This examination is designed to test candidate’s knowledge and understanding of the financial issues relevant to the fund management industry. It is one of the examinations to be passed by individuals who:
(a) intend to apply for a Capital Markets Services Representative’s Licence (CMSRL) to carry on the regulated activity of fund management in relation to portfolio management (including digital investment management and boutique portfolio management company); or
(b) intend to hold the position of compliance officer in a firm which is a holder of a Capital Markets Services Licence (CMSL) for carrying on the business of fund management in relation to portfolio management; or
(c) intend to be employees of registered persons who carry out the capital markets activities as stipulated in Item 4, Part 1 of Schedule 4 of the Capital Markets and Services Act 2007.
Candidates are advised to refer to the Licensing Handbook for detailed combination of examinations required for each regulated activity.
Candidates are expected to possess good knowledge and understanding of the subject matter provided in this study outline and specified reference. In addition, candidates are expected to have relatively strong capability in the application and analysis of information in this study outline and its reference. It is estimated that this module will require a minimum of 120 hours of study time. Candidates may need less or more depending on the education background and work experience.
Type of Questions Multiple-Choice
Number of Questions: 30 questions
Passing Mark: 60%
Time Allocated: 60 minutes
Reference /Text:
(a) Examination Study Guide for Module 10: Asset and Funds
Management (Second Print, 2017 (Update)); or
(b) Examination Study Guide for Module 10: Asset and Funds
Management (First Edition, 2015); and
(c) Updates on Examination Study Guide Module 10: Asset and
Funds Management (November 2015)
MODULE 10 (SET 1)
ASSETS AND FUND MANAGEMENT
1. Which of the following risks cannot be found in fixed income securities?
A. interest rate risk
B. currency risk
C. default risk
D. None of the above
Note: Understand fixed-income securities
2. ______________ is the risk a security holder will have to bear if the overall interest rates increase when the security is sold.
A. interest rate risk
B. reinvestment risk
C. liquidity risk
D. inflation risk
3. _____________ is the risk a security holder will have to bear if he is unable to purchase another security of similar return upon the expiration of the current security.
A. interest rate risk
B. reinvestment risk
C. liquidity risk
D. inflation risk
4. _____________ is the risk a security holder will have to bear if he is unable to use the principal funds for other purposes before the expiration of the security.
A. interest rate risk
B. reinvestment risk
C. liquidity risk
D. inflation risk
5. _____________ is the risk a security holder will have to bear if exchange rates with other currencies change during the security holding period.
A. investment risk
B. currency risk
C. liquidity risk
D. default risk
6. _____________ is the risk a security holder will have to bear if issuer unable to pay the scheduled interest payments or principal repayment due to financial constraints.
A. investment risk
B. currency risk
C. liquidity risk
D. default risk
7. ______________ is used to change the pattern of spending on goods and services.
A. Fiscal policy
B. Monetary policy
C. Both of the above
D. None of the above
8. Monetary Policy:
A. is a means by which a redistribution of income & wealth can be achieved
B. can be used to correct for free-market failures
C. can affect aggregate demand and aggregate supply
D. can affect economic growth and stability
9. Which of the following methods can be used as contractionary fiscal policy?
A. Increasing government expenditure
B. Increasing taxes
C. Increasing budget deficit
D. All of the above
10. Contractionary monetary policy can be effected by _________ reserve requirements.
A. increasing
B. decreasing
C. maintaining
D. removing
11. Fiscal policy involves the use of all of the following except ________ to affect the level and growth of aggregate demand, output and jobs.
A. government spending
B. taxation
C. borrowing
D. interest rates
12. Which of the following must be present when using technical analysis?
A. Historical prices
B. Charts
C. Earnings
D. Cash Flows
13. Which of the following is NOT necessary when using technical analysis?
A. Moving Averages
B. Trading Volumes
C. Peak Earnings
D. Peak Prices
14. Technical Analysis is based on the belief of all the following EXCEPT:
A. Price moves in trends
B. History tends to repeat itself
C. Supply and demand
D. The strength of the economy affects prices
15. Financial assets may be broadly classified
A. money market securities
B. capital market securities
C. derivative securities
D. All of the above
16. Which of the following are short-term debt investments which are very liquid, low risk and are issued by governments, financial institutions and corporations?
