CNA Domain 8: Legal and Ethical Need (Quiz 2) Welcome to your SIE Practice Exam 3 This test is designed to prepare you mentally for the actual SIE Exam with the same number of (75 questions) and the same time allowed (105 minutes) as the actual exam. The SIE Exam is breakdown into four (4) Parts. Here are the Four (4) Domains of SIE Exam with the weightage and number of questions in this practice exam: 1. Understanding Products and their Risks [33 Questions] - 44% 2. Knowledge of Capital Markets [12 Questions] - 16% 3. Understanding Trading, Customer Accounts, and Prohibited Activities [23 Questions] - 31% 4. Overview of the Regulatory Framework[7 Questions] - 09% Please click NEXT to start your Free SIE PRACTICE EXAM right away. Best of Luck! 1. Which of the following statements about rights and warrants is true? A) Rights are short term; warrants are long term. B) Rights are long term; warrants are short term. C) Rights and warrants are both long term. D) Rights and warrants are both short term. None 2. An investor has just received stock rights in the mail allowing the purchase of 250 shares of a stock offering at a discount. With these rights, the investor may take any of the following actions except A) purchase 125 shares at double the discount. B) exercise some rights and sell the rest. C) sell some rights and let the rest expire unexercised. D) sell the rights for a portion of their value. None 3. The primary purpose of American depositary receipts (ADRs) is to facilitate the trading of A) U.S. stocks in foreign markets. B) foreign stocks in U.S. markets. C) foreign stocks in both domestic and foreign markets. D) domestic stocks in both foreign and domestic markets. None 4. An investor needs to decide whether or not they would like to maintain their percentage of ownership in a company that has decided to increase the number of outstanding shares. Which of the following is the best description of what is taking place? A) Warrants will be distributed to existing stockholders and they will have two to five years to decide whether or not to buy the stock at the strike price. B) Warrants will be distributed to existing stockholders with an exercise price equal to the current market value. C) Rights will be distributed to existing stockholders with an exercise price lower than the current market value. D) Rights will be distributed to existing stockholders; they have only two options: exercise the rights or let them expire. None 5. Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Unregistered stock acquired by a corporate affiliate in a stock option program B) Unregistered stock acquired by a nonaffiliate under an investment letter C) Stock acquired by a corporate affiliate in a private placement D) Stock acquired on the NYSE by a corporate affiliate None 6. A certificate issued by a company granting its owner the right to purchase securities from the issuer at some specified price years into the future would best be described as A) a proxy. B) a warrant. C) a rights certificate. D) a call option. None 7. An affiliate holding unregistered shares can sell under Rule 144 A) as often as wished. B) one time a year. C) two times a year. D) four times a year. None 8. Rule 144 stipulates that after holding restricted stock fully paid for six months, an affiliate may begin selling shares A) subject to volume restrictions within any 90-day period. B) completely unrestricted. C) subject to the volume restrictions on any single day. D) at the discretion of the issuer's board of directors (BOD). None 9. An affiliate has held restricted shares fully paid for six months. In anticipation of the desire to divest the shares, the affiliate should know that A) no limit on the number of shares that can be sold will be imposed. B) while no longer restricted, all sales of these shares must be approved by the issuer's board of directors (BOD). C) any shares sold will be subject to volume restrictions if still an affiliate. D) the shares are no longer restricted, having been held fully paid for six months. None 10. Under the provisions of Rule 144, what percentage of outstanding stock may a control person sell every 90 days? A) 1% B) 3% C) 6% D) 4% None 11. Each of the following is considered a control person under Securities and Exchange Commission (SEC) Rule 144 except A) corporate officers and directors. B) those persons who own 5% or more of the total beneficial interest of a company's common stock. C) those persons who own 10% or more of the total beneficial interest of a company's common stock. D) another company that owns 10% or more of the company's equity securities. None 12. Which statement describes rights and warrants? A) Rights are short term; warrants are long term. B) Both rights and warrants are long term. C) Both rights and warrants are short term. D) Rights are long term; warrants are short term. None 13. A Japanese computer chip manufacturer wants to attract U.S equity investors. Which of the following securities would help the issuer to accomplish this goal? A) Foreign depositary receipts B) American depositary receipts (ADRs) C) Global stocks D) Yen-based stocks None 14. Preferred shareholders who expect missed dividend payments to be eventually paid are most likely to own A) callable preferred stock. B) convertible preferred stock. C) cumulative preferred stock. D) straight preferred stock. None 15. As interest rates rise, prices of preferred stock will A) rise. B) remain unaffected. C) fall. D) become volatile. None 16. All else being equal, which of the following preferred would pay the highest dividend? A) Cumulative preferred B) Straight preferred C) Callable preferred D) Participating preferred None 17. When the board of directors (BOD) declares a dividend, A) owners of preferred shares must be paid before any payment is made to common shareholders. B) owners of preferred shares must be paid at least the same amount as any payment made to common