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Question 1 of 30
1. Question
Upon what is the value of a derivative contract’s dependent being a delayed delivery agreement?
Correct
Please note that a derivative contract is a deferred delivery deal where its value depends on certain underlying properties, or is derived from them. The manager of a derivative contract does not own the properties that underlie it. Use home buying as an example is a derivative contract being an option to buy a flat. You pay for the right to buy the flat a fraction of the price of the flat, You will not own the apartment though until years later when you pay the purchase balance.
Incorrect
Please note that a derivative contract is a deferred delivery deal where its value depends on certain underlying properties, or is derived from them. The manager of a derivative contract does not own the properties that underlie it. Use home buying as an example is a derivative contract being an option to buy a flat. You pay for the right to buy the flat a fraction of the price of the flat, You will not own the apartment though until years later when you pay the purchase balance.
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Question 2 of 30
2. Question
How is the derivative contract often used for speculators?
Correct
Please learn that underlying price movements. For example, if an investor anticipates that a certain stock’s price will go up over a certain time period, rather than a direct investment in that stock, he may purchase an option on that stock. Because option price is only a fraction of the stock’s cost, the potential benefit from option is several times that from direct investment, if “bet” is proved to be correct.
Incorrect
Please learn that underlying price movements. For example, if an investor anticipates that a certain stock’s price will go up over a certain time period, rather than a direct investment in that stock, he may purchase an option on that stock. Because option price is only a fraction of the stock’s cost, the potential benefit from option is several times that from direct investment, if “bet” is proved to be correct.
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Question 3 of 30
3. Question
Structured products can be created and marketed in different formats, called “wrappers”. On what factors are the choice of these wrappers dependent on? Choose from the following:
I. the desired promotion achievement target
II. regulatory restriction on issuers
III. the desired investment freedom
IV. the desired level of transparencyCorrect
Structured products, called “wrappers” can be produced and sold in various formats. One potential wrapper in the form of unsecured debenture, i.e. a bond, is the equity-linked bond outlined above. Others still exist. Wrapper preference depends on a number of factors including regulatory constraints on issuers, the required investment flexibility, the required degree of accountability (e.g. structured fund requires independent valuation with a periodically reported Net Asset Valuation (NAV)), the expected level of returns (e.g. some type is more costly than others); and tax consideration in a specific jurisdiction.
Incorrect
Structured products, called “wrappers” can be produced and sold in various formats. One potential wrapper in the form of unsecured debenture, i.e. a bond, is the equity-linked bond outlined above. Others still exist. Wrapper preference depends on a number of factors including regulatory constraints on issuers, the required investment flexibility, the required degree of accountability (e.g. structured fund requires independent valuation with a periodically reported Net Asset Valuation (NAV)), the expected level of returns (e.g. some type is more costly than others); and tax consideration in a specific jurisdiction.
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Question 4 of 30
4. Question
In the case of a fund structured as a trust, what does an independent trustee have to make sure?
Correct
Please note that most investment funds in Singapore are organized as trusts while foreign domiciled funds are usually organized as corporations. In the case of a fund established as a trust, there is an independent trustee ensuring that the working of the fund manager is in compliance with the trust contract and the investment policy. A similar role exists for the board of directors and/or the depositary bank for funds structured as corporations.
Incorrect
Please note that most investment funds in Singapore are organized as trusts while foreign domiciled funds are usually organized as corporations. In the case of a fund established as a trust, there is an independent trustee ensuring that the working of the fund manager is in compliance with the trust contract and the investment policy. A similar role exists for the board of directors and/or the depositary bank for funds structured as corporations.
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Question 5 of 30
5. Question
What are the two components in every investment transaction? Choose from the following:
I. targeted developer
II. principal invested
III. the investment return generated
IV. principal targetCorrect
It is stated that for any investment transaction there are two elements, namely the principal invested, and the return on investment generated. Investment intent is to optimize returns, while preserving the principal. An enthusiastic investor may be able to do so at the risk of losing all or a part of its principal. A more conservative investor may be able to accept a lower return to safeguard his principal.
Incorrect
It is stated that for any investment transaction there are two elements, namely the principal invested, and the return on investment generated. Investment intent is to optimize returns, while preserving the principal. An enthusiastic investor may be able to do so at the risk of losing all or a part of its principal. A more conservative investor may be able to accept a lower return to safeguard his principal.
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Question 6 of 30
6. Question
How are the derivative contracts often used for speculators?
Correct
It is to be acknowledged that the speculators also use derivative contracts as directional bets of the underlying price movement. For example , if an investor anticipates that a certain stock’s price will go up over a certain time period, rather than direct investment in that stock, he may purchase an option on that stock.
