AIA Mock Exam - M9a

CMFAS Module 9A
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CFMAS MODULE 9A
LIFE INSURANCE & INVESTMENT LINKED POLICIES II ad
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(1st Edition)
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Mock Exam
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AIA Premier Academy 79

For Internal Use Only. Version 2.0 [05/2012]
CMFAS Module 9A
Mock Exam 1
1. A structured Investment-linked Life Insurance policy has the following features:
Issuer = Company A
Credit Rating of issuer = AA+
Tenure = 2 years
Structure of the product = Annual payout plan
Maturity value = 100% of the initial amount of single premium
Payout = 1% of the initial amount of single premium per annum
Early redemption clause = Yes, if the underlying outperforms the benchmark by 20% at the
end of any trading day.
Which one of the following risk will be of LEAST concern to an investor based on the above-
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mentioned information?
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A. Credit risk
B. Market risk
C. Liquidity risk
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D Leverage risk
[C2]
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2. Which one of the following about participation products is True?
A. Participation products participate in the price performance of the underlying assets
and offer full upside potential with full downside protection.
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B. Participation products are legally secured debentures.

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C. They are commonly marketed under the name of ‘certificates’ or ‘notes’.

D Derivatives contracts and bonds are used for both the principal and return
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[C1, S3.3]
3. Which of the following regulatory instrument(s) must a structured Investment-linked Life

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Insurance policies comply with?

A. Insurance Act
B. Companies Financial Act
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C. Deposit Insurance Scheme

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D All of the above

[C4, S5]
4. The forward price of a barrel of oil is S$150. The current spot price is S$120. The cost of
carry is therefore equal to a:
A. Premium of S$30
B. Premium of S$50
C. Discount of S$30
D Discount of S$50
[C3, S2.1]

CMFAS Module 9A
5. The sub-fund’s operating expenses to the daily average Net Asset Value is :
A. Turnover ratio
B. Expense Ratio
C. Soft dollar
D Bid / offer spread
[C4, S1.2]
6. Which one of the following statements relating to structured Investment-linked Life Insurance
policies (ILPs) is TRUE?
A. All structured ILPs are homogenous in nature
B. A structured ILP is designed purely as a protection product
C. The buyer of a structured ILP is not exposed to any form of risk
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D The structured ILP’s sub-funds are valued less frequently compared to other ILP
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sub-funds
[C4, S2.3]
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7. Which one of the following statements about portfolio rebalancing is TRUE?
A. Portfolio rebalancing is adopted in all portfolio bonds
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B. Portfolio rebalancing maintains the desired level of risk exposure
C. Fund managers use portfolio rebalancing to increase risk exposure
D The return of the portfolio will improve after rebalancing
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[C5, S1.1(a)]
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8. Structured products are:

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A. Secured debt securities of the issuer

B. Created by combining traditional investments with financial derivatives
C. Entitled to share the issuer’s profits
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D Equity securities that give higher return as compared to traditional products

[C1, S1]
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9. Structured Investment-linked Life Insurance policy is less ________ than traditional

Investment-linked Life Insurance policy.
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A. liquid
B. risky
C. complex
D regulated
[C4, S2.3]
10. Structured deposits are issued by:

A. Banks
B. Lloyds’ syndicates
C. Insurance companies
D Stock broking houses
[C1, S1.2]

CMFAS Module 9A
11. A structured Investment-linked Insurance policy (ILP) has the following features:
Issuer = Insurer A
Underlying Asset = Basket of 6 stocks
Tenure = 2 years
Maturity Value = Initial capital amount + Guaranteed 1% of the capital
Bonus payout = 2% of the initial capital every year if the price of all 6 stocks has increased
by 10% on maturity as compared to the price on the start date of the investment.
Assume that an investor invests S$50,000 in this structured ILP

Calculate the total amount that the investor will receive at the end of the 2 years under the
WORST possible market performance scenario.
A. S$50,000
B. S$50,500
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C. S$52,000
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D S$52,500
[C6]
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12. John expects the Gold market to have big movement in the near future but unsure which
direction. He can apply the following strategy to capture the market:
A. Selling Naked Puts
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B. Short Call
C. Bear Straddle
D Bull Straddle
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[C3, S3.6]
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13. The counterparty to the derivative contract default, it may cause:

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A. Total loss of principal amount of the investment

B. Early redemption of the investment
C. Lesser redemption amount for the investment
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D All of the above

[C2, S6.5]
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14. An investor placed $100,000 in Australia (AUD) investment when AUD was S$1.40. The
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AUD has since depreciated against the S$ and is now worth only S$1.20. On the other
hand, the AUD investment has appreciated by 10% in AUD terms.
What is the investor’s nest gain / loss on the investment, as measured in S$?
A. Gain of 10%
B. Gain of 6%
C. Loss of 10%
D Loss of 6%
[C2, S4]

CMFAS Module 9A
15. Which of the following option strategies would be MOST appropriate if Sally is bullish about
a stock but does not want to own it?
A. Long a stock
B. Long a call
C. Short a stock
D Short a call
[C3,S3.4(a)]
16. Performance participation structured products:

A. Are secured debt instruments
B. Carry lower degrees of investment risk
C. Share in the profits of the participating funds
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D Typically offer unlimited upside potential with no downside protection
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[C1, S3.3]
17. Derivatives are financial instruments that are generally used for:
A.
B.
Manage risks
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Betting of the price movement of the underlying assets.
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C. Hedging against unwanted price movements
D Serve all the above functions
[C3, S1]
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18. John decides to invest S$100,000 in the following investment:

Prosperity Fund issued by Smarty Bank and distributed by Brilliant Bank. This fund seeks
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yearly investment returns, (before fees and expenses) that correspond to 150% of the
returns of the yearly performance of the Japan Index fund.
What is / are the risk(s) that the above investor is subject to?
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A. Market risk
B. Liquidity risk
C. Credit risk of Smarty Bank
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D All of the above

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[C2]
19. Jane, a Singaporean, invests in an exchange-traded portfolio fund issued by AAA+ rating
bank, denominated in US$. Which ONE of the following risks should Jane be most
concerned?
A. Issuer risk
B. Counterparty risk
C. Liquidity risk
D Foreign exchange risk
[C2]

CMFAS Module 9A
20. 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. Asking for collateral from the counterparty
D Dealing in the same foreign currency
[C2, S2]
21. Which of the following statements regarding derivatives is FALSE?

A. Derivatives come in many different varieties
B. Holders of derivative contracts own the underlying assets
C. Derivative contracts are an integral part of structured products
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D The underlying assets of derivative contracts can be non-financial
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[C3, S1]
22. Portfolio bonds are:

A. Less complex and risky as compared to Investment-linked Life Insurance policies
B.
C.
Lifestyles policies
Conventional bonds ad
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D Portfolios of investments with no insurance element
[C5, S2]
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23. Those investments that carry a low probability of loss of principal while offering a high
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probability of potential returns can be said to be:

A. Rare gems
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B. Bold investments
C. Safe Instruments
D Unworthy investments
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[C1, S2.2]
24. What is a portfolio of investments with an insurance element called?

