Life Insurance Policy Mock Exam: Quiz!

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  • 1/50 Questions

    10. Structured deposits are issued by:

    • Banks
    • Lloyds' syndicates
    • Insurance companies
    • Stock broking houses
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About This Quiz

This Life Insurance Policy Mock Exam focuses on structured investment-linked policies, exploring various financial aspects and compliance requirements. It assesses understanding of investment risks, product structures, and regulatory adherence, essential for professionals in finance and insurance.

Life Insurance Policy Mock Exam: Quiz! - Quiz

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  • 2. 

    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, similar to rare gems. This suggests that these investments have a low risk of losing the initial investment but have a high potential for returns, making them highly desirable.

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  • 3. 

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

    • Bonds

    • Equities

    • Derivatives

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    Portfolio bonds can be invested in a variety of investment instruments, including bonds, equities, and derivatives. This means that investors can diversify their portfolio by including different types of assets in their bond investments. Bonds provide stability and fixed income, while equities offer potential for growth and higher returns. Derivatives, on the other hand, can be used to hedge against market risks or speculate on price movements. By investing in all of these instruments, investors can take advantage of different market conditions and potentially maximize their returns.

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  • 4. 

    20. Which ONE of the following methods may be used to mitigate counterparty default risk?

    • Investing only in listed companies

    • Using non-publicly traded securities

    • Asking for collateral from the counterparty

    • Dealing in the same foreign currency

    Correct Answer
    A. Asking for collateral from the counterparty
    Explanation
    Asking for collateral from the counterparty can be used to mitigate counterparty default risk. By requesting collateral, the counterparty is required to provide an asset or security that can be used to offset any potential losses in the event of default. This provides a form of protection for the party at risk and reduces the likelihood of financial loss. Investing only in listed companies, using non-publicly traded securities, and dealing in the same foreign currency do not directly address counterparty default risk.

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  • 5. 

    33. Negatively correlated securities may serve to:

    • Reduce fee charges for the investor

    • Enhance portfolio diversification

    • Prevent early redemption of the securities

    • Increase investment concentration in the investor's portfolio

    Correct Answer
    A. Enhance portfolio diversification
    Explanation
    Negatively correlated securities can enhance portfolio diversification because they tend to move in opposite directions. When one security is performing poorly, the other security may be performing well, which helps to balance out the overall performance of the portfolio. This reduces the risk and volatility of the portfolio, as losses in one security can be offset by gains in the other. Therefore, including negatively correlated securities in a portfolio can help to spread the risk and increase diversification.

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  • 6. 

    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
    Investors may wish to invest in structured products because they have the ability to offer customized exposure, meaning that investors can tailor the product to match their specific investment goals and risk tolerance. Additionally, structured products are useful as a complement to traditional investments because they can provide diversification and potentially enhance returns. Lastly, structured products are accessible to retail investors in the same ways that other investment products are, allowing individual investors to participate in these investment opportunities. Therefore, all of the given options provide valid reasons for why investors may choose to invest in structured products.

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  • 7. 

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

    • Leveraged

    • Lending

    • Contango

    • Backwardation

    Correct Answer
    A. Leveraged
    Explanation
    A gearing structured product will have a leveraged effect. This means that the product will amplify the returns of the underlying asset or index. It allows investors to potentially earn higher returns but also exposes them to higher risks. The leverage is achieved through borrowing and using additional capital to invest, which magnifies the gains or losses.

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  • 8. 

    7 Which one of the following statements about portfolio rebalancing is TRUE?

    • Portfolio rebalancing is adopted in all portfolio bonds

    • Portfolio rebalancing maintains the desired level of risk exposure

    • Fund managers use portfolio rebalancing to increase risk exposure

    • The return of the portfolio will improve after rebalancing

    Correct Answer
    A. Portfolio rebalancing maintains the desired level of risk exposure
    Explanation
    Portfolio rebalancing is the process of adjusting the weights of assets in a portfolio to maintain the desired level of risk exposure. By periodically rebalancing the portfolio, investors can ensure that their investments align with their risk tolerance and investment goals. This helps to mitigate the risk of overexposure to certain assets and maintain a balanced and diversified portfolio. Therefore, the statement "Portfolio rebalancing maintains the desired level of risk exposure" is true.

