Life Insurance Policy Mock Exam: Quiz!

Structured deposits are financial products that offer a combination of a traditional deposit account and an investment product. They typically provide a fixed return over a specific period of time, with the return linked to the performance of an underlying asset or index. Banks are the most common issuers of structured deposits, as they have the necessary infrastructure and expertise to create and manage these products. Lloyds' syndicates, insurance companies, and stock broking houses may offer other types of investment products, but they are not typically associated with structured deposits.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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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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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

A structured deposit is an investment product that may provide a guarantee to the principal amount. This means that the investor's initial investment is protected and will not be lost. Bonds and structured funds do not necessarily provide a guarantee to the principal amount, so they are not the correct answers. Therefore, the correct answer is structured deposit.