Incorrect
It is to be acknowledged that the speculators also use derivative contracts as directional bets of the underlying price movement. For example , if an investor anticipates that a certain stock’s price will go up over a certain time period, rather than direct investment in that stock, he may purchase an option on that stock.
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Question 7 of 30
7. Question
How is a set of payment set in a commodity swap? Choose from the following:
I. by the price of a commodity
II. by the price of a commodity index
III. by the agreement of the two senior employees
IV. through the process of swapping within the limited timeCorrect
It is to be acknowledged that a commodity swap is a transaction in which the price of a commodity or the price of a commodity index decides one set of payments. The most popular examples of commodity swaps include plain vanilla OTC arrangements for a fixed-for-floating risk exchange, in which no physical commodity is supplied.
Incorrect
It is to be acknowledged that a commodity swap is a transaction in which the price of a commodity or the price of a commodity index decides one set of payments. The most popular examples of commodity swaps include plain vanilla OTC arrangements for a fixed-for-floating risk exchange, in which no physical commodity is supplied.
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Question 8 of 30
8. Question
Why are the commodity swaps used by many consumers and producers of commodities?
Correct
Please learn that a commodity swap is a contract in which the price of a commodity or the price of a commodity index decides one set of payments. Many consumers and commodity producers use commodity swaps to hedge price hikes over a long period of time. For example, bread makers hedge prices for grain, while shipping companies hedge prices for fuel.
Incorrect
Please learn that a commodity swap is a contract in which the price of a commodity or the price of a commodity index decides one set of payments. Many consumers and commodity producers use commodity swaps to hedge price hikes over a long period of time. For example, bread makers hedge prices for grain, while shipping companies hedge prices for fuel.
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Question 9 of 30
9. Question
What is the universal way of classifying financial products?
Correct
It is to be acknowledged that financial products are not classified universally. Traditional investments like CIS and ILPs can be classified in various ways: by geographic focus; by asset class; by maturity; etc. Structured products can also be classified differently, e.g. by underlying asset classes; by risk-return profiles; or by investment goals.
Incorrect
It is to be acknowledged that financial products are not classified universally. Traditional investments like CIS and ILPs can be classified in various ways: by geographic focus; by asset class; by maturity; etc. Structured products can also be classified differently, e.g. by underlying asset classes; by risk-return profiles; or by investment goals.
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Question 10 of 30
10. Question
Why are the yield enhancement products are riskier with higher return potential relative to products aimed to preserve capital?
Correct
Please learn that products for yield enhancement are riskier with higher yield potential compared to products aimed at preserving capital, as a larger portion of investments is intended to deliver upside potential. Participation goods are the most volatile of the three because they provide no downside insurance at all; all the investments are placed into output pursuance.
Incorrect
Please learn that products for yield enhancement are riskier with higher yield potential compared to products aimed at preserving capital, as a larger portion of investments is intended to deliver upside potential. Participation goods are the most volatile of the three because they provide no downside insurance at all; all the investments are placed into output pursuance.
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Question 11 of 30
11. Question
In the realm of finance, risk refers to uncertainty. What does it mean when it is said that investment is of high risk? Choose from the following:
I. the probability of the anticipated return which may not be realized is higher as compared to other investments
II. all or part of the principal may be lost
III. all or part of the principal may be saved
IV. the probability sample for the uncertain risk might increase to 10%Correct
Please learn that in the finance realm, the risk is about uncertainty. If an investment is considered to be of high risk, it means that the probability of the expected return that might not be achieved is greater than other investments. This also means the principal can be lost in whole or in part. Of course, investors are seeking fair compensation for the risk they take on.
Incorrect
Please learn that in the finance realm, the risk is about uncertainty. If an investment is considered to be of high risk, it means that the probability of the expected return that might not be achieved is greater than other investments. This also means the principal can be lost in whole or in part. Of course, investors are seeking fair compensation for the risk they take on.
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Question 12 of 30
12. Question
Why do investors expect higher returns from risky investments?
Correct
It is to be acknowledged that investors are seeking fair compensation for the risk they take on naturally. This is why investors expect higher returns from risky investments, i.e. to offset the greater probability this returns may not materialise. This does not, however, mean that all risky investments have the potential for high returns
Incorrect
It is to be acknowledged that investors are seeking fair compensation for the risk they take on naturally. This is why investors expect higher returns from risky investments, i.e. to offset the greater probability this returns may not materialise. This does not, however, mean that all risky investments have the potential for high returns
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Question 13 of 30
13. Question
In what sense are the structured products versatile?
