Chapter 1 M9A Introduction To Structured Products

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  • 1/95 Questions

    10. Structured deposits are issued by:

    • Banks
    • Lloyds' syndicates
    • Insurance companies
    • Stock broking houses
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Chapter 1 M9A Introduction To Structured Products - Quiz
About This Quiz

This quiz covers the basics of structured products, focusing on participation products, structured deposits, and performance participation. It evaluates understanding of product types, investment benefits, and risk profiles. Essential for learners in finance and investment sectors.

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  • 2. 

    (C1 / S4.3 / Pg19) 7. Senior bonds are

    • older bonds that are near maturity

    • Rated lower than subordinated bonds by rating agencies

    • Given priority over shares and subordinated bonds during liquidation

    • also known as junk bonds

    Correct Answer
    A. Given priority over shares and subordinated bonds during liquidation
    Explanation
    Senior bonds are given priority over shares and subordinated bonds during liquidation. This means that in the event of a company's liquidation or bankruptcy, senior bondholders have a higher claim on the company's assets and are more likely to be repaid before other types of bondholders or shareholders. This priority is based on the contractual agreement between the company and the bondholders, which states that senior bondholders have a higher ranking in the repayment hierarchy.

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  • 3. 

    (C1/S2.2/Fig1.3) 6. Those investments that carry a low probability of returns while carrying a low probability of loss can be said to be:

    • Safe instruments

    • Rare gems

    • Unworthy investments

    • Bold investments

    Correct Answer
    A. Safe instruments
    Explanation
    Investments that carry a low probability of returns while carrying a low probability of loss can be considered safe instruments. This means that these investments have a lower risk compared to other options and are less likely to result in losses. They may not provide high returns, but they offer a higher level of security and stability.

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  • 4. 

    (C1/S2.2/Fig1.3) 10. Investments that offer high return at high risk are called

    • Bold investments

    • worthy investments

    • safe investments

    • rare gems

    Correct Answer
    A. Bold investments
    Explanation
    Investments that offer high return at high risk are called "bold investments" because they require a bold or daring approach due to the potential for significant gains but also the possibility of significant losses. These types of investments typically involve high volatility and uncertainty, making them suitable for individuals who are willing to take on higher levels of risk in exchange for the potential for higher returns.

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  • 5. 

    20. Which of the following is NOT TRUE about Structured Products?

    • They are unsecured debt securities of the issuer.

    • They have equity-like structures and participate in the profits of the issuer.

    • They are hybrid products.

    • They are more complex products.

    Correct Answer
    A. They have equity-like structures and participate in the profits of the issuer.
    Explanation
    Structured Products are financial instruments that are typically created by combining various financial assets to create a single product. They are known for their complex nature and often have features that make them different from traditional debt or equity securities. While it is true that they are hybrid products and can have both debt and equity-like characteristics, it is not true that they participate in the profits of the issuer. Structured Products are typically designed to provide investors with specific risk and return profiles, and their returns are determined by the performance of the underlying assets rather than the profits of the issuer.

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  • 6. 

    (C1/S4.1) 32 One similarity amongst the various structured products is that:

    • There is no lock-in period

    • There are guaranteed returns for the investor

    • There is high dividend income for the investor

    • They use financial derivatives

    Correct Answer
    A. They use financial derivatives
    Explanation
    One similarity amongst the various structured products is that they use financial derivatives. This means that structured products, regardless of their specific features or benefits, all utilize financial derivatives as part of their investment strategy. Financial derivatives are instruments that derive their value from an underlying asset, such as stocks, bonds, or commodities. By using financial derivatives, structured products can offer unique risk and return profiles to investors. Therefore, the correct answer is that structured products use financial derivatives.

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  • 7. 

    (C1/S3.2) 23 A reverse convertible bond is a/an

    • Secured debt instrument

    • Unsecured debt instrument

    • Secured futures product

    • Unsecured futures product

    Correct Answer
    A. Unsecured debt instrument
    Explanation
    A reverse convertible bond is an unsecured debt instrument. This means that the bond does not have any collateral backing it and relies solely on the creditworthiness of the issuer. Unlike a secured debt instrument, which is backed by specific assets that can be seized in the event of default, an unsecured debt instrument does not have any specific assets pledged as collateral.

