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CISI International Certificate in Wealth & Investment Management Sample Questions (Q142-Q147):

NEW QUESTION # 142
A firm acting as agent makes money by:

A. Providing advice
B. Charging their client a commission
C. Trading against its own order book
D. Profiting from the spread

Answer: B

Explanation:
When a firm acts as an agent, it does not trade securities for its own account but facilitates transactions between buyers and sellers. The firm earns revenue by charging a commission to its clients for executing these transactions.
* Profiting from the spread (A): This is typical for firms acting as principal, not as agent.
* Providing advice (B): Advice is part of advisory services, not agency transactions.
* Trading against its own order book (D): This describes proprietary trading, not agency.
References:
* International Certificate in Wealth & Investment Management: Roles of market participants and distinctions between agent and principal roles.
* Definitions of commission structures in agency services.

NEW QUESTION # 143
How would an active fund manager seek to avoid underperforming their peer group when deciding on asset allocation?

A. By hedging currency and market risk
B. Through the use of quantitative models
C. Through the use of asset allocation by consensus
D. By assessing the prospects for each main asset class

Answer: C

Explanation:
* Active Fund Management
* Active fund managers aim to outperform or avoid underperforming their peers by dynamically managing asset allocation.
* Asset allocation by consensusensures alignment with the strategies and expectations of the broader investment community, minimizing the risk of significant divergence from the peer group.
* Why the Answer is A
* Using consensus-driven allocation avoids extreme deviations in performance relative to peers, which is key for managers seeking to maintain competitive performance.
* Why Other Options are Incorrect
* B. Assessing prospects: This involves market analysis but does not specifically address peer performance.
* C. Hedging risks: Focuses on risk management, not peer alignment.
* D. Quantitative models: Useful for analysis but not tailored to peer group considerations.
* ICWIM Study Guide, Chapter on Portfolio Management: Discusses consensus-driven asset allocation.
* Active Fund Management Literature: Highlights peer-relative performance strategies.
ReferencesThus, the correct answer isA. Through the use of asset allocation by consensus.

NEW QUESTION # 144
Negotiable bearer securities issued by commercial banks in exchange for fixed-term deposits are known as:

A. Certificates of Deposit
B. Treasury Bills
C. Bills of Exchange
D. Commercial Paper

Answer: A

Explanation:
A Certificate of Deposit (CD) is a negotiable bearer security issued by banks, representing a fixed-term deposit with a specified interest rate.
* Key Features of CDs:
* Issued by commercial banks.
* Fixed-term investment (e.g., 3 months to 1 year).
* Can be traded in secondary markets, making them a liquid investment.
* Why Not Other Options?
* A (Treasury Bills) # Issued by governments, not banks.
* B (Commercial Paper) # Issued by corporations, not banks.
* C (Bills of Exchange) # Used for trade finance, not fixed-term deposits.
# Reference: Bank of England (Certificates of Deposit), CISI Wealth & Investment Management.

NEW QUESTION # 145
What is the main source of funding for private equity firms?

A. Placings
B. Management buyouts
C. Initial public offerings
D. Institutional investment

Answer: D

Explanation:
Private equity firms raise capital primarily from institutional investors such as pension funds, insurance companies, and sovereign wealth funds.
* Why is Option A Correct?
* Institutional investors provide large capital commitments for private equity funds.
* Private equity firms pool these funds to acquire and restructure companies.
* Why Not Other Options?
* B (Management buyouts) # A buyout strategy, not a funding source.
* C (Initial public offerings, IPOs) # Private equity firms exit investments through IPOs, but this is not a funding source.
* D (Placings) # Common in public equity markets, not private equity.
# Reference: CFA Institute (Private Equity Structures), CISI Wealth & Investment Management.

NEW QUESTION # 146
If a company's Economic Value Added (EVA) is negative, this means that:

A. The rate of growth in the company's value is below that of the sector average
B. The company's value is being destroyed
C. The company's value is nil
D. The rate of growth in the company's value is slowing down

Answer: B

Explanation:
Economic Value Added (EVA) measures a company's true economic profit by assessing whether it generates returns above its cost of capital.
EVA=Net Operating Profit After Tax (NOPAT)#(Capital Employed×Cost of Capital)EVA = ext{Net Operating Profit After Tax (NOPAT)} - ( ext{Capital Employed} imes ext{Cost of Capital}) EVA=Net Operating Profit After Tax (NOPAT)#(Capital Employed×Cost of Capital)
* Why is Option B Correct?
* A negative EVA means the firm's returns are lower than its cost of capital, leading to value destruction.
* Why Not Other Options?
* A (Slowing growth rate) # EVA measures profitability, not growth rate.
* C (Below sector average) # EVA is firm-specific, not a comparative measure.
* D (Value is nil) # A company may still be profitable, but inefficient.
# Reference: CFA Institute (EVA Analysis), CISI Wealth & Investment Management.

NEW QUESTION # 147
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