shares at a specific price before expiration. They are typically attached to bond or stock offerings to make them more attractive.

Incorrect Options:

A: Warrants do not pay interest.

B: Refers to callable bonds, not warrants.

D: Describes municipal bonds, not warrants.

References:

SEC Guide to Warrants and Options: SEC Warrants Information.

Step by Step Explanation:

DVP Process: Ensures that payment occurs simultaneously with the delivery of securities, mitigating counterparty risk. Cash payment is made before or at the time of delivery.

Incorrect Options:

A: The T+5 timeline is not standard for DVP.

C: Payment must occur at delivery, not after.

D: Settlement date agreements with the issuer are irrelevant for DVP.

References:

FINRA Guidelines on DVP/RVP Transactions: FINRA DVP Info.

Step by Step Explanation:

Short Sale Definition: Involves selling borrowed securities with the expectation of repurchasing them at a lower price.

Investor Ownership: Short sales do not involve securities already owned by the seller.

Other Options: None of the other choices accurately define a short sale.

References:

SEC Regulation SHO (Short Selling): SEC Short Sales.

Step by Step Explanation:

Penny Stocks: These are low-priced, highly speculative stocks often issued by small or distressed companies. They generally have low liquidity, meaning they can be difficult to buy or sell without significantly impacting the price.

Incorrect Options:

Dividends: Penny stocks rarely pay dividends, unlike blue-chip stocks.

Price Stability: Penny stocks are highly volatile compared to blue-chip stocks.

Capitalization: Blue-chip companies are far better capitalized.

References:

SEC Bulletin on Penny Stocks: SEC Penny Stocks.

Step by Step Explanation:

Secondary Offering: Involves the sale of shares by an existing shareholder, such as an insider, rather than the company itself issuing new shares.

Incorrect Options:

A: Rights offerings involve giving existing shareholders the opportunity to buy additional shares.

B: Private offerings are not registered with the SEC and involve limited investors.

C: An exempt offering refers to securities exempt from SEC registration, such as Regulation D offerings.

References:

SEC Guide on Secondary Offerings: SEC Secondary Offerings.