Correct
Please note that structured goods are flexible in the sense that they can be related to single or multiple securities, in any asset class or combination, of short or long durations, denominated in any currency, offering a maximum or no return on capital. It is therefore easy to understand why there is a wide range of structured products, traded both on and off the exchange.
Incorrect
Please note that structured goods are flexible in the sense that they can be related to single or multiple securities, in any asset class or combination, of short or long durations, denominated in any currency, offering a maximum or no return on capital. It is therefore easy to understand why there is a wide range of structured products, traded both on and off the exchange.
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Question 14 of 30
14. Question
What combination options are included in the barrier option? Choose from the following:
I. Down-and-above
II. Up-and-out
III. Up-and-in
IV. Down-and-outCorrect
It is to be acknowledged that barrier option is the alternative used in the Certificates of the barrier. Under this option, the exercise option depends on reaching or attaining the underlying assets at a specified barrier. This form of choice has four combinations i.e. Up-and-out,Down-and-out, Up-and-in and Down-and-in.
Incorrect
It is to be acknowledged that barrier option is the alternative used in the Certificates of the barrier. Under this option, the exercise option depends on reaching or attaining the underlying assets at a specified barrier. This form of choice has four combinations i.e. Up-and-out,Down-and-out, Up-and-in and Down-and-in.
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Question 15 of 30
15. Question
Being a combination option of the barrier option, what are the characteristics of Up-and-out? Choose from the following:
I. Spot price starts below the barrier level
II. has to move down and reaches the barrier level for the option to become activated
III. Spot price starts above the barrier level
IV. has to move up and reaches the barrier level for the option to be knocked outCorrect
It is stated that the barrier alternative is included in the Certificates of the Barrier. Under this option, the exercise option depends on reaching or attaining the underlying assets at a specified barrier. Up-and-out: the spot price begins below the barrier level and has to travel upwards to the barrier level for the knock-out option (i.e. is null and void).
Incorrect
It is stated that the barrier alternative is included in the Certificates of the Barrier. Under this option, the exercise option depends on reaching or attaining the underlying assets at a specified barrier. Up-and-out: the spot price begins below the barrier level and has to travel upwards to the barrier level for the knock-out option (i.e. is null and void).
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Question 16 of 30
16. Question
What does the term “swaption” typically refer to?
Correct
It is to be acknowledged that a swaption is an option offering the right to enter into a swap agreement underlying it. Generally, the term “swaption” applies to interest rate swap options, though any form of swap can be used.
Incorrect
It is to be acknowledged that a swaption is an option offering the right to enter into a swap agreement underlying it. Generally, the term “swaption” applies to interest rate swap options, though any form of swap can be used.
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Question 17 of 30
17. Question
For what are the derivatives contracts are used in order to achieve the desired risk-return pattern? Choose from the following:
I. return components
II. principal components
III. target components
IV. return componentsCorrect
Please note that without any aspect of downside security in participation goods, usually, the key part of these items does not need to include fixed income instruments. Instead, derivatives contracts are used to achieve the optimal risk-return pattern for both the principal and return components.
Incorrect
Please note that without any aspect of downside security in participation goods, usually, the key part of these items does not need to include fixed income instruments. Instead, derivatives contracts are used to achieve the optimal risk-return pattern for both the principal and return components.
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Question 18 of 30
18. Question
What is the reason for creation of a Tracker Certificate?
Correct
It is to be acknowledged that a certificate tracker monitors the performance of an underlying asset. It has neither an upside limit, nor defense against downside. It has an equivalent risk profile to the underlying asset it monitors. The explanation for its creation is to give investors access to otherwise unlikely or economically viable investments, such as a tailored-made index.
Incorrect
It is to be acknowledged that a certificate tracker monitors the performance of an underlying asset. It has neither an upside limit, nor defense against downside. It has an equivalent risk profile to the underlying asset it monitors. The explanation for its creation is to give investors access to otherwise unlikely or economically viable investments, such as a tailored-made index.
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Question 19 of 30
19. Question
What are the major types of bonds? Choose from the following:
I. mid-targeted bonds
II. junior bonds
III. senior bonds
IV. subordinate bondsCorrect
Please note that two types of bonds exist, namely senior and subordinated bonds. In the event of liquidation, senior bond holders have precedence over shareholdings and subordinated bonds. On the other hand, compensation for subordinated bonds takes place after all other higher-priority creditors have been compensated. Subordinated bonds therefore typically have a lower credit rating than senior bonds.