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  • 8. 

    C1/S1) 1 Structured products are ___________ of the issuer.

    • Unsecured debt securities

    • Financial derivatives

    • Fixed income instruments

    • Equity-like products

    Correct Answer
    A. Unsecured debt securities
    Explanation
    Structured products are unsecured debt securities of the issuer. This means that they are financial instruments that represent a debt obligation of the issuer and do not have any collateral or security backing them. They are typically created by packaging together different financial instruments to create a new product with specific risk and return characteristics. This makes them different from financial derivatives, fixed income instruments, and equity-like products, which have their own distinct characteristics and features.

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  • 9. 

    (C1/S3.2) 20 Reserve convertible bonds are constructed by using ___________.

    • A bond and a put option

    • A call option and a down-and-out option

    • A bond and an interest rate swap

    • A bond and an equity

    Correct Answer
    A. A bond and a put option
    Explanation
    Reserve convertible bonds are constructed by combining a bond with a put option. This means that the holder of the bond has the right to sell the bond back to the issuer at a predetermined price, usually at or near the face value of the bond. This combination provides the bondholder with the option to convert the bond into shares of the issuer's stock at a later date if desired.

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  • 10. 

    (C1/S2.2) 6 Those investments that carry a low probability of returns while carrying a low probability of loss can be said to be:

    • Rare gems

    • Bold investments

    • Safe instruments

    • Unworthy investments

    Correct Answer
    A. Safe instruments
    Explanation
    Investments that carry a low probability of returns while carrying a low probability of loss can be considered safe instruments. This means that these investments have a low risk of losing money and also have a low potential for high returns. Safe instruments are often preferred by conservative investors who prioritize the preservation of capital over the possibility of earning high profits.

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  • 11. 

    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. 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?

    • S$100

    • S$200

    • S$300

    • S$380

    Correct Answer
    A. S$300
    Explanation
    The maturity value of the zero-coupon bond must be S$300 in order for the structured product to meet the return of principal to the investor. This is because the structured product manager purchased the bond at S$100 for every S$300 invested in the structured product. Therefore, if the maturity value of the bond is S$300, it would be equal to the amount invested in the structured product, ensuring that the principal is returned to the investor.

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  • 12. 

    (C1/S4.4a) 11. Listed products in Singapore are under the oversight of the

    • Associated Banks of Singapore

    • Singapore Exchange

    • Investment Managers of Singapore

    • Brokers Association of Singapore

    Correct Answer
    A. Singapore Exchange
    Explanation
    The correct answer is Singapore Exchange. The question is asking about the oversight of listed products in Singapore, and the Singapore Exchange is responsible for overseeing the trading and listing of securities and other financial products in Singapore. The other options, such as the Associated Banks of Singapore, Investment Managers of Singapore, and Brokers Association of Singapore, are not directly involved in the oversight of listed products.

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  • 13. 

    8. Structured products are:

    • A. Secured debt securities of the issuer

    • Created by combining traditional investments with financial derivatives

    • C. Entitled to share the issuer's profits

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

    Correct Answer
    A. Created by combining traditional investments with financial derivatives
    Explanation
    Structured products are financial instruments that are created by combining traditional investments, such as stocks or bonds, with financial derivatives. These derivatives can include options, swaps, or other complex securities. The purpose of structuring these products is to provide investors with a customized investment that meets their specific needs or objectives. By combining traditional investments with derivatives, structured products can offer unique risk and return profiles that may not be available through traditional investment options. Therefore, the correct answer is that structured products are created by combining traditional investments with financial derivatives.

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  • 14. 

    C1 / Table1.1 / Pg5) 9. Structured deposits are different from structured ILPs in that structured deposits

    • Are typically outsourced by the issuer for their structuring

    • Are issued only by banks

    • Have higher administrative costs

    • Are distributed by a wide distribution network

    Correct Answer
    A. Are issued only by banks
    Explanation
    Structured deposits are different from structured ILPs because they are issued only by banks. This means that only banks have the authority to offer structured deposits to customers, while structured ILPs may be offered by other financial institutions or investment companies. The exclusivity of structured deposits being issued by banks sets them apart from structured ILPs.

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  • 15. 

