M9A Structured Questions

A structured ILP (Investment-Linked Policy) is a product that combines the benefits of term insurance and a structured fund. The term insurance component provides coverage for the insured individual, while the structured fund portion offers investment returns. This means that the policyholder not only receives insurance protection but also has the opportunity to grow their investment through the structured fund.

The given description states that the structured product combines term insurance coverage with an investment component. This aligns with the features of a structured ILP (Investment-Linked Policy), which typically includes both insurance coverage and an investment fund. Therefore, the correct answer is A structured ILP.

A Tracker certificate is one of the few structured products that may have no expiry date. This means that the certificate does not have a predetermined date at which it will mature or be redeemed. Unlike other structured products such as Bonus, Discount, or Airbag certificates, a Tracker certificate does not have a specific end date, allowing investors to hold onto it for an indefinite period of time.

A structured product that is linked to a certain basket of market indices is referred to as market-linked. This means that the performance and returns of the structured product are tied to the performance of the underlying market indices. The product's value will fluctuate based on the movement of these indices, providing investors with exposure to the broader market.

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One of the characteristics of structured Investment-linked Life Insurance policies (ILPs) is that the sub-funds are in tailor-made products. This means that the ILP allows investors to choose from a range of investment options that are customized to their individual needs and risk appetite. This customization allows investors to have more control over their investments and tailor them to their specific goals and preferences.

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, typically involving a credit default swap as a form of insurance against the default of a specific underlying asset or reference entity.

Structured deposits are different from structured ILPs because they are only issued by banks. This means that only banks have the authority to offer and distribute structured deposits to customers. On the other hand, structured ILPs may be offered by various financial institutions and are not limited to banks.

In a structured product, derivatives are typically not used to provide investors with regular income. Instead, structured products are designed to offer various features such as upside participation, principal guarantee, and downside protection. These features aim to provide investors with potential returns, protection of their initial investment, and safeguard against market downturns. However, generating regular income is not a common objective of structured products, as they are more focused on offering specific benefits and investment strategies.

If an early redemption event is triggered, the investor would receive the initial capital amount with the accrual payouts. This means that the investor will get back their original investment of S$100,000, along with any additional payouts that have accrued over time. The sum assured of S$105,000 is not relevant in this scenario, as it only guarantees a minimum payout in the event of death or maturity of the policy. The option of receiving the amount based on the total sum assured plus the initial capital amount is not applicable, as the sum assured is not relevant in an early redemption event. Finally, the option of receiving accrued payouts but keeping the initial capital amount is not correct, as the investor would receive both their initial capital amount and any accrued payouts.

When structured products adopt different structures, the most common consideration is tax treatment. This means that the way the product is taxed, such as the capital gains tax or income tax, is an important factor to consider. The tax treatment can greatly impact the overall return and profitability of the structured product, so it is crucial to analyze and understand the tax implications before making any investment decisions.

Structured products are categorized as unsecured debt securities because they do not have any collateral or asset backing. These products are issued by financial institutions or corporations and are essentially a type of bond. Unlike secured debt securities, which have specific assets pledged as collateral, unsecured debt securities rely solely on the creditworthiness of the issuer. Therefore, if the issuer defaults, the investors may not have any recourse to recover their investment.

Portfolio funds are a type of investment that combines various assets, such as stocks, bonds, and other securities, into a single portfolio. These funds are designed to provide investors with a diversified investment option that includes an insurance element. The insurance element typically refers to the inclusion of certain risk management strategies, such as hedging or insurance policies, within the fund. This helps to protect the investor's portfolio against potential losses and provides a level of security. Therefore, portfolio funds are also known as a portfolio of investments with an insurance element.

Structured products are financial instruments that are created by combining multiple financial assets, such as stocks, bonds, and derivatives. These products derive their value from the performance of these underlying assets. Therefore, they are exposed to various risks associated with these assets. Counterparty risk refers to the risk of the other party involved in the transaction defaulting. Liquidity risk refers to the risk of not being able to buy or sell the structured product quickly at a fair price. Market risk refers to the risk of the value of the underlying assets changing due to market conditions. Hence, all of these risks are applicable to structured products.

Investing in structured ILPs can have a disadvantage of fees and charges. These fees can include management fees, administration fees, and other charges that can eat into the potential returns of the investment. These fees can vary depending on the specific ILP and can be a significant factor to consider when deciding whether to invest in structured ILPs.

Structured products are unsecured debt securities of the issuer. This means that they are financial instruments issued by a company or institution that do not have any collateral backing them. Instead, the issuer's creditworthiness and ability to repay the debt are the main factors determining the value and risk of the structured product. These products are not backed by any specific assets or collateral, making them more risky than secured debt securities.

To mitigate the credit risk of the fixed income instrument used in structured products, the issuer of the structured product may provide a guarantee by itself or a third party. This means that the issuer can either provide its own guarantee or seek a guarantee from a third party to ensure the repayment of the fixed income instrument. By having a guarantee in place, the issuer can reduce the credit risk associated with the instrument and provide more security to investors. This option provides flexibility for the issuer to choose the most suitable guarantee arrangement based on their own creditworthiness and available options in the market.