shareholders. C) owners of preferred shares are paid only after any payment is made to common shareholders. D) owners of common shares must be paid at least the same amount as any payment made to preferred shareholders. None 18. While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be A) convertible. B) participating. C) callable. D) adjustable rate. None 19. Which of the following preferred stocks' price would remain most stable in an environment of changing interest rates? A) Participating preferred B) Straight preferred C) Nocumulative preferred D) Adjustable rate preferred None 20. MAS Corporation has enjoyed an extremely profitable year. It has been determined that those owning the MAS 4% preferred, participating to 6% preferred shares, will receive the full participating dividend. The participating shareholders will receive an additional dividend of A) 6%. B) 4% C) 2%. D) 10% None 21. Which of the following best describes the trade execution of American depositary receipts (ADRs)? A) Trades are executed domestically in a foreign currency.' B) Trades are executed overseas in a foreign currency. C) Trades are executed overseas in U.S dollars. D) Trades are executed domestically in U.S. dollars. None 22. Preferred shareholders have A) no voting or preemptive rights. B) voting rights only. C) preemptive rights only. D) both voting and preemptive rights. None 23. What is the primary purpose of an issuer sponsoring an American depositary receipt (ADR)? A) These securities are created to facilitate foreign investment in U.S. companies. B) These securities are created to provide tax relief for U.S. investors. C) These securities are created to attract a U.S. investor base. D) These securities permit the issuer to avoid Securities and Exchange Commission (SEC) jurisdiction. None 24. The potential that inflation will devalue the fixed dividend income payments received by preferred shareholders is known as A) interest-rate risk. B) market risk. C) purchasing power risk. D) decreased dividend risk. None 25. What is the tax status of a dividend paid to a U.S.-based American depositary receipts (ADR) investor? A) These dividends are only taxable to foreign buyers. B) These dividends are tax free. C) These dividends may be taxed by both the foreign country and the United States. D) These dividends are tax deferred. None 26. Callable preferred stock is advantageous to the issuing company because it allows the company to A) replace a higher, fixed-rate issue with a lower issue after the call date. B) take advantage of higher interest rates. C) issue fixed-rate securities at a yield lower than usual. D) call in the stock at less than par value and capture the difference as income. None 27. If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that A) these shares are trading at $35.00. B) this is a 3.5% preferred class. C) the common shareholders receive the same $3.50 annual dividend. D) the shares had increased by 3.5% each year. None 28. What is the primary benefit for an American investor when purchasing an American depositary receipt (ADR)? A) Exemption from U.S. taxation B) Hedging currency risk C) Diversification D) Tax-deferred dividends None 29. An investor owns 3% preferred stock participating to 6%. This means the investor A) must receive a total of 9% in any year the board declares the 6% participating be paid. B) could receive an additional 3% over the stated 3% dividend if the board declares it. C) must receive at least 6% each year. D) could receive an additional 6% over the stated 3% dividend. None 30. DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past three years but now is in a position to resume paying them again. Before paying common shareholders a dividend, the company would be required to pay the preferred shareholders A) nothing. B) $1.00. C) $2.50. D) $4.00. None 31. Which of the following securities provides U.S. investors with a way to gain exposure to the common stock of a foreign issuer? A) ADR B) CMO C) STRIPS. D) GNMA None 32. Which of the following preferred stocks allows the issuer to pay the shareholders par and cease dividend payments following a stated period? A) Adjustable B) Callable C) Puttable D) Redeemable None 33. CDT Corporation has issued 4.5% callable preferred shares. If these shares are ever called in, stockholders should expect that the shares would be called in at A) current market value. B) par value. C) par value or lower. D) par value or higher. None 34. The Securities Act of 1933 protects investors who buy new issues by doing all of the following except A) regulating the underwriting and distribution of primary and secondary issues. B) requiring an issuer to provide full and fair disclosure. C) requiring the licensing of persons affiliated with broker-dealers. D) providing criminal penalties for fraud in the issuance of new securities. None 35. Regarding the purchase of a new equity issue, an account where a restricted person has a beneficial interest would be allowed to purchase the new shares at the public offering price A) without restriction. B) never. C) only if the interest exceeds 15%. D) only if the interest does not exceed 10%. None 36. Which of the following choices would best describe a follow-on offering? A) An initial public offering (IPO) that has additional shares added by the issuer on the effective date B) An offering to the employees of the issuing company C) The common stock that is issued attached to a rights offering D) An issue of shares by a public company that is already listed on an exchange None 37. When choosing to issue additional bonds to the general public in order to raise more capital, a corporate issuer is engaging in A) a secondary offering. B) an initial public offering. C) a primary offering. D) a private securities offering. None 38. Restricted persons are not allowed to purchase an IPO of common stock. All of the following are restricted persons except A) broker-dealers. B) any person owning 10% or more of a member firm. C) registered representatives. D) the grandparent of a restricted person. None 39. Which of the following offerings is most likely exempt from the registration requirements of the Securities Act of 1933? A) Additional public offerings (APOs) B) Private (nonpublic) securities offerings C) Shelf offerings D) Initial public offerings (IPOs) None 40. Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club A) is a restricted account and will not be allowed to purchase equity shares of an IPO. B) is a restricted account but will be allowed to purchase equity shares of an IPO. C) is not a restricted account but will not be allowed to purchase equity shares of an IPO. D) is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO). None 41. A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must A) never equal the number of shares issued. B) always equal the number shares authorized. C) always be greater than the number of shares issued. D) never exceed the number of shares authorized. None 42. Rules regarding restricted persons state that each of the following is considered immediate family except A) parents. B) a brother or a sister. C) a mother-in-law or a father-in-law. D) an aunt or an uncle. None 43. In a split offering, A) shares are issued from the corporation and sold by existing shareholders. B) shares are issued to existing shareholders only. C) shares are sold by existing shareholders only. D) all shares are issued to the public from existing shareholders. None 44. Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does not exceed A) 20%. B) 10%. C) 25%. D) 5%. None 45. Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in A) the funding market. B) the secondary market. C) the currency market. D) the capital market. None 46. Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares? A) Buy 1,000 shares of CDT B) Write 10 CDT call options C) Sell 1,000 shares of CDT D) Buy 10 CDT call options None 47. An investor is long MJS stock. For this investor, which of the following is true? A) The risk is that the stock falls in price. B) The risk is that the stock goes up in price. C) Maximum loss can be unlimited. D) The risk is that the stock remains stable in price. None 48. Blaine Smith has owned XYZ stock for several years and believes it is time to take his profit and invest that money in another stock. He should A) buy XYZ to close. B) buy XYZ to open. C) sell XYZ to open. D) sell XYZ to close. None 49. Your customer opens a position at 45 and then closes it later at 47. This represents A) a 47-point gain. B) a 2-point gain. C) a 2-point gain or loss. D) a 2-point loss. None 50. The locate requirement is an element of which of the following transactions? A) Buy to open a position. B) Buy to close C) Sell to close D) Sell to open None 51. A person who is vested with legal rights and powers to be exercised for the benefit of another is known as A) a dealer. B) a broker. C) a sponsor. D) a fiduciary. None 52. A client calls a registered representative and states that she lives in New York City and is looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany New York School District that would be triple tax free for the client. Which of the following would be the registered representative's best course of action? A) Determine suitability prior to placing the trade and mark the trade solicited. B) No suitability determination is required because these bonds will be tax free for the client and mark the trade unsolicited. C) No suitability determination is required because the bonds will be tax free for the client and mark the trade solicited. D) Determine suitability prior to the trade and mark the trade unsolicited. None 53. A registered representative is explaining discretionary and nondiscretionary accounts to a customer. Only one of the following statements is accurate and can be made by the registered representative. Which is it? A) In a nondiscretionary account no order can be entered without your prior approval. B) In a discretionary account you will have the opportunity to approve any order I want to enter before I enter it. C) If I decide that the account should be a discretionary one you will no longer be able to enter orders yourself. D) I decide if the account should be set up as discretionary or nondiscretionary, but must do so in your best interest. None 54. A registered representative suggests a trade to a customer which the customer agrees is suitable given their investment objectives. The order is entered. This transaction is A) neither solicited or unsolicited and the order ticket should be marked as neither. B) solicited and the order ticket must be marked solicited. C) unsolicited and the order ticket should be marked unsolicited. D) solicited but the order ticket need not be marked in any special way. None 55. Discretion given to a registered representative to make transactions applies to all of the following except A) the security for the transaction. B) timing and price only. C) the number of shares or units for the transaction. D) whether to buy or sell. None 56. With a discretionary account A) the customer may refuse any trades done by the party given the discretion. B) the customer may still enter orders. C) churning is permitted by the party given the discretion. D) a full power of attorney is needed on file to grant discretion. None 57. Which of the following are required in discretionary accounts? A) FINRA approval to open the account B) Prompt approval by a principal following each discretionary trade C) SEC approval to open the account D) Prior approval by a principal before each discretionary trade is placed None 58. All of the following are required for a discretionary account except A) the customer must authorize discretion. B) all trades must be promptly approved by a principal at the firm. C) the account must receive FINRA approval prior to the first trade. D) a principal at the firm must