    (C1/S2) 2 A structured product manager purchased a zero-coupon bond at $20 for every $100 invested in the structured product. The structured product aims to provide a return of the capital portion to investors at maturity. Assuming the zero-coupon bond matures at the same time as the structured product, what must the maturity value of the zero-coupon be in order to return the principal to the investor?

    • $20

    • $80

    • $100

    • $120

    Correct Answer
    A. $100
    Explanation
    The maturity value of the zero-coupon bond must be $100 in order to return the principal to the investor. Since the structured product manager purchased the bond at $20 for every $100 invested, the maturity value needs to be equal to the principal investment of $100.

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  • 16. 

    (C1/S1.2) 20 This structured product works like a term insurance plus a structured fund, where the term insurance provides insurance coverage and the other portion provides investment returns. This description best describes:

    • A structured note

    • A structured fund

    • A structured ILP

    • A structured deposit

    Correct Answer
    A. A structured ILP
    Explanation
    The given description states that the product combines term insurance coverage with investment returns. This is a characteristic of a structured investment-linked policy (ILP), which is a type of insurance product that includes both an insurance component and an investment component. Therefore, the correct answer is a structured ILP.

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  • 17. 

    (C1/S1.2) 26 The following may be considered a wrapper, except

    • Structured deposit

    • Structured term equity

    • Structured note

    • Structured fund

    Correct Answer
    A. Structured term equity
    Explanation
    The term "wrapper" refers to a financial product that combines multiple underlying assets into a single investment. Structured term equity is not typically considered a wrapper because it focuses specifically on equity investments, rather than combining multiple assets. On the other hand, structured deposit, structured note, and structured fund are all examples of wrappers as they involve combining different types of assets or investment strategies.

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  • 18. 

    (C1/S3.3) 37 What is one advantage of an airbag certificate over a bonus certificate?

    • It allows the investor to buy the underlying stock at a discount

    • The upside potential is not capped

    • It tracks the performance of an underlying stock

    • It gives the underlying stock a chance to rebound during the life of the cerificate

    Correct Answer
    A. It gives the underlying stock a chance to rebound during the life of the cerificate
    Explanation
    An airbag certificate allows the underlying stock to rebound during the life of the certificate, which means that if the stock price decreases, the investor still has the opportunity for the stock to recover and potentially make a profit. This is an advantage over a bonus certificate, which may not provide the same opportunity for the stock to rebound.

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  • 19. 

    (C1/S4) 1 One similarity among the various structured products is that there is:

    • No lock-in period

    • The use of financial derivatives

    • Guaranteed returns for the investors

    • High dividend income for the investors

    Correct Answer
    A. The use of financial derivatives
    Explanation
    The correct answer is "The use of financial derivatives." This means that all the various structured products have in common the fact that they involve the use of financial derivatives. Financial derivatives are instruments whose value is derived from an underlying asset, such as stocks, bonds, or commodities. They are used in structured products to create customized investment strategies and provide investors with exposure to specific market conditions or investment opportunities.

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  • 20. 

    30. Structured products:

    • Are equity securities

    • Are also known as hybrid products

    • Carry singled-faceted, non-complex investment risks

    • Typically combine traditional investments with property investments

    Correct Answer
    A. Are also known as hybrid products
    Explanation
    Structured products are financial instruments that are designed to meet specific investment objectives. They are called hybrid products because they combine elements of traditional investments, such as stocks or bonds, with other types of investments, such as derivatives or options. This combination allows investors to customize their exposure to different asset classes and potentially enhance returns or manage risks. Therefore, the statement that structured products are also known as hybrid products is a correct explanation of their nature.

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  • 21. 

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

    • Have the ability to offer customized exposure

    • Are useful as a complement to traditional investments

    • Are accessible to retail investors in the same ways that other investment products are

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    Structured products have the ability to offer customized exposure, meaning that investors can tailor their investments to match their specific investment goals and risk tolerance. They are also useful as a complement to traditional investments, as they can provide diversification and potentially enhance returns. Additionally, structured products are accessible to retail investors in the same ways that other investment products are, allowing individual investors to participate in these opportunities. Therefore, all of the given statements are valid reasons why investors may wish to invest in structured products.

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  • 22. 

