M8A (1st Edition) Collective Investment Schemes II (Mock ...

1 M8A ( 1st edition ) Collective Investment Schemes II ( mock paper Version ) Copyright Reserved by Singapore College of Insurance Page 1 of 13 1. Structured products: A. are only exposed to market risk B. are also referred to as hybrid products C. entitle holders to a share in the issuer s profits D. always provide higher returns compared to traditional investments 2. An equity-linked note that is designed to return at least the principal typically combines an option on an underlying equity asset with a _____. A. futures contract B. forward contract C. zero-coupon bond D. reverse convertible bond 3. Which of the following statements is/are TRUE of structured deposits?

2 A. They are considered as Investment products. B. They can be issued by insurance companies. C. They are covered under the Deposit Insurance Scheme. D. All of the above. 4. Under the Risk and Return Trade-off matrix, Investment opportunities that involve low risk and high return would be classified as: A. Rare Gems B. Safe Investments C. Bold Investments D. Unworthy Investments 5. Simon is interested in a structured product that provides full upside potential with no downside protection. Which one of the following products would be MOST suitable for him? A. Tracker certificate. B. Discount certificate. C. Capital guaranteed fund.

3 D. Reverse convertible bond. M8A ( 1st edition ) Collective Investment Schemes II ( mock paper Version ) Copyright Reserved by Singapore College of Insurance Page 2 of 13 6. John has just invested S$10,000 in a 5-year capital guaranteed fund. XYZ Bank, the bond-issuer of this product, is also providing the downside protection. One year later, XYZ Bank is put into liquidation by creditors. In the WORST case scenario, how much can John expect to get back from XYZ Bank? A. S$0 B. S$1,000 C. S$5,000 D. S$10,000 7. What should the adviser know about the client in order to determine if structured products are appropriate investments for the client?

4 A. His risk appetite. B. The Investment time horizon. C. His Investment objectives. D. All the above information. 8. What are the factor(s) that can affect the market price of a security? A. Inflation. B. Interest rates. C. Exchange rate. D. All of the above. 9. X agreed to buy one ounce of gold from Y at a price of SGD 2,000 on a future date of 15th Jan 2016. Which of the following scenarios represent the counterparty risk to X? A. X does not pay SGD 2,000 to Y on 15th Jan 2016. B. Y delivers the gold to X on 15th Jan 2015 instead. C. Y does not deliver the gold to X on 15th Jan 2016. D. X offers to pay SGD 5,000 to Y for early delivery of the gold on 15th Jan 2015 instead.

5 10. An investor with liquidity concerns should NOT invest in products with: A. a ready market B. exposure to foreign currencies C. positive and stable credit ratings D. a long lock-up period of ten years M8A ( 1st edition ) Collective Investment Schemes II ( mock paper Version ) Copyright Reserved by Singapore College of Insurance Page 3 of 13 11. In 2011, Jonathan invested SGD 50,000 in a Foreign Currency Fixed Deposit Account denominated in Australian Dollars. The account offers 5% interest rate per annum. One year later, SGD depreciated against AUD and Jonathan liquidated his account. How much should Jonathan receive in 2012?

6 (In 2011, 1 SGD = 1 AUD; In 2012, 1 SGD = AUD) A. SGD 42,000 B. SGD 50,000 C. SGD 52,500 D. SGD 65,625 12. Which of the following is TRUE regarding the concept of leverage? A. It is also called gearing . B. It decreases the potential rate of return. C. It provides full downside protection on the Investment . D. Leveraged products experience smaller price volatility than direct investments. 13. Which technique should be used to mitigate concentration risk in an Investment portfolio? A. Leverage. B. Speculation. C. Diversification. D. Market Making. 14. John observed that the movement in the prices of securities A & B are completely random.

7 He would expect the two securities to have a correlation coefficient of: A. + 1 B. + C. 0 D. 1 15. What can be used as the underlying assets of a derivative contract? A. Gold. B. Soy bean. C. Oil and gas. D. All of the above. M8A ( 1st edition ) Collective Investment Schemes II ( mock paper Version ) Copyright Reserved by Singapore College of Insurance Page 4 of 13 16. Futures contracts: A. can only be traded on commodities B. are not subject to margin requirements C. can only be settled through physical delivery D. are standardised contracts traded on exchanges 17. When the futures price of a commodity is lower than its spot price, this situation is known as: A.

8 Basis B. margin C. contango D. backwardation 18. Which of the following descriptions about options is TRUE? A. Options and warrants have no value after the expiry date. B. A European style option is a contract that can be exercised anytime. C. An American style option is a contract that may only be exercised on expiration. D. The holder of a call option has an obligation to exercise the option upon expiration. 19. Which one of the following is a typical forward contract? A. Annette enters into a contract to sell USD 100,000 at a rate of USD/SGD to Brigette when Annette visits Singapore within the next six months. B.

9 Chloe enters into a contract to buy AUD 200,000 at a rate of AUD/USD from Danielle on 30 June 2015. C. Erika enters into a contract on 1 Mar 2013 to sell her house to Felicia at the bank valuation price at least two months before Erika migrates to Australia. D. Gisele enters into a contract with the local money changer to change her SGD into USD at the prevailing market rate today. M8A ( 1st edition ) Collective Investment Schemes II ( mock paper Version ) Copyright Reserved by Singapore College of Insurance Page 5 of 13 20. Lynette opens an account to trade gold futures on an exchange. She puts up an initial margin of S$3,000 and the exchange stipulates a maintenance margin of S$2,000 to be kept at all times.

10 On the first day of trading, the value of her contract falls by S$1,300. Which of the following scenarios will most likely occur? A. Nothing happens, as Lynette plans to continue trading and her account balance is still positive. B. A margin call is issued and Lynette is required to top up S$300 C. A margin call is issued and Lynette is required to top up S$1,300 D. A margin call is issued and Lynette is required to top up S$2,000 21. Assuming the current market price of Apple Inc. is USD465, which of the following investors is holding an option with a positive intrinsic value? A. Greg who owns a call option on Apple Inc.