CMFAS Module 9A (1st Edition) Mock Paper

1. Structured products:

A. are equity securities

B. are also known as hybrid products
C. carry singular, non-complex investment risks
D. typically combine traditional investments with property investments

2. Which one of the following statements regarding structured products is

TRUE?

A. Structured products are all similar by nature.

B. Most structured products do not have fixed expiry or maturity
dates.
C. Structured products fall under the category of traditional
investments.
D. Structured products may use different types of derivatives as the
underlying asset.

3. Structured deposits are issued by:

A. banks
B. Lloyd’s syndicates
C. insurance companies
D. stockbroking houses

4. Investors may wish to invest in structured products as they:

A. are highly liquid assets

B. carry low investment risk
C. are simple products to understand
D. provide access to investment markets that are otherwise closed
to them

5. Structured deposits are:

A. capable of generating high returns

B. not considered as investment products
C. included in the Deposit Insurance Scheme in Singapore
D. usually arranged such that the capital is guaranteed by the bank

6. Structured products carry higher risk exposures because they:

A. provide capital guarantee

B. are not managed by fund managers
C. serve to balance a diversified portfolio
D. participate in the price performance of the underlying asset

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CMFAS Module 9A (1st Edition) Mock Paper

7. Those investments that carry a high probability of loss of principal while

offering a compensating high probability of potential returns can be said
to be:

A. rare gems
B. bold investments
C. safe instruments
D. unworthy investments

8. Performance participation structured products:

A. are secured debt instruments

B. carry a lower degree of investment risk
C. share in the profits of the participating funds
D. track the price performance of the underlying assets

9. Brandon would like to invest in a structured product which is sold at a

discount and allows him to participate in the performance of the
underlying asset up to a pre-determined maximum level. Which of the
following structured products is likely to meet Brandon’s investment
objective?

A. Airbag certificate.
B. Bonus certificate.
C. Tracker certificate.
D. Discount certificate.

10. Investors may wish to invest in structured products as they:

A. are able to offer customised exposure

B. are useful as a complement to traditional investments
C. are accessible to retail investors like other investment products
D. feature all of the above

11. An investor placed S$100,000 in a New Zealand Dollar (NZD)

investment when NZD1 was worth S$1.10. The NZD has since
depreciated against the S$ and is now worth only S$0.77. On the other
hand, the NZD investment has appreciated by 10% in NZD terms.

What is the investor's net gain / loss on the investment, as measured in

S$?

A. Gain of 10%
B. Gain of 15%
C. Loss of 23%
D. Loss of 27%

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CMFAS Module 9A (1st Edition) Mock Paper

12. Fluctuation in the market price of the underlying assets of structured

products is LIKELY to be caused by:

A. inflation
B. interest rate movements
C. exchange rate fluctuation
D. all of the above

13. The maturity amount of a structured product may be less than the
original investment. This may be caused by one of the following
circumstances:

A. the investor’s portfolio diversification is high

B. fluctuation in the price of the underlying assets
C. there was no collateral put up by the counterparty
D. the counterparty to the derivative contract defaults

14. Investors of structured products may face counterparty risks, which

means that:

A. the issuer’s credit rating may be downgraded

B. the issuer may face difficulty in meeting its cash flow obligations
C. interest rate fluctuations may affect the quality of the structured
products
D. the counterparty may fail to meet its contractual obligations to
the issuer

15. Negatively correlated securities may serve to:

A. reduce fee charges for the investor

B. enhance portfolio diversification
C. prevent early redemption of the securities
D. increase investment concentration in the investor’s portfolio

16. In a situation where an institution is unable to meet a temporary cash

crunch, which one of the following risks is the institution encountering?

A. Issuer risk.
B. Market risk.
C. Liquidity risk.
D. Foreign exchange risk.

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CMFAS Module 9A (1st Edition) Mock Paper

17. Another term for “leverage”, a technique used to increase the potential
rate of return of an investment asset, is:

A. gearing
B. lending
C. contango
D. backwardation

18. Which one of the following statements regarding the risks faced by
investors of structured products is FALSE?

A. Interest rate volatility is a form of general market risk.

B. The prices of structured products that are leveraged are more
volatile in price.
C. Early redemption initiation by the investor may result in loss of
capital.
D. Structured products will definitely provide full return of capital
upon maturity.

19. Which one of the following methods may be used to mitigate

counterparty default risk?

A. Investing only in listed companies.

B. Using non-publicly traded securities.
C. Dealing in the same foreign currency.
D. Asking for collateral from the counterparty.

20. Darren is certain that Apple shares will have a big move and thinks that
the move can be in either direction. What option strategy should Darren
adopt given his market view?