    (C1 / Fig1.3 / Pg9) 10. Investments that offer high return at low risk are called

    • Bold investments

    • Unworthy investments

    • Safe investments

    • rare gems

    Correct Answer
    A. rare gems
  • 23. 

    (C1/S3.3) 4. A ________ comes with conditional downside protection which depends on a pre-determined barrier.

    • Contract for differences

    • Bonus certificate

    • Discount certificate

    • Tracker certificate

    Correct Answer
    A. Bonus certificate
    Explanation
    A bonus certificate is a type of financial instrument that offers conditional downside protection based on a pre-determined barrier. This means that if the underlying asset falls below a certain level (the barrier), the investor will receive a bonus payment to compensate for any losses. This feature provides a level of protection for the investor's investment, making the bonus certificate a suitable option for those looking for downside protection.

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  • 24. 

    C1 / Fig1.7 / Pg16) 5. Bonus certificates have conditional downside protection which hinges on a pre-determined level. The feature where protection no longer applies is called

    • Kick-in

    • Kick-out

    • Knock-in

    • Knock-out

    Correct Answer
    A. Knock-out
    Explanation
    A knock-out feature refers to the point at which the conditional downside protection of bonus certificates no longer applies. This means that if the underlying asset's price reaches or falls below a pre-determined level, the protection is "knocked out" and the investor no longer benefits from it. This feature is important because it helps investors understand the conditions under which they may lose their downside protection and potentially incur losses on their investment.

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  • 25. 

    (C1/S3) 7 A form of funded credit derivative, structured as a security with an embedded credit default swap is known as a/an ___________ structured product.

    • Interest rate-linked

    • Equity-linked

    • Credit-linked

    • Market-linked

    Correct Answer
    A. Credit-linked
    Explanation
    A form of funded credit derivative, structured as a security with an embedded credit default swap is known as a credit-linked structured product. This type of structured product is designed to transfer credit risk from one party to another, allowing investors to gain exposure to the creditworthiness of a specific reference entity. By purchasing this product, investors can protect themselves against the risk of default by the reference entity.

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  • 26. 

    (C1/S1.1) 11 A structured product manager purchased a zero-coupon bond at $80 for every $100 invested in the structured product. The structured product aims to provide a return of the capital portion to investors at maturity. Assuming the zero-coupon bond matures at the same time as the structured product, what must the maturity value of the zero-coupon be in order to return the principal to the investor?

    • $0

    • $80

    • $100

    • 120

    Correct Answer
    A. $100
    Explanation
    The maturity value of the zero-coupon bond must be $100 in order to return the principal to the investor. This is because the structured product manager purchased the bond at a discounted price of $80 for every $100 invested. Therefore, at maturity, the bond must be worth the full $100 in order to return the principal to the investor.

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  • 27. 

    43. Structure deposits are:

    • Capable of generating high returns

    • Considered as investment products

    • Included in the Deposit Insurance Scheme in Singapo

    • Investors are secured creditors of the issuer in the event of liquidation.

    Correct Answer
    A. Considered as investment products
    Explanation
    Structure deposits are considered as investment products because they offer the potential for high returns. They are not traditional bank deposits, but rather complex financial products that typically combine a deposit with an investment component. Investors who purchase structure deposits are taking on a higher level of risk compared to traditional bank deposits, but they also have the opportunity to earn higher returns. It is important to note that structure deposits are not covered by the Deposit Insurance Scheme in Singapore, and investors are considered secured creditors of the issuer in the event of liquidation.

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  • 28. 

    C1 / S1 / Pg2) 1. Which of the following investment assets are the usual make-up of structured products?

    • equities and bonds

    • Bonds and options

    • Bonds and notes

    • derivatives

    Correct Answer
    A. Bonds and options
    Explanation
    Structured products typically consist of a combination of bonds and options. Bonds provide stability and fixed income, while options offer potential for higher returns and flexibility in investment strategies. This combination allows investors to customize their risk and return profiles based on their individual preferences and market conditions. Equities and derivatives may be used in certain structured products, but they are not the usual make-up.

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  • 29. 

