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.

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.

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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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 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.

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 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.

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.

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.

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.

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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.

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.

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.

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.

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.

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.

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.

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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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.

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.

Investing in structured Investment-linked Life Insurance policies (ILPs) has several drawbacks, including exposure to counterparty risk, several layers of fees and charges, and loss of investment control by the investor. However, the ability to diversify the portfolio is not a drawback of investing in ILPs. Diversification is a strategy that helps to reduce risk by spreading investments across different assets. Therefore, having the ability to diversify the portfolio is actually a benefit of investing in ILPs, rather than a drawback.

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To mitigate the credit risk of the fixed income instrument used in structured products, the issuer of the structured product may choose to provide a guarantee by itself or a third party. This means that either the issuer of the structured product will personally guarantee the creditworthiness of the instrument, or they will seek a third party to provide the guarantee. This helps to reassure investors that even if the issuer's credit rating is not strong, they have taken steps to ensure the safety of the investment.

A structured ILP should be valued at least once a month because the value of the ILP may change over time due to various factors such as market conditions, interest rates, and the performance of the underlying assets. Regular valuation helps investors keep track of the value of their investment and make informed decisions.

Performance participation structured products are unsecured debt instruments, meaning they do not have any collateral or security backing them. This implies that if the issuer defaults, investors may lose their investment. These products do not track the performance of any underlying assets, so their returns are not directly tied to the performance of any specific market or index. Additionally, they carry low degrees of investment risk compared to yield enhancement products, which typically involve higher levels of risk in pursuit of higher yields.

The Insurance Act is the regulatory instrument that must give the policy owners of Structured Investment-linked policy priority claims in the event of liquidation. This means that if the insurance company goes bankrupt and is liquidated, the policy owners of Structured Investment-linked policies will have priority in receiving their claims over other creditors. The Insurance Act ensures that policy owners are protected and their claims are prioritized in such situations.

The MAS 307 requires the structured investment-linked policy sub-funds to be valued on a monthly basis. This means that the valuation of these sub-funds is conducted once every month.

Structured deposits are financial products issued by banks. They can be considered a form of wrapper, as they package together different underlying assets such as bonds, equities, or derivatives. In terms of returns, structured deposits typically offer lower returns compared to other structured products, as they focus on providing capital protection and stability. Therefore, all of the statements mentioned in the question are true.

A structured product is a financial instrument that combines different components, such as a bond and a financial derivative, a bond and an option, or a note and an option. These combinations allow investors to customize their investment strategy and potentially achieve specific risk and return objectives. Therefore, the correct answer is "all of the above" as all the mentioned combinations can be considered as examples of structured products.

The statement "investors of structured notes are secured creditors of the issuer in the event of liquidation" is incorrect. In the event of liquidation, investors of structured notes are considered unsecured creditors, meaning they have a lower priority in receiving their investment back compared to secured creditors.

A structured ILP linked to index return uses derivatives to track the performance of a selected index. In order to protect the downside, it utilizes fixed income instruments. Fixed income instruments such as bonds or treasury bills provide a stable and predictable income stream, making them suitable for protecting against market downturns. By incorporating fixed income instruments into the ILP, the investor can mitigate the risk of losses during periods of market volatility.

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Investing in a structured ILP may have several disadvantages, such as incurring multiple layers of fees and charges and experiencing a loss of investment control. Additionally, there may be an opportunity cost associated with investing in a structured ILP. However, the one disadvantage that is not mentioned in the answer choices is the inaccessibility to bulky investments. This means that investing in a structured ILP may not provide the option to invest in large or substantial amounts, limiting the investor's ability to allocate funds as desired.

Both structured products designed for yield enhancement and those for performance participation have limited downside protection. This means that while they offer some level of protection against losses, it is not unlimited. This suggests that investors may still be exposed to some degree of risk and potential downside in their investments.

The product highlight sheet would be the most suitable option to inform the client about the inherent risk and key features of the structured investments linked life policy sub funds. This sheet provides a concise summary of the product, highlighting its key features, benefits, and risks. It is designed to provide the client with a quick overview of the product, allowing them to make an informed decision. The other options, such as the product summary sheet, benefit illustration, and fund report, may provide additional information but may not be as focused on highlighting the key features and risks of the product.

A structured note is a type of debt security that combines features of both debt and equity instruments. It is called "hybrid-linked" because it is linked to multiple underlying assets or indices, such as interest rates, equities, or market performance. This means that the returns on the structured note will be influenced by the performance of these underlying assets, making it a hybrid investment product.