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A. Option
B. Hedge fund
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C. Portfolio bond
D Structured deposit
[C5, S1]
25. 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
[C1, S1.3]

CMFAS Module 9A
26. A gearing structured product will have the following effect:

A. Leveraged
B. Lending
C. Contango
D Backwardation
[C2, S5.2]
27. Portfolio bonds may be invested in a variety of investment instruments, including:

A. Bonds
B. Equities
C. Derivatives
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D All of the above
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[C5, S1]
28. A structured investment-linked product should be valued _____________.

A. At least once a month
B.
C.
At least once every two years
At least once every three years ad
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D Only when there are significant changes to the investment portfolio
[C4, S7.1]
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29. Company Delta issues a structured product, which is distributed by Company Elite.
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Subsequently, Company Delta’s credit rating is downgraded. What kind of risk does this
present to the investor?
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A. Liquidity risk
B. Issuer-specific risk
C. General market risk
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D Counterparty risk
[C2, S1-3]
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30. Structured products:

A. Are equity securities
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B. Are also known as hybrid products

C. Carry singled-faceted, non-complex investment risks
D Typically combine traditional investments with property investments
[C1,S1]
31. Which of the following regarding to Warrants is WRONG?

A. Warrants have no value after expiry date
B. Holder of put warrants have the obligation to sell the underlying assets
C. Exchange-traded warrants are settled in cash
D Call warrants have intrinsic value when the strike price is less than market price
[C3,S3]

CMFAS Module 9A
32. One advantage of a portfolio of investments with an insurance element is that:

A. 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
[C5, S2]
33. Negatively correlated securities may serve to:

A. Reduce fee charges for the investor
B. Enhance portfolio diversification
C. Prevent early redemption of the securities
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D Increase investment concentration in the investor’s portfolio
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[C2, S6.2]
34. The players in the futures market fall into two categories – hedgers and speculators. Which
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one of the following statements regarding hedgers is CORRECT?
Hedgers seek to:
A. Benefit from price volatility
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B. Minimize risk
C. Sell to profit from falling prices
D Buy to profit from rising prices
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[C3, S2.7]
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35. The players in the futures market fall into two categories – hedgers and speculators. Which
one of the following statements regarding speculators is WRONG?
A. Buy Low sell high
B. Buy low and keep the investment for long period
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C. Sell to profit from falling prices

D Buy to profit from rising prices
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[C3, S2.7]
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36. 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
[C2, S2]

CMFAS Module 9A
37. Investors may wish to invest in structured products as they:

A. Have the ability to offer customized exposure
B. Are useful as a complement to traditional investments
C. Are accessible to retail investors in the same ways that other investment products
are
D All of the above
[C1, S1.3]
38. 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
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C. Structured ILP sub-funds are in tailor-made products
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D Structured ILPs have relatively high insurance element
[C4, S1]
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39. A structured product manager purchased a zero-coupon bond at S$100 for every S$300
invested in the structured product.
The structured product aims to provide a return of the capital portion to investors at maturity.
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Assuming that the zero-coupon bond matures at the same time as the structured product,
what must the maturity value of the zero-coupon bond be, in order for the structured product
to meet the return of principal to the investor?
A. S$100
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B. S$200
C. S$300
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D S$380
[C1, S1.1]
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40. If John uses S$200,000 to buy a 5-year bond from Supreme Company and he wishes to
mitigate the risk of the company’s failure on his Supreme Company bond, he can seek to
buy a/an __________ swap on the Supreme Company Bond.
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A. Equity
B. Currency
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C. Interest rate
D Credit default
[C3, S4.3]
41. 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
[C5, S3]

CMFAS Module 9A
42. Your client has asked you to distinguish between a futures contract and a forward contract.
Which one of the following comparison is CORRECT?
A. Futures are a type of derivative contract whereas forwards are not a type of
derivative contract
B. Futures are not subject to margin requirement whereas forwards are subject to
margin requirement
C. Settlement of futures occurs at the end of the contract whereas forwards are marked-
to-market on a daily basis
D Futures are standardized contracts traded on the exchanges whereas forwards are
customized private contracts trade over-the-counter between two parties
[C3, S2]
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43. The January futures price of oil is US$100 per barrel, but the cash price is US$93 per barrel.
Which one of the following statements BEST describes this situation?
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A. Basis is “US$93 in January”
B. Basis is “US$100 in January”
C. Basis is “US$7 over January”
D Basis is “US$7 under January”
ad [C3, S2.5]
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44. Which of the following statements about portfolio bonds is FALSE?
A. Death benefit can be included in portfolio bonds
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B. Portfolio bonds offer a wide range of investment choices

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C. The principal of portfolio bonds is generally guaranteed

D Policy owners may appoint their own portfolio managers who are within the insurer’s
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platform
[C5, S1]
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45. Structured deposits are:

A. Capable of generating high returns
B. Not considered as investment products
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C. Included in the Deposit Insurance Scheme in Singapore

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D Usually arranged such that the capital is guaranteed by the bank

[C1, S1.2]

CMFAS Module 9A
46. On 1 January 2011, David decides to invest S$100,000 in the following structured
Investment-linked Life Insurance policy from his life insurer:
Capital preservation fund (maturing on 1 January 2021) seeks to provide policy owners with:
- Annual payout of 4.5% of the initial NAV as at each policy anniversary; and
- 100% capital guarantee 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 full refund of his premium paid if he changes his mind and cancels the
investment within ten days
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D All of the above
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[C6]
47. A / an ___________ is a security that entitles the holder to buy or sell an underlying security
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at a strike price on or before an expiry date.
A. Bond
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B. Equity
C. Option
D Unit trust
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[C3, S3]
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48. Which one of the following statements regarding option is TRUE?

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A. It gives the holder of call option the right to buy the underlying asset
B. It gives the holder of put option the right to buy the underlying asset
C. It gives the holder of call option the obligation to sell the underlying asset
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D It gives the holder of put option the obligation to sell the underlying asset
[C3, S3.7]
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49. An investor placed S$20,000 in a single-premium structured Investment-linked Life

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Insurance policy with a sum assured of S$25,000. If an early redemption events is triggered
by the insurer, the investor will MOST likely receive the:
A. Total sum assured with the accrued payouts
B. Total sum assured plus the initial capital amount
C. Initial capital amount with the accrued payouts
D Accrued payouts but the initial capital amount is kept by the insurer
[C6]

CMFAS Module 9A
50. Which of the following investment product may provide guaranteed to the principal amount?
A. Bond
B. Structured Fund
C. Structured Deposit
D All of the above
[C1,1.2]
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A
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CMFAS Module 9A
Answers for Mock Exam 1
1 d 11 b 21 b 31 b 41 d
2 c 12 d 22 b 32 d 42 d
3 a 13 d 23 a 33 b 43 d
4 a 14 d 24 c 34 b 44 c
5 b 15 b 25 d 35 b 45 d
6 d 16 d 26 a 36 d 46 b
7 b 17 d 27 d 37 d 47 c
8 b 18 d 28 a 38 c 48 a
9 a 19 d 29 b 39 c 49 c
10 a 20 c 30 b 40 d 50 c
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A
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CMFAS Module 9A
Mock Exam 2
1. The main difference between portfolio bonds and unit trusts is the presence of
A. Fund manager.
B. Dealing account
C. Early withdrawal charge
D Set-up charges
[C5, S1.1 (b)(vii)]
2. Which of the following can be used to mitigate counterparty risk of a portfolio bond?
A. Invest in publicly traded derivative products.
B. Invest in shares with high trading volume
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C. Ask counterparty for margin
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D All of the above
[C2, S2]
3. Which RISK relates to the return component of a structured product?