An interest rate-linked structured product is a financial instrument that is designed to provide returns based on the performance of interest rates. This means that the value or returns of the product will be influenced by changes in interest rates. Therefore, the correct answer is interest rates.

A structured ILP has a more complex structure compared to a regular ILP. This means that it may have additional features or components that make it more intricate and sophisticated. It does not necessarily mean that it has a higher insurance element, is less regulated, or is less risky. The complexity of its structure is the main distinguishing factor between the two.

A commodity-linked structured product is a financial instrument that is tied to the performance of a specific commodity. In this case, the correct answer is precious metals such as gold. This means that the value of the structured product will be influenced by the price movements of gold. As the price of gold increases or decreases, the value of the structured product will also change accordingly. This allows investors to gain exposure to the price movements of precious metals without directly owning them.

Structured products are designed to meet the specific risk-return preferences of investors. These products are customized to align with the individual investor's desired level of risk and potential return. By offering tailored solutions, structured products allow investors to have more control over their investment strategy and to align it with their specific financial goals. This customization feature makes structured products attractive to investors who want a product that suits their specific risk-return profile.

A market-linked structured product refers to a financial product that is tied to the performance of a specific basket of market indices. This means that the returns or payouts of the product will be determined by the movement of these indices. It provides investors with exposure to a diversified portfolio of assets and allows them to participate in the potential gains of the market.

ILPs are not typically offered as a short-term investment instrument. They are long-term insurance policies that combine investment and life insurance. They offer death benefits in addition to investment gains, and they often have higher fees compared to normal unit trusts. Additionally, if an early redemption is carried out, ILPs may suffer a capital loss.

Structured deposits are considered investment products because they involve the investment of funds by individuals. These products typically offer a fixed return based on the performance of an underlying asset, such as a stock or a basket of stocks. However, unlike traditional investments, structured deposits do not offer the same level of protection as they are not covered by the Deposit Insurance Scheme in Singapore. Therefore, individuals who invest in structured deposits are exposed to the risk of losing their principal if the underlying asset performs poorly.

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Investing in a structured ILP offers several advantages, such as portfolio diversification, access to bulky investments, and economies of scale. However, the exception is low fees and charges. This means that the structured ILP may have higher fees and charges compared to other investment options.

Mary should be most concerned with liquidity risk if she wants to be able to withdraw cash at any time. Liquidity risk refers to the possibility that an investment cannot be easily sold or converted into cash without incurring a significant loss in value. In this case, if Mary wants to withdraw cash from her investment in the structured ILP, she may face difficulty if the structured fund lacks liquidity. Since 95% of the assets are invested in 4 properties, it is possible that these properties may not be easily sold or converted into cash, leading to liquidity issues for Mary.

Investors of structured deposits are unsecured creditors of the issuer in the event of liquidation. This means that if the issuer goes bankrupt or is liquidated, the investors will have a claim on the assets of the issuer, but they are not guaranteed to receive their full investment back. They will be treated as creditors and will have to wait in line to receive their share of the remaining assets after secured creditors and other obligations have been paid. This makes them vulnerable to potential losses in the event of the issuer's insolvency.

Mary does not fully understand the risk and return trade of the product, which makes her unsuitable to invest in structured ILPs. Understanding the risk and return trade is crucial when investing in any financial product, as it helps individuals make informed decisions and manage their investments effectively. Without this understanding, Mary may not be able to evaluate the potential risks and rewards associated with structured ILPs, leading to potential financial losses.

A tracker certificate is a type of structured product that is designed to track the performance of an underlying asset, such as a stock or an index. Unlike other structured products like bonus, discount, or airbag certificates, tracker certificates do not have an expiry date. This means that investors can hold onto them for as long as they want, allowing them to potentially benefit from the long-term performance of the underlying asset.

A structured ILP with valuation done quarterly will pose more liquidity risk for investors because the longer the valuation period, the less frequently investors can access their funds. With quarterly valuations, investors will have to wait longer to receive updates on the value of their investments and will have limited opportunities to make changes or withdraw their funds. This lack of liquidity can be risky for investors who may need to access their funds quickly in case of emergencies or changing financial circumstances.

Structured products are financial instruments created by combining different investment assets to offer customized investment opportunities to investors. Bonds and options are commonly used to create structured products. Bonds provide a fixed income stream and options provide the opportunity to buy or sell an underlying asset at a predetermined price. This combination allows investors to have exposure to both fixed income and potential capital gains, making it a usual make-up of structured products. Equities, derivatives, and notes are not mentioned as part of the usual make-up of structured products.

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When Company Delta's credit rating is downgraded, it presents an issuer-specific risk to the investor. This means that there is a risk specifically associated with the issuer of the structured product, Company Delta. The downgrade in credit rating indicates that there is a higher likelihood of default or inability to meet financial obligations by Company Delta. This poses a risk to the investor as it may result in loss of investment or lower returns.