A. money market securities
B. capital market securities
C. derivative securities
D. All of the above
17. Which of the following is NOT classified as money market securities?
A. Treasury bills
B. Commercial papers
C. Repurchase agreements
D. Swaps
18. Debt securities are also known as:
A. loans
B. fixed income securities
C. repurchase agreements
D. All of the above
19. Debt securities are borrowings by the:
A. investors
B. principal
C. issuers
D. financial institutions
20. Which of the following provides periodic interest payments and at the maturity date, a return of the principal?
A. Equity securities
B. Debt securities
C. Repurchase agreements
D. All of the above
21. Which of the following represents an ownership interest in the capital stock of a company?
A. Equity securities
B. Debt securities
C. Derivative securities
D. All of the above
22. Which of the following is a type of equity securities?
A. Ordinary shares
B. Preference shares
C. Both of the above
D. None of the above
23. Shareholders of a company have a stake in the
A. debt of the company
B. assets of the company
C. dividends of the company
D. All of the above
24. Which of the following is a financial security whose value is linked to the value of one or more underlying assets?
A. Equity securities
B. Debt securities
C. Derivative securities
D. All of the above
25. Insuring against risk is also known as:
A. Hedging
B. Speculating
C. Arbitraging
D. All of the above
26. Taking advantage of price differentials between two or more markets to make a profit is also known as:
A. Hedging
B. Speculating
C. Arbitraging
D. All of the above
27. Which method can decrease money supply?
A. increasing reserve requirements
B. decreasing reserve requirements
C. maintaining reserve requirements
D. removing reserve requirements
28. Which method will not reduce inflationary pressures on the economy?
A. decrease in interest rates
B. decrease in aggregate expenditures
C. decrease in aggregate production
D. decrease in the money supply
29. Which of the following methods have an expansionary fiscal policy effect?
A. decrease government purchases
B. decrease taxes
C. decrease welfare payouts
D. All of the above
30. Contractionary fiscal policy ________ inflationary pressures.
A. has no effect on
B. increases
C. reduces
D. eliminates
31. Which of the following statements about interest rates are NOT true?
A. interest rates do not affect the economy
B. Supply and demand of credit affects interest rates
C. An increase in the supply of credit will reduce interest rates
D. A decrease in the demand for credit will decrease interest rates
32. An increase in the demand for credit will:
A. raise interest rates
B. lower interest rates
C. have no effect on interest rates
D. cause banks to hold back on lending
33. Which of the following statements regarding credit is TRUE?
A. The more banks can lend, the more credit is available to the economy
B. Credit available to the economy increases if lenders defer re-payment of their loans
C. Both of the above
D. None of the above
34. If the rate of inflation of an economy rises, interest rates:
A. are not affected
B. tend to fall
C. tend to rise
D. tend to become erratic
35. Interest rates can be affected by:
A. money supply
B. tenure of the borrowing
C. liquidity of the borrowing
D. all of the above
36. Which of the following is not a type of debt security?
A. Treasury bill
B. Certificates of deposit
C. Preference shares
D. Debentures
37. Which of the following is NOT a characteristic of money market instruments?
A. Low risk
B. Highly liquid
C. Small denominations
D. None of the above
38. An investor who buys fixed income securities lends an amount of money to the issuer known as the:
A principal
B. revenue
C. interest
D. capital
39. All of the following are equity securities EXCEPT:
A. Ordinary shares
B. Non-ordinary shares
C. Non-voting shares
D. Preference shares
40. Which of the following equity securities has the lowest risk?
A. Ordinary shares
B. Non-ordinary shares
C. Non-voting shares
D. preference shares
41. Which of the following factors do NOT affect foreign exchange rates?
A. Stability of country
B. Interest rates
C. Tax rates
D. Central Bank intervention
42. Country ABC has a current account deficit that is a negative impact on its exchange rates. How can Country ABC improve its situation?
