49 Markets & Accounts Practice Questions & Answers
Every Markets & Accounts practice question from the SIE / Series 7 Practice Test, with the correct answer and a short explanation.
Start practice test →1. In which market does an issuer sell newly created securities directly to investors to raise capital?
- A.The primary market✓ Answer
- B.The fourth market
- C.The secondary market
- D.The third market
In the primary market the issuer receives the proceeds because it is selling new securities to investors, such as in an initial public offering (IPO).
2. Two investors trade previously issued shares of a public company on an exchange. In which market does this occur?
- A.The primary market
- B.The new-issue market
- C.The secondary market✓ Answer
- D.The underwriting market
The secondary market is where already-issued securities trade between investors, and the issuer does not receive the proceeds.
3. What is the primary role of a market maker on a securities exchange or in the over-the-counter (OTC) market?
- A.To set the interest-rate policy for the securities market
- B.To advise issuers on how to structure new offerings
- C.To audit the financial statements of listed companies
- D.To provide liquidity by continuously quoting both bid and ask prices and standing ready to buy and sell✓ Answer
A market maker provides liquidity by quoting a two-sided market (bid and ask) and standing ready to buy at the bid and sell at the ask.
4. Which type of order is executed immediately at the best price currently available in the market?
- A.A stop-limit order
- B.A market order✓ Answer
- C.A limit order
- D.A stop order
A market order guarantees execution and fills immediately at the best available price, but it does not guarantee a specific price.
5. An investor wants to buy a stock but will pay no more than $50 per share. Which order type should be used?
- A.A market order
- B.A buy stop order at $50
- C.A buy limit order at $50✓ Answer
- D.A sell limit order at $50
A buy limit order sets the maximum price the investor is willing to pay, so it executes only at the limit price or lower.
6. In a cash account, how must a customer's purchase transactions be handled?
- A.The customer may pay 25% and finance the rest
- B.The customer must pay in full for all purchases✓ Answer
- C.The customer may borrow up to 50% of the purchase from the broker-dealer
- D.The customer never has to deposit any funds
In a cash account no credit is extended, so the customer must pay in full for all securities purchased.
7. Under Regulation T (Reg T), what is the initial margin requirement for a purchase of marginable common stock?
- A.30% of the purchase amount
- B.100% of the purchase amount
- C.50% of the purchase amount✓ Answer
- D.25% of the purchase amount
Regulation T, set by the Federal Reserve Board, requires an initial margin deposit of 50% of the purchase price of marginable securities.
8. For 2024, what is the standard annual IRA (Individual Retirement Account) contribution limit for an individual under age 50?
- A.$6,000
- B.$23,000
- C.$19,500
- D.$7,000✓ Answer
The 2024 standard IRA contribution limit is $7,000 for those under 50, with an additional $1,000 catch-up allowed for those age 50 and older.
9. Which retirement account allows qualified withdrawals in retirement to be taken tax-free because contributions are made with after-tax dollars?
- A.A Roth IRA✓ Answer
- B.A SEP IRA
- C.A Traditional IRA
- D.A 401(k) with only pre-tax contributions
A Roth IRA is funded with after-tax dollars, so qualified distributions of both contributions and earnings are tax-free.
10. During which phase of the business cycle does economic activity, output, and employment decline, typically defined as two consecutive quarters of falling GDP (Gross Domestic Product)?
- A.Expansion
- B.Trough
- C.Peak
- D.Contraction (recession)✓ Answer
A contraction, or recession, is a decline in economic activity commonly identified as two consecutive quarters of falling GDP.
11. Which U.S. body sets monetary policy, including the federal funds target rate, to influence the money supply and interest rates?
- A.The Financial Industry Regulatory Authority (FINRA)
- B.The U.S. Congress
- C.The Federal Reserve (the Fed)✓ Answer
- D.The Securities and Exchange Commission (SEC)
The Federal Reserve conducts monetary policy—setting the federal funds target rate and using open market operations—while Congress controls fiscal policy.
12. Under current industry rules, what is the regular-way settlement cycle for most equity, corporate bond, and municipal bond transactions?
- A.Same day (T+0)
- B.T+3 (trade date plus three business days)
- C.T+2 (trade date plus two business days)
- D.T+1 (trade date plus one business day)✓ Answer
Effective May 28, 2024, regular-way settlement for most securities (equities, corporate and municipal bonds) shortened from T+2 to T+1.
13. What is the regular-way settlement time for a transaction in U.S. Treasury securities and options?
- A.T+2 (trade date plus two business days)
- B.T+1 (trade date plus one business day)✓ Answer
- C.T+3 (trade date plus three business days)
- D.Cash settlement, same day
U.S. Treasury securities and listed options settle regular-way on T+1 (the next business day after the trade date).