A. Bull Straddle.
B. Bear Straddle
C. Long a call on Apple shares.
D. Long a put on Apple shares.

21. The December price for oil futures is US$100 per barrel, but the cash
price is US$93 per barrel. Which one of the following statements BEST
describes this situation?

A. Basis is "US$93 in December".

B. Basis is "US$100 in December".
C. Basis is "US$7 over December".
D. Basis is "US$7 under December".

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CMFAS Module 9A (1st Edition) Mock Paper

22. Derivatives are financial instruments that are generally used by

corporations and financial institutions to:

A. manage risks
B. eliminate uncertainty
C. guard against unwanted price movements
D. serve all the above functions

23. Which one of the following statements regarding option strategies is

FALSE?

A. To long a call is a bearish option strategy.

B. The naked call seller has limited upside potential.
C. Straddle is an example of a neutral option strategy.
D. The put option buyer makes maximum profit when the stock price
falls to zero.

24. A forward contract is purchased at S$10,000. The current spot price is

S$8,000. The cost of carry is therefore equal to a:

A. discount of S$2,000
B. discount of S$4,000
C. premium of S$2,000
D. premium of S$4,000

25. The players in the futures market fall into two categories – hedgers and
speculators. Which one of the following statements regarding hedgers is
TRUE?

Hedgers seek to:

A. minimise risk
B. benefit from price volatility
C. sell to profit from falling prices
D. buy to profit from rising prices

26. If John invests S$200,000 in a 5-year bond from Supreme Company and
wishes to mitigate the risk of the company’s failure on his investment,
he can buy a/an ____________ swap on the Supreme Company bond.

A. equity
B. currency
C. interest rate
D. credit default

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CMFAS Module 9A (1st Edition) Mock Paper

27. A / an ____________ is a security that entitles the holder to buy or sell an

underlying security at a strike price on or before a certain date.

A. bond
B. equity
C. option
D. unit trust

28. Which of the following option strategies would be MOST appropriate if

an investor wishes to use leverage and is bullish on a certain stock?

A. Long a call.
B. Sell a naked put.
C. Write a covered call.
D. Buy a protective put.

29. Frankie does not own Apple shares and feels that the current price is too
high. He is only comfortable to own the shares at a discount relative to
its current price. Which option strategy is MOST suitable for Frankie?

A. Long a call.
B. Sell a naked put.
C. Buy a protective put option.
D. Buy a call and a put simultaneously at the same strike price and
expiry date.

30. Structured Investment-linked Life Insurance policies are suitable for

buyers who:

A. do not want any risk exposure at all

B. wish to provide for their dependants
C. are retiring and wish to receive a series of payouts for life
D. are seeking capital appreciation with medium to high risk of losing
the principal

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CMFAS Module 9A (1st Edition) Mock Paper

31. On 1 January 2011, David invested S$100,000 in the following

structured Investment-linked Life Insurance policy (ILP) from his life
insurer, which provides a 14-day free look period:

Capital preservation fund (maturing on 1 January 2021) seeks to provide

policy-owners with:

Annual payouts of 4.50% of the initial NAV as at each policy
anniversary; and

Return of principal invested on maturity.

In making this investment, David is assured of:

A. the 4.50% annual payouts, regardless of the performance of the

investment in the underlying sub-fund

B. getting back 100% of his capital on maturity, regardless of the

investment performance of the underlying sub-fund

C. getting a refund of his premium paid, adjusted for any downward

market price movements in the Net Asset Value per unit of the
ILP, if he changes his mind and cancels the investment within ten
days

D. all of the above

32. What is / are the advantage(s) for individual investors to invest in

Structured Investment-linked Life Insurance policies (ILPs)?

A. The individual investor can gain access to professional expertise.

B. Structured ILPs may incur lower transaction costs due to its

economies of scale.

C. Structured ILPs provide individual investors with the means to

diversify through a pooled investment mechanism.

D. All of the above.

33. The turnover ratio of a structured Investment-linked Life Insurance policy

(ILP) sub-fund is defined as the:

A. ratio between offer and bid prices

B. number of times that a dollar of assets is reinvested in a given
year
C. number of times that the units in an ILP sub-fund are exchanged
for cash
D. ratio of the sub-fund’s operating expenses to the daily average
net asset value

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CMFAS Module 9A (1st Edition) Mock Paper

34. Which of the following is one of the characteristics of structured

Investment-linked Life Insurance policies (ILPs)?

A. Structured ILPs have simple structures.

B. Structured ILP investors are exposed to little downside risk.
C. Structured ILP sub-funds are invested in tailor-made products.
D. Structured ILPs have a relatively high insurance element.