A.
B.
Market Volatility
Interest Rate ad
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C. Counterparty defaults
D Credit Risk of the issuer
[C1, S2.1]
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4. Which of the following applies to the investment component of a structured ILP fund?
A. Banking Act
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B. Company Act
C. Insurance Act
D Code on Collective Investment Scheme
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[C4, S5]
5. The price volatility of __________ product can be significantly greater than direct
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investments.
A. Hedged
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B. Leveraged
C. Unleveraged
D Pooled investment
[C2, S5.2]
6. Which of the following is NOT a characteristic of dealing account?

A. Set up when investors elects to invest in External and Family funds
B. Set up when there is cash investment
C. Need to maintain positive balance at all times
D All of the above
[C5, S1.1 (b)(vii)]

CMFAS Module 9A
7. Structured Investment Link Plan
Issuer: Insurance Company B

Death Benefit: 120% of initial investment
Credit rating: AA
Investment Portfolio: None

Asset Allocation: None
Fund Objective: Capital appreciation with guaranteed 10% returns on annual basis.
Inception Date: Since 2000

Inception Price: $1.00
Current Price: $0.90
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Which of the following advice is the LEAST appropriate by the advisor?
A. It is difficult to determine the market risk of the product as fund managers are given
the full discretion to invest.
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B. This investment is not suitable for investors who have low risk tolerance.
C. Investors who has initial investment of $10,000 will have death benefit of $12,000.
D It is highly possible that fund managers invested in very risky derivatives in order to
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guarantee the 10% returns.
[C6]
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8. Which of the following has the least impact on the value of the derivatives?
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A. The spot price of the underlying asset

B. The number of investor for the underlying asset
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C. The price volatility for the underlying asset

D The dividend rate of the underlying asset
[C3, S3.2]
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9. Investment amount: $10,000 at $10 per unit

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Which of the following will result in the least amount of early withdrawal fee?
A. Bid-offer spread of 5%
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B. Single price with 3% redemption charge

C. 10 units deducted at market value at the time of withdrawal
D 10% of the market value of the investment at the time of withdrawal
[C4, S1.2]

CMFAS Module 9A
10. A structured Investment-linked Life Insurance policy has the following features:
Issuer = Company A
Tenure = 5 years
Structure of the product = Annual payout plan
Maturity value = Initial capital amount + Guaranteed 1% of the capital
Payout = 1.5% of the initial capital every year if the price of all 5 stocks has increased by
10% on maturity as compared to the price on the start date of the investment
Assume that an investor invests $150,000 in this structured ILP
BEST possible market performance scenario.
A. $150,000
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B. $160,500
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C. $161,250
D $162,750
[C6]
11. Performance participation products offer

A. high returns low risk ad
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B. full upside potential
C. downside protection
D a fixed income instrument for the principal component
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[C1,S3.3]
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12. Which of the following is a non-standardized contract?

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A. Options traded in an exchange

B. Unit trusts issued by a bank
C. Forward Contract over the counter
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D An Exchange Traded Fund that tracks the STI index

[C3,S2]
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13. The forward price of a barrel of oil is S$220. The current spot price is S$260. The cost of
carry is therefore equal to a:
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A. Premium of S$20
B. Premium of S$40
C. Discount of S$20
D Discount of S$40
[C3,S2.1]
14. Structured Fund is :

A. Issued by a bank
B. Issued by an insurance company
C. A collective investment scheme
D Principal protected
[C1,S1.2]

CMFAS Module 9A
15. An investor of a structured ILP should be least concerned about :

A. The payoff under the worst case scenario
B. The risk nature of the product
C. Expected returns of the product
D The technicalities and mechanics of how the investment works
[C4, S2.1]
16. The main benefit of the portfolio bond is:

A. Making changes to the fund selection after maturity
B. Regular withdrawals when financial needs change
C. Flexibility of terminating the insurance protection and still continue with the
investment portion
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D Capital is guaranteed at maturity
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[C5,S2]
17. Structured Deposits are:
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A. Issued by fund managers
B. Not investment products
C. Structured products
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D Covered by Deposit Insurance Scheme in Singapore
[C1, S1.2]
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18. In a long put, the option is _________ when the strike price is less than the market price.
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A. “in-the-money”
B. “at-the-money”
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C. “out-of-the-money”
D Intrinsically positive
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[C3,S3]
19. Which of the following is FALSE?

A. A call seller pays the premium
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B. A call buyer has the right to buy

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C. Buyer determines the time to exercise the options

D Seller has the obligation to buy or sell
[C3,S3]
20. Which of the following is NOT TRUE about Structured Products?

A. They are unsecured debt securities of the issuer.
B. They have equity-like structures and participate in the profits of the issuer.
C. They are hybrid products.
D They are more complex products.
[C1,S1]

CMFAS Module 9A
21. On 1 January 2011, John decides to invest S$300,000 in the following structured
Investment-linked Life Insurance policy from his life insurer:
Capital preservation fund (maturing on 1 January 2021) seeks to provide policy owners with:
- Annual payout of 4.5% of the initial NAV as at each policy anniversary; and
- 100% capital guarantee on maturity
Which of the following may likely happen?

A. The 4.50% annual payouts which are independent of the performance of the
investment in the underlying sub-fund.
B. Capital is guaranteed upon maturity.
C. Capital is guaranteed from the second year onwards.
D The annual payout of 4.5% is cumulative and payable on maturity date.
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[C4, S2.4(a)]
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22. Automated trading helps fund managers with market pricing by :
A. Producing research paper
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B. Replacing the expertise of fund managers
C. Exercising judgment calls
D Identifying profit opportunities arising from subtle anomalies
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[C2,S6.3]
23. The statement to Policy Owners will show

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A. Transactions occurred during the statement period

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B. Fund Management Charges

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C. How units are redeemed

D Fees and charges payable through deduction of premiums or units for the next
period
[C4,S6.3]
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24. John expects stock price not to move much in either direction. He will:
A. Long a call option
A
B. Long a put option

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C. Apply bull straddle strategy

D Apply bear straddle strategy
[C3,S3.6(a)]
25. The Forwards contract is priced at $10 for physical delivery. Which is more beneficial to the
buyer?
A. Forward price increased by $20
B. Spot price increased by $20
C. Forward price decreased by $10
D Spot price decreased by $10
[C3,S2.1]

CMFAS Module 9A
26. Future contracts will not standardise

A. Quantity of the underlying assets
B. Quality of the underlying assets
C. Date and location for the delivery of the underlying assets
D Prices
[C3,S2.5]
27. The credit risk of the issuer of the structured product forms a
A. Primary risk to principal
B. Primary risk to return
C. Secondary risk to upside potential
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D Secondary risk to downside protection
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[C1,S2.1]
28. Peter wants to buy structured investments. He is concerned about liquidating his
investments when he needed the money. Which of the following is his most concerned risk?
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A. Credit Risk
B. Liquidity Risk
C. Interest Rate Risk
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D Counterparty Risk
[C2,S3]
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29. A ________ is a security that allows the holder the right to buy or sell an underlying security
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at a strike price on expiration.

