FINRA SIE - Securities Industry Essentials Exam (SIE)

An unrealized gain occurs when the value of an asset increases but has not yet been sold. If the customer sells the stock, the unrealized gain becomes a realized gain.

B is correctbecause the increase in value without selling the stock is an unrealized gain.

Ais incorrect because interest income refers to earnings from fixed-income securities.

Cis incorrect because operating profit relates to a company’s earnings, not an investor’s portfolio.

Dis incorrect because "out of the money" is a term used for options, not stocks.

FINRA prohibits the payment of referral fees or splitting of commissions with individuals who are not registered with a broker-dealer. However, taking a friend out to dinner as a gesture of gratitude is allowed, as it does not involve cash or monetary compensation directly tied to the referral.

C is correctbecause non-monetary expressions of gratitude (like a dinner) are permitted under FINRA rules.

Ais incorrect because commission splitting with unregistered individuals is prohibited.

Bis incorrect because paying referral fees is also prohibited without registration.

Dis incorrect because giving prepaid credit cards tied to commission income violates compensation rules.

The beta coefficient measures the sensitivity of a stock's returns relative to the overall market (usually the S&P 500). A beta of:

1.0indicates the stock moves in line with the market.

Greater than 1.0suggests the stock is more volatile than the market.

Less than 1.0suggests the stock is less volatile.

D is correctbecause beta specifically compares the volatility of a stock to the market.

Ais incorrect as beta does not measure the market’s volatility.

Bis incorrect as beta considers both upside and downside movements.

Cis incorrect as beta does not measure liquidity.

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:

Negotiated Offering: Occurs when the issuer directly selects an underwriter and negotiates terms. Common in municipal bond issuances.

Incorrect Options:

A: Follow-on offerings apply to subsequent issuances of equity securities.

C: Competitive offerings involve multiple underwriters submitting bids.

D: Best-efforts offerings do not guarantee the sale of all securities.

References:

MSRB Overview of Municipal Offerings:MSRB Offerings.

Accounts held individually are subject to probate, which is the legal process of administering the decedent’s estate. Probate determines the distribution of assets according to the deceased’s will or state intestacy laws.

A is correctbecause individual accounts require probate to transfer assets.

Bis incorrect because irrevocable trusts bypass probate.

Cis incorrect because TOD accounts allow direct transfer of assets to named beneficiarieswithout probate.

Dis incorrect because JTWROS accounts transfer ownership to the surviving account holder automatically.

Fundamental analysis focuses on evaluating a company’s financial health and potential for growth by analyzing its financial statements, such as the income statement, balance sheet, and cash flow statement.

C is correctbecause financial statements provide the data necessary for fundamental analysis.

AandBare incorrect because chart patterns and moving averages are tools of technical analysis, not fundamental analysis.

Dis incorrect because resistance and support levels are also part of technical analysis.

Step by Step Explanation:

Government Bond Funds: Invest in government-backed securities, but the value of the fund itself is not guaranteed by the government, as these funds are subject to market risks.

Incorrect Options:

A: Diversification depends on the fund’s investment strategy.

B: Interest/dividend payments may fluctuate.

C: If interest rates fall, NAVs typically rise, not drop.

References:

SEC Guidance on Mutual Funds: SEC Government Bond Funds.

Step by Step Explanation:

Balance Sheet Definition: Shows a company’s financial position at a specific point in time, listing assets, liabilities, and shareholders' equity (net worth).

Other Financial Statements:

Profit and Loss Statement: Summarizes revenues and expenses over a period.

Cash Flow Statement: Tracks cash inflows and outflows.

References:

SEC Guide to Financial Statements: SEC Financials.