Free CISI International Intro to Securities practice questions

Not quite. The answer is B.

Retail/commercial banks are the institutions that take deposits from and lend funds to retail customers, as well as providing payment and money transmission services, and they may offer similar services to business customers. Money transmission therefore sits alongside deposits and lending as one of their core functions. Safekeeping, settlement and asset servicing is the most tempting wrong answer, because it is the custodian's own list of activities and a candidate who knows that several of the largest banks own custody divisions may read it as ordinary retail banking.

Not quite. The answer is B.

A state-controlled economy is one where the government decides what is produced and how it is distributed, and it is also described as a planned or command economy because allocation is planned in advance. A mixed economy is the tempting alternative because governments there also intervene, but that intervention sits alongside market forces rather than replacing them. The Soviet Union was the best-known example of the planned model.

Not quite. The answer is B.

Companies are usually established as either private companies or public companies, and it is only public companies that are permitted to issue shares to the public, so that permission is what public status provides. Limited liability is the most tempting wrong answer, but it belongs to the shareholders of companies of either kind, limited to the amount they agreed to pay on initial subscription, so it does not separate a public company from a private one.

Not quite. The answer is D.

The issuer pays the coupon to whoever holds the bond when the payment falls due, and a bond can be traded without any reference back to the borrower. Once an investor has sold, the issuer owes them nothing further, so the investor who held the bond before the last trade has no claim on the next payment.

Not quite. The answer is B.

A Shariah compliant account is built so that interest is neither paid nor received. The bank invests the money and hands the depositor a share of the profit it earns instead. The expected profit rate such accounts advertise is only the return the bank anticipates paying and it depends on the profits actually made, so treating that rate as guaranteed is wrong.

Not quite. The answer is B.

A speculator deliberately adds risk to the portfolio in the hope that the position pays off and profits are made or increased, which is the opposite intention to that of a hedger. Taking on risk in order to protect the portfolio's value is tempting because so much derivative activity is described in terms of risk, but risk is accepted for gain in speculation and shed for protection in hedging. The gain sought is profit from a favourable price movement rather than the income the holdings themselves produce.

Not quite. The answer is A.

Spreading money over many holdings lets the collapse of any one of them be offset by the performance of the rest, but it offers nothing when values fall across the board and a fund can still suffer badly in a market downturn. The collapse of a single constituent company is precisely the danger a spread of holdings is built to soften, so it cannot be the risk that survives.

Not quite. The answer is A.

Identity theft, or impersonation fraud, is the misappropriation of another person's identity details, such as their name, date of birth and current or previous addresses, without their knowledge or consent, so that those details can be used to obtain goods and services in that person's name. Using stolen or forged documents such as a passport to obtain goods by deception is tempting because it is closely related, but that is identity fraud, the use of the misappropriated identity rather than the taking of it.

Not quite. The answer is B.

Contributions are generally tax efficient because they cut the amount of income on which tax is charged, which is why governments allow the relief. The pension itself is normally taxable as income when it is received, so the relief defers tax rather than removing it.

Not quite. The answer is D.

Where a budget exposes what is owed, the debt to clear first is the one charging the most interest, because that is the borrowing draining the most money each year. Starting with the cheapest debt is tempting, since clearing a small or low-rate balance feels like quick progress, but it leaves the expensive borrowing running and costs more overall. Working out what can be afforded each month matters when new borrowing is being considered, rather than when debts already run up are being put in order.