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SIE capital markets practice test

Free SIE exam questions for the first outline section, Knowledge of Capital Markets (16% of the scored items): regulators and market participants, market structure, economic factors and offerings.

Tap an answer to check it, or open "Show the answer and rationale" under each question. Customers in the questions are fictional. Exam practice only, not investment advice.

Question 1 of 20

Changing federal tax rates and government spending is known as:

  1. Monetary policy
  2. Open market policy
  3. Reserve policy
  4. Fiscal policy
Show the answer and rationale

Answer: D

Fiscal policy (taxes and spending) is set by Congress and the President. Monetary policy, including open market operations and reserve settings, belongs to the Federal Reserve.

📚 Learn it: The Fed's Toolkit: Tightening and Easing

Question 2 of 20

Which change in market rates would cause an existing 5% bond to trade at a premium?

  1. Market rates fall to 4%
  2. Market rates stay at 5%
  3. Market rates rise to 6%
  4. Market rates rise to 5.5%
Show the answer and rationale

Answer: A

If new bonds pay only 4%, an existing 5% coupon is worth more than par, so it trades at a premium. Rising rates push it to a discount, and unchanged rates leave it near par.

📚 Learn it: Rates, Bond Prices and the Yield Curve

Question 3 of 20

A growth company is best described as one whose:

  1. Dividend is fixed by its charter
  2. Earnings track the business cycle closely
  3. Revenue comes mainly from regulated rates
  4. Earnings grow faster than the overall economy
Show the answer and rationale

Answer: D

Growth companies grow faster than the economy and typically reinvest earnings rather than pay large dividends. Tracking the cycle describes cyclicals, regulated rates describe utilities, and fixed dividends describe preferred stock.

📚 Learn it: Boom, Bust and Who Survives

Question 4 of 20

Which of the following is a coincident economic indicator?

  1. Stock prices of 500 common stocks
  2. Average duration of unemployment
  3. Nonfarm payroll employment
  4. New building permits
Show the answer and rationale

Answer: C

Payroll employment moves with the economy, so it is coincident. Stock prices and building permits are leading; average duration of unemployment is lagging.

📚 Learn it: Leading, Coincident, Lagging

Question 5 of 20

A strong U.S. dollar would most likely hurt the reported earnings of a U.S. company that:

  1. Sells only to U.S. customers
  2. Imports goods for resale
  3. Earns most revenue overseas
  4. Buys most supplies from Asia
Show the answer and rationale

Answer: C

Foreign revenue converts into fewer dollars when the dollar is strong, so overseas earners report less. Companies buying from abroad or importing for resale benefit, and a purely domestic seller is largely unaffected.

📚 Learn it: The Dollar Abroad and Reading the Books

Question 6 of 20

Which federal law governs the registration of new issues of securities?

  1. Investment Company Act of 1940
  2. Securities Act of 1933
  3. Trust Indenture Act of 1939
  4. Securities Exchange Act of 1934
Show the answer and rationale

Answer: B

The Securities Act of 1933 covers the primary market: registration and disclosure for new issues. The 1934 Act governs secondary trading, the 1940 Act regulates investment companies and the Trust Indenture Act covers corporate bond indentures.

📚 Learn it: Filing, Cooling Off and Going Effective

Question 7 of 20

A managing underwriter places a stabilizing bid in order to:

  1. Replace the need for a prospectus
  2. Push the price above the offering price
  3. Buy shares cheaply for its own long-term investment account
  4. Support the price of a new issue that is falling
Show the answer and rationale

Answer: D

Stabilization props up a new issue's market price and may not exceed the offering price. It is not meant to push prices higher or to profit from cheap purchases, and it has nothing to do with prospectus delivery.

📚 Learn it: Syndicates, Spreads and Commitments

Question 8 of 20

Which of the following securities must be registered with the SEC before a public offering?

  1. A GNMA certificate
  2. A 9-month bankers' acceptance
  3. A national bank's common stock
  4. A REIT's common stock
Show the answer and rationale

Answer: D

A REIT is an ordinary corporate-style issuer whose public shares must be registered. Ginnie Mae securities carry a U.S. government guarantee, short-term bankers' acceptances are exempt, and a bank's own stock is exempt.

📚 Learn it: Securities That Skip SEC Registration

Question 9 of 20

When calculating net worth for the accredited investor test, a person's primary residence is:

  1. Counted only if owned outright
  2. Counted at full market value
  3. Excluded from the calculation
  4. Counted at half its value
Show the answer and rationale

Answer: C

The value of a primary residence is excluded from the $1 million net worth test. It is not counted at full or partial value, and owning it outright does not change that.

📚 Learn it: Private Placements, Reg A and Friends

Question 10 of 20

Which person is most likely an affiliate of an issuer?

  1. A company director
  2. The transfer agent
  3. A bondholder
  4. A retail customer
Show the answer and rationale

Answer: A

Affiliates are people in a control relationship, such as officers, directors and large shareholders. A small retail holder, a transfer agent and an ordinary bondholder do not control the issuer.

