Structured Products Quiz Questions

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  • 1/50 Questions

    1 Which of the following is a similarity between structured product, bond & option?

    • The principal is guaranteed.
    • Provide stability in returns.
    • They have fixed maturity dates.
    • They have upside participation.
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About This Quiz

This quiz assesses knowledge on structured products, exploring similarities with bonds and options, fund structures, primary risks, and specific financial instruments. It is designed for learners to understand market risks, investment schemes, and risk mitigation strategies in finance.

Structured Products Quiz Questions - Quiz

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  • 2. 

    2. Which of the following most describe a structured fund?

    • It is only distributed by the bank channel.

    • The main disclosure document is the factsheet.

    • It has low administration cost.

    • It has a trust structure.

    Correct Answer
    A. It has a trust structure.
    Explanation
    A structured fund is described as having a trust structure. This means that the fund is set up as a trust, with a trustee holding and managing the assets on behalf of the investors. This structure provides legal protection for the assets and allows for efficient management and distribution of the fund's investments. The other options mentioned in the question, such as being distributed by the bank channel, having a factsheet as the main disclosure document, and having low administration costs, may or may not be true for a structured fund, but they do not specifically describe the fund's structure.

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  • 3. 

    3. Which of the following is the PRIMARY RISK relating to the return component of a structured product?

    • Market Risk

    • Interest Rate Risk

    • Counterparty Risk

    • Liquidity Risk

    Correct Answer
    A. Market Risk
    Explanation
    The primary risk relating to the return component of a structured product is market risk. Market risk refers to the potential for the value of the underlying assets or the overall market to fluctuate, which can result in a loss of value for the structured product. This risk is inherent in any investment and is influenced by factors such as economic conditions, market trends, and geopolitical events. It is important for investors to assess and manage market risk when considering structured products.

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  • 4. 

    4. Which of the following best describe Bonus Certificate and Airbag Certificate?

    • Bonus certificate may be knocked-out only at maturity.

    • Bonus certificate's investor bears full downside of the underlying asset.

    • Airbag certificate has limited upside potential.

    • Airbag certificate was created to reduce the impact of price decline.

    • Both A and D

    Correct Answer
    A. Both A and D
    Explanation
    A Bonus Certificate provides a conditional return based on the performance of the underlying asset, with a potential "bonus" if certain conditions are met at maturity. However, it may include a knockout feature that comes into play at maturity.
    An Airbag Certificate is designed to offer protection against price declines of the underlying asset, thus reducing the risk for the investor. It often has limited upside potential due to the built-in protective features.

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  • 5. 

    5. Which of the following applies to a structured ILP fund?

    • Banking Act

    • Company Act

    • Deposit Insurance Act

    • Code on Collective Investment Scheme

    Correct Answer
    A. Code on Collective Investment Scheme
    Explanation
    A structured ILP fund is governed by the Code on Collective Investment Scheme. This code provides regulations and guidelines for the operation and management of collective investment schemes, including ILP funds. It ensures that these funds are structured and managed in a way that protects the interests of investors and promotes transparency and accountability. The Banking Act, Company Act, and Deposit Insurance Act do not specifically apply to structured ILP funds.

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  • 6. 

    6. Which of the following cannot be use to mitigate liquid risk of a portfolio bond?

    • Invest in publicly traded products.

    • Invest in shares with high trading volume.

    • Ask counterparty for margin.

    • Invest in shares that are high in demand.

    Correct Answer
    A. Ask counterparty for margin.
    Explanation
    Asking the counterparty for margin is not a method to mitigate liquid risk of a portfolio bond. Margin refers to the collateral that an investor must deposit with a counterparty when engaging in certain financial transactions. While margin can help mitigate credit risk, it does not directly address the issue of liquid risk. Liquid risk refers to the possibility that an asset cannot be easily sold or converted into cash without a significant loss in value. Investing in publicly traded products, shares with high trading volume, and shares that are high in demand are all strategies that can help mitigate liquid risk by ensuring that the assets can be easily bought or sold in the market.

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  • 7. 

    7. When institution has insufficient cash to meet it cash flow obligations, the institution has problem with its

    • Liquidity

    • Credit worthiness

    • Interest rate

    • Structure

    Correct Answer
    A. Liquidity
    Explanation
    When an institution does not have enough cash to meet its cash flow obligations, it is experiencing a liquidity problem. Liquidity refers to the ability of an institution to quickly convert its assets into cash in order to meet its short-term financial obligations. In this scenario, the institution may struggle to pay its bills, loans, or other financial commitments due to a lack of available cash. This can lead to financial difficulties and potentially impact the institution's operations and overall financial health.

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  • 8. 

    8. Which of the following cannot be use to mitigate counterparty risk of a portfolio bond?

    • Invest in publicly traded derivative products.

    • Go into private negotiation with counterparty for collaterals

    • Invest via the subsidiaries of the counterparty

    • All of the above.

    Correct Answer
    A. Invest via the subsidiaries of the counterparty
    Explanation
    Investing via the subsidiaries of the counterparty cannot be used to mitigate counterparty risk of a portfolio bond because the risk still remains with the parent company. The subsidiaries are essentially extensions of the parent company and any financial troubles or default by the parent company can still impact the subsidiaries. Therefore, this option does not provide a sufficient means of mitigating counterparty risk.

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  • 9. 

    9. The additional amount required to restore the account is called...

    • Initial Margin

    • Margin Call

    • Variation Margin

    • Maintenance Margin

    Correct Answer
    A. Variation Margin
    Explanation
    The additional amount required to restore the account is called the variation margin. This is the amount that must be deposited by the account holder to meet the minimum margin requirements set by the exchange or broker. It is necessary to cover any losses incurred in the account and ensure that the account remains in good standing.

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  • 10. 

    10. There are 2 main types of market participants in the future market — hedgers and speculators. For the hedgers, their objective is...

    • To profit from the rising prices.