INTRODUCTION TO SECURITIES & INVESTMENT

1 A capitalisation issue would have which ONE of the following effects on an investor`s
shareholding?

A The number of shares will change

B The share price will remain the same
C There will be partial payment of capital
D The investor will be required to sell part of his holding

2 The XETRA DAX index relates to stock market performance in which ONE of the following
countries?

A Italy C France
B Germany D Spain

3 A buyer of exchange-traded futures would be:

A going long C supplying the underlying

B going short D closing the underlying

4 Which ONE of the following is responsible for pricing units in a unit trust?

A Depository C Trustee
B Manager D Director

5 A firm of advisers has received a written complaint from a customer. Within what
MAXIMUM period after the date of the original complaint must the firm issue a final
response?

A 5 working days C 6 weeks

B 10 working days D 8 weeks

6 Which ONE of the following is a measure of inflation in the UK?

A Exchange rate C Balance of Payments

B FTSE 100 Index D Retail Price Index

7 An agreement to buy or sell a particular financial instrument at a specified date at an

agreed price is known as a:

A warrant C put option

B call option D future

8 Which type of occupational pension scheme converts pensionable service into a benefit
related to pensionable salary at or near retirement?

A Contracted-Out Money Purchase Scheme C Final Salary Scheme

B Executive Pension Plan D Small Self-Administered Scheme
9 Which of the following is a mandatory event?

A Dividend C Takeover
B Rights issue D Scrip Dividend
10 What is the MAXIMUM compensation award that the Financial Ombudsman can make a
firm pay?

A £25,000 C £150,000
B £50,000 D £250,000

11 What protection product solution would be MOST suitable for a company that employs a
consulting engineer because of his detailed knowledge of a particular project?

A Partnership insurance C Shareholder insurance

B Business insurance protection D Directors` insurance

12 A client holds an 8% bond which matures in 2014. It is currently trading at £124. What is
the flat yield?

A 1.80% C 6.45%
B 5.16% D 25.81%

13 Which ONE of the following financial activities is MOST likely to be carried out in the
retail sector?

A Trading of options C Financial planning

B Corporate finance D Reinsurance

14 The difference between a lender`s quoted interest rate and its effective annual rate,
NORMALLY relates to what key factor?

A Tax relief on the interest payments

B Frequency with which interest is levied
C Payment protection insurance to cover interest during sickness
D Discounts for making interest payments early

15 Commercial paper is:

A short term debt issued at a discount to par and repaid at par on maturity
B long term debt issued at a discount to par and repaid at par on maturity
C short term debt issued at par and repaid at a predetermined level on maturity
D long term debt issued at par and repaid at a predetermined level on maturity

16 The shares of an investment trust are said to be trading at a premium when the share
price is:

A higher than the net asset value C rising faster than the rate of inflation
B lower than the net asset value D rising at a slower rate than inflation

17 What is the main exchange for trading financial derivatives in the UK?

A LME C Liffe
B virt-x D AIM

18 If money laundering is suspected, to whom must employees report their suspicion?

A Compliance Officer C Internal auditor

B Money Laundering Reporting Officer D Serious Organised Crime Agency
19 What are UK Government issued interest bearing securities known as?

A Equities C Gilts
B Bonds D Swaps

20 What is a gilt with 5 years or less until redemption known as?

A Long C Short
B Medium D Repo

21 All firms who wish to conduct financial services business in the UK have to undergo an
authorisation process. The main reason for this is to ensure that the firm in question:

A is deemed to treat customers fairly C is considered fit and proper

B offers competitively priced products D pays the correct level of taxes

22 Fund A is an authorised fund and Fund B is an unauthorised fund. This means that:

A only Fund A can be marketed to the general public

B only Fund A will benefit from tax relief
C only Fund B can accept overseas investors
D only Fund B will use accumulation units

23 The use of which type of investment wrapper means that the payments made by the
investor will attract tax relief at outset?

A Child trust funds C Investment bonds

B Pensions D Cash ISAs

24 Where tax is deducted at source from the gross interest, the actual amount payable is
normally described as:

A nominal interest C real interest

B yield interest D net interest

25 Which ONE of the following indices contains only the largest companies, by
capitalisation, listed on the London Stock Exchange?