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  • 9. 

    28. A structured investment-linked product should be valued

    • At least once a month

    • At least once every two years

    • At least once every three years

    • Only when there are significant changes to the investment portfolio

    Correct Answer
    A. At least once a month
    Explanation
    A structured investment-linked product should be valued at least once a month to ensure that investors have accurate and up-to-date information about the value of their investment. This frequent valuation allows investors to make informed decisions and monitor the performance of their investment. Valuing the product less frequently, such as once every two or three years, may result in outdated information and could lead to potential risks and uncertainties for investors. Valuing the product only when there are significant changes to the investment portfolio may not be sufficient as it may not capture smaller fluctuations in value that could still impact investors' decisions.

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  • 10. 

    47. A / an is a security that entitles the holder to buy or sell an underlying security at a strike price on or before an expiry date.

    • Bond

    • Equity

    • Option

    • Unit trust

    Correct Answer
    A. Option
    Explanation
    An option is a security that entitles the holder to buy or sell an underlying security at a strike price on or before an expiry date. This means that the holder has the right, but not the obligation, to buy or sell the underlying security at the specified price within the specified time frame. Options are commonly used in financial markets to hedge against risk or speculate on price movements.

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  • 11. 

    38. Which of the following is one of the characteristics of structured Investment-linked Life Insurance policies (ILPs)?

    • Structured ILPs have simple structures

    • Structured ILP investors are exposed to little downside risk

    • Structured ILP sub-funds are in tailor-made products

    • Structured ILPs have relatively high insurance element

    Correct Answer
    A. Structured ILP sub-funds are in tailor-made products
    Explanation
    One of the characteristics of structured Investment-linked Life Insurance policies (ILPs) is that the sub-funds within these policies are tailor-made products. This means that the investment options available within the ILP are customized to meet the specific needs and preferences of the policyholder.

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  • 12. 

    40. If John uses S$200,000 to buy a 5-year bond from Supreme Company and he wishes to mitigate the risk of the company's failure on his Supreme Company bond, he can seek to buy a/an swap on the Supreme Company Bond.

    • Equity

    • Currency

    • Interest rate

    • Credit default

    Correct Answer
    A. Credit default
    Explanation
    If John wishes to mitigate the risk of Supreme Company's failure on his bond, he can seek to buy a credit default swap on the Supreme Company bond. A credit default swap is a financial contract in which the buyer pays a premium to the seller in exchange for protection against the default of a specific bond or loan. In this case, John would be buying a credit default swap to protect himself in case Supreme Company fails to fulfill its obligations on the bond.

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  • 13. 

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

    • Option

    • Hedge fund

    • Portfolio bond

    • Structured deposit

    Correct Answer
    A. Portfolio bond
    Explanation
    A portfolio of investments with an insurance element is called a portfolio bond. This type of investment allows individuals to invest in a variety of assets while also providing insurance coverage. It combines the benefits of investment growth with the security of insurance protection, making it an attractive option for individuals looking to diversify their investments and manage risk.

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  • 14. 

    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 these products provide access to investment markets that are otherwise closed to them. This means that structured products offer opportunities to invest in markets that are not easily accessible through traditional investment options. This can potentially provide investors with a wider range of investment options and diversification opportunities.

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  • 15. 

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

    • Investment return of the portfolio will not fluctuate

    • There is no early withdrawal charge by the fund manager

    • The policy owner will have various market views from many fund managers

    • The policy owner can change asset allocation as his financial needs change over time

    Correct Answer
    A. The policy owner can change asset allocation as his financial needs change over time
    Explanation
    An advantage of a portfolio of investments with an insurance element is that the policy owner can change asset allocation as their financial needs change over time. This flexibility allows the policy owner to adjust their investment strategy to align with their evolving financial goals and risk tolerance. By being able to modify the asset allocation, the policy owner can potentially optimize their investment returns and better manage their overall portfolio.

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  • 16. 

    43. The January futures price of oil is US$100 per barrel, but the cash price is US$93 per barrel. Which one of the following statements BEST describes this situation?