A. Increase foreign spending
B. Borrow capital foreign sources
C. Increase the exports of goods and services
D. All of the above
43. A large current account deficit generally reduces _______ in the domestic economy.
A. inflation
B. foreign investors
C. Both of the above
D. none of the above
44. Brokers in the financial markets can be classified as:
B. Intermediaries
C. Regulators
D. Investors
45. Fund management Companies in the financial markets can be classified as:
A. Issuers
B. Intermediaries
C. Regulators
D. Investors
46. Market makers in the financial markets can be classified as:
A. Issuers
B. Intermediaries
C. Regulators
D. Investors
47. The ability to buy or sell a security at a price not substantially different from the prices for previous transactions is known as:
A. Tradability
B. Solvency
C. Liquidity
D. Market depth
48. The number of buyers and sellers willing to trade at prices near the current price of a security is known as:
- Tradability
- Solvency
- Liquidity
- Market depth
49. The higher the liquidity of a security, the _______ its bid-offer spread.
A. narrower
B. wider
C. No influence
D. None of the above
50. Which of the following is NOT a method of raising capital?
A. A regulated exchange
B. Private equity
C. Mezzanine financing
D. Margin financing
51. Which of the following does not occur in the primary market?
A. Initial public offers for equities
B. Tender of government binds
C. Rights for securities
D. Offers of new fixed income instruments
52. Which of the following instruments carries the highest risk?
A. Treasury bills
B. Bonds
C. Equities
D. Cash
53. Which of the following instruments carries the lowest risk?
A. Treasury bills
B. Bonds
C. Equities
D. Cash
54. The risk of closure of an exchange is known as:
A. Market risk
B. Liquidity risk
C. Counter risk
4. Operational risk
55. The risk of potential failure of a party to honour a contract between two parties is known as:
B. Liquidity risk
C. Counterparty risk
D. Operational risk
56. The risk of investment loss due to an economic recession is known as:
A. Market risk
B. Liquidity risk
C. Counterparty risk
D. Operational risk
57. The risk of a lack of potential buyers to purchase a security an investor wants to sell is known as:
A. Market risk
B. Liquidity risk
C. Counterparty risk
D. Operational risk
58. Which of the following methods is a type of fundamental analysis method?
A. Support and resistance analysis
B. Price and volume analysis
C. Risk management modelling
D. Financial statement analysis
59. Which of the following methods is a type of technical analysis method?
A. Support and resistance analysis
B. industry analysis
C. Risk management modelling
D. Financial statement analysis
60. Which of the following methods is a type of qualitative analysis method?
A. Support and resistance analysis
B. industry analysis
C. Risk management modelling
D. Financial statement analysis
MODULE 10 (SET 2)
ASSETS AND FUND MANAGEMENT
1. Based on the principle of risk-return tradeoff, there will be ______ return produced from an investment of a high risk.
A. higher
B. lower
C. negative
D. zero
2. Which of the following methods of measuring investment return does not take into account the compounding effects of returns?
A. Geometric Average
B. Arithmetic Average
C. Non-compounding Average
D. Systematic Average
3. Yield To Maturity calculation factors in the time value of money, whereas a _____ calculation does not.
A. Bond Yield
B. Annual Yield
C. Coupon interest
D. Current Yield
4. _________ is the interest rate one would earn by investing every coupon payment from the bond at a contrast interest rate until the bond’s maturity.
A. Bond Yield
B. Yield To Maturity
C. Coupon Interest
D. Current Yield
5. Which of the following is NOT a method to measure risk?
A. Alpha
B. Beta
C. Correlation Coefficient
D. Sharp Ratio
6. Which of the following measures volatility compared to the market or the benchmark index?
A. Alpha
B. Beta
C. Standard Deviation
D. Sharp Ratio
7. Which of the following measures risk relative to the market or benchmark index?
A. Alpha
B. Beta
C. Standard Deviation
D. Sharp Ratio
A. Alpha
B. R-Squared
C. Standard Deviation
D. Sharp Ratio
9. Which of the following measures how much return on investment is deviating from the expected normal or average returns?
A. Alpha
B. R-Squared
C. Standard Deviation
D. Sharp Ratio
10. An investment manager has a portfolio comprising of Stock A, Stock B, and Stock C. Stock A has an expected return of 20% and a weight of 20% in the portfolio. Stock B has an expected return of 15% and a weight of 50% in the portfolio. Stock C has an expected return of 10% and a weight of 30% in the portfolio. What is the expected return of the portfolio?
A. 14%
B. 14.5%
C. 15%
D. 15.5%
11. __________ is a measure of the dispersion of a set of data points around their mean value.
A. Beta
B. R-Squared
C. Standard Deviation
D. Variance
12. According to weak form efficiency, all information in the market is accounted for in a stock’s price and _________ can provide investors with an edge.