Incorrect
Please note that two types of bonds exist, namely senior and subordinated bonds. In the event of liquidation, senior bond holders have precedence over shareholdings and subordinated bonds. On the other hand, compensation for subordinated bonds takes place after all other higher-priority creditors have been compensated. Subordinated bonds therefore typically have a lower credit rating than senior bonds.
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Question 20 of 30
20. Question
What major products can be listed as listed products? Choose from the following:
I. Delivery products
II. Structured notes
III. Structured funds
IV. Economy fundsCorrect
It is stated that it is possible to list structured notes and the structured funds. There are a variety of structured notes listed under the Exchange-Traded Notes (ETNs) and Certificates categories on the Singapore Exchange (SGX). Listed structured funds come under the common Exchange-Traded Funds (ETFs) umbrella. Keep in mind that the ETFs are not all structured funds.
Incorrect
It is stated that it is possible to list structured notes and the structured funds. There are a variety of structured notes listed under the Exchange-Traded Notes (ETNs) and Certificates categories on the Singapore Exchange (SGX). Listed structured funds come under the common Exchange-Traded Funds (ETFs) umbrella. Keep in mind that the ETFs are not all structured funds.
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Question 21 of 30
21. Question
What does the SGX consider while evaluating a structured product’s eligibility to list? Choose from the following:
I. the financial strength of the product and its sale
II. the reputation of the financial institutions issuing the securities
III. its financial strength
IV. the liquidity of the proposed listed securitiesCorrect
Please note that goods identified in Singapore are subject to SGX supervision. In determining the eligibility to list of a structured product, SGX considers the credibility of the financial institutions issuing the securities, their financial power, and the liquidity of the proposed listed securities. To ensure liquidity, SGX requires that at least 75% of the securities must be spread out to a minimum of 100 investors in the case of ETNs and certificates.
Incorrect
Please note that goods identified in Singapore are subject to SGX supervision. In determining the eligibility to list of a structured product, SGX considers the credibility of the financial institutions issuing the securities, their financial power, and the liquidity of the proposed listed securities. To ensure liquidity, SGX requires that at least 75% of the securities must be spread out to a minimum of 100 investors in the case of ETNs and certificates.
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Question 22 of 30
22. Question
What does the professional investment manager direct in CIS? Choose from the following:
I. provisional targets
II. regulatory actions
III. the investments
IV. daily operation of the fundCorrect
It is to be acknowledged that a CIS is a pooled investment vehicle in which individual investors invest in a common fund, and a professional investment manager directs the fund’s investments and day to day operations. A Standardized Fund is a CIS and must comply with the CIS regulatory requirements, in particular the MAS-issued CIS Code (the “Code”).
Incorrect
It is to be acknowledged that a CIS is a pooled investment vehicle in which individual investors invest in a common fund, and a professional investment manager directs the fund’s investments and day to day operations. A Standardized Fund is a CIS and must comply with the CIS regulatory requirements, in particular the MAS-issued CIS Code (the “Code”).
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Question 23 of 30
23. Question
By what are the assets of a CIS are held?
Correct
It is stated that at third-party custodian such as a trustee owns the assets of a CIS. Thus, investors in structured funds do not need to worry about the product-issuer ‘s credit risk, although they are still subject to the credit risk of CIS investments. By comparison, investors in structured deposits and structured bonds, in the event of bankruptcy, are general creditors of financial institutions that issue the goods.
Incorrect
It is stated that at third-party custodian such as a trustee owns the assets of a CIS. Thus, investors in structured funds do not need to worry about the product-issuer ‘s credit risk, although they are still subject to the credit risk of CIS investments. By comparison, investors in structured deposits and structured bonds, in the event of bankruptcy, are general creditors of financial institutions that issue the goods.
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Question 24 of 30
24. Question
How can traditional investments such as CIS and ILPs be classified? Choose from the following:
I. by the quantity of employee force
II. by maturity
III. by asset class
IV. by geographical focusCorrect
Please note that classification of financial products is not universal. It is possible to classify traditional investments such as CIS and ILPs in a number of ways: by geographical focus; by asset class; by maturity; etc. Structured products can also be categorized in different ways, e.g. by underlying asset classes; by risk-return profiles; or by investment objectives.
Incorrect
Please note that classification of financial products is not universal. It is possible to classify traditional investments such as CIS and ILPs in a number of ways: by geographical focus; by asset class; by maturity; etc. Structured products can also be categorized in different ways, e.g. by underlying asset classes; by risk-return profiles; or by investment objectives.