A. Bond
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B. Equity
C. American option
D European option
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[C3,S3]
30. Structured ILPs are suitable for buyers who:

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A. Do not want any risk exposure at all

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B. Wish to provide their dependants with death protection

C. Are retiring and wishing to receive a series of payouts for life
D Are seeking capital appreciation with medium to high risk of losing their capital.
[C4,S3 & 4]
31. Which of the following gives the most capital protection?

A. Derivatives
B. Coupon Bearing Bonds
C. Options
D Real Estate Investment Trusts
[C1]

CMFAS Module 9A
32. Which of the following would you use to enjoy full upside potential?
A. Covered Call
B. Naked Call
C. Bear Straddle
D Protective Put
[C3,S3.4(c)]
33. Which statement about mitigating risk of counterparty is FALSE?

A. Use publicly traded derivative products
B. Ask for collateral when the value of the underlying asset depreciates
C. Ask for collateral when the value of underlying asset appreciates
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B. Use payment netting to reduce counterparty risk
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[C2,S2]
34. Which of the following is most appropriate when the investor expects the market to go down
but does not wish to sell his stock?
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A. Long Put
B. Long Call
C. Short Put
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D Short Call
[C3,S3.4 (b)]
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35. Which of the following will be the least concern for a bank when structuring a structured
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product?
A. Reducing counterparty risk
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B. Marketing of structured product

C. Adopting effective risk management
D Providing liquidity
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[C2]
36. Which of the following best describe reverse convertible bonds?

A
A. Investor has full upside potential

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B. Use a Put option

C. Tracks the performance of underlying asset
D Investor has limited downside protection
[C1,S3.2 (a)]
37. Which of the following does not describe leveraging?

A. Trading on margin
B. It can magnifies both gains and losses
C. Trade at a lower value than the actual contract value
D Using collaterals to mitigate counterparty risk
[C2,S5.2]

CMFAS Module 9A
38. Which of the following about portfolio rebalancing is FALSE?

A. Maintain the original level of risk exposure
B. Portfolio rebalancing is adopted in all portfolio bonds
C. Involves moving units from one fund to the other fund
D Performance is adversely affected in the short run
[C5,S1.1(a)]
39. Which of the following does not describe market risk?

A. When interest rate goes up, the cost of the borrowing goes up and the share price of
the company may go down.
B. When interest rates goes up, the price of bond goes down and coupon rate increase.
C. When SGD appreciate against USD, an Singaporean investing in the USD stock
y
market will earn less returns as SGD is now stronger.
em
D When SGD depreciates against Thai Baht, a businessman trading in the Thai market
will earn more profits as SGD is now weaker.
[C2,S1]
40. Which of the following statements is FALSE?

ad
Ac
Structured products deliver return to investors only when:
A. Pricing on the structure is reasonable
B. Anticipated market view is correct
r
C. Able to attract more than expected fund size

ie
D Strategy or structure to capture market view is appropriate

[C1, S3]
em
41. Which of the following about callable securities are INCORRECT?

A. Issuer is likely to exercise his right to “call” when the interested rate has declined
Pr
B. They expose investors to high risks and should be avoided at all times
C. Cheaper than straight, non-callable securities and pay higher coupons
D May be redeemed before maturity
A
[C1,S4.2]
AI
42. Issuer specific risk include:

A. Interest Rate Risk
B. Operational Risk
C. Exchange Rate Risk
D Inflation
[C2, S1]

CMFAS Module 9A
43. The following coefficient may serve to enhance portfolio diversification:

A. -0.5
B. 0
C. 1
D 1.5
[C2,S6.2]
44. Negatively correlated securities:

A. Will definitely provide better returns to the portfolio
B. Move in opposite direction in terms of price movements
C. Move in same direction in terms of price movements
y
D Indicates that they have no relation to each other
em
[C2,S6.2]
45. The main difference between futures and forwards is:

A. Forwards are standardized contracts.
B.
C.
Margin is required for forward contracts.
ad
Forwards are marked-to-market on a daily basis.
Ac
D Forwards are traded over the counter.
[C3,S2]
46. Which of the following condition for futures contracts can be negotiated?
r
A. Quality
ie
B. Quantity
em
C. Delivery date
D Price
[C3,S2.5]
Pr
47. Which of the following statements regarding warrants are FALSE?

A. European warrants can only be exercised on expiry date.
A
B. Holders of warrants have the obligation to fulfil contract terms.

C. They have no value after expiry date.
AI
D Exchange traded warrants are settled in cash.

[C3,S3]
48. A credit default swap transfers the _________ risk of a note or bond to another party, in
exchange for a series of fee payments.
A. Credit
B. Interest rate
C. Exchange rate
D Inflation
[C3,S4.3]

CMFAS Module 9A
49. Based on a single premium structured investment linked life insurance policy, the death
benefit is:
A. Greater than the single premium
B. Same amount as the single premium
C. Lower than the single premium
D Regardless of the single premium
[C4,S1.1]
50. A benefit illustration will contain the following EXCEPT

A. Insurance charges
B. Distribution costs
C. Guaranteed and non-guaranteed benefits
y
D Value of redemption of units
em
[C4,S6.1]
ad
r Ac
ie
em
Pr
A
AI

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

CMFAS Module 9A
Mock Exam 3
1. Which of the following is a similarity between structured product, bond & option?
A. The principal is guaranteed.
B. Provide stability in returns.
C. They have fixed maturity dates.
D They have upside participation.
[C1,S1.1]
2. Which of the following most describe a structured fund?

A. It is only distributed by the bank channel.
B. The main disclosure document is the factsheet.
y
C. It has low administration cost.
em
D It has a trust structure.
[C1,S1.2]
3. Which of the following is the PRIMARY RISK relating to the return component of a structured
product?
A. Market Risk
ad
Ac
B. Interest Rate Risk
C. Counterparty Risk
D Liquidity Risk
r
[C1, S2.1]
ie
4. Which of the following best describe Bonus Certificate and Airbag Certificate?
em
A. Bonus certificate may be knocked-out only at maturity.