B. technical analysis
C. Both of the above
D. None of the above
13. According to strong efficiency, all information in the market is accounted for in a stock’s price and ______ can provide investors with and edge.
A. fundamental analysis
B. technical analysis
C. Both of the above
D. None of the above
14. The Capital Asset Pricing Model can be described by the formula.
A. Expected Return = Risk Free Rate + Alpha (Market Return – Risk Free Rate)
B. Expected Return = Risk Free Rate + Beta (Market Return – Risk Free Rate)
C. Expected Return = Risk Free Rate + Standard Deviation (Market Return – Risk Free Rate)
D. Expected Return = Risk Free Rate + Covariance (Market Return – Risk Free Rate)
A. 9%
B. 10%
C. 11%
D. 12%
16. The risk free-rate is 5% and the overall stock market index is expected to return to 10% next year. You are interested in determining the return that ABC stock will have next year. You have determined that the stock’s beta value is 1.6. What is the expected return of ABC stock?
A. 12%
B. 13% = (5 + 1.6 (10-5))
C. 11%
D. 12%
17. If a stock’s beta is 1.2, it theoretically has 20% _____ than the market.
A. more volatility
B. higher risk
C. lower risk
D. more returns
18. The security market Line (SML) graph shows the relationship between the _____ risk and the return of the whole market at a certain time.
A. systemic
B. systematic
C. alpha
D. beta
19. ______ is the difference between the expected return on a market portfolio and the risk-free rate.
A. Alpha
B. Beta
C. Standard Deviation
D. Market risk premium
20. The _ _____ provides information on what the company owns and owes as of a specific date.
A. cash flow statement
B. income statement
C. balance sheet
D. portfolio statement
21. Which of the following shows the net profit or loss incurred over a specific accounting period?
A. cash flow statement
B. income statement
C. balance sheet
D. portfolio statement
22. Which factor does not affect the stock market in terms of valuation?
A. Stock splits
B. Mergers and acquisitions
C. Earnings announcements
D. Change in dividends declared
23. Which is the core factor that affects the stock market in the short term?
A. Supply & Demand
B. Interest rates
C. Inflation
D. Valuation
24. Which is the core factor that affects the stock market in the long term?
A. Supply & Demand
B. Interest rates
C. Inflation
D. Valuation
25. Which type of analysis is used to predict a bull market reversal?
A. Trend Analysis
B. Comparative Analysis
C. Market Analysis
D. Asset Analysis
26. Which type of analysis is used to determine an asset’s fair value based on the fair value of other similar assets?
A. Trend Analysis
B. Comparative Analysis
C. Market Analysis
D. Asset Analysis
27. What is the following is NOT a limitation of Financial Ratio Analysis?
A. Comparing two companies in different industries
B. Analysing companies that use window dressing
C. Analyzing future performance of a company based solely on its past performance
D. Analyzing the amount of debt a company has
28. Which of the following statements is FALSE?
A. Common shareholders have a claim on firm assets after the preferred shareholders
B. Preferred shareholders have voting rights
C. Common shareholders are entitled to variable dividends which the company is under no legal obligation to pay.
D. Preferred shareholders are entitled to variable dividends which the company is under no legal obligation to pay.
29. Which type of shares subject a shareholder to the least amount of risk if the stock price drops?
A. Putable Shares
B. Callable Shares
C. Common Shares
D. None of the above as they are all subject to an equal amount of risk
30. Which type of shares subject a shareholder to the least amount of risk if the stock price drops?
A. Cumulative Preferred Shares
B. Non-cumulative Preferred Shares
C. Common Shares
D. None of the above as they are all subject to an equal amount of risk
31. ________ is the minimum rate of return that investors in the company’s equity require.