    • Basis is "US$93 in January"

    • Basis is "US$100 in January"

    • Basis is "US$7 over January"

    • Basis is "US$7 under January"

    Correct Answer
    A. Basis is "US$7 under January"
    Explanation
    The given situation indicates that the cash price of oil is lower than the futures price. This means that the basis, which is the difference between the cash price and the futures price, is negative. In this case, the basis is "US$7 under January" because the cash price is $7 less than the futures price.

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  • 17. 

    4. The forward price of a barrel of oil is S$150. The current spot price is S$120. The cost of carry is therefore equal to a:

    • Premium of S$30

    • Premium of S$50

    • Discount of S$30

    • Discount of S$50

    Correct Answer
    A. Premium of S$30
    Explanation
    The forward price of a commodity is determined by the spot price and the cost of carry. The cost of carry includes factors such as storage costs, financing costs, and any income that can be earned from holding the commodity. In this case, the forward price of a barrel of oil is S$150, while the current spot price is S$120. Since the forward price is higher than the spot price, it indicates a premium. The premium in this case is S$30, which is the difference between the forward price and the spot price. Therefore, the correct answer is a premium of S$30.

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  • 18. 

    19. Jane, a Singaporean, invests in an exchange-traded portfolio fund issued by AAA+ rating bank, denominated in US$. Which ONE of the following risks should Jane be most concerned?

    • Issuer risk

    • Counterparty risk

    • Liquidity risk

    • Foreign exchange risk

    Correct Answer
    A. Foreign exchange risk
    Explanation
    Jane, being a Singaporean investor, should be most concerned about foreign exchange risk. This is because she is investing in a fund denominated in US dollars, which means that any fluctuations in the exchange rate between the US dollar and the Singapore dollar can impact the value of her investment. If the Singapore dollar strengthens against the US dollar, the value of her investment will decrease when converted back into Singapore dollars. Therefore, Jane should be mindful of this risk when investing in a fund denominated in a foreign currency.

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  • 19. 

    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 also known as hybrid products because they combine different types of investments, such as stocks, bonds, and derivatives, into a single financial instrument. This combination allows investors to gain exposure to multiple asset classes and potentially diversify their risk. By combining different investments, structured products can offer unique risk and return profiles that may not be available through traditional investments alone.

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  • 20. 

    44. Which of the following statements about portfolio bonds is FALSE?

    • Death benefit can be included in portfolio bonds

    • Portfolio bonds offer a wide range of investment choices

    • The principal of portfolio bonds is generally guaranteed

    • Policy owners may appoint their own portfolio managers who are within the insurer's platform

    Correct Answer
    A. The principal of portfolio bonds is generally guaranteed
    Explanation
    Portfolio bonds do not generally guarantee the principal amount invested. The value of the investment can fluctuate based on the performance of the underlying assets. Therefore, the statement that the principal of portfolio bonds is generally guaranteed is false.

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  • 21. 

    17. Derivatives are financial instruments that are generally used for:

    • Manage risks

    • Betting of the price movement of the underlying assets.

    • Hedging against unwanted price movements

    • Serve all the above functions

    Correct Answer
    A. Serve all the above functions
    Explanation
    Derivatives serve all the above functions, including managing risks, betting on the price movement of underlying assets, and hedging against unwanted price movements. They are versatile financial instruments that can be used for various purposes in the financial market.

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  • 22. 

    34. Which one of the following statements regarding hedgers is CORRECT? Hedgers seek to:

    • Benefit from price volatility

    • Minimize risk

    • Sell to profit from falling prices

    • Buy to profit from rising prices

    Correct Answer
    A. Minimize risk
    Explanation
    Hedgers seek to minimize risk by using financial instruments such as futures contracts to protect themselves against price fluctuations in the market. By taking a position opposite to their exposure in the physical market, hedgers can offset potential losses and stabilize their financial position. This allows them to focus on their core business activities without being overly affected by price volatility.

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  • 23. 

    36. Investors of structured products may face counterparty risks, which means that:

    • The issuer's credit rating may be downgraded

    • The issuer may face difficulty in meeting its cash flow obligations

    • Interest rate fluctuations may affect the quality of the structured products

    • The counterparty may fail to meet its contractual obligations to the issuer

    Correct Answer
    A. The counterparty may fail to meet its contractual obligations to the issuer
    Explanation
    Investors of structured products may face counterparty risks, which means that the counterparty may fail to meet its contractual obligations to the issuer. This means that the party on the other side of the transaction may not fulfill their obligations, such as making payments or delivering the promised assets. This can result in financial loss or other negative consequences for the investor.