14. In a firm-commitment underwriting, which party bears the financial risk of any unsold shares?
- A.The issuer
- B.The underwriter (broker-dealer)✓ Answer
- C.The Securities and Exchange Commission (SEC)
- D.The transfer agent
In a firm-commitment underwriting the underwriter buys the entire issue from the issuer and resells it, so the underwriter bears the risk of any unsold shares.
15. In a best-efforts underwriting, what is the underwriter's obligation?
- A.To buy the entire issue and resell it at a profit
- B.To guarantee the issuer a minimum amount of proceeds
- C.To sell as much of the issue as possible without buying unsold shares✓ Answer
- D.To set the interest rate on the new securities
In a best-efforts underwriting the underwriter acts as an agent and only tries to sell the securities; it does not buy unsold shares, so the issuer bears the risk.
16. What is the group of broker-dealers that forms to share the risk and sell a large new securities offering called?
- A.A clearing corporation
- B.A self-regulatory organization
- C.A market-maker network
- D.An underwriting syndicate✓ Answer
A syndicate is a group of underwriters (broker-dealers) that joins together to spread the risk and distribute a large new issue to investors.
17. The period between the filing of a registration statement and its effective date, during which the issuer may not promote the securities, is known as what?
- A.The cooling-off (quiet) period✓ Answer
- B.The settlement period
- C.The accumulation period
- D.The distribution period
The cooling-off period (quiet period) lasts a minimum of 20 days after filing; during it the issuer and underwriters may not sell or promote the securities, though a preliminary prospectus (red herring) may be distributed.
18. A preliminary prospectus circulated during the cooling-off period is commonly called what?
- A.A tombstone
- B.A red herring✓ Answer
- C.A final prospectus
- D.An official statement
A red herring is the preliminary prospectus used to gather indications of interest during the cooling-off period; it omits the final public offering price and effective date.
19. A tombstone advertisement placed during a securities offering is primarily used to do what?
- A.Serve as the legal offer to sell the securities
- B.Provide the full financial statements of the issuer
- C.Announce the offering and identify the underwriters, without being an offer to sell✓ Answer
- D.Guarantee the future performance of the securities
A tombstone is a limited advertisement that announces an offering and lists the underwriters; it is not an offer to sell and is not required to be preceded by a prospectus.
20. An additional issuance of shares by a company that is already publicly traded is known as what?
- A.An initial public offering (IPO)
- B.A private placement
- C.A follow-on (additional) offering✓ Answer
- D.A tender offer
A follow-on (or additional) offering is a sale of new shares by a company that already has publicly traded stock, unlike an IPO, which is the company's first public sale.
21. Regulation D (Reg D) provides an exemption from SEC registration for which type of securities offering?
- A.A private placement✓ Answer
- B.An initial public offering (IPO)
- C.A follow-on offering to the general public
- D.A municipal bond offering
Regulation D provides a registration exemption for private placements sold primarily to accredited investors, with limits on the number of non-accredited investors.
22. Rule 144 of the Securities Act primarily governs the resale of which kind of securities?
- A.Newly registered securities in an IPO
- B.U.S. Treasury securities
- C.Restricted and control (affiliate) securities✓ Answer
- D.Exchange-traded municipal bonds
Rule 144 sets the conditions—such as a holding period and volume limits—for reselling restricted securities and control (affiliate) securities into the public market.
23. Which organization serves as the central clearing and settlement system for most U.S. securities transactions and acts as securities depository?
- A.The Federal Reserve
- B.The Depository Trust & Clearing Corporation (DTCC)✓ Answer
- C.The Financial Industry Regulatory Authority (FINRA)
- D.The Municipal Securities Rulemaking Board (MSRB)
The DTCC, through subsidiaries like the NSCC and DTC, provides clearing, settlement, and depository services for most U.S. securities trades.
24. What is the primary function of a transfer agent for a corporation?
- A.Setting monetary policy
- B.Making a market in the corporation's stock
- C.Underwriting the corporation's new securities
- D.Maintaining records of ownership and processing the issuance, transfer, and cancellation of shares✓ Answer
A transfer agent keeps records of a company's securities holders and handles the issuance, transfer, and cancellation of certificates, while a registrar audits the number of shares outstanding.
25. A municipal advisor owes a fiduciary duty to which party?
- A.The underwriter
- B.The municipal entity (issuer) it advises✓ Answer
- C.Retail investors buying the bonds
- D.The Federal Reserve
A municipal advisor owes a fiduciary duty to the municipal entity (issuer) it advises, which requires acting in that client's best interest.
