Life Insurance Policy Mock Exam: Quiz!
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- 1.1. 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?
- A.
Credit risk
- B.
Market risk
- C.
Liquidity risk
- D.
Leverage risk
- 2.2. Which one of the following about participation products is True?
- A.
Participation products participate in the price performance of the underlying assets and offer full upside potential with full downside protection.
- B.
Participation products are legally secured debentures.
- C.
They are commonly marketed under the name of 'certificates' or 'notes'.
- D.
Derivatives contracts and bonds are used for both the principal and return
- 3.3. Which of the following regulatory instrument(s) must a structured Investment-linked Life Insurance policies comply with?
- A.
Insurance Act
- B.
Companies Financial Act
- C.
Deposit Insurance Scheme
- D.
All of the above
- 4.4. 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:
- A.
Premium of S$30
- B.
Premium of S$50
- C.
Discount of S$30
- D.
Discount of S$50
- 5.5. The sub-fund's operating expenses to the daily average Net Asset Value is :
- A.
Turnover ratio
- B.
Expense Ratio
- C.
Soft dollar
- D.
Bid / offer spread
- 6.6. Which one of the following statements relating to structured Investment-linked Life Insurance policies (ILPs) is TRUE?
- A.
All structured ILPs are homogenous in nature
- B.
A structured ILP is designed purely as a protection product
- C.
The buyer of a structured ILP is not exposed to any form of risk
- D.
The structured ILP's sub-funds are valued less frequently compared to other ILP sub-funds
- 7.7 Which one of the following statements about portfolio rebalancing is TRUE?
- A.
Portfolio rebalancing is adopted in all portfolio bonds
- B.
Portfolio rebalancing maintains the desired level of risk exposure
- C.
Fund managers use portfolio rebalancing to increase risk exposure
- D.
The return of the portfolio will improve after rebalancing
- 8.8. Structured products are:
- A.
A. Secured debt securities of the issuer
- B.
Created by combining traditional investments with financial derivatives
- C.
C. Entitled to share the issuer's profits
- D.
Equity securities that give higher return as compared to traditional products
- 9.9. Structured Investment-linked Life Insurance policy is less than traditional Investment-linked Life Insurance policy.
- A.
Liquid
- B.
Risky
- C.
complex
- D.
Regulated
- 10.10. Structured deposits are issued by:
- A.
Banks
- B.
Lloyds' syndicates
- C.
Insurance companies
- D.
Stock broking houses
- 11.11. 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.
- A.
S$50.000
- B.
S$50,500
- C.
S$52,000
- D.
S$52,500
- 12.12. 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:
- A.
Selling Naked Puts
- B.
Short Call
- C.
Bear Straddle
- D.
Bull Straddle
- 13.13. The counterparty to the derivative contract default, it may cause:
- A.
Total loss of principal amount of the investment
- B.
Early redemption of the investment
- C.
Lesser redemption amount for the investment
- D.
All of the above
- 14.14. 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$1.20. On the other hand, the AUD investment has appreciated by 10% in AUD terms. What is the investor's nest gain / loss on the investment, as measured in S$?
- A.
Gain of 10%
- B.
Gain of 6%
- C.
Loss of 10%
- D.
Loss of 6%
- 15.15. Which of the following option strategies would be MOST appropriate if Sally is bullish about a stock but does not want to own it?
- A.
Long a stock
- B.
Long a call
- C.
Short a stock
- D.
Short a call
- 16.16. Performance participation structured products:
- A.
Are secured debt instruments
- B.
Carry lower degrees of investment risk
- C.
Share in the profits of the participating funds
- D.
Typically offer unlimited upside potential with no downside protection
- 17.17. Derivatives are financial instruments that are generally used for:
- A.
Manage risks
- B.
Betting of the price movement of the underlying assets.
- C.
Hedging against unwanted price movements
- D.
Serve all the above functions
- 18.18. John decides to invest S$100,000 in the following investment: Prosperity Fund issued by Smarty Bank and distributed by Brilliant Bank. This fund seeks yearly investment returns, (before fees and expenses) that correspond to 150% of the returns of the yearly performance of the Japan Index fund. What is / are the risk(s) that the above investor is subject to?
- A.
Market risk
- B.
Liquidity risk
- C.
Credit risk of Smarty Bank
- D.
All of the above
- 19.19. Jane, a Singaporean, invests in an exchange-traded portfolio fund issued by AAA+ rating bank, denominated in US$. Which ONE of the following risks should Jane be most concerned?
- A.
Issuer risk
- B.
Counterparty risk
- C.
Liquidity risk
- D.
Foreign exchange risk
- 20.20. Which ONE of the following methods may be used to mitigate counterparty default risk?
- A.
Investing only in listed companies
- B.
Using non-publicly traded securities
- C.
Asking for collateral from the counterparty
- D.
Dealing in the same foreign currency
- 21.21. Which of the following statements regarding derivatives is FALSE?
- A.
Derivatives come in many different varieties
- B.
Holders of derivative contracts own the underlying assets
- C.
Derivative contracts are an integral part of structured products
- D.
The underlying assets of derivative contracts can be non-financial
- 22.22. Portfolio bonds are:
- A.
Less complex and risky as compared to Investment-linked Life Insurance policies
- B.
Lifestyles policies
- C.
Conventional bonds
- D.
Portfolios of investments with no insurance element
- 23.23. Those investments that carry a low probability of loss of principal while offering a high probability of potential returns can be said to be:
- A.
Rare gems
- B.
Bold investments
- C.
Safe Instruments
- D.
Unworthy investments
- 24.24. What is a portfolio of investments with an insurance element called?
- A.
Option
- B.
Hedge fund
- C.
Portfolio bond
- D.
Structured deposit
- 25.25. Investors may wish to invest in structured products as they:
- A.
Are highly liquid assets
- B.
Carry low investment risk
- C.
Are simple products to understand
- D.
Provide access to investment markets that are otherwise closed to them
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