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 D.

A market economy allocates resources through the price mechanism, with supply and demand doing the work that planners do elsewhere. The closest wrong answer is a mixed economy, which also uses markets but combines them with substantial state provision and regulation rather than leaving allocation almost entirely to buyers and sellers. A command economy allocates by central planning, and openness describes how far an economy trades and moves capital across its borders, not who decides what is produced.

Not quite. The answer is B.

Money market instruments are wholesale borrowing, issued in minimum amounts far beyond the reach of an ordinary saver, which is why private investors take the exposure through a fund instead. Having to hold to maturity is the nearest rival and is true of an ordinary time deposit, but commercial paper is negotiable and can be sold on before it matures. Nothing restricts these instruments to overseas buyers or to the issuer's own customers.

Not quite. The answer is B.

Preference shares are normally non-voting, with the vote reserved to the ordinary shareholders who carry the residual risk. Dividend priority is the closest alternative but preference holders do enjoy it, receiving their fixed dividend before any ordinary dividend is paid, and they rank ahead of the ordinary shares for capital in a winding up. The dividend itself is fixed as a percentage of nominal value.

Not quite. The answer is B.

The flat yield, also called the running yield, relates the annual coupon to the price actually paid, so it changes every time the price moves. The gross redemption yield is the runner-up: it starts from the same coupon but also brings in the capital gain or loss to redemption, so the two figures agree only when the bond stands at par. The coupon rate is fixed on the nominal value at issue, and the credit spread is the excess of a corporate yield over a gilt of the same maturity.

Not quite. The answer is A.

A call gives its buyer the right, but not the obligation, to buy the underlying at the strike price, so that right belongs to the call holder. The call writer is the closest alternative but holds the matching obligation to sell, not a right. The put holder has the right to sell, and the put writer is obliged to buy if that right is exercised.

Not quite. The answer is A.

Pooling spreads a small sum across the whole of the fund's portfolio, so no single holding can dominate the outcome, and that is the benefit the investor could not obtain by buying one company's shares. Escaping charges altogether is the trap, because pooling does cut the dealing costs of building a spread, but the manager still levies an annual fee and often an initial one. Income the fund pays out is taxed in the investor's hands like any other income unless the holding sits in a wrapper such as an ISA, so pooling brings no freedom from tax. Voting is given up rather than gained, because the manager holds the shares and casts the votes at the annual meetings of the companies concerned.

Not quite. The answer is D.

Placement introduces criminal funds into the financial system, layering moves them through transactions that disguise their origin, and integration returns them to the legitimate economy looking lawful. The sequence never begins with layering, because there must be funds in the system to move, and integration is always last rather than first.

Not quite. The answer is B.

A trust lets someone benefit from assets without ever controlling them, which is why trusts are used for beneficiaries who would spend capital as soon as they held it. A beneficiary who cannot manage a business is the closest rival, since trustees do hold business assets for people who could not run them, but no business appears here: the brother's difficulty is with money that reaches his hands. The brother is already an adult, so holding assets until he is old enough has nothing left to wait for, and he is not a scheme member, so a trust holding assets for pension scheme members is not in point either.

Not quite. The answer is B.

The more often interest is added, the sooner it starts earning interest itself, so daily compounding produces the highest effective annual rate of the four. Monthly compounding is the runner-up and gets most of the way there, but it adds interest twelve times a year rather than three hundred and sixty-five. Quarterly compounding adds less again, and annual compounding leaves the effective rate equal to the quoted one.