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

    • Are highly liquid assets

    • Carry low investment risk

    • Are simple products to understand

    • Provide access to investment markets that are otherwise closed to them

    Correct Answer
    A. Provide access to investment markets that are otherwise closed to them
    Explanation
    Investors may wish to invest in structured products because they provide access to investment markets that are otherwise closed to them. This means that structured products offer opportunities to invest in markets or assets that may not be easily accessible through traditional investment vehicles. This can be beneficial for investors looking to diversify their portfolios or take advantage of specific market opportunities.

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  • 30. 

    (C1 / S1.2 / Pg4) 3. Which statement is FALSE?

    • Structured deposits have low risks

    • Structured deposits are issued only by banks

    • Structured deposits are excluded in the Deposit Insurance Scheme in Singapore

    • Structured notes are unsecured debentures

    Correct Answer
    A. Structured deposits have low risks
    Explanation
    The statement that structured deposits have low risks is FALSE. Structured deposits are actually considered to have higher risks compared to traditional deposits. This is because structured deposits often involve complex investment strategies and may be linked to the performance of underlying assets such as stocks or bonds. Therefore, the risk associated with structured deposits depends on the performance of these underlying assets, making them more susceptible to market fluctuations and potential losses.

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  • 31. 

    (C1/S3) 8 A structured product which is linked to a certain basket of market indices is

    • Interest rate-linked

    • Equity-linked

    • Credit-linked

    • Market-linked

    Correct Answer
    A. Market-linked
    Explanation
    A structured product that is linked to a certain basket of market indices means that the performance of the product is dependent on the performance of those market indices. This suggests that the product's returns will be influenced by the overall movements and fluctuations in the market. Therefore, the correct answer is "Market-linked."

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  • 32. 

    45. Structured deposits are:

    • Capable of generating high returns

    • Not considered as investment products

    • Included in the Deposit Insurance Scheme in Singapore

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

    Correct Answer
    A. Usually arranged such that the capital is guaranteed by the bank
    Explanation
    Structured deposits are financial products that are typically arranged by banks and offer a combination of a deposit account and an investment product. These deposits are usually designed in a way that guarantees the return of the initial capital invested by the customer, regardless of the performance of the underlying investment. This ensures that the customer's capital is protected and not at risk. Therefore, the statement "Usually arranged such that the capital is guaranteed by the bank" is the correct answer.

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  • 33. 

    2. Which of the following most describe a structured fund?

    • It is only distributed by the bank channel.

    • The main disclosure document is the factsheet.

    • It has low administration cost.

    • It has a trust structure.

    Correct Answer
    A. It has a trust structure.
    Explanation
    A structured fund is described as having a trust structure. This means that the fund is set up as a trust, with a trustee holding and managing the assets on behalf of the investors. This structure provides legal protection for the investors and ensures that the fund is managed in their best interests. The other options mentioned, such as being distributed by the bank channel, having a factsheet as the main disclosure document, and having low administration costs, do not specifically define a structured fund.

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  • 34. 

    (C1/S3.1) 13 The downside protection is only as good as the _________ of the party providing the protection.

    • Fund manager

    • Reputation

    • Credit worthiness

    • Performance

    Correct Answer
    A. Credit worthiness
    Explanation
    The downside protection refers to the level of protection against losses in an investment. In this context, the effectiveness of the downside protection is dependent on the credit worthiness of the party providing the protection. This means that the ability of the party to fulfill their financial obligations and repay any potential losses is crucial for the downside protection to be reliable. The reputation and performance of the party may also be important factors, but the credit worthiness is the most relevant in determining the effectiveness of the downside protection.

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  • 35. 

    (C1/S4.3) 13 In the event of liquidation, owners of __________ have highest priority for repayment.

    • Senior bonds

    • Subordinated bonds

    • Company stocks

    • Senior tranches of subordinated bonds

    Correct Answer
    A. Senior bonds
    Explanation
    In the event of liquidation, owners of senior bonds have the highest priority for repayment. This means that they will be the first to receive their money back before any other creditors or shareholders. Senior bonds are considered to be more secure and less risky compared to subordinated bonds or company stocks, which is why their owners have the highest priority for repayment in case of liquidation.

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  • 36. 

    (C1/S4.4) 33 The main advantage of listed structured products over other structured products is

    • Guaranteed capital

    • Lower charges

    • Lower risk

    • Liquidity

    Correct Answer
    A. Liquidity
    Explanation
    Listed structured products have the advantage of liquidity compared to other structured products. This means that they can be easily bought or sold on an exchange, allowing investors to access their capital quickly if needed. This is in contrast to other structured products that may have limited liquidity and may require a longer time to sell or redeem.

