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

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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?

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.
D. Reverse convertible bond.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

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?

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.

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

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

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?
(In 2011, 1 SGD = 1 AUD; In 2012, 1 SGD = 0.8 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. He would expect the two securities to have a correlation
coefficient of:

A. +1
B. + 0.5
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.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

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. 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 1.2500 to Brigette when Annette visits Singapore within the
next six months.

B. Chloe enters into a contract to buy AUD 200,000 at a rate of

AUD/USD 0.9800 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.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

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.

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. with a strike price of
USD 500.
B. Edwin who owns a put option on Apple Inc. with a strike price of
USD 470.
C. Matt who owns a call option on Apple Inc. with a strike price of
USD 465.
D. Tim who owns a put option on Apple Inc. with a strike price of
USD 465.

22. Kylie currently does not own any SIA shares and feels that its current trading
price of S$11 per share is too high. She is only willing to pay not more than
S$10 per share. Which of the following option strategies may enable her to
buy SIA shares for not more than S$10?

A. Buy a call option with an exercise price of S$8 for a premium of S$1.
B. Sell a naked put option with an exercise price of S$12 for a premium of
S$1.
C. Buy a protective put option with an exercise price of S$10 for a
premium of S$1.
D. All of the above.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

23. Nicholas holds many shares in Fast Forward Corp and believes that, given
the global economic crisis, there is a good chance that the share price will
fall. However, he wishes to keep these shares as he believes in their long
term performance. Which one of the following option strategies will enable
him to generate additional income by taking on a low risk in the short term?

A. Bull straddles.
B. Bear straddles.
C. Writing covered calls.
D. Buying protective puts.

24. The 3-month forward price for 1kg of coffee is S$50 and the cost of carry is
S$5. The spot price for 1kg of coffee is:

A. S$45
B. S$50
C. S$55
D. S$60

25. The December futures price for 1 ounce of silver is S$60 and the spot price
is S$45. In market lingo, the basis is:

A. 20 dollars over December

B. 15 dollars over December
C. 20 dollars under December
D. 15 dollars under December

26. The share price of American Express Co. is currently trading at US$60.
Sharon believes that the share price will rise and decides to take a long CFD
position. The CFD provider quotes her US$58 bid and US$62 offer.
Subsequently, the share price of American Express Co. rises to US$80. The
CFD provider then quotes her US$78 bid and US$82 offer.

Assuming there are no financing and commission charges, calculate Sharon’s

profit per share when she closes her position in this transaction.

A. US$16
B. US$18
C. US$20
D. US$22

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

27. Samuel shorts a futures contract on the Kuala Lumpur Composite Index
(KLCI) with the following features:

KLCI futures contract = 2,000

Multiplier = MYR100 per index point

Calculate the payoff when KLCI is at 2,500.

A. Loss of MYR 50,000

B. Loss of MYR 55,000
C. Gain of MYR 50,000
D. Gain of MYR 55,000

28. Chris owns 100 shares of Apple purchased at US$500 per share. He
subsequently sells a call option on these shares for US$30 per share with an
exercise price of US$500.

Calculate Chris’s gain/loss when Apple’s share price drops to US$450 and
the call option expires worthless.

A. Loss of US$5,000
B. Loss of US$2,000
C. Gain of US$2,000
D. Gain of US$5,000

29. Claire purchased a call and put option on 100 shares of Cisco for US$1 per
share at a strike price of US$20. Before Cisco announced its full-year
earnings results, Cisco was trading at a price of US$20 per share.

Calculate Claire’s NET gain/loss when Cisco’s earnings beat market

expectations and its stock price rose to USD$25 per share.

A. Gain of US$500
B. Gain of US$300
C. Loss of US$200
D. Loss of US$100

30. Which one of the following statements regarding an investment fund is

TRUE?

A. It can only be open-ended.

B. It must be listed on the stock exchange.
C. Some funds use derivatives to hedge investment risks.
D. It is also known as an “Individual Investment Scheme”.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

31. Which of the following factors will NOT cause an index fund to have tracking
error?

A. Size of the funds invested.

B. Complexity of the underlying index.
C. Expenses incurred in managing the fund.
D. Accessibility of the underlying market to achieve replication.

32. Janelle wants to invest in an investment fund that invests in other

investment funds. She should invest in a/an _____________.

A. index fund
B. formula fund
C. fund of funds
D. special situations fund

33. Which of the following is an advantage of investing in a Collective

Investment Scheme (CIS)?

A. Low expense ratio.

B. Economies of scale.
C. Full downside protection.
D. Unit-holders make all the investment decisions.

34. In a unit trust, the person who performs the duties of day-to-day operation of
the trust is also known as the _________________________.

A. unit-holder
B. fund manager
C. fund distributor
D. Chief Financial Officer

35. What can an investor do to mitigate the risks of investing in unit trusts?

A. Use derivatives like options and futures.

B. Invest in negatively correlated asset classes.
C. Diversify investments across asset classes and geographic locations.
D. All of the above.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

36. How can the financial adviser ensure that marketing collaterals of investment
products present a fair and balanced view to prospective clients?

A. Product risks should be highlighted in fine print.

B. Materials should show only the potential upside of the investment.
C. Information is clear and easily understood by the prospective clients.
D. Information that is not easily understood by the investor will be placed
in the footnote.

37. In which document should the fund issuer disclose to investors where they
can obtain pricing information and the frequency of price updates?