35. Which of the following regulatory instrument(s) must an insurer

marketing structured Investment-linked Life Insurance policies comply
with?

A. Insurance Act.
B. Financial Advisers Act.
C. Code on CIS (Collective Investment Schemes).
D. All of the above.

36. A structured investment-linked product should be valued __________.

A. at least once a month

B. at least once every quarter
C. at least once a year
D. only when there are significant changes to the investment
portfolio

37. Paul decides to invest S$100,000 in the following investment:

Prosperity Fund issued by Smarty Bank and distributed by Brilliant Bank.

This fund seeks yearly investment returns, (before fees and expenses)
that correspond to 150% of the returns of the yearly performance of the
MSCI World-Index.

What is / are the risk(s) that Paul is subject to?

A. Market risk.
B. Liquidity risk.
C. Credit risk of Smarty Bank.
D. All of the above risks.

38. What is a portfolio of investments with an insurance element called?

A. Option.
B. Hedge fund.
C. Portfolio bond.
D. Structured deposit.

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CMFAS Module 9A (1st Edition) Mock Paper

39. Portfolio bonds may be invested in a variety of investment instruments,

including:

A. bonds
B. equities
C. derivatives
D. all of the above

40. Which one of the following statements about portfolio rebalancing is

TRUE?

A. Portfolio rebalancing is done for all portfolio bonds.

B. Portfolio rebalancing maintains the original level of risk exposure.
C. Fund managers use portfolio rebalancing to increase risk
exposure.
D. The initial investment strategy is lost when a portfolio is
rebalanced.

41. One advantage of a portfolio of investments with an insurance element is

that:

A. the investment return of the portfolio will not fluctuate

B. there is no early withdrawal charge by the fund manager
C. the policy owner will have various market views from many fund
managers
D. the policy owner can change asset allocation as his financial
needs change over time

42. A portfolio bond is suitable for investors who:

A. want to invest in bonds

B. have a short investment time horizon
C. are seeking a high level of insurance protection
D. are looking to invest in a portfolio of different funds

43. Which of the following fees is / are chargeable in a portfolio bond

investment?

A. Product charge covering the cost of setting up the bond.

B. Fees charged by the fund manager for running the fund.
C. Surrender charge when the investor terminates the contract.
D. All of the above fees/charges.

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CMFAS Module 9A (1st Edition) Mock Paper

44. Portfolio bonds are NOT:

A. lifestyle policies
B. conventional bonds
C. Investment-linked Insurance products
D. portfolios of investments with an insurance element

45. Which one of the following statements about portfolio bonds is FALSE?

A. Death benefit can be included in portfolio bonds.

B. Portfolio bonds offer a wide range of investment choices.
C. The principal of portfolio bonds is generally guaranteed.
D. Policyowners may select their own fund managers, within the
insurer’s platform.

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CMFAS Module 9A (1st Edition) Mock Paper

46. XYZ Insurance Pte Limited had introduced an Investment-linked policy

that invests in a variety of funds, including a structured fund called
Better Fund.

Below is an extract from the Product Highlights Sheet of Better Fund:

WHAT ARE THE FEES AND CHARGES OF THIS INVESTMENT?

Payable directly by you
You must pay the following fees and charges to the Fund agent
based on the full market value of your investment:
- If you subsequently wish to switch your investment to another
fund by the same fund management company, a switching fee of
0.25% is payable.
- If you are using SRS or CPF monies to invest, transaction charges
may apply.

Payable by the Fund from invested proceeds

The Manager deducts management fees direct from the Fund as
follows:
- The Fund pays a Trustee fee of maximum 0.15% per annum,
subject to a minimum amount of S$5,000.
- The Underlying Funds also pay certain fees, such as annual
trustee/ custodian/depositary fees.
- Any fees owed to the Investment Manager and Investment
Adviser on the Underlying Fund are rebated in the form of
additional shares in the Underlying Fund.

A client had invested in Better Fund and wishes to switch to another

fund by the same fund management company. The current market value
of the investment is S$30,000. Calculate the client’s switching fee.

A. S$75
B. S$500
C. S$1,500
D. S$5,000

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CMFAS Module 9A (1st Edition) Mock Paper

47. ABC Insurance Pte Limited had introduced an Investment-linked policy

that invests in a variety of funds, including a structured fund called Best
Fund.

