Free CISI Securities (CMP Level 3) practice questions

Not quite. The answer is B.

Safekeeping bundled with settlement and income collection is the custodian's service, and it is supplied under contract to the beneficial owner of the assets. The closest distractor is the depositary, which does hold assets but is appointed by an authorised fund rather than by the manager, and carries an additional duty to oversee the way that fund is run. A nominee company only lends its name to the register, and a trustee performs the depositary's role in a unit trust.

Not quite. The answer is C.

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.

Bilateral negotiation is the mark of the over the counter market, where the two parties agree size, price and settlement date directly and each side takes the other's credit risk; on an exchange the counterparties are brought together by the market itself. Standardised contracts, quotes published continuously to the whole market and anonymous matching of orders are all genuine features of exchange trading, and together they are what make exchange business transparent and comparable across participants.

Not quite. The answer is C.

An approved prospectus stays valid for twelve months from approval, provided any significant new factor is covered by a supplement. Six months is the period associated with interim financial information rather than with the document itself, and three years is the trading record a commercial company must show before admission, not the life of the prospectus. Three months has no basis in the regime.

Not quite. The answer is A.

An incoming buy limit order takes the best price on the opposite side, so it deals with the 2,000 shares offered at 418p, better than its limit. Answering 421p assumes a limit order always trades at its limit, when the limit is only the worst price the buyer accepts. Taking 420p reaches the second line of offers, touched only once the 418p line is exhausted, and 419p is a mid at which nobody has offered.

Not quite. The answer is A.

A bonus issue creates new shares out of reserves without bringing in any money, so the same market value is spread across more shares and the price falls in exact proportion, leaving each holder's total value unchanged. A rise of any size would mean an accounting transfer from reserves had created wealth out of nothing, and nothing is offered at a discount either, which is what marks a bonus issue off from a rights issue. The price cannot stand still while the share count grows.

Not quite. The answer is B.

Payment versus payment locks the two currency legs together so that neither is released unless the other is released as well. That removes principal risk, the risk of paying away one currency in full and receiving nothing back, which is the exposure Bankhaus Herstatt made famous. Liquidity risk is the closest runner up but it survives the arrangement: a member can still find that an expected receipt arrives later in the day than it needs the funds, so it must still manage its intraday funding.

Not quite. The answer is C.

Current assets of £7.2m are divided by current liabilities of £3.6m, being the trade payables plus the overdraft, which gives 2.0 times. Answering 0.8 times drags the four year loan into current liabilities when it is non-current. Answering 3.0 times leaves out the overdraft, which is repayable on demand and so falls due within the year. Answering 1.0 times is the quick ratio, which strips inventories out of the numerator.

Not quite. The answer is A.

A short term, deliberate departure from the agreed policy weights in pursuit of a market view is a tactical decision. The policy weights themselves are the strategic allocation and are set for the long run. Liability driven investment matches assets to the shape of a pension promise rather than to a market view, and stock selection operates inside an asset class rather than between two of them.

Not quite. The answer is B.

A unit trust is open ended: the manager creates new units as money flows in and cancels them on redemption, so the fund itself grows and shrinks with demand and its price stays tied to the value of the underlying assets. The other three are closed ended companies with a fixed share capital, which is why demand moves the shares of an investment trust, a real estate investment trust or a venture capital trust to a premium or a discount to asset value instead of changing the size of the fund.