A. Market value
B. Book value
C. Return on Equity
D. Cost of equity
32. Over the log term, a company’s stock price will be most affected by:
A. speculation
B. management
C. earnings
D. growth potential
33. The larger the market capitalization of a stock, the higher its:
A. revenue
B. profit
C. stock price
D. number of shares
34. The higher the Price to earnings ratio (P/E ratio) of a stock, the higher its:
A. profitability
B. valuation
C. equity
D. stock price
35. Technical Analysis is the forecasting of the direction of prices through the study of:
A. comparative valuation
B. asset-liability valuation
C. historical prices
D. historical earnings:
36. The efficient market hypothesis states that stock market prices using _____ are unpredictable.
A. fundamental analysis
B. technical analysis
C. Both of the above
D. None of the above
37. Aggregate Demand can be calculated by adding of the following except:
A. Spending
B. Investment
C. Exports
D. Imports
38. Aggregate Demand can decrease if there is an increase in:
A. interest rates
B. wages
C. government spending
D. All of the above
39. Aggregate Demand can increase if there is a decrease in:
A. consumer confidence
B. income tax
C. housing prices
D. All of the above
40. Which of the following will NOT result in long term economic growth?
A. Technical improvements
B. Increase in investment
C. Decrease in working population
D. Increase in labour productivity
41 If the money supply growths too fast:
- The rate of inflation may increase
- B. economic growth may decrease
- C. price stability may increase
- All of the above
42. Monetary Policy is the regulation of the
A. money supply
B. interest rates
C. Both of the above
D. None of the above
43. Controlling the money supply and interest rates can: (i) control inflation; (ii) stabilize current (ii) grow the economy; (iv) reduce the amount of money that is spent by consumers:
A. i
B. I, ii
C. I, ii, iii
D. All of the above
44. Fiscal policy to stimulate economic growth can include all the following actions except:
A. Lowering tax rates
B. Increasing the number of jobs
C. Increasing government spending
D. Lowering interest rates
45. Fiscal policy makes use of changes to _____ in order to influence aggregate demand and the level of economic activity.
A. taxation rates
B. interest rates
C. lending rates
C. money supply
46. Which of the following is a type of fiscal policy that can be used to stimulate the economy?
A. Neutral
B. Expansionary
C. Contractionary
D. All of the above
47. Expansionary fiscal policy:
A. is usually undertaken when an economy is in equilibrium
B. can be done by increasing government spending such that it is higher than tax revenue
C. can be done by decreasing government spending such that it is lower than tax revenue
D. cannot be done by any of the above methods
48. The issuance of government bonds will:
A. decrease interest rates
B. increase aggregate demand for goods and services
C. Both of the above
D. None of the above
49. Which of the following is NOT a stage in the business cycle?
A. Recession
B. Recovery
C. Expansion
D. Failure
50. In the _____ stage, commodities and stocks are attractive investment opportunities.
A. Recession
B. Recovery
C. Early Expansion
D. Late Expansion
51. In the _____ stage, cyclical investments are attractive investment opportunities.
A. Recession
B. Recovery
C. Early Expansion
D. Late Expansion
52. In the _____ stage, real estate is attractive investment opportunities.
A. Recession
B. Recovery
C. Early Expansion
D. Late Expansion
53. In the _____ stage, bonds are attractive investment opportunities.
A. Recession
B. Recovery
C. Early Expansion
D. Late Expansion
54. Which of the following is NOT a type of fixed income securities?
A. Government bonds
B. Interest rate swaps
C. Treasury bills
D. Corporate bonds
55. Which of the following is NOT a benefit of investing in unit trusts?
A. Having the portfolio managed by a professional
B. Having a diversified mix of securities
C. Ability to invest with a small capital outlay
D. Ability to control the investment mix
56. Which of the following theories is based on the concept of selecting a group of assets that has collectively lower risk than any individual asset?
A. The Optimal Portfolio Theory
B. The Modern Portfolio Theory
C. The traditional Portfolio Theory
D. The Standard Portfolio Theory
57. Which of the following theories is a based on the concept of combining different assets whose returns are not correlated so as to reduce the total variance of the return of the portfolio?
A. The optimal Portfolio Theory
B. The Modern Portfolio Theory
C. The traditional Portfolio Theory
D. The Standard Portfolio Theory
58. Which of the following types of risk is caused by microeconomic, political and social factors that affect the value of all risky assets in the financial market?
A. Systematic risk
B. Unsystematic risk
C. Portfolio risk
D. Management risk
59. Which of the following can be used to diversify an investment portfolio?
A. Investing in different asset classes
B. Investing in securities from different industries
C. Investing in securities from different countries
D. All of the above.
60. The Jensen’s measure is also known as the portfolio’s:
A. alpha
B. beta
C. delta
D. standard deviation