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  • 37. 

    23. Those investments that carry a low probability of loss of principal while offering a high probability of potential returns can be said to be:

    • Rare gems

    • Bold investments

    • Safe Instruments

    • Unworthy investments

    Correct Answer
    A. Rare gems
    Explanation
    The correct answer is "Rare gems" because it implies that these investments are valuable and hard to find, just like rare gems. This suggests that they are unique and have a high potential for returns while also having a low risk of losing the initial investment.

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  • 38. 

    (C1/S1.2/T1.1) 5. Investors of structured deposits

    • Are protected against loss of their capital

    • get higher returns on their investments

    • are unsecured creditors of the issuer in the event liquidation

    • are provided with insurance coverage

    Correct Answer
    A. are unsecured creditors of the issuer in the event liquidation
    Explanation
    Investors of structured deposits are unsecured creditors of the issuer in the event of liquidation. This means that if the issuer of the structured deposit goes bankrupt or becomes insolvent, the investors will have a claim on the assets of the issuer, but they will not have any specific collateral or security for their investment. They will be treated as general creditors and will have to wait in line with other creditors to receive their share of the remaining assets. This puts the investors at a higher risk compared to being protected against loss of their capital or having insurance coverage.

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  • 39. 

    (C1/S3.3b) 7. When a bonus certificate is knocked-out it means that

    • The investor will not be paid anything on maturity

    • the investor is paid the principal investment amount and the contract is terminated

    • the protection no longer applies and the investor is paid the value of the underlying asset at maturity

    • the investor has to top up cash

    Correct Answer
    A. the protection no longer applies and the investor is paid the value of the underlying asset at maturity
    Explanation
    When a bonus certificate is knocked-out, it means that the protection provided by the certificate is no longer applicable. Instead of receiving the principal investment amount and the contract being terminated, or having to top up cash, the investor will be paid the value of the underlying asset at maturity. This means that the investor will not receive any additional bonus or return on the investment, but will only receive the value of the underlying asset.

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  • 40. 

    (C1/S1) 33 Which of the following investment assets are the usual make-up of structured products?

    • Equities and bonds

    • Derivatives

    • Bonds and notes

    • Bonds and options

    Correct Answer
    A. Bonds and options
    Explanation
    Structured products typically consist of a combination of different investment assets, such as bonds and options. This combination allows investors to customize their risk and return profile based on their investment goals and preferences. Bonds provide stability and fixed income, while options offer potential for higher returns and flexibility in managing risk. By including both bonds and options in structured products, investors can benefit from a diversified portfolio that balances stability and growth potential.

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  • 41. 

    (C1/S4.4) 14 To ensure liquidity, SGX requires at least __________ of the securities must be spread out to a minimum of 100 investors in the case of ETNs and certificates.

    • 55%

    • 65%

    • 75%

    • 85%

    Correct Answer
    A. 75%
    Explanation
    SGX requires at least 75% of the securities to be spread out to a minimum of 100 investors in the case of ETNs and certificates. This ensures liquidity by preventing a concentration of ownership and promoting a wider distribution of the securities among investors.

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  • 42. 

    38. Which of the following about reverse convertible bonds is TRUE?

    • Reverse convertible bond is a structured product

    • Reverse convertible bond protects capital

    • Reverse convertible has protection on downside as value of the stock falls

    • Reverse convertible bond and conventional bond can be used interchangeably

    Correct Answer
    A. Reverse convertible bond is a structured product
    Explanation
    A reverse convertible bond is a type of structured product. This means that it is a financial instrument that is created by combining multiple assets or derivatives to create a specific investment strategy. In the case of a reverse convertible bond, it is typically a bond that pays a higher interest rate than a regular bond, but also includes an embedded option that allows the issuer to repay the bond in cash or stock. This structure allows investors to potentially earn a higher return, but also exposes them to additional risks.

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  • 43. 