B. Bonus certificate‘s investor bears full downside of the underlying asset.
C. Airbag certificate has limited upside potential.
Pr
D Airbag certificate was created to reduce the impact of price decline.

[C1,S3.3]
A
5. Which of the following applies to a structured ILP fund?

A. Banking Act
AI
B. Company Act
C. Deposit Insurance Act
D Code on Collective Investment Scheme
[C1,S4.4(c)]
6. Which of the following cannot be use to mitigate liquid risk of a portfolio bond?
A. Invest in publicly traded products.
B. Invest in shares with high trading volume.
C. Ask counterparty for margin.
D Invest in shares that are high in demand.
[C2,S3,]

CMFAS Module 9A
7. When institution has insufficient cash to meet it cash flow obligations, the institution has
problem with its
A. Liquidity
B. Credit worthiness
C. Interest rate
D Structure
[C2,S3]
8. Which of the following cannot be use to mitigate counterparty risk of a portfolio bond?
A. Invest in publicly traded derivative products.
B. Go into private negotiation with counterparty for collaterals
C. Invest via the subsidiaries of the counterparty
y
D All of the above.
em
[C2,S3]
9. The additional amount required to restore the account is called…
ad
A. Initial Margin
B. Margin Call
C. Variation Margin
Ac
D Maintenance Margin
[C3, S2.6]
r
10. There are 2 main types of market participants in the future market – hedgers and speculators.
ie
For the hedgers, their objective is…

A. To profit from the rising prices.
em
B. To profit from the falling prices.

C. Achieve protection against unfavourable price changes.
D All of the above.
Pr
[C3, S2.7]
11. Which of the following describe a non-standardised contract?

A
A. Forward contract traded over the counter

AI
B. Commodity future contracts

C. Financial future contracts
D All of the above.
[C3, S2]
12. The strike price of the put option is $10. The market price is $15. The intrinsic value of the
put option is…
A. In-the-money
B. At-the-money
C. Out-of-the-money
D Under-the-money
[C3, S3]

CMFAS Module 9A
13. John long a put option, he is..

A. bullish about the market.
B. bearish about the market.
C. neutral about the market.
D intending to hold the stock.
[C3, S3.5]
14. The following statements are true for call option:

A. The seller of call option pays the premium.
B. The holder of call option has the right to buy.
C. The buyer of the call option has unlimited downside.
y
D The seller decides on the exercise price.
em
[C3, S3.7]
15. A swap will not result in the change in

A. Cash flow
B.
C.
Ownership
Level of risk
ad
Ac
D Credit risk
[C3, S4]
16. A 5-year structured ILP has the following features:

r
1. Death Benefit = 102% of initial investment

ie
2. Maturity Benefit = 100% of initial investment

3. Maturity Payout = 20% if the 3 of the stock as listed went up by 10% from the initial stock
em
price
The product is likely to comprise of:
A. Bond + Insurance
Pr
B. Fixed deposit + Insurance

C. Bond + Derivative + Insurance
D Equity + Bond + Insurance
A
[C4, S1)]
AI
17. Which of the following best described price which units of portfolio bond are subscribed?
A. Forward pricing
B. Offer price
C. Bid price
D Historic pricing
[C4,S1.2)]

CMFAS Module 9A
18. John invest in a US$ structured product issue by Bank A with a credit rating of AA. The fund
size is US$8mil. John is concern about getting his money when he needs, he is most
concern about which of the risk?
A. Foreign exchange risk
B. Interest rate risk
C. Liquidity risk
D Credit risk
[C2]
19. Which of the following applies to portfolio rebalancing?

A. It can only be performed by fund managers.
B. It can be done in portfolio bond.
y
C. It can only be done on a quarterly basis.
em
D The desired level of performance is not adversely affected
[C5,S1.1]
ad
20. Which of the following has the least impact on the price of the derivatives?
A. The current spot price of the underlying asset.
B. The number of investor for the underlying asset.
Ac
C. The market demand for the underlying asset.
D The volatility of the underlying asset.
[C3,S3.2]
r
ie
21. The coefficient of correlation of 2 securities that are not correlated is

A. +0.5
em
B. 0
C. -0.5
D 1
Pr
[C2, S6.2]
22. Hoi Seng is thinking about investing in stocks but he is not expecting the market to move
A
much in either direction. What strategy should he adopt?

AI
A. Bull straddle
B. Bear straddle
C. Long put
D Long call
[C3,S3.6]
23. Which of these least describe an issuer-specific risk?

A. Internal operation of Company A
B. Regulatory impact on the industry which Company B is in
C. Down grade in credit rating of Company C
D Exchange rate of the securities in which Company D is traded in
[C2, S1]

CMFAS Module 9A
24. Which will track the opposite direction of an index?

A. Bonds
B. Derivatives
C. Fixed Income instruments
D Warrants
[C4, S2.4(b)]
25. Which is true about Structure ILP’s death benefit?

A. Death benefit is the same amount as the single premium invested
B. Death benefit is more than the single premium invested
C. Death benefit is lower than the single premium invested
D Death benefit is capped at 110% of the single premium invested
y
[C4, S1.1]
em
26. Which is not true about options?
A. Gives the right not to exercise
ad
B. Call option is the right to buy
C. Put option is the right to sell
D Maximum potential loss is the cost of premium
Ac
[C3, S3.7]
27. Which feature makes Portfolio Bond different from Unit Trust?
r
A. Fees
ie
B. Charges
C. Dealing Account
em
D Drip-feeding
[C5, S1.1(b)(vii)]
Pr
28. What information is found in the “Statement to Policy Owners”?

A. Net cash surrender value at the end of the previous statement period
B. Number and value of units held at the end of the previous statement period
A
C. Projection on policy values under reasonable investment expectation

D Current death benefit at the start of current statement period
AI
[C4, S6.3]
29. Which investment product offers some degree of capital guarantee?

A. Portfolio Bonds
B. Structured Deposits
C. Structured Notes
D Traditional fixed income instruments
[C1, S1.2]

CMFAS Module 9A
30. Which is least descriptive of callable structured products?

A. Exposes investors to interest rate and reinvestment risks
B. Cheaper than straight, non-callable securities and pay higher coupons
C. The price of callable bond is more than the price of a call option
D Issuer callable feature may be redeemed before it’s maturity date, at the issuer’s
discretion
[C1, S4.2]
31. Which of the following statement is TRUE about warrant?

A. Warrant can only be traded over the counter
B. The holder of warrant may choose whether or not to exercise their contractual rights
C. The holder of warrant must fulfill the contractual rights
y
D Warrants have value after the expiry date
em
[C3, S3]
32. James is expecting big volatility of gold but was not sure in which direction. What strategy
ad
can he adopt?
A. Bull straddle
Ac
B. Bear straddle
C. Long put
D Long call
r
[C3, S3.6(a)]
ie
33. Market maker’s role is to:

em
A. Ensure there is a seller and a buyer

B. Ensure that the security increase in price
C. Ensure that the fund managers earn a commission
Pr
D Speculate on the price movements of an underlying security

[C2, S3]
A
34. Issuer: Company Y

Credit rating : C
AI
Tenure: 2 years
Maturity value: 100% capital
Payout 7% annual payout
Which of the following risk will be MOST concern to an investor based on the above
mentioned information?
A. Leverage risk
B. Market risk
C. Liquidity risk
D Credit risk
[C2]

CMFAS Module 9A
35. Which of the following statement about participation products is TRUE?