26. What key distinction separates an investment adviser from a broker-dealer?
- A.An investment adviser is paid for advice (often a fee based on assets) rather than commissions on transactions✓ Answer
- B.An investment adviser may never charge any fees
- C.An investment adviser cannot register with the SEC
- D.An investment adviser only sells U.S. Treasury securities
An investment adviser is compensated for providing advice—typically a fee based on assets under management—whereas a broker-dealer is generally compensated through commissions on transactions.
27. The trading of exchange-listed securities directly between institutions, without using an exchange, is known as which market?
- A.The first market
- B.The second market
- C.The third market
- D.The fourth market✓ Answer
The fourth market is direct institution-to-institution trading (often through ECNs/ATSs), whereas the third market is exchange-listed securities traded OTC by broker-dealers.
28. A dark pool is best described as which of the following?
- A.A government agency that sets interest rates
- B.An alternative trading system (ATS) where orders are not publicly displayed before execution✓ Answer
- C.A type of retirement account
- D.The primary market for new issues
A dark pool is an alternative trading system (ATS) that does not display quotes publicly, allowing large institutional orders to be executed with reduced market impact.
29. An investor who is 'long' a security has done what?
- A.Sold a borrowed security hoping the price falls
- B.Bought and owns the security, profiting if the price rises✓ Answer
- C.Only advised a client without trading
- D.Guaranteed the issuer a fixed return
Being long means owning the security; the investor profits when the price rises. This contrasts with a short position, which profits when the price falls.
30. In a short sale, an investor profits when the price of the security does what?
- A.Rises
- B.Stays exactly the same
- C.Falls✓ Answer
- D.Is set by the Federal Reserve
In a short sale the investor borrows and sells a security, hoping to buy it back later at a lower price; the profit comes when the price falls. Short sales must be done in a margin account.
31. The settlement convention in which securities are delivered only against simultaneous payment is known as what?
- A.Delivery versus payment (DVP)✓ Answer
- B.Best efforts
- C.Regulation T
- D.Open market operations
Delivery versus payment (DVP) links the transfer of securities to the transfer of cash so that delivery happens only if payment is made simultaneously, reducing settlement risk.
32. Which economic indicator measures the change in the price of a basket of consumer goods and services and is used to gauge inflation?
- A.Gross Domestic Product (GDP)
- B.The Consumer Price Index (CPI)✓ Answer
- C.The federal funds rate
- D.The Dow Jones Industrial Average (DJIA)
The Consumer Price Index (CPI) tracks the average change in prices paid by consumers for a basket of goods and services and is a primary measure of inflation.
33. Which tool is the Federal Reserve's most frequently used and primary means of implementing monetary policy?
- A.Changing the reserve requirement
- B.Changing the discount rate
- C.Open market operations (buying and selling Treasury securities)✓ Answer
- D.Adjusting income tax rates
Open market operations—the Fed buying or selling Treasury securities to change bank reserves—are its primary and most frequently used monetary policy tool. Adjusting tax rates is fiscal policy, controlled by Congress.
34. The discount rate set by the Federal Reserve is the interest rate on what?
- A.Loans the Fed makes to member banks through the discount window✓ Answer
- B.Mortgages offered to consumers
- C.Corporate bonds issued in the primary market
- D.Margin loans under Regulation T
The discount rate is the interest rate the Fed charges member banks that borrow directly from it through the discount window.
35. Fiscal policy—decisions about government spending and taxation—is controlled by which body?
- A.The Federal Reserve
- B.The President and Congress✓ Answer
- C.The Securities and Exchange Commission (SEC)
- D.FINRA
Fiscal policy—government spending and taxation—is set by the President and Congress, whereas the Federal Reserve conducts monetary policy.
36. A normal (positive) yield curve slopes upward, meaning that as time to maturity increases, yields generally do what?
- A.Decrease
- B.Stay flat
- C.Increase✓ Answer
- D.Turn negative
On a normal (positive) yield curve, longer-maturity debt carries higher yields than shorter-maturity debt, so yields increase as time to maturity lengthens.
37. An inverted yield curve, which is sometimes viewed as a recession signal, occurs when what happens?
- A.Short-term yields are higher than long-term yields✓ Answer
- B.All yields are exactly equal
- C.Long-term yields are higher than short-term yields
- D.Yields cannot be measured
An inverted yield curve occurs when short-term yields exceed long-term yields; it is unusual and is often watched as a potential signal of an upcoming recession.
