Free CISI Introduction to Securities & Investment practice questions

Not quite. The answer is D.

Investment banks have widened their range of activities into businesses such as proprietary trading, servicing hedge funds and private equity investment, and proprietary trading means dealing in the market with the bank's own money. An independent financial adviser gives advice on products to private individuals and families rather than dealing on its own account. A stockbroker deals in the market for its clients, and a custodian holds securities in safekeeping and settles purchases and sales for fund managers, pension funds and insurance companies.

Not quite. The answer is A.

A market economy has markets not only for goods and services but also for productive assets, such as capital goods like machinery, labour and money. Capital goods cover only the machinery, and labour and money are not goods bought by consumers. Money is a financial asset but machinery and labour are not, and each of these markets has its own price, such as the wage level for labour and the interest rate for money.

Not quite. The answer is A.

Until the late 1960s a rigidity in the interbank market meant that deposits, once taken, had to stay where they were until maturity, and certificates of deposit were brought in so that the claim could be traded on a secondary market. Treasury bills were already in issue and serve the government's short-term borrowing rather than the position of a depositor. Commercial paper does the same job for the short-term borrowing of large companies. A money market fund pools investors' money across instruments from many providers instead of making an existing deposit saleable.

Not quite. The answer is D.

Preference shares are normally non-voting, but the vote is restored in special circumstances, and the usual one is that the fixed dividend has gone unpaid. Unpaid interest on a loan is a matter for the lender, who has a contractual claim against the company rather than a shareholder vote. A missed redemption date bears on redeemable shares but hands the holders no vote of itself. Conversion turns convertible preference shares into ordinary shares, and it is the ordinary shares that carry the vote rather than the act of converting.

Not quite. The answer is C.

Interest on a gilt is found by applying the coupon rate to the nominal value held, and that annual amount is normally paid in two equal half-yearly sums. The price paid for the holding fixes the flat yield rather than the cash interest, since a later buyer receives exactly the same coupon as the first holder. The gross redemption yield brings together the income and the capital gain or loss to maturity, and the current market value is simply the quoted price scaled up to the nominal held.

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 D.

Pooling delivers economies of scale, diversification and professional management to every holder as a matter of course, whereas the deferral of tax on gains made inside a fund is only available in some cases. Sharing dealing costs across a large number of investors follows automatically from the size of the pool. Spreading holdings across industries whose share prices move apart is what any pooled portfolio achieves. Selection of holdings by a full-time manager is the standard reason for investing collectively rather than a benefit reserved for a few funds.

Not quite. The answer is B.

At integration the layering has succeeded, so the money is put back into the financial system and handled as though it had been legitimately earned. Paying criminally derived cash into a bank or building society account for the first time is placement, and buying and selling foreign currencies, shares and bonds to hide the source of the money is layering. Breaking deposits into small sums so that they attract no attention is a placement technique rather than the final stage.

Not quite. The answer is A.

Assets transferred into a trust pass out of the settlor's ownership, so they no longer form part of the estate and the future inheritance tax liability is reduced. Income tax remains payable on the income the trust produces, whether by the trustees or by the beneficiary. Capital gains tax is charged on the rise in the value of an asset when it is disposed of, and a transfer into a trust is itself a disposal. Stamp duty falls on the purchase of UK shares settled with a stock transfer form and has no bearing on the reason for holding assets in trust.

Not quite. The answer is A.

The shortcut method divides the quoted rate by the number of times interest is charged each year and then uses that same frequency as the power, so quarterly charging uses four at both steps. The length of the loan plays no part, because an effective annual rate always measures a single year. Fees are brought in only when the annual percentage rate is worked out. The effective annual rate is what the method arrives at once the power has been applied and 1 has been taken off, so it is the figure the calculation produces rather than one fed into it.