Best Fund is a recurrent single premium plan, which requires the policy
owner to contribute annually to the Fund. Details of Best Fund are as
shown below:

Inception Date: 1 April 2008

Maturity Date: 1 April 2028
Premium Due Date: Annual Anniversary Date of Policy
Minimum initial amount = S$50,000
Minimum annual contribution = S$10,000

Sum Assured = 101% of total premium contribution since

inception

Surrender value = Current market valuation of the underlying

assets

Early redemption by investor = Based on surrender value, requests

are processed every quarter

Fees = 5% of initial premium amount and 1% of recurrent single

premium amount

A client approached his financial adviser for advice on the above

investment. Based on the information above, which of the following
statements made by the financial adviser is TRUE?

A. Best Fund is suitable for investors who require high liquidity in

their investments.

B. An investor is guaranteed his initial capital amount regardless of

the redemption date.

C. Best Fund is not suitable for investors who seek high insurance
protection as their main investment objective.

D. An investor with liquid cash holdings of S$50,000 and annual

savings of S$8,000 may invest in Best Fund.

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CMFAS Module 9A (1st Edition) Mock Paper

48. ABC Insurance Pte Limited had introduced an Investment-linked policy

that invests in a variety of funds, including a structured fund called Best
Fund.

Below is an extract from the Product Highlights Sheet of Best Fund:

WHAT ARE THE FEES AND CHARGES OF THIS INVESTMENT?

Payable directly by you
You must pay the following fees and charges to the Fund agent
based on the full market value of your investment:
- If you subsequently wish to switch your investment to another
fund by the same fund management company, a switching fee of
1% is payable.
- If you are using SRS or CPF monies to invest, transaction charges
may apply.

Payable by the Fund from invested proceeds

The Manager deducts management fees direct from the Fund as
follows:
- The Fund pays a Trustee fee of maximum 0.15% per annum,
subject to a minimum amount of S$5,000.
- The Underlying Funds also pay certain fees, such as annual
trustee/ custodian/depositary fees.
- Any fees owed to the Investment Manager and Investment
Adviser on the Underlying Fund are rebated in the form of
additional shares in the Underlying Fund.

A client had invested in Best Fund and wishes to switch to another fund
by the same fund management company. The current market value of
the investment is S$50,000. Calculate the client’s switching fee.

A. S$75
B. S$500
C. S$1,500
D. S$5,000

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CMFAS Module 9A (1st Edition) Mock Paper

49. ABC Insurance Pte Limited had introduced an Investment-linked policy

that invests in a variety of funds, including a structured fund called Best
Fund.

Below is an extract from the prospectus of Best Fund:

Reports
Financial year-end and distribution of reports and accounts
The financial year-end for the Fund is 30 September. The annual
report, annual accounts and the auditor’s report on the annual
accounts will be prepared and made available to the Holders within
three months of the financial year-end (or such other period as may
be permitted by the Authority). The semi-annual report and semi-
annual accounts will be prepared and made available to the Holders
within two months of the financial half-year end (or such other
period as may be permitted by the Authority).

A client approached his financial adviser for advice. Based on the

information above, which of the following statements made by the
financial adviser is TRUE?

A. For every financial year, Best Fund is required to provide investors

with the relevant reports and accounts.

B. Best Fund can seek exemption from the Authority on the release
of the annual report for a particular financial year.

C. An investor who invests in Best Fund after 30 September will not

be charged any fees until the following financial year.

D. An investor who invests in Best Fund before 30 September will

be entitled to a discount in charges if the investor elects not to
receive the annual reports.

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CMFAS Module 9A (1st Edition) Mock Paper

50. ABC Insurance Pte Limited had introduced an Investment-linked policy

that invests in a variety of funds, including a structured fund called BEST
Fund. Below is an extract from the Prospectus of BEST Fund:

Past Performance of the Sub-Fund and benchmark

Annualised Returns (Average Annual Compounded Returns)

1 year 3 years 5 years 10 years since

inception*

BEST Fund 2.7% 29.4% 8.5% 15.2% 8.7%

Benchmark 13.3% 35.9% 12.2% 14.1% 7.2%

Index

* Inception date was 1 August 2000

Source: Eveningmoon. Returns are calculated in SGD
terms on a single pricing basis taking into account any
preliminary charge and with dividends being reinvested net
of all charges payable upon reinvestment.

A client approached his financial adviser for advice. Based on the

information above, which of the following statements made by the
financial adviser is TRUE?

Based on the Fund’s average annual compounded returns, the Fund:

A. can guarantee a minimum annualised return of 2%

B. had out-performed the benchmark index since inception
C. had out-performed the benchmark index over the past three years
D. had out-performed the benchmark index by at least 4% over the
past five years

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CMFAS Module 9A (1st Edition) Mock Paper

Answers to Mock Paper

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

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