    1 When buying reverse convertible bonds, we are actually buying a bond and a

    • Long call option

    • Written put option

    • Sell naked call

    • Protective puts

    Correct Answer
    A. Written put option
    Explanation
    When buying reverse convertible bonds, we are actually buying a bond and a written put option. A reverse convertible bond is a type of bond that pays a higher interest rate but also carries the risk of the underlying asset falling in value. By buying a written put option, the investor is essentially selling the right to sell the underlying asset at a predetermined price. This can provide some downside protection for the investor, as they will receive the premium from selling the put option.

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  • 44. 

    (C1/S1.1) 2. A 5-year note is linked to BBD Company and has a share price of S$ 100. 80% of the money of the investor is used to buy a zero-coupon with a par value of S$ 100 maturing in 5 years’ time. The remaining S$ 20 is used to buy a call option with a strike price of S$ 110. If the share price drops to S$ 50 on maturity, the investor would

    • Receive his capital of S$ 100 but lost S$ 20 on the price paid for the option

    • receive his capital of S$ 100

    • receive S$ 50

    • not receive any money

    Correct Answer
    A. Receive his capital of S$ 100 but lost S$ 20 on the price paid for the option
    Explanation
    The investor would receive his capital of S$ 100 because the zero-coupon bond, which comprises 80% of the investment, would still mature at its par value. However, the investor would also incur a loss of S$ 20 on the price paid for the call option since the share price dropped to S$ 50 on maturity, rendering the option worthless. Therefore, the investor would receive his initial capital but incur a loss on the option.

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  • 45. 

    2. Performance participation structured products

    • Are unsecured debt instrument

    • have unlimited downside protection element

    • Do not track the performance of any underlying assets

    • Carry low degrees of investment risk compared to yield enhancement products.

    Correct Answer
    A. Are unsecured debt instrument
    Explanation
    Performance participation structured products are unsecured debt instruments. This means that they do not have any collateral backing and are not secured by any specific assets. As a result, if the issuer of the product defaults on its obligations, the investor may not be able to recover their full investment. This lack of security makes these products riskier compared to other types of investments.

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  • 46. 

    39. Which of the following has a low probability of losing capital and has corresponding low risk?

    • Rare gem

    • Bold investment

    • Safe investment

    • Unworthy investment

    Correct Answer
    A. Safe investment
    Explanation
    A safe investment has a low probability of losing capital and low risk. This means that the investment is less likely to result in a loss of money and is considered to be a low-risk option. In contrast, a rare gem, bold investment, and unworthy investment may all carry higher risks and a higher chance of losing capital.

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  • 47. 

    50. Which one of the following statements regarding structured products is TRUE?

    • Structured products are by nature homogenous

    • most structured products do not have fixed expiry or maturity date

    • structured products fall under the category of traditional investments

    • structured products may use different forms of wrappers as the underlying asset

    Correct Answer
    A. structured products may use different forms of wrappers as the underlying asset
    Explanation
    Structured products can use different forms of wrappers as the underlying asset. This means that structured products can be based on various underlying assets such as stocks, bonds, commodities, or derivatives. The use of different forms of wrappers allows for customization and flexibility in designing structured products to meet specific investment objectives or risk profiles.

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  • 48. 

    (C1/S1) 2 A structured product can be a combination of

    • Bond and a financial derivative

    • Bond and an option

    • Note and an option

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    A structured product is a financial instrument that combines multiple components, such as bonds and derivatives or options. It can be designed to meet specific investment objectives or to provide exposure to certain market conditions. In this case, the correct answer is "All of the above" because a structured product can be a combination of a bond and a financial derivative, a bond and an option, or a note and an option. This means that all three options listed in the question are valid examples of structured products.

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  • 49. 

    (C1/S1.2) 48 Structured deposits are considered _____________ products and are not protected under the Deposit Insurance Scheme in Singapore.

    • Deposit

    • Leverage

    • Investment

    • Insurance

    Correct Answer
    A. Investment
    Explanation
    Structured deposits are considered investment products because they involve the investment of funds with the expectation of earning a return. They are not protected under the Deposit Insurance Scheme in Singapore because they carry a higher level of risk compared to traditional deposits. The Deposit Insurance Scheme only covers deposits in banks and finance companies, not investment products. Therefore, structured deposits are not eligible for protection under the scheme.

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Quiz Review Timeline (Updated): Mar 22, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jan 03, 2015
    Quiz Created by
    Jen19802809
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