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  • 24. 

    41. A portfolio bond is suitable for investors who:

    • Want to invest in bonds

    • Have a short investment time horizon

    • Are seeking a high level of insurance protection

    • Are looking to invest in a portfolio of different funds

    Correct Answer
    A. Are looking to invest in a portfolio of different funds
    Explanation
    A portfolio bond is a type of investment product that allows investors to invest in a variety of different funds. This can help to diversify their investments and spread their risk across multiple assets. It is not specifically designed for investors who want to invest in bonds, have a short investment time horizon, or are seeking a high level of insurance protection. Therefore, the correct answer is that a portfolio bond is suitable for investors who are looking to invest in a portfolio of different funds.

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  • 25. 

    5. The sub-fund's operating expenses to the daily average Net Asset Value is :

    • Turnover ratio

    • Expense Ratio

    • Soft dollar

    • Bid / offer spread

    Correct Answer
    A. Expense Ratio
    Explanation
    The correct answer is Expense Ratio. The expense ratio is a measure of the operating expenses of a mutual fund or ETF as a percentage of its assets. It includes management fees, administrative costs, and other expenses. The expense ratio is important for investors to consider as it directly affects the overall return of their investment. A lower expense ratio indicates that a larger portion of the fund's assets is being used for investment purposes, while a higher expense ratio means that a larger portion is being used to cover expenses.

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  • 26. 

    12. John expects the Gold market to have big movement in the near future but unsure which direction. He can apply the following strategy to capture the market:

    • Selling Naked Puts

    • Short Call

    • Bear Straddle

    • Bull Straddle

    Correct Answer
    A. Bull Straddle
    Explanation
    A bull straddle strategy involves buying both a call option and a put option with the same strike price and expiration date. This strategy is used when the investor believes that the market will have a significant movement, but is unsure about the direction. By buying both options, the investor can profit from a large price movement in either direction. The potential loss is limited to the cost of purchasing the options, making it a relatively low-risk strategy.

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  • 27. 

    18. John decides to invest S$100,000 in the following investment: Prosperity Fund issued by Smarty Bank and distributed by Brilliant Bank. This fund seeks yearly investment returns, (before fees and expenses) that correspond to 150% of the returns of the yearly performance of the Japan Index fund. What is / are the risk(s) that the above investor is subject to?

    • Market risk

    • Liquidity risk

    • Credit risk of Smarty Bank

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    The investor is subject to market risk because the returns of the Prosperity Fund are linked to the performance of the Japan Index fund, which can be volatile. They are also subject to liquidity risk because if they need to sell their investment before it matures, they may not be able to find a buyer or may have to sell at a lower price. Additionally, there is credit risk of Smarty Bank, as the investor's investment is dependent on the bank's ability to meet its financial obligations. Therefore, all of the risks mentioned (market risk, liquidity risk, and credit risk of Smarty Bank) apply to the investor.

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  • 28. 

    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 fixed-income investments and derivatives. They are designed to provide investors with a higher return compared to traditional fixed deposits. One key feature of structured deposits is that the capital invested is usually guaranteed by the bank, meaning that the investor is protected against any potential losses. This guarantee gives investors a sense of security and makes structured deposits an attractive option for those looking for a low-risk investment with the potential for higher returns.

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  • 29. 

    49. An investor placed S$20,000 in a single-premium structured Investment-linked Life Insurance policy with a sum assured of S$25,000. If an early redemption events is triggered by the insurer, the investor will MOST likely receive the:

    • Total sum assured with the accrued payouts

    • Total sum assured plus the initial capital amount

    • Initial capital amount with the accrued payouts

    • Accrued payouts but the initial capital amount is kept by the insurer

    Correct Answer
    A. Initial capital amount with the accrued payouts
    Explanation
    If an early redemption event is triggered by the insurer, the investor will receive the initial capital amount with the accrued payouts. This means that the investor will get back the S$20,000 they initially invested, along with any additional returns or payouts that have accumulated over the course of the policy. The sum assured of S$25,000 is not relevant in this scenario, as it only applies if the investor holds the policy until maturity.

