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CISI International Certificate in Wealth & Investment Management Sample Questions (Q130-Q135):
NEW QUESTION # 130
An investor would regard a company's Interest Cover ratio as significant because it provides:
- A. A breakdown of how much debt a company has in relation to equity
- B. An indication of the extent to which the company can service its debts
- C. A summary of how much liquid cash an organisation has for funding dividend payments
- D. An indication of what interest rate the company is paying
Answer: B
Explanation:
Interest Cover Ratio measures how easily a company can meet interest payments on its debt.
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* Why is Option A Correct?
* A higher ratio means a company comfortably covers interest costs.
* A low ratio signals higher financial risk and potential default risk.
* Why Not Other Options?
* B (Interest rate paid) # The ratio assesses coverage, not cost of debt.
* C (Debt vs equity breakdown) # This is measured by the debt-to-equity ratio.
* D (Cash for dividends) # Interest cover assesses debt serviceability, not dividend affordability
.
# Reference: CFA Institute (Financial Ratios), CISI Wealth & Investment Management.
NEW QUESTION # 131
Which of the following is categorised as a soft commodity?
- A. Natural gas
- B. Copper
- C. Oil
- D. Lumber
Answer: D
Explanation:
Performance attribution analysis evaluates the performance of a portfolio by breaking it into components attributed to specific investment decisions. These include:
* Asset Allocation: The decision on the proportion of the portfolio allocated to different asset classes (e.
g., stocks, bonds).
* Sector Choice: Selecting specific sectors (e.g., technology, healthcare) within asset classes.
* Security Selection: Choosing individual securities within the selected sectors.
Risk analysis, while critical for investment management, is not typically part of standard performance attribution frameworks.
References:
* International Certificate in Wealth & Investment Management: Portfolio performance evaluation section.
* Standard attribution models: Brinson, Hood, and Beebower model widely used in performance attribution.
NEW QUESTION # 132
A professional trader was given some price-sensitive, unpublished information in relation to a major grain supplier. As a direct result, they buy futures contracts on grain. Have they committed the offence of insider trading?
- A. No, provided the futures contract is held to expiry
- B. No, futures on commodities are not defined as securities under insider trading regulations
- C. Only if they make a profit
- D. Yes, regardless of profit or loss
Answer: B
Explanation:
Performance attribution analysis evaluates the performance of a portfolio by breaking it into components attributed to specific investment decisions. These include:
* Asset Allocation: The decision on the proportion of the portfolio allocated to different asset classes (e.
g., stocks, bonds).
* Sector Choice: Selecting specific sectors (e.g., technology, healthcare) within asset classes.
* Security Selection: Choosing individual securities within the selected sectors.
Risk analysis, while critical for investment management, is not typically part of standard performance attribution frameworks.
References:
* International Certificate in Wealth & Investment Management: Portfolio performance evaluation section.
* Standard attribution models: Brinson, Hood, and Beebower model widely used in performance attribution.
NEW QUESTION # 133
It is impossible to diversify against:
- A. Market risk
- B. Currency risk
- C. Credit risk
- D. Liquidity risk
Answer: A
Explanation:
Market risk, also known as systematic risk, affects the entire market and cannot be eliminated through diversification. Examples include economic recessions, geopolitical events, or market-wide changes in interest rates.
* Currency risk (A): Can be diversified through exposure to multiple currencies.
* Credit risk (B): Can be mitigated by spreading exposure across various credit profiles.
* Liquidity risk (C): Can be addressed by diversifying into liquid assets.
References:
* International Certificate in Wealth & Investment Management: Types of risk and strategies to mitigate them.
* Modern Portfolio Theory and the distinction between systematic and unsystematic risk.
NEW QUESTION # 134
Which type of individual is most likely to be subject to enhanced due diligence (EDD) checks?
- A. A corporate client
- B. A high-net-worth individual
- C. A government official
- D. A company director
Answer: C
Explanation:
Enhanced Due Diligence (EDD) is required for high-risk clients, particularly Politically Exposed Persons (PEPs), such as government officials.
* Why is Option C Correct?
* Government officials (PEPs) are considered higher risk due to their potential exposure to bribery or corruption.
* Financial institutions must conduct extra scrutiny on their financial transactions.
* EDD Requirements Include:
* Detailed background checks.
* Source of wealth verification.
* Ongoing transaction monitoring.
* Why Not Other Options?
* A (Company Director) # May require due diligence but not EDD unless a PEP.
* B (Corporate Client) # EDD applies if a company is in a high-risk jurisdiction.
* D (High-net-worth individual) # Wealth alone does not trigger EDD unless other risk factors exist.
# Reference: Financial Action Task Force (FATF) Guidelines, CISI Wealth & Investment Management (AML).
NEW QUESTION # 135
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