The correct answer is "an intermediate term debt security whose interest payments are determined by a formula tied to a movement of a stock, commodity or currency." This answer accurately describes the definition of a structured note, which is a type of debt security. The interest payments on a structured note are not fixed but instead depend on the performance of an underlying asset, such as a stock, commodity, or currency. This formula-based structure allows investors to potentially benefit from the movements of these assets.

In a recurrent single premium Whole Life ILP, a minimum payout is made upon the death of the policyholder. This means that regardless of the value in the structured fund or any other factors, there will be a guaranteed minimum payout to the beneficiaries.

One of the drawbacks of structured ILPs is the presence of opportunity costs. This means that when there are non-performing assets in the portfolio, they reduce the gains from the assets that are performing well. This can result in lower overall returns for investors.

Insurers marketing structured ILPs must comply with the Insurance Act. The Insurance Act is a regulatory instrument that sets out the legal requirements and regulations that insurers must follow when marketing and selling insurance products, including structured ILPs. The Finance Companies Act and the Code of MAS may have their own regulations and requirements, but they are not specifically mentioned in relation to insurers marketing structured ILPs. Therefore, the correct answer is the Insurance Act.

In a structured product, derivatives are typically not used to provide investors with regular income. This is because structured products are designed to offer a combination of different investment features, such as upside participation, principal guarantee, and downside protection. Regular income, on the other hand, is usually generated through more traditional investment vehicles like bonds or dividend-paying stocks. Therefore, it is not a common feature or objective of structured products.

In a structured product, derivatives provide upside potential. This means that the derivatives within the structured product have the potential to generate positive returns for investors. They are designed to provide exposure to the performance of an underlying asset or index, allowing investors to benefit from any increase in value. This upside potential is one of the key features of structured products and can make them attractive to investors seeking higher returns.

When structured products adopt different structures, one of the most common considerations is the tax treatment. This is because the tax treatment can have a significant impact on the overall return and profitability of the structured product. Different structures may have different tax implications, such as capital gains tax or income tax, which can affect the after-tax returns for investors. Therefore, understanding and considering the tax treatment is crucial in determining the most suitable structure for a structured product.

If the counterparty to the derivative contract defaults, it means that they are unable to fulfill their obligations to the investor. This can result in a lower maturity amount for the structured product because the investor may not receive the full return on their investment. When the counterparty defaults, it can lead to financial losses and potentially a decrease in the value of the structured product.

Structured products can be used as part of the asset allocation process to reduce price volatility of a portfolio. This means that by including structured products in their investment strategy, investors can potentially minimize the impact of market fluctuations on their overall portfolio value. This can be particularly beneficial for individuals who are looking for more stability and lower risk in their investments. Additionally, structured products offer a range of options and flexibility to cater to the specific risk and return preferences of investors, making them a versatile investment instrument.

Insurers who market structured products are subject to various regulatory frameworks to ensure compliance and protect consumers. The futures act, financial advisory act, and CIS code are all relevant regulations that insurers must adhere to. However, the insurance act does not directly apply to structured products. This act primarily governs the general insurance industry, including policies related to property, health, and motor insurance. Therefore, insurers marketing structured products are not subject to the insurance act.

The greatest risk that Jessica is faced with is credit risk. This refers to the possibility that the issuer of the structured deposit may default on their payment obligations. In other words, there is a risk that Jessica may not receive the full amount of her deposit back at maturity. This risk is particularly important to consider when investing in structured deposits, as the financial health and reliability of the issuer can greatly impact the return on investment.

An insurer marketing a structure ILPs must comply with requirements in the Insurance Act, Financial Adviser Act, and Company Act. This is because ILPs (Investment-Linked Policies) involve insurance, financial advice, and company operations. The Insurance Act ensures that the insurer follows regulations related to insurance products and services. The Financial Adviser Act ensures that the insurer complies with regulations related to providing financial advice. The Company Act ensures that the insurer follows regulations related to its operations as a company. Therefore, all three acts are applicable in this scenario, making the correct answer "All of the above".

An investor faces market risk when investing in this ILP. Market risk refers to the potential for the value of investments to fluctuate due to factors such as economic conditions, market volatility, and changes in interest rates. In this case, the investor's payout is linked to the performance of the market, as it is based on a percentage of the initial amount of the single premium. Therefore, if the market performs poorly, the investor may receive a lower payout or even experience a loss.