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  • 30. 

    22. Portfolio bonds are:

    • Less complex and risky as compared to Investment-linked Life Insurance policies

    • Lifestyles policies

    • Conventional bonds

    • Portfolios of investments with no insurance element

    Correct Answer
    A. Lifestyles policies
  • 31. 

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

    • Derivatives come in many different varieties

    • Holders of derivative contracts own the underlying assets

    • Derivative contracts are an integral part of structured products

    • The underlying assets of derivative contracts can be non-financial

    Correct Answer
    A. Holders of derivative contracts own the underlying assets
    Explanation
    This statement is false because holders of derivative contracts do not own the underlying assets. Instead, they have a contractual agreement that gives them the right to buy or sell the underlying assets at a specified price and time in the future.

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  • 32. 

    42. Your client has asked you to distinguish between a futures contract and a forward contract. Which one of the following comparison is CORRECT?

    • Futures are a type of derivative contract whereas forwards are not a type of derivative contract

    • Futures are not subject to margin requirement whereas forwards are subject to margin requirement

    • Settlement of futures occurs at the end of the contract whereas forwards are marked¬to-market on a daily basis

    • Futures are standardized contracts traded on the exchanges whereas forwards are customized private contracts trade over-the-counter between two parties

    Correct Answer
    A. Futures are standardized contracts traded on the exchanges whereas forwards are customized private contracts trade over-the-counter between two parties
    Explanation
    Futures contracts are standardized contracts that are traded on exchanges, such as the Chicago Mercantile Exchange. They have specific contract sizes, expiration dates, and delivery terms. On the other hand, forward contracts are customized private contracts that are traded over-the-counter between two parties. They can be tailored to the specific needs of the parties involved, including the contract size, expiration date, and delivery terms. This key difference in the trading location and customization distinguishes futures contracts from forward contracts.

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  • 33. 

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

    • Total loss of principal amount of the investment

    • Early redemption of the investment

    • Lesser redemption amount for the investment

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    The counterparty to a derivative contract defaulting can lead to all of the mentioned outcomes. If the counterparty defaults, it can result in a total loss of the principal amount of the investment. Additionally, it may also trigger an early redemption of the investment, meaning that the investment is terminated before its maturity date. Lastly, if the counterparty defaults, the redemption amount for the investment may be lesser than expected. Therefore, all of the mentioned outcomes can occur if the counterparty to the derivative contract defaults.

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  • 34. 

    16. Performance participation structured products:

    • Are secured debt instruments

    • Carry lower degrees of investment risk

    • Share in the profits of the participating funds

    • Typically offer unlimited upside potential with no downside protection

    Correct Answer
    A. Typically offer unlimited upside potential with no downside protection
    Explanation
    Performance participation structured products typically offer unlimited upside potential with no downside protection. This means that investors have the opportunity to earn high returns if the underlying assets perform well, but they also face the risk of losing their initial investment if the assets perform poorly. These products are not secured debt instruments and carry a higher degree of investment risk. Additionally, they allow investors to share in the profits of the participating funds.

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  • 35. 

    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 futures contracts. By combining these different elements, structured products offer investors a unique risk-return profile that may not be available with traditional investment products. This allows investors to tailor their investments to meet specific needs or objectives.

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  • 36. 

    29. Company Delta issues a structured product, which is distributed by Company Elite. Subsequently, Company Delta's credit rating is downgraded. What kind of risk does this present to the investor?

    • Liquidity risk

    • Issuer-specific risk

    • General market risk

    • Counterparty risk

    Correct Answer
    A. Issuer-specific risk
    Explanation
    When Company Delta's credit rating is downgraded, it presents issuer-specific risk to the investor. This means that the investor is exposed to the risk that Company Delta may not be able to fulfill its financial obligations related to the structured product. The downgrade in credit rating indicates a higher likelihood of default or financial instability on the part of Company Delta, which increases the risk for the investor.

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  • 37. 

    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 means that at maturity, the investor will receive the full amount of their initial investment back, which is S$300.

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  • 38. 

    3. Which of the following regulatory instrument(s) must a structured Investment-linked Life Insurance policies comply with?