A. Participating products are unsecured debentures
B. Participating products has unlimited downside protection
C. Participating products has lower risk compared to other structured products
D Participating products are capital guaranteed
[C1, S3.3]
36. Jasmine invested $20,000 in a structure ILP with sum assured of $25,000. In event of early
redemption, what will she NOT receive?
A. Capital invested
B. Sum assured
C. Accrued interest
y
D All the above
em
[C4, S1.1]
37. Which of the following is the MOST risky investment?

A.
B.
Synthetic bond + Insurance
Synthetic bond + Derivative
ad
Ac
C. Conventional bond + Insurance
D Conventional bond + Derivative
[C4, S2.4]
r
ie
38. Which of the following about reverse convertible bonds is TRUE?

A. Reverse convertible bond is a structured product
em
B. Reverse convertible bond protects capital

C. Reverse convertible has protection on downside as value of the stock falls
D Reverse convertible bond and conventional bond can be used interchangeably
Pr
[C1, S3.2(a)]
39. Which of the following scenario is FALSE?

A
A. Interest rate increase, cost of borrowing increase, company share’s price goes down
B. Interest rate goes down, cost of borrowing goes down, price of corporate bond
AI
increase
C. SGD appreciates against USD, the supplier of a US toy maker makes more profit
because SGD is now worth more
D Thai Baht appreciates against SGD, a Thai restaurant owner earns less and it cost
more now to buy raw materials from Thailand
[C2, S1, 2]
40. Which of the following statement is FALSE?

A. Portfolio bond has an insurance element
B. Portfolio bond has a wide range of investment choice
C. Portfolio bond are popular in countries where insurance enjoy tax benefits
D Investor of portfolio bond can choose to invest in funds outside the insurer’s platform
[C5, S1]

CMFAS Module 9A
41. Which of the following statement is FALSE?

A. Portfolio rebalancing maintains the original risk exposure
B. Portfolio rebalancing is used across all structured ILP
C. Portfolio rebalancing means moving units from a fund that is outperforming into funds
that are performing less well
D Portfolio rebalancing is an automatic rebalancing on a monthly, quarterly, half yearly or
annual basis
[C5, S1.1]
42. Which one of the following regarding speculator is TRUE?

A. Buy high sell low
B. Buy low sell high
C. Buy low and keep the investment for a long period
y
D Buy and sell to profit from falling and rising prices
em
[C3, S2.7]
43. Structure deposits are:

A.
B.
Capable of generating high returns
Considered as investment products
ad
Ac
C. Included in the Deposit Insurance Scheme in Singapore
D Investors are secured creditors of the issuer in the event of liquidation.
[C1, S1.2]
r
ie
44. Which of the following Acts provides policy owners to have priority claim on insurance fund
assets over general creditors in case of bankruptcy?
em
A. Company Act
B. Insurance Act
C. Code on CIS
Pr
D All the above

[C1, S4.4(c)]
A
45. When one is bullish about the market, he can leverage by using which of following strategy?
A. Long stock
AI
B. Short stock
C. Long call
D Short call
[C3,3.4(a)]
46. Michael has a strong feeling that a particular stock is about to move lower, yet his is fearful of
selling a stock short because of the unlimited losses. What strategy can he use?
A. Covered calls
B. Long puts
C. Protective puts
D Naked calls
[C3, 3.5(a)]

CMFAS Module 9A
47. Structure 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
[C4, S3, 4]
48. 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 issuers
y
[C2, S2]
em
49. A structured Investment-linked Life Insurance policy (ILP) has the following features:
Issuer = Insurer A
ad
Tenure = 3 years
Maturity Value = Single Initial Capital + Guaranteed 1% of the initial capital

Ac
Bonus payout = 3% of the initial capital amount every year if the price of all 6 stocks has
increased by 10% on maturity as compared to the price on the start of date of the investment.
r
Assume that an investor invests S$100,000 in structured ILP.

ie
em
BEST possible market performance scenario.

A. S$101,000
B. S$104,000
Pr
C. S$109,000
D S$110,000
[C6]
A
AI
50. Which of the following option strategies would be the most appropriate if an investor wishes
to use leverage and is bullish on certain stock?
A. Long a call
B. Sell a naked put
C. Write a covered call
D Buy a protective put
[C3, S3.4(a)]

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

CMFAS Module 9A
Mock Exam 4
1. When buying reverse convertible bonds, we are actually buying a bond and a ________?
A. Long call option
B. Written put option
C. Sell naked call
D Protective puts
[C1, S3.2(a)]
2. Performance participation structured products

A. are unsecured debt instrument
B. have unlimited downside protection element
y
C. Do not track the performance of any underlying assets
em
D Carry low degrees of investment risk compared to yield enhancement products.
[C1, S3.3]
3. Which of the following features about derivatives allows the investors to magnify gains?
A.
B. ad
Ability to gain from inverse of market movement.
reduced counterparty risk when traded in a stock exchange
Ac
C. Contract terms are negotiable when traded over the counter
D Small capital outlay as compared to the full contract value.
[C3]
r
ie
4. Which has the HIGHEST risk?

A. Traditional Bond + Insurance
em
B. Synthetic Bond + Insurance

C. Traditional Bond + Derivative
D Synthetic Bond + Derivative
Pr
[C4, S2.4 (c)]
5. Mr. Tan, who is a fish whole-seller in Singapore. He bought his fish from US and Japan and
A
then he sold it to Indonesia and UK. Which of the following statement is correct?
A. If Sing dollar appreciates against US dollar, his profit falls.
AI
B. If Yen depreciates against Sing dollar, his profit falls

C. If Sing dollar appreciates against Indonesia Rupiah, his profit increases.
D If Sing dollar depreciates against Pound, his profit increases.
[C2, S1]
6. Jessica has a structured deposit of S$200,000. She has no need for this money and intends
to hold till maturity. What is the greatest risk she is faced?
A. Interest Rate Risk
B. Foreign exchange Risk
C. Counterparty Risk
D Credit Risk
[C2]

CMFAS Module 9A
7. Which of the following investment will allow the investor to enjoy the full upside potential of
the market?
A. Covered call
B. Protective Put
C. Bear Straddle
D Selling a naked put
[C3, S3.4 & 3.5]
8. What does holding a long position in CFD mean?

A. Investor has long investment horizon
B. Expecting a bullish market ahead
C. Expecting a bearish market ahead
y
D Investor has short investment horizon
em
[C3, S5]
9. Which of these investors will gain the best profits?