A. Prospectus.
B. Annual report.
C. Fund Factsheet.
D. Product Highlights Sheet.

38. Which of the following statements about an Exchange-Traded Fund (ETF) is

TRUE?

A. ETF is an investment fund that is not listed and traded over the
counter.
B. Buyers and sellers keep the market price of ETF units close to the
fund’s NAV.
C. The liquidity of the ETF units and the underlying index components are
independent.
D. ETFs can be replicated either through direct investments or synthetic
financial instruments.

39. What is the advantage of investing in Exchange-Traded Funds (ETFs) over

Unit Trusts (UTs)?

A. ETFs are generally more liquid than UTs.

B. ETFs provide full downside protection for investors.
C. Investors of ETFs do not incur any fees and charges.
D. There is perfect price certainty because ETFs will always trade at a
price that is equal to its Net Asset Value.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

40. What is the main difference between Exchange-Traded Funds (ETFs) and
shares?

A. ETFs are not listed while shares are listed on the stock exchange.

B. ETFs are traded over-the-counter while shares are traded through

securities brokers.

C. ETFs can invest in a number of companies while a purchase of shares is

an investment in a single company.

D. The price of ETFs are determined by their Net Asset Value (NAV) while
share prices are determined by market quotes.

41. What is the formula used to determine the Net Asset Value (NAV) per
Exchange-Traded Fund (ETF) unit?

A. (Assets – Liabilities) / Outstanding ETF units

B. (Liabilities – Assets) / Outstanding ETF units
C. Outstanding ETF units / (Assets – Liabilities)
D. Outstanding ETF units / (Liabilities – Assets)

42. The S&P 500 Double Long (2x) Fund seeks to deliver twice the daily
percentage change in the level of the S&P 500 Index. If the S&P 500 Index
gains 10% of its value in one day, what should be the expected change in
the value for this fund?

A. 5%
B. 10%
C. 15%
D. 20%

43. Which type(s) of investors will be suitable for investment in Exchange-Traded

Funds (ETFs)?

A. Investors who do not understand how ETFs work.

B. Investors who prefer passive management in a fund.
C. Investors who are looking for superior returns in the market.
D. All of the above.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

44. As part of his asset allocation strategy for his investment portfolio, David
wants to be invested into fixed income instruments. Which of the following
ETFs should he invest in?

A. SPDR Gold Shares.

B. SPDR Straits Times Index ETF.
C. ABF Singapore Bond Index Fund.
D. Lyxor ETF MSCIAC Asia Ex Japan Consumer Staples TR.

45. Ivan has invested US$100,000 in Apple Stock. He is worried that the falling
US dollar will affect his returns when he liquidates and converts his
investment back into SGD. Since gold generally has a negative correlation
with the US dollar, he also invested S$25,000 in a Gold Exchange-Traded
Fund (ETF). What is Ivan’s main purpose of investing in this ETF?

A. Hedging.
B. Tactical Trading.
C. Cash Management.
D. Core-satellite investments.

46. Jimmy has made the following statements on hedge funds. Which of the
following statement(s) should be considered as FALSE?

A. “Hedge funds are just as liquid as Exchange-Traded Funds.”

B. “Hedge funds generally aim for absolute instead of relative returns.”
C. “Hedge fund managers have flexibility in their investment strategy.”
D. All of the above.

47. Fund ABC has the following features:

Issuer = Bank X
Underlying Asset = Straits Times Index (STI)
Tenure = 5 years
Maturity value = Initial capital amount + 80% of STI performance

Based on the above information, what type of fund is it MOST likely be?

A. Hedge Fund.
B. Formula Fund.
C. Fund of Funds.
D. Exchange-Traded Fund.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

48. A structured product has the following features:

Issuer = Bank Y
Underlying Asset = SPDR S&P 500 ETF
Tenure = 5 years

Maturity value = Initial capital amount + Guaranteed 1% of the initial

capital

Bonus payout = 9% of initial capital if the S&P 500 index is above 1,500
points upon maturity of the structured product

Early redemption penalty = 5% of initial capital

Assume that S&P 500 is above 1,500 points at the end of 5 years and the
investor has held the investment to maturity.

How much would the investor receive if he has invested S$100,000 in the
structured product?

A. S$95,000
B. S$101,000
C. S$104,000
D. S$110,000

49. A hedge fund’s investment strategy consists of purchasing call and put
options at the same strike price on a company before it announces its
quarterly earnings results. This strategy works MOST effectively when the
stock price is ____________________ after its quarterly earnings
announcement.

A. bullish
B. bearish
C. stagnant
D. volatile resulting in huge upside or downside

50. A currency hedge fund speculates in global events that will affect the relative
value of currencies. Which of the following is an example of a strategy that
such a fund will employ?

A. Long USD/JPY.
B. Long S&P 500 Index.
C. Short crude oil futures.
D. Buying a put option on Apple Stock.

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M8A (1st Edition) Collective Investment Schemes II (Mock Paper Version 1.0)

Answers to Mock Paper

1 B 26 A
2 C 27 A
3 A 28 B
4 A 29 B
5 A 30 C
6 A 31 A
7 D 32 C
8 D 33 B
9 C 34 B
10 D 35 D
11 D 36 C
12 A 37 A
13 C 38 D
14 C 39 A
15 D 40 C
16 D 41 A
17 D 42 D
18 A 43 B
19 B 44 C
20 C 45 A
21 B 46 A
22 A 47 B
23 C 48 D
24 A 49 D
25 D 50 A

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