Free CISI Introduction to Securities & Investment practice questions

Not quite. The answer is C.

Investment banks specialise in helping companies raise capital by underwriting and issuing securities, as well as advising on mergers and acquisitions. Retail banks focus on personal banking services like current accounts and mortgages. Building societies are mutual organisations focused on savings and mortgage lending. Insurance companies manage risk through insurance products.

Not quite. The answer is B.

In a market economy, resources are allocated primarily through the price mechanism driven by supply and demand. Central government planning characterises a state-controlled economy. While trade agreements and monetary policy influence economic activity, they are not the primary allocation mechanism in a market economy.

Not quite. The answer is B.

Treasury bills are short-term money market instruments issued by the government at a discount to face value and redeemed at par (face value) on maturity. The difference between the purchase price and face value represents the investor's return. They do not pay coupons, typically have maturities of up to 12 months, and are primarily bought by institutional investors.

Not quite. The answer is B.

Preference shareholders have priority over ordinary shareholders when it comes to dividend payments and the return of capital if the company is wound up. However, they typically do not have voting rights (that's an ordinary shareholder privilege) and their dividends are usually fixed rather than variable.

Not quite. The answer is C.

Flat yield (also called running yield or current yield) is calculated as: (Annual Coupon / Market Price) x 100. The annual coupon is 5% of £100 nominal = £5. So: (£5 / £125) x 100 = 4%. The flat yield is lower than the coupon rate because the bond is trading at a premium (above par).

Not quite. The answer is C.

A call option gives the holder (buyer) the right, but not the obligation, to buy the underlying asset at the strike price on or before the expiry date. The writer (seller) of the call has the obligation to sell if the holder exercises. A put option gives the right to sell. The key distinction is that option holders have rights while writers have obligations.

Not quite. The answer is A.

The main advantage of collective investment is diversification. By pooling money from many investors, the fund can invest across a wide range of assets, reducing the impact of any single investment performing badly. Returns are never guaranteed. Funds do charge management fees. Investors give up individual stock selection in exchange for professional management and diversification.

Not quite. The answer is C.

The three stages of money laundering are: Placement (introducing criminal funds into the financial system), Layering (moving the money through multiple transactions to disguise its origin), and Integration (the money re-enters the legitimate economy appearing to be from a lawful source). The order is always placement first, then layering, then integration.

Not quite. The answer is B.

CGT is charged on the profit (gain) made when a chargeable asset is disposed of, such as selling shares, property (other than your main home), or other investments. Employment income is subject to income tax, not CGT. Interest and dividends are also subject to income tax, not CGT.

Not quite. The answer is D.

When interest is compounded more frequently than annually, the effective annual rate is higher than the quoted (nominal) rate because you earn interest on interest. The EAR formula is: (1 + r/n)^n - 1, where r is the nominal rate and n is the number of compounding periods. For 6% compounded monthly: (1 + 0.06/12)^12 - 1 = 6.17%. The more frequently interest compounds, the higher the EAR relative to the quoted rate.