Structured ILPs, or Structured Investment-Linked Policies, are investment products offered by insurance companies. These products combine insurance coverage with investment opportunities, allowing policyholders to invest in a range of assets such as stocks, bonds, and mutual funds. Insurance companies are the only entities authorized to issue these policies as they have the necessary expertise and regulatory approval to offer both insurance and investment services. Banks, fund managers, and brokerages may offer other investment products, but they cannot issue structured ILPs.

The early redemption of units feature in structured products may be triggered when any of the following events occur: the kick-in levels are breached, the knock-out levels are breached, or callable bonds are called. This means that if any of these conditions are met, the structured product can be redeemed early.

Structured ILPs (Investment-Linked Policies) are investment products that combine life insurance coverage with investment opportunities. They are known for being complex, as they often involve multiple investment options and have various fees and charges. Structured ILPs are typically bought with single premiums, meaning that the policyholder pays a lump sum upfront. Additionally, these policies are exposed to counterparty and liquidity risks, meaning that the policyholder may face potential losses if the issuer or the market experiences financial difficulties. However, the statement that they do not have maturity dates and are renewed at the end of each trading period is false. Structured ILPs do have maturity dates, and policyholders may choose to renew or terminate the policy at that time.

A structured ILP with valuation done quarterly will pose a higher liquidity risk for investors because it means that the valuation of the investment is only done every three months. This infrequent valuation can lead to a lack of visibility and transparency in the investment's performance, making it more difficult for investors to assess its current value and potentially limiting their ability to sell or exit the investment quickly if needed. This increases the liquidity risk as investors may have to wait longer to liquidate their investment or may face challenges in finding buyers at a fair price.

The given statement indicates that the fund aims to achieve daily investment results that are twice the inverse of the daily performance of the market benchmark index. This suggests that the fund is designed to be linked to the returns of the index, meaning that its performance will move in the opposite direction of the index. Therefore, the correct answer is ILP linked to index returns.

If an early redemption event is triggered, the investor will most likely receive the initial capital amount with the accrued payouts. This means that the investor will receive the original investment of S$40,000 along with any additional payouts that have accumulated over time. The sum assured of S$50,000 is not relevant in this scenario, as it is the guaranteed amount that would be paid out upon the death or maturity of the policy. Since an early redemption event is triggered, the investor would not receive the full sum assured amount.

A structured product is a type of investment that is designed to provide investors with a specific return based on the performance of an underlying asset or index. It is possible to mirror equity-like returns using a fixed income structure in a structured product by using derivatives such as options or swaps to replicate the performance of an equity index. This allows investors to potentially achieve similar returns to investing directly in equities, but with the added benefit of a fixed income structure which may provide more stability and downside protection.

Diversification of the fund minimizes the opportunity cost. This means that by investing in a structured ILP, the investor can spread their investments across different assets and sectors, reducing the risk of loss. This diversification helps to minimize the opportunity cost, which is the potential gain that is lost when choosing one investment option over another. By diversifying the fund, the investor can potentially earn higher returns while still minimizing risk, making it not a drawback of investing in structured ILPs.

Structured deposits are a form of investment products. This means that they are financial instruments that individuals can invest in to potentially earn returns. Unlike traditional deposits, structured deposits often have more complex features and may offer higher potential returns, but they also come with higher risks. Therefore, individuals need to carefully consider their investment goals and risk tolerance before investing in structured deposits.

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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 discount of $20 for every $100 invested, so the maturity value needs to be equal to the principal amount invested.

The policy document is not required to be provided to an investor of a structured ILP at the point-of-sale. This document typically contains detailed information about the terms and conditions of the policy, including coverage details, exclusions, and policyholder rights and obligations. While the other documents listed (product summary, benefit illustration, and product highlights sheet) provide important information about the product's features, benefits, and risks, the policy document is not necessary at the point-of-sale.

The correct answer is a structured deposit. This is because a structured deposit is a type of financial product that is excluded from the Deposit Insurance Scheme in Singapore. The Deposit Insurance Scheme is a scheme that provides insurance coverage for deposits in the event that a bank fails. Therefore, a structured deposit is not covered by this scheme and does not offer the same level of protection as a regular bank deposit.

A portfolio of investments with an insurance element allows customers to appoint managers of their portfolio. This means that customers have the ability to choose and hire professionals to manage their investments within the portfolio. This feature provides customers with more control and flexibility in managing their investments, as they can select managers who have expertise in specific areas or strategies.

Joe would most likely be concerned with liquidity risk if he needs cash. Liquidity risk refers to the risk of not being able to easily sell an investment and convert it into cash without incurring significant losses. In this case, Joe has invested in a structured Whole Life ILP that invests in a closed-ended fund with a fixed maturity date. This means that he may face penalties for early redemption, which could limit his ability to access his investment and convert it into cash when needed. Therefore, liquidity risk is the most relevant concern for Joe in this situation.

The given answer states that structured products offer no access to exotic asset classes. This implies that structured products do not provide investors with the opportunity to invest in unique or unconventional assets. However, the other options mentioned in the question highlight reasons for investing in structured products such as reducing risk exposure, meeting specific investment needs, and serving as an alternative to traditional asset classes.