38. The Dow Jones Industrial Average (DJIA) is composed of how many large, well-known U.S. companies?
- A.500 companies
- B.30 companies✓ Answer
- C.100 companies
- D.3,000 companies
The DJIA is a price-weighted index of 30 large, well-established U.S. companies, whereas the S&P 500 is a broader, market-cap-weighted index of about 500 companies.
39. The S&P 500 index is weighted primarily by which of the following?
- A.The share price of each stock
- B.An equal weight for every company
- C.Market capitalization✓ Answer
- D.The dividend yield of each stock
The S&P 500 is a market-capitalization-weighted index, so larger companies have a greater influence on the index than smaller ones. The DJIA, by contrast, is price-weighted.
40. A sell stop order to protect a profit on a long stock position becomes a market order when the stock does what?
- A.Rises to or above the stop price
- B.Trades at or below the stop price✓ Answer
- C.Pays a dividend
- D.Is added to an index
A sell stop is placed below the current market price; when the stock trades at or through the stop price, the order is triggered and becomes a market order to sell, helping limit a loss or protect a gain.
41. How does a stop-limit order differ from a plain stop order once the stop price is triggered?
- A.It becomes a market order and fills at any available price
- B.It is automatically canceled
- C.It becomes a limit order and fills only at the limit price or better✓ Answer
- D.It converts into a short sale
Once triggered, a stop-limit order becomes a limit order rather than a market order, so it executes only at the limit price or better—giving price protection but risking non-execution.
42. Nasdaq is best described as which type of market?
- A.A physical trading-floor auction market
- B.An electronic dealer (over-the-counter) market driven by market makers✓ Answer
- C.The primary market for U.S. Treasury auctions
- D.A private placement platform
Nasdaq is an electronic dealer (OTC) market where multiple market makers compete by quoting bid and ask prices, unlike the NYSE, which historically operated as a physical auction market.
43. During periods of expansionary monetary policy, the Federal Reserve typically buys Treasury securities in the open market. What is the intended effect?
- A.To increase the money supply and lower interest rates✓ Answer
- B.To decrease the money supply and raise interest rates
- C.To raise income taxes
- D.To reduce the number of shares outstanding
When the Fed buys Treasury securities, it injects cash into the banking system, increasing the money supply and putting downward pressure on interest rates—an expansionary (easing) action.
44. Rising inflation, all else equal, generally has what effect on the prices of existing fixed-rate bonds?
- A.It raises their prices
- B.It has no effect on their prices
- C.It lowers their prices✓ Answer
- D.It converts them into equity
Rising inflation tends to push interest rates up, and because bond prices move inversely to interest rates, the prices of existing fixed-rate bonds generally fall.
45. Which of the following best describes an initial public offering (IPO)?
- A.An existing public company selling additional shares
- B.The first sale of a company's stock to the public✓ Answer
- C.A private sale of stock to accredited investors only
- D.The repurchase of a company's own shares
An IPO is the first time a company offers its shares for sale to the public in the primary market; subsequent sales by that now-public company are follow-on offerings.
46. In the syndicate for a new offering, which firm manages the offering and typically allocates securities among the syndicate members?
- A.The transfer agent
- B.The registrar
- C.The lead (managing) underwriter✓ Answer
- D.The clearing corporation
The lead or managing underwriter (also called the bookrunner) organizes the syndicate, deals with the issuer, and allocates the securities among syndicate and selling-group members.
47. GDP (Gross Domestic Product) measures which of the following?
- A.The total market value of all final goods and services produced in a country during a period✓ Answer
- B.The average change in consumer prices
- C.The number of people employed by the government
- D.The total amount of currency in circulation
GDP is the total market value of all final goods and services produced within a country over a given period and is a key measure of overall economic output.
48. When the Federal Reserve raises the reserve requirement for banks, what is the typical effect on the money supply?
- A.The money supply increases
- B.The money supply decreases✓ Answer
- C.The money supply is unaffected
- D.Income tax revenue rises
Raising the reserve requirement forces banks to hold more reserves and lend less, which contracts the money supply. Lowering it has the opposite, expansionary effect.
49. The Municipal Securities Rulemaking Board (MSRB) writes rules for which market participants?
- A.Broker-dealers and banks that deal in municipal securities, and municipal advisors✓ Answer
- B.The Federal Reserve and the U.S. Treasury
- C.Only foreign issuers of stock
- D.Individual retail investors
The MSRB creates rules governing broker-dealers and banks that transact in municipal securities, as well as municipal advisors, though it does not have enforcement authority itself.
Practice questions based on the FINRA SIE content outline. Not affiliated with FINRA and not investment advice. About the SIE (FINRA) →