A. Investor with a call option but underlying investment tools have stagnant price
B.
C.
ad
Selling naked calls and faced with price increment
Price increment and holding protective put
Ac
D Selling covered call but underlying investment tools have stagnant price
[C3, S3.4 & 3.5]
10. Which of the following has the largest liquidity risk?

r
A. Small fund size investing in SGX listed derivatives

ie
B. Small fund size investing in OTC derivatives

em
C. Large fund size investing in SGX derivatives

D Large fund size investing in OTC derivatives
[C2, S3]
Pr
11. Which of the following is FALSE about derivatives?

A. A derivative contract is a delayed delivery agreement.
A
B. The holder of the derivatives contract owns the underlying assets.

C. Derivatives can be used as risk management tools.
AI
D Derivatives are useful hedging tools.

[C3,S1]
12. Which of the following features has the LEAST similarity among the various structured
products?
A. To protect capital
B. To hedge away risks
C. To address tax issues
D To standardise contract features
[C1,S4.1 & S4.2]

CMFAS Module 9A
13. Jonathon made a US$1,000 investment in 2006. US$ was worth S$1.533 in 2006. When it
matured in 2010, there is a principal repayment of US$1,000 and a bonus payoff of US$400.
US$ was worth S$1.288 in 2010. What was his total return on his investment?
A. 17.63%
B. 26.09%
C. 27.02%
D 33.63%
[C2, S4]
14. John invested S$100,000 in US$ FX futures with ABC Index, which risk is he least concerned
with?
A. Foreign exchange risk
y
B. Leverage
em
C. Credit default risk
D Market risk
[C2]
15.
ad
An Australian deposited US$12m in a US bank. What type of risk is he subject to?
A. Interest rate
Ac
B. Foreign Exchange rate
C. Credit risk
D All of the above
r
[C2]
ie
16. Which of the following is a true statement about the holder of a put option?
em
A. The holder of the put option has the right to buy.

B. The holder of the put option cannot influence the exercise price.
C. The max potential loss is unlimited.
Pr
D The holder of the put option paid the premium.

[C3, S3.7]
A
17. Mr. Teng brought a structured Investment-linked Life Insurance policy (ILP) in 1 Oct 2010. It
AI
will mature in 1 Oct 2018.
It has the following features:

- 100% capital guaranteed
- 2.5% of NAV as annual payout at each policy anniversary.
Mr. Teng is assured of which of the following?

A. 100% of capital if held till maturity
B. 2.5% of NAV as annual payout regardless of underlying fund performance
C. 20% of NAV as total annual payout regardless of underlying fund performance
D None of the above
[C6]

CMFAS Module 9A
18. Which of the following is used to track the opposite performance of an index?
A. Bonds
B. Options
C. Futures
D Derivatives
[C4, S2.4 (b)]
19. By taking a long position in CFD,

A. the investor receives dividends and pays interest
B. the investor pays dividends and pays interest
C. the investor receives dividends and receives interest
y
D. the investor pays dividends and receives interest
em
[C3, S5]
20. Which of the following is the most common consideration when structured products adopt
different structures?
ad
A. Product complexity
B. Pricing
C. Tax treatment
Ac
D Investment Objectives
[C1,S4.1]
r
21. In a structured product, derivatives are typically not used to provide investors with
ie
A. regular income
em
B. upside participation
C. principal guarantee
D downside protection
Pr
[C2, S6.2]
22. Which of the following does not describe callable bonds?

A
A. They are cheaper.

B. Cannot be invested via portfolio bond.
AI
C. As interest rate decreases, there will be a higher chance for callable bond to be called.
D They offer higher coupons.
[C1,S4.2 / C5, S1]
23. An international seafood trading company buys supplies from United State and Japan. While
they supply to England and Indonesia. Which of the following statement is correct?
A. When Sing dollar depreciate against US$, the company profit increase.
B. When Sing dollar appreciate against Japanese Yen, the company profit
decrease..
C. When Sing dollar depreciate against Pound, the company profit increase.
D When Sing dollar depreciate against Indonesia, the company profit decrease
[C2, S1]

CMFAS Module 9A
24. Investor A invest $50,000 in an investment in England when 1EURO$ = S$1.90. The Euro
dollar depreciates to S$1.70 although the investment gains by 30%. What the profit/loss of
the investor?
A. 16% gain
B. 24% gain
C. 16% loss
D 24% loss
[C2, S4]
25. In a long put, the option is _________ when the strike price is less than the market price.
A. “in-the-money”
B. “at-the-money”
C. “out-of-the-money”
y
D Intrinsically positive
em
[C3,S3]
26. Which of the following statement about leveraging is false?

A. Trading on margin is a leveraging technique.
B.
C. ad
Future contracts have inherent leverage effect.
Leverage evens out investment peaks & trough and hence reduces volatility.
Ac
D. The effect of leverage multiplies both gains & losses.
[C2, S5.2]
27. If the shares are currently trading at S$15, an option to buy it at S$12. What is the intrinsic
r
ie
value of the option?

A. S$6
em
B. S$5
C. S$4
D. S$3
Pr
[C3, S3.7]
28. The April futures price of oil is US$95 per barrel, but the cash price is US$100 per barrel.
Which one of the following statements BEST describes this situation?
A
A. Basis is “US$95 in April”

AI
B. Basis is “US$100 in April”

C. Basis is “US$5 over April”
D Basis is “US$5 under April”
[C3, S2.5]
29. Which one of the following regarding speculator is TRUE?

A. Buy high sell low
B. Buy low sell high
C. Providing market liquidity
D Buy low and keep the investment for a long period
[C3, S2.7]

CMFAS Module 9A
30. A fund manager’s Singapore portfolio is currently worth S$1000,000 , and has a portfolio beta
of 1.2 to the STI. The price coverage per contract is S$20,000. How many contracts does he
need to sell to reduce the possibility of loss in his portfolio?
A. 42
B. 50
C. 60
D 62
[C3, S2.8]
31. Mr. Spout is looking at investing a fund in a single premium. The Fund restricts
withdrawals/redemption up to 20% of fund size each day. The Fund objective is to achieve
10% capital appreciation. Launch price is S$1 current price is S$0.90. Which is the MOST
substantiated statement by the advisor?
y
A. the person may not be able to redeem the full amount he/she wishes
em
B. A person who invested since the launch has not experienced any capital appreciation
C. The fund manager invest in high yield bond and derivatives to achieve the 10%
appreciation
D
ad
The market risk cannot be ascertained as the fund manager does not have full control
over the fund investment
Ac
[C6]
32. Which of the following is FALSE?

A. A call seller pays the premium
r
B. A call buyer has the right to buy

ie
C. Buyer determines the time to exercise the options

em
D Seller has the obligation to buy or sell

[C3, S3.7]
33. Which of the following describes Variation Margin?

Pr
A. A fraction of the full value of the contract.

