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Capital Markets SIE Practice Questions

Capital Markets

Market structure, offerings, agencies, and economic concepts you'll see on the FINRA SIE.

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What this domain covers

The Capital Markets domain — roughly 16% of the SIE — tests foundational knowledge of how securities markets are structured, how new issues come to market, and who the major regulators are. Expect questions on primary vs secondary markets, the role of underwriters, the four key bodies (SEC, FINRA, MSRB, SIPC), and core economic concepts including monetary and fiscal policy.

Sample questions

Question 1. An investor purchases shares of XYZ Corp directly from the company during the company's initial public offering. This transaction takes place in:

  1. The secondary market
  2. The third market
  3. The primary market
  4. The fourth market
Show answer and explanation

Correct answer: C. In the primary market, securities are issued for the first time and the proceeds go directly to the issuer. The secondary market is where existing securities trade between investors.

Question 2. ABC Inc. is preparing for its IPO. A group of broker-dealers agrees to purchase the entire offering from ABC and resell the shares to investors. The role of those broker-dealers is best described as:

  1. Best-efforts agents
  2. A firm-commitment syndicate of underwriters
  3. A selling group acting solely on commission
  4. Designated market makers under exchange rules
Show answer and explanation

Correct answer: B. A syndicate is a group of underwriters formed to share the risk of a new issue. A firm-commitment underwriting means the underwriters buy the entire issue from the issuer and bear the risk of any unsold shares.

Question 3. Which of the following is an independent federal government agency rather than a self-regulatory organization?

  1. FINRA
  2. MSRB
  3. SEC
  4. NYSE
Show answer and explanation

Correct answer: C. The SEC is a federal government agency. FINRA, the MSRB, and exchanges like the NYSE are self-regulatory organizations (SROs) that write rules for their respective parts of the industry under SEC oversight.

Question 4. Which statement most accurately describes SIPC coverage?

  1. SIPC insures brokerage accounts against losses caused by market declines
  2. SIPC and FDIC provide identical coverage for the same kinds of accounts
  3. SIPC protects customers against the failure of a SIPC-member broker-dealer, not against market losses
  4. SIPC covers bank deposits, and FDIC covers brokerage accounts
Show answer and explanation

Correct answer: C. SIPC protects customers when a SIPC-member broker-dealer fails — it does not insure against losses from market declines. FDIC covers bank deposits in a separate program. The two regimes protect different kinds of accounts against different risks.

Question 5. The Federal Open Market Committee (FOMC) wants to increase the money supply. Which action would most directly accomplish this?

  1. Raise the discount rate
  2. Increase reserve requirements for banks
  3. Buy U.S. Treasury securities from banks in the open market
  4. Sell U.S. Treasury securities to the public
Show answer and explanation

Correct answer: C. When the Fed buys Treasury securities from banks, it pays them with newly created reserves, expanding the money supply. Selling securities does the opposite. Raising the discount rate or reserve requirements tightens monetary policy.

Question 6. Which feature is most commonly associated with preferred stock but NOT with common stock?

  1. Voting rights in the election of directors
  2. A fixed stated dividend rate
  3. Last priority in a liquidation
  4. Unlimited upside from capital appreciation
Show answer and explanation

Correct answer: B. Preferred stock typically pays a fixed stated dividend and ranks ahead of common stock in dividends and liquidation. Common stock carries voting rights and unlimited upside, but is last in line in a liquidation.

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Practice the other domains

Domain

Products & Risks

Domain

Trading & Accounts

Domain

Regulatory

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