📚 Learn it: Rule 144: Selling Restricted and Control Stock

Practice 10 more knowledge of capital markets questions free →

A timed or tutor-mode set in the app, scored by SIE section, with every miss saved for review. Free, no sign-up needed.

Question 11 of 20

In a negotiated municipal underwriting, the underwriter is:

  1. Chosen by sealed competitive bids
  2. Selected directly by the issuer
  3. Assigned by the MSRB
  4. Elected by the bondholders
Show the answer and rationale

Answer: B

In a negotiated sale the issuer picks its underwriter and negotiates terms. Sealed bids describe a competitive sale, and neither the MSRB nor bondholders choose underwriters.

📚 Learn it: Hot IPOs, Spinning and Muni Deals

Question 12 of 20

Which law governs the registration of broker-dealers and trading in securities after they are issued?

  1. Securities Investor Protection Act
  2. Securities Exchange Act of 1934
  3. Securities Act of 1933
  4. Investment Company Act of 1940
Show the answer and rationale

Answer: B

The Securities Exchange Act of 1934 regulates the secondary market: exchanges, broker-dealers, trading practices and periodic reporting, and it created the SEC. The 1933 Act is about new issues, the 1940 Act about funds, and SIPA about customer protection at failed firms.

📚 Learn it: The SEC and the Big Six Laws

Question 13 of 20

Which organization develops and administers the SIE exam?

  1. The SEC
  2. NASAA
  3. The MSRB
  4. FINRA
Show the answer and rationale

Answer: D

FINRA develops and administers the SIE and most representative exams. The SEC oversees FINRA but does not run exams, NASAA is associated with state exams such as the Series 63, and the MSRB's exams cover municipal professionals.

📚 Learn it: SROs: FINRA, MSRB and the Exchanges

Question 14 of 20

Which agency writes and enforces the federal tax rules for IRAs and other retirement accounts?

  1. The SEC
  2. The IRS
  3. FINRA
  4. The Fed
Show the answer and rationale

Answer: B

The Internal Revenue Service, a bureau of the Treasury, administers federal tax law, including contribution and distribution rules for retirement accounts. The SEC, FINRA and the Fed regulate other areas.

📚 Learn it: The Fed, Treasury, the States, FDIC and SIPC

Question 15 of 20

At a failed SIPC member, a customer is missing $100,000 of stock and $300,000 of cash. What is the most SIPC will protect?

  1. $250,000
  2. $350,000
  3. $500,000
  4. $400,000
Show the answer and rationale

Answer: B

Cash protection is capped at $250,000, so the claim is $100,000 of stock plus $250,000 of cash = $350,000. The $500,000 overall limit is not reached; $400,000 ignores the cash cap.

📚 Learn it: SIPC: What's Protected and What Isn't

Question 16 of 20

Which firm settles trades and holds customer cash and securities for an introducing firm?

  1. A municipal advisor
  2. An underwriter
  3. A clearing firm
  4. A transfer agent
Show the answer and rationale

Answer: C

A clearing firm settles trades, carries customer accounts and holds assets for introducing firms. Transfer agents keep the issuer's shareholder records, municipal advisors advise issuers, and underwriters distribute new issues.

📚 Learn it: Who's Who in the Market

Question 17 of 20

Over-the-counter trading of securities that are NOT listed on any exchange is traditionally called the

  1. third market
  2. fourth market
  3. second market
  4. first market
Show the answer and rationale

Answer: C

The second market is OTC trading of unlisted securities. The first market is trading listed securities on an exchange, the third market is OTC trading of listed securities, and the fourth market is direct institution-to-institution trading.

📚 Learn it: Primary, Secondary, Third and Fourth Markets

Question 18 of 20

A stock is quoted 7.40 bid, 7.52 ask. What is the spread?

  1. $0.08
  2. $0.22
  3. $0.02
  4. $0.12
Show the answer and rationale

Answer: D

Spread = ask − bid = 7.52 − 7.40 = $0.12. The other numbers come from misaligning digits in the subtraction.

📚 Learn it: Exchanges, OTC and the Bid-Ask Spread

Question 19 of 20

Can a firm charge a customer both a commission and a markup on the same trade?

  1. No, firms may not charge markups
  2. No, it acts in only one capacity
  3. Yes, if disclosed on the confirmation
  4. Yes, for trades over 1,000 shares
Show the answer and rationale

Answer: B

In one trade the firm is either agent (commission) or principal (markup or markdown), never both, so charging both is not allowed even with disclosure or for large trades. Markups themselves are permitted when fair.

📚 Learn it: Agent or Principal: Commission vs Markup

Question 20 of 20

A very large trade negotiated by institutions, often hundreds of thousands of shares, is commonly called a

  1. odd lot
  2. round lot
  3. wash trade
  4. block trade
Show the answer and rationale

Answer: D

A block trade is a very large trade, usually between institutions, and often routed to dark pools or negotiated directly. A round lot is a standard trading unit, an odd lot is smaller, and a wash trade is a manipulative fake trade.

📚 Learn it: ATSs, ECNs and Dark Pools

Practice 10 more knowledge of capital markets questions free →

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