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Question 25 of 30
25. Question
Which structured products based on their investment objectives correspond to their risk levels? Choose from the following:
I. products designed to protect capital
II. products designed to attract the costumers
III. yield enhancement products
IV. performance participation productCorrect
Please learn that structured products that are based on their investment goals goods designed to preserve capital conform to their risk levels; yield enhancement products; and value participation products. For example, there are structured deposits based on equities or currencies designed to preserve capital; structured notes linked to capital stocks or bonds intended to preserve capital, and structured funds or ILPs aimed at preserving capital.
Incorrect
Please learn that structured products that are based on their investment goals goods designed to preserve capital conform to their risk levels; yield enhancement products; and value participation products. For example, there are structured deposits based on equities or currencies designed to preserve capital; structured notes linked to capital stocks or bonds intended to preserve capital, and structured funds or ILPs aimed at preserving capital.
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Question 26 of 30
26. Question
What is a zero-coupon bond typically used for?
Correct
It is stated that for the principal component a zero-coupon bond is typically used. The underlying aspect is most commonly a single stock, a stock basket, or an index. Some examples of these products include structured deposits; equity or credit-linked notes to the degree that the product’s fixed income portion is designed to yield capital returns; and guaranteed capital funds. However, protection against disadvantages is only as good as the creditworthiness of the protective party.
Incorrect
It is stated that for the principal component a zero-coupon bond is typically used. The underlying aspect is most commonly a single stock, a stock basket, or an index. Some examples of these products include structured deposits; equity or credit-linked notes to the degree that the product’s fixed income portion is designed to yield capital returns; and guaranteed capital funds. However, protection against disadvantages is only as good as the creditworthiness of the protective party.
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Question 27 of 30
27. Question
By what are the capped upside potential without downside protection offered? Choose from the following:
I. employees who get promotion on an annual basis
II. reverse convertible bonds
III. employees who gain a good reputation
IV. discount certificates offerCorrect
It is to be acknowledged that all reverse convertible bonds and discount certificates give minimal upside potential without insurance against downside. We share the same risk-return characteristics, though somewhat different in form. Discount certificates are structured when two different types of options are combined. (Transaction costs can decrease actual product returns.)
Incorrect
It is to be acknowledged that all reverse convertible bonds and discount certificates give minimal upside potential without insurance against downside. We share the same risk-return characteristics, though somewhat different in form. Discount certificates are structured when two different types of options are combined. (Transaction costs can decrease actual product returns.)
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Question 28 of 30
28. Question
With a bonus certificate, at what level does the “disaster” occur, when the protection against price decline is knocked-out?
Correct
It is stated that a “disaster” happens at the barrier stage with a bonus award, when the insurance from price loss is knocked out. Like an automobile driver in a car accident, an investor might want some protection from these disastrous situations. An airbag certificate was created to reduce the impact of knock-outs and extend downside protection to a predetermined level of airbags.
Incorrect
It is stated that a “disaster” happens at the barrier stage with a bonus award, when the insurance from price loss is knocked out. Like an automobile driver in a car accident, an investor might want some protection from these disastrous situations. An airbag certificate was created to reduce the impact of knock-outs and extend downside protection to a predetermined level of airbags.
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Question 29 of 30
29. Question
What are the three basic investment objectives of the investors? Choose from the following:
I. safety of principal
II. employee department’s finance
III. stability of investment income
IV. potential for capital appreciationCorrect
It is to be acknowledged that investors have three basic investment objectives, namely principal protection, investment income stability and capital appreciation potential. Furthermore, Investor needs to be able to convert their savings to cash at a fair price, if need arises. While liquidity is not directly related to return on investment, it is nevertheless important consideration and reasonable expectation.
Incorrect
It is to be acknowledged that investors have three basic investment objectives, namely principal protection, investment income stability and capital appreciation potential. Furthermore, Investor needs to be able to convert their savings to cash at a fair price, if need arises. While liquidity is not directly related to return on investment, it is nevertheless important consideration and reasonable expectation.
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Question 30 of 30
30. Question
With what does the determination of suitability begin?
Correct
Please learn that determining suitability begins with knowing your client-their investment goals, risk appetite, time horizon, financial position, knowledge of investment, and experience. The second step is for the Consultant to know the goods under consideration so that the product attributes and risk factors can be explained to the consumer in a way that he can understand.
Incorrect
Please learn that determining suitability begins with knowing your client-their investment goals, risk appetite, time horizon, financial position, knowledge of investment, and experience. The second step is for the Consultant to know the goods under consideration so that the product attributes and risk factors can be explained to the consumer in a way that he can understand.