Free CISI Securities practice questions

Not quite. The answer is B.

A custodian bank safeguards and administers financial assets — such as equities and bonds — on behalf of institutional investors including pension funds and asset managers. This includes settlement, income collection, and corporate action processing. Payment processing for retail customers describes a retail bank; guaranteeing exchange-traded derivatives describes a central counterparty (CCP); issuing new securities for corporate clients describes an investment bank acting as bookrunner or lead manager.

Not quite. The answer is B.

Flat yield = (annual coupon / clean price) × 100. The bond pays £6 per £100 nominal. Flat yield = (6 / 96) × 100 = 6.25%. The figure 5.77% would result from dividing £6 by £104; 6.00% ignores the price discount and simply equals the coupon rate; 6.67% is incorrect arithmetic.

Not quite. The answer is B.

Financial markets provide a mechanism for buyers and sellers of financial instruments to transact, enabling price discovery (establishing fair market prices through supply and demand) and efficient capital allocation (directing funds to their most productive uses). Regulation is the role of the FCA and PRA; insurance against losses is not a market function; retail banking is a banking function.

Not quite. The answer is B.

The bookrunner (lead manager) collects and records investor interest (orders) for the IPO during the bookbuilding process and works with the issuer to set the final offer price and allocate shares to investors. It is a key co-ordination role in the syndicate. Legal counsel drafts the prospectus; underwriters take on risk of unsold shares. The bookrunner may also underwrite but its defining function is building the order book.

Not quite. The answer is C.

A limit order specifies the maximum price a buyer is willing to pay (buy limit) or the minimum price a seller is willing to accept (sell limit). It will only be executed at the stated price or better (lower for buys, higher for sells). It gives price certainty but not execution certainty. A market order, by contrast, executes immediately at the best available price, sacrificing price certainty for execution certainty.

Not quite. The answer is B.

A 1-for-4 bonus issue means 1 new share is issued for every 4 held. A shareholder with 4 shares worth 500p each (total value £2,000) ends up with 5 shares. New price = old price × (shares before / shares after) = 500p × (4 / 5) = 400p. The total value is unchanged at 5 × 400p = £2,000. The bonus issue increases the number of shares but creates no new economic value — the price adjusts proportionally downward.

Not quite. The answer is A.

DVP is the fundamental principle of safe securities settlement. It ensures that the transfer of securities and the transfer of cash happen simultaneously and are conditional upon each other — the securities are only released when payment is confirmed, and payment is only made when securities are confirmed to be transferred. This eliminates principal (settlement) risk: neither party can lose both the securities and the cash if the other defaults.

Not quite. The answer is D.

Current ratio = current assets / current liabilities = £5.2m / £2.6m = 2.0. A current ratio of 2.0 indicates the company has £2 of current assets for every £1 of current liabilities, suggesting adequate short-term liquidity. A ratio below 1.0 would indicate that current liabilities exceed current assets, potentially signalling liquidity stress.

Not quite. The answer is C.

Basis is the difference between the spot price of an asset and the price of its corresponding futures contract. Basis risk is the risk that the hedge will not be perfectly effective because the basis changes unexpectedly over the life of the hedge. At expiry, basis should theoretically converge to zero, but during the hedge period the basis can widen or narrow unpredictably.

Not quite. The answer is B.

A collective investment scheme (such as a unit trust or OEIC) pools money from multiple investors and invests in a diversified portfolio; returns and risks are shared pro rata. A prime broker provides leverage and securities lending to hedge funds; a market maker quotes bid and offer prices; a CCP interposes itself between counterparties to reduce settlement risk.