authorize discretion. None 59. A customer called his registered representative to place a trade to buy 100 shares of ABC. The customer wants to put a limit on the order, but is unsure what would be an appropriate price. At the suggestion of the registered representative, the customer enters the order with a limit of $30. This trade was A) unsolicited. B) solicited. C) not held. D) discretionary. None 60. A registered representative enters a discretionary order for her clients account. All of the following are required except A) the order must be approved by a principal prior to entry. B) a record of the order must be maintained. C) the order should be included in those required to be reviewed frequently. D) the order must be identified as or marked discretionary. None 61. Nate McCann is closing on a house tomorrow and wants to sell some securities to meet closing costs. He wants to know how soon he could get the money and what he needs to do. You should tell A) if he does the trade today he won't be able to get the money for 2 business days because regular way settlement is T + 2. B) if he does the trade today for cash settlement he could settle today. C) if he does the trade today he won't be able to get the money for 3 business days because regular way settlement is T + 3. D) if he does the trade today for cash settlement he would settle tomorrow. None 62. James Thomas calls and is interested in buying some GNMA certificates and wants to know when payment will be due. You should tell him A) trade date plus 1 business day. B) trade date plus 2 business days. C) trade date. D) trade date plus 3 business days. None 63. Your client, Jacob Riley, wants to purchase Treasury bonds and asks when he would need to pay for the bonds. You would tell him that regular way settlement for U.S. government bonds is A) trade date. B) trade date plus 1 business day. C) trade date plus 3 business days. D) trade date plus 2 business days. None 64. Which of the following settlement arrangements has trade and settlement occurring on the same day? A) Buyer's option B) Seller's option C) Cash settlement D) Regular way settlement None 65. A term indicating that a security is tradable and all of the requirements of the contract to sell the security have been met and the security is ready to be transferred is A) buyer's options. B) good delivery. C) regular way settlement. D) seller's option. None 66. Some issuers issue securities in electronic form, while some securities have been issued in physical form. Which of the following statements are true in relation to electronic or physical form? A) All U.S. government securities are issued with physical paper certificates B) Corporate stocks can only exist in electronic form C) Corporate bonds have always been issued in electronic form D) All U.S. government securities are issued in book entry form None 67. When securities are bought and sold, ownership changes hands between the buyer and the seller A) upon delivery of the trade confirmation. B) on the transaction date. C) on the settlement date of the transaction. D) at an agreed time between both parties. None 68. Regular way settlement for common stock is A) trade date plus 3 business days. B) trade date. C) trade date plus 1 business day. D) trade date plus 2 business days. None 69. Someone responsible only for training associated persons at a Financial Industry Regulatory Authority (FINRA) member firm A) need not hold any registration because training is the person's only function. B) must be registered as a principal of the firm. C) need not be registered because training is considered administrative. D) need only be registered as a registered representative. None 70. An amended Form U-5 must be filed and a copy sent to the former employee within how many days of discovery of the inaccuracy? A) 10 B) 25 C) 30 D) 90 None 71. Registered representatives must complete or satisfy each of the following except A) the firm element. B) the Form U-5. C) state registration requirements. D) the regulatory element. None 72. An individual has been a registered representative with a national firm for the past three years. Another member firm makes an attractive offer in an attempt to lure this individual to join them. In order to do so, the paperwork necessary would be A) a Form U-5 from the previous employer. B) a transfer of registration on Financial Industry Regulatory Authority (FINRA) form TRF. C) both a Form U-5 from the previous employer and a Form U-4 from the new one. D) completing a new Form U-4 with the new employer. None 73. A registered representative has left one firm to join another. Sometime later, the former employer discovers that some information on Form U-5 filed at the time of termination was inaccurate. The firm need not file an amended U-5 if at least how much time has gone by? A) 2 years B) 30 days C) No stated time limit D) 5 years None 74. When a registered person leaves the securities business, Financial Industry Regulatory Authority (FINRA) retains jurisdiction over that person for how long? A) 1 year B) 2 years C) In perpetuity D) 30 days None 75. A registered person has left the securities industry and now holds a manufacturing job. Under what circumstances may this formerly registered person continue to receive commissions from work done at the person's old firm? A) A contract must have been signed by the registered person and the firm specifying what commissions are still to be paid. B) Once the registered person has left the industry, the person must be treated like any member of the public and may not receive any further commissions. C) Any contract regarding continuing commissions must include the provision that the person's spouse must receive them in the event of the person's death. D) The person may only receive commissions from current trades done by those who were the person's customers during employment at the firm. None 1 out of 75 Time is Up! Time's upTime is Up!