A FTSE 100 C FTSE All Share

B FTSE 250 D FTSE Techmark

26 A life policy is essentially a contract between which two principal parties?

A An underwriter and an insurance company C An individual and an investment manager

B An insurance company and an individual D An investment manager and an underwriter

27 What is the PRIME responsibility of the Bank of England`s Monetary Policy Committee
(MPC)?

A Determining interest rates in accordance with inflation targets

B Intervening in the market to influence exchange rates
C Organising the amount of notes and coins in circulation
D Preparing economic statistics for the Government
28 A fund manager has decided to adopt a `core-satellite` approach to its investment
strategy. The key characteristic of this strategy is that it combines:

A fundamental analysis with technical analysis

B active management with passive management
C short-term objectives with long-term objectives
D top down focusing with bottom up focusing

29 What fundamental factor usually dictates the price of goods and services within a
market economy?

A Level of import tariffs C Supply and demand

B Foreign exchange controls D Government policy

30 When a shareholder delegates the right to vote at an AGM to another person, which of
the following statements is TRUE?

A The right to vote should be delegated to a neutral party

B The right to vote is always delegated to the chairman
C They give a power of attorney
D They appoint a proxy

31 In which ONE of the following ways can unit trusts be purchased?

A A stockbroker purchasing via a market maker

B A stockbroker purchasing via the Stock Exchange Electronic Trading System
C A private investor purchasing direct from the manager
D An investment advisor purchasing direct from the trustee

32 Which ONE of the following arrangements BEST describes an ISA?

A Direct equity investment C Tax-efficient wrapper for investments

B Long-term deposit D Tax-free endowment policy

33 Capital Gains Tax is payable on which ONE of the following assets?

A The maturity value of an endowment policy

B The sale value of a UK company debenture
C The encashment of National Savings Certificates
D The sale of equities

34 What does an investor have the right to do when she buys a traded call option?

A The right to sell a share at a predetermined price by a given date

B The right to buy a share at a predetermined price by a given date
C The right to sell a share at a price to be determined by a given date
D The right to buy a share at a price to be determined by a given date

35 Which ONE of the following statements regarding Exchange-Traded Funds

in the UK is TRUE? They are:

A priced at or near net asset value C traded through a market maker

B private limited companies D subject to UK stamp duty
36 What would be the economic impact of having higher inflation rates than other major
industrialised countries?

A Improved balance of payments

B Improved market certainty concerning personal savings
C Loss of international competitiveness
D Reduced unemployment rates

37 A spot transaction in foreign exchange is one that settles:

A in two business days C at a date to be agreed

B in five business days D within two hours of confirmation

38 Within an OEIC who is responsible for the safekeeping of the scheme property?

A The Investment Management Association C The Depository

B The Authorised Corporate Director D The Financial Conduct Authority

39 What kind of securities trade on SETS?

A Shares in foreign companies

B Shares in companies with a market capitalisation below £700,000
C Bonds
D Shares in the largest UK companies

40 Safekeeping of securities is a function BEST described as that of a:

A Custodian C Broker
B Market maker D Investor

41 Which ONE of the following investments is covered by the insider dealing legislation?

A Bank deposits C Equities

B Commercial property D Gold

42 Which of the following normally have voting rights attributed to them at the time of
issue?

A Preference shares C Ordinary shares

B Warrants D Eurobonds

43 In which ONE of the following circumstances would individuals be committing the

offence of insider dealing?

A Dealing when they did not expect the trade to result in a profit
B Dealing when they believed that the information had been sufficiently widely disclosed
C Dealing in order to settle a debt irrespective of information they had become aware of
D Dealing using information that was not available to the market, to make a profit

44 Which market would you use if you wished to trade in aluminium alloy?

A ICE Futures C Lloyds of London

B LME D Euronext.liffe
45 What is a unit trust?

A A pool of investments managed collectively on behalf of its investors by a fund manager

B A pool of investments managed on behalf of its investors by an Authorised Corporate Director
C A company set up with the sole intention of investing in the shares of other companies
D A company which exchanges commitments with another to gain from the profit of the new
commitment

46 What is the meaning of "registered title" in relation to quoted equities?

A Company name registered at Companies House

B Company name registered with the exchange on which the shares trade
C Shareholder name shown on the company register in relation to a shareholding
D The name of the underlying investor using a nominee company to hold shares

47 Compared to direct property investment; Real Estate Investment Trusts normally offer a
reduced level of:

A liquidity risk C legal risk

B institutional risk D systemic risk

48 A transfer to which of the following is usually exempt from inheritance tax?

A Sibling C Parents
B Children D Spouse

49 Treasury Bills are considered low risk investments because:

A they are government backed C they have a short life-span

B they cannot fall in value D the risk lies with the issuer

50 What MAXIMUM proportion of the amount paid into an investment bond can be
withdrawn in the first year, whilst ensuring that an immediate tax liability is avoided?

A 2.5% C 7.5%
B 5.0% D 10.0%
ANSWER SHEET

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