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FINRA Securities Industry Essentials (SIE) Exam

2. Understanding Products and Their Risks: practice questions

Our FINRA SIE bank has 86 questions on this topic. Here are 5 of them with answers; the full mock exam draws from every topic, like the real one.

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Question 1

What is the purpose of buying a protective put on a stock you own?

  1. To limit downside risk
  2. To avoid taxes
  3. To increase leverage on the position
  4. To generate income
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A. To limit downside risk — The put gains value if the stock falls.

Question 2

What is a unit investment trust (UIT)?

  1. A managed mutual fund
  2. An investment company with a fixed, unmanaged portfolio that issues redeemable units
  3. A government bond
  4. A bank account
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B. An investment company with a fixed, unmanaged portfolio that issues redeemable units — UITs have a set termination date.

Question 3

Which investment has the most liquidity risk?

  1. A large-cap stock
  2. A money market fund that holds only short-term Treasury bills and repos
  3. A direct participation program (limited partnership)
  4. A Treasury bill
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C. A direct participation program (limited partnership) — DPP interests are hard to sell quickly.

Question 4

What does 'duration' measure for a bond?

  1. Its credit rating
  2. Its price sensitivity to interest rate changes
  3. Its trading volume
  4. The time remaining until the bond's next coupon payment
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B. Its price sensitivity to interest rate changes — Higher duration means more interest rate risk.

Question 5

What is a 'structured product'?

  1. A simple savings account
  2. Common stock
  3. A Treasury bill
  4. A security whose return is linked to an underlying asset, often with complex features
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D. A security whose return is linked to an underlying asset, often with complex features — They can carry issuer credit risk and liquidity risk.

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