B. The additional amount required to restore the account to the initial margin.
A
C. The additional amount required to restore the account to the maintenance margin.
D The additional amount required to restore the account to the additional margin.
AI
[C3,S2.6]
34. By taking a short position in CFD,

A. the investor receives dividends and pays interest
B. the investor pays dividends and pays interest
C. the investor receives dividends and receives interest
D. the investor pays dividends and receives interest
[C3, S5]

CMFAS Module 9A
35. 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 in tailor-made products
D. Structured ILPs have relatively high insurance element
[C4, S1]
36. Which of the following regulatory instrument(s) must give the policy owners of Structured
Investment-linked policy priority claims in the event of liquidation?
A. Insurance Act
B. Companies Financial Act
y
C. Deposit Insurance Scheme
em
D Code of Collective Investment Scheme
[C4, S5.1]
ad
37. An investor placed S$100,000 in Australia (AUD) investment when AUD was S$1.20. The
AUD has since depreciated against the S$ and is now worth only S$1.10. On the other hand,
the AUD investment has appreciated by 5% in AUD terms.
Ac
What is the investor’s nest gain / loss on the investment, as measured in S$?
A. Gain of 10%
B. Gain of 4%
r
C. Loss of 10%
ie
D Loss of 4%
em
[C2, S4]
38. An insurer marketing a structure ILPs must comply with requirements in the:
A. Insurance Act
Pr
B. Financial Adviser Act

C. Company Act
D All of the above
A
[C4, S5]
AI
39. Which of the following has a low probability of losing capital and has corresponding low risk?
A. Rare gem
B. Bold investment
C. Safe investment
D Unworthy investment
[C1, S2.2]

CMFAS Module 9A
40. Which of the following has the highest upside?

A. Protective put
B. Bear straddle
C. Bull straddle
D Long Call
[C3, S3.4(c)]
41. Which of the following is the riskiest strategy?

A. Short put
B. Long put
C. Short call
y
D Long call
em
[C3, S3.5(b)]
42. Which of the following statement is NOT true?

A. The value of portfolio bond depends on the value of the underlying investment.
B.
C.
ad
The value of conventional bond depends on interest rate.
There is guarantee of the principals invested in portfolio bond.
Ac
D There is guarantee to the return of par value in conventional bond
[C5, S1]
43. Which of the following is FALSE regarding the fees & charges for portfolio bond?
r
A. The product charges cover the cost of setting up the bond and its ongoing
ie
administration.
em
B. Sending paper valuation statement is free of charge.

C. There may be early withdrawal charge imposed by the deposit taker or fund manager
for early withdrawal.
D When the dealing account holds a negative balance, charges are applied.
Pr
[C5, S1.1(b)]
44. Mr. Bean is looking at investing a fund in a single premium. The Fund restricts
A
withdrawals/redemption up to 20% of fund size each day. The Fund objective is to achieve
10% capital appreciation. Launch price is S$1, current price is S$0.90. Which is the LEAST
AI
substantiated statement by the advisor?

A. the person may not be able to redeem the full amount he/she wishes
B. A person who invested since the launch has not experienced any capital appreciation
C. The fund manager invest in high yield bond and derivatives to achieve the 10%
appreciation
D The market risk cannot be ascertained as the fund manager does not have full control
over the fund investment
[C6]

CMFAS Module 9A
45. The maturity amount of a structured product may be lower than the original investment, this
can 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 given by the counterparty
D The counterparty to the derivative contract defaults
[C2, S6.5, Table 2.3]
46. The strike price of the call option is $15. The market price is $12. The intrinsic value of the
call option is…
A. In-the-money
B. At-the-money
y
C. Out-of-the-money
em
D Under-the-money
[C3, S3]
ad
47. Company delta issues a structured product, which is distributed by Company Elite.
Subsequently, Company Delta’s credit rating is downgraded. What kind of risk does this
present to the investor?
Ac
A. Liquidity risk
B. Issuer-specific risk
C. General market risk
r
D Counterparty credit risk

ie
[C2, S1(a)]
em
48. Performance participation structured products:

A. Are secured debt instruments
B. Carry lower degrees of investment risk
Pr
C. Share in the profits of the participating funds

D Track the price performance of the underlying assets
A
[C1, S3.3]
AI
49. The turnover ratio 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
[C4, S1.2]
50. Which one of the following statements regarding structured products is TRUE?
A. structured products are by nature homogenous
B. most structured products do not have fixed expiry or maturity date
C. structured products fall under the category of traditional investments
D structured products may use different forms of wrappers as the underlying asset
[C1, S1.2]

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


AIA Mock Exam - M9a

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CMFAS Module 9A

AIA Premier Academy 79

1. A structured Investment-linked Life Insurance policy has the following features:

B. Participation products are legally secured debentures.

C. They are commonly marketed under the name of ‘certificates’ or ‘notes’.

3. Which of the following regulatory instrument(s) must a structured Investment-linked Life

Insurance policies comply with?

C. Deposit Insurance Scheme

D All of the above

AIA Premier Academy 80

8. Structured products are:

A. Secured debt securities of the issuer

D Equity securities that give higher return as compared to traditional products

9. Structured Investment-linked Life Insurance policy is less ________ than traditional

10. Structured deposits are issued by:

AIA Premier Academy 81

Assume that an investor invests S$50,000 in this structured ILP

13. The counterparty to the derivative contract default, it may cause:

A. Total loss of principal amount of the investment

D All of the above

AIA Premier Academy 82

16. Performance participation structured products:

18. John decides to invest S$100,000 in the following investment:

D All of the above

AIA Premier Academy 83

21. Which of the following statements regarding derivatives is FALSE?

22. Portfolio bonds are:

probability of potential returns can be said to be:

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

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

AIA Premier Academy 84

26. A gearing structured product will have the following effect:

27. Portfolio bonds may be invested in a variety of investment instruments, including:

28. A structured investment-linked product should be valued _____________.

30. Structured products:

B. Are also known as hybrid products

31. Which of the following regarding to Warrants is WRONG?

AIA Premier Academy 85

32. One advantage of a portfolio of investments with an insurance element is that:

33. Negatively correlated securities may serve to:

C. Sell to profit from falling prices

AIA Premier Academy 86

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

41. A portfolio bond is suitable for investors who:

AIA Premier Academy 87

B. Portfolio bonds offer a wide range of investment choices

C. The principal of portfolio bonds is generally guaranteed

45. Structured deposits are:

C. Included in the Deposit Insurance Scheme in Singapore

D Usually arranged such that the capital is guaranteed by the bank

AIA Premier Academy 88

In making this investment, David is assured of:

48. Which one of the following statements regarding option is TRUE?

49. An investor placed S$20,000 in a single-premium structured Investment-linked Life

AIA Premier Academy 89

AIA Premier Academy 90

Answers for Mock Exam 1

AIA Premier Academy 91

3. Which RISK relates to the return component of a structured product?

6. Which of the following is NOT a characteristic of dealing account?

AIA Premier Academy 92

7. Structured Investment Link Plan

Issuer: Insurance Company B