    • Insurance Act

    • Companies Financial Act

    • Deposit Insurance Scheme

    • All of the above

    Correct Answer
    A. Insurance Act
    Explanation
    A structured Investment-linked Life Insurance policy must comply with the Insurance Act. This act sets out the regulatory requirements and guidelines for insurance policies in order to protect policyholders and ensure fair practices within the insurance industry. The Companies Financial Act and Deposit Insurance Scheme are not specifically related to structured Investment-linked Life Insurance policies and therefore do not need to be complied with.

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  • 39. 

    15. Which of the following option strategies would be MOST appropriate if Sally is bullish about a stock but does not want to own it?

    • Long a stock

    • Long a call

    • Short a stock

    • Short a call

    Correct Answer
    A. Long a call
    Explanation
    If Sally is bullish about a stock but does not want to own it, the most appropriate option strategy would be to "Long a call." This means that Sally would buy a call option, which gives her the right to buy the stock at a specified price (strike price) within a certain time period. By buying a call option, Sally can benefit from the potential increase in the stock's price without actually owning the stock. If the stock price goes up, Sally can exercise the call option and profit from the difference between the strike price and the market price. If the stock price does not increase, Sally can simply let the call option expire and only lose the premium paid for the option.

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  • 40. 

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

    • S$50.000

    • S$50,500

    • S$52,000

    • S$52,500

    Correct Answer
    A. S$50,500
    Explanation
    The investor will receive S$50,500 at the end of the 2 years under the worst possible market performance scenario. This is because the policy guarantees a 1% return on the initial capital amount, which is S$50,000. Therefore, the maturity value will be S$50,000 + 1% of S$50,000, which is S$50,500. There is no bonus payout mentioned in the worst possible market performance scenario, so it is not considered in the calculation.

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  • 41. 

    35. The players in the futures market fall into two categories — hedgers and speculators. Which one of the following statements regarding speculators is WRONG?

    • Buy Low sell high

    • Buy low and keep the investment for long period

    • Sell to profit from falling prices

    • Buy to profit from rising prices

    Correct Answer
    A. Buy low and keep the investment for long period
    Explanation
    The statement "Buy low and keep the investment for a long period" is incorrect because speculators in the futures market typically engage in short-term trading and do not hold their positions for a long time. Speculators aim to profit from short-term price fluctuations rather than long-term investment strategies.

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  • 42. 

    14. An investor placed $100,000 in Australia (AUD) investment when AUD was S$1.40. The AUD has since depreciated against the S$ and is now worth only S$1.20. On the other hand, the AUD investment has appreciated by 10% in AUD terms. What is the investor's nest gain / loss on the investment, as measured in S$?

    • Gain of 10%

    • Gain of 6%

    • Loss of 10%

    • Loss of 6%

    Correct Answer
    A. Loss of 6%
    Explanation
    The investor initially invested $100,000 in Australia (AUD) when the exchange rate was S$1.40. However, the AUD has since depreciated against the S$ and is now worth only S$1.20. This means that the investor's initial investment of $100,000 is now worth $120,000 in AUD terms (10% appreciation). However, when converting it back to S$, the investor will receive only S$144,000 ($120,000 x S$1.20). This is a loss of 6% compared to the initial investment of S$154,000 ($100,000 x S$1.40).

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  • 43. 

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

    • It gives the holder of call option the right to buy the underlying asset

    • It gives the holder of put option the right to buy the underlying asset

    • It gives the holder of call option the obligation to sell the underlying asset

    • It gives the holder of put option the obligation to sell the underlying asset

    Correct Answer
    A. It gives the holder of call option the right to buy the underlying asset
    Explanation
    A call option gives the holder the right, but not the obligation, to buy the underlying asset at a specified price (the strike price) within a certain period of time. This means that the holder has the choice to exercise the option or not, depending on whether it is profitable to do so. Therefore, the statement that a call option gives the holder the right to buy the underlying asset is true.

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  • 44. 

    6. Which one of the following statements relating to structured Investment-linked Life Insurance policies (ILPs) is TRUE?

    • All structured ILPs are homogenous in nature

    • A structured ILP is designed purely as a protection product

    • The buyer of a structured ILP is not exposed to any form of risk

    • The structured ILP's sub-funds are valued less frequently compared to other ILP sub-funds

    Correct Answer
    A. The structured ILP's sub-funds are valued less frequently compared to other ILP sub-funds
    Explanation
    Structured Investment-linked Life Insurance policies (ILPs) are a type of insurance policy that combines life insurance coverage with investment options. The statement that the structured ILP's sub-funds are valued less frequently compared to other ILP sub-funds is true. This means that the investments within the structured ILP are not valued as often as the investments in other ILP sub-funds. This could be due to the unique structure and nature of the investments within the structured ILP, which may require less frequent valuation.

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  • 45. 

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

    • Liquid

    • Risky

    • complex

    • Regulated

    Correct Answer
    A. Liquid
    Explanation
    The correct answer is "liquid" because a Structured Investment-linked Life Insurance policy is designed to provide more flexibility and ease of access to the policyholder's investment funds. This means that the policyholder can easily withdraw or transfer their funds without incurring significant penalties or restrictions. In contrast, a traditional Investment-linked Life Insurance policy may have more limitations and restrictions on the liquidity of the investment funds.

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  • 46. 

    46. On 1 January 2011, David decides to invest S$100,000 in the following structured Investment-linked Life Insurance policy from his life insurer: Capital preservation fund (maturing on 1 January 2021) seeks to provide policy owners with: - Annual payout of 4.5% of the initial NAV as at each policy anniversary; and - 100% capital guarantee on maturity In making this investment, David is assured of:

    • The 4.50% annual payouts, regardless of the performance of the investment in the underlying sub-fund

    • Getting back 100% of his capital on maturity, regardless of the investment performance of the underlying sub-fund

    • Getting a full refund of his premium paid if he changes his mind and cancels the investment within ten days

    • All of the above

    Correct Answer
    A. Getting back 100% of his capital on maturity, regardless of the investment performance of the underlying sub-fund
    Explanation
    The correct answer is getting back 100% of his capital on maturity, regardless of the investment performance of the underlying sub-fund. This means that regardless of how well or poorly the investment performs, David will receive his initial investment amount back in full when the policy matures on 1 January 2021.

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  • 47. 

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

    • Warrants have no value after expiry date

    • Holder of put warrants have the obligation to sell the underlying assets

    • Exchange-traded warrants are settled in cash

    • Call warrants have intrinsic value when the strike price is less than market price

    Correct Answer
    A. Holder of put warrants have the obligation to sell the underlying assets
    Explanation
    Put warrants give the holder the right, but not the obligation, to sell the underlying assets at a specified price within a certain time period. Therefore, the statement that the holder of put warrants has the obligation to sell the underlying assets is incorrect.

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  • 48. 

    1. A structured Investment-linked Life Insurance policy has the following features: Issuer = Company A Credit Rating of issuer = AA+ Tenure = 2 years Structure of the product Annual payout plan Maturity value = 100% of the initial amount of single premium Payout = 1% of the initial amount of single premium per annum Early redemption clause = Yes, if the underlying outperforms the benchmark by 20% at the end of any trading day. Which one of the following risk will be of LEAST concern to an investor based on the above- mentioned information?

    • Credit risk

    • Market risk

    • Liquidity risk

    • Leverage risk

    Correct Answer
    A. Leverage risk
    Explanation
    Based on the information provided, the investor does not face any leverage risk. Leverage risk refers to the potential for losses due to borrowing or using leverage to invest. However, in this case, there is no mention of borrowing or leverage being used in the investment-linked life insurance policy. Therefore, leverage risk would be of least concern to the investor.

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  • 49. 

    2. Which one of the following about participation products is True?

    • Participation products participate in the price performance of the underlying assets and offer full upside potential with full downside protection.

    • Participation products are legally secured debentures.

    • They are commonly marketed under the name of 'certificates' or 'notes'.

    • Derivatives contracts and bonds are used for both the principal and return

    Correct Answer
    A. They are commonly marketed under the name of 'certificates' or 'notes'.
    Explanation
    Participation products are commonly marketed under the name of 'certificates' or 'notes'. This means that when these products are sold to investors, they are often referred to as certificates or notes. This helps investors understand that they are purchasing a financial product that allows them to participate in the price performance of underlying assets.

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Quiz Review Timeline (Updated): Mar 21, 2023 +

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Oct 21, 2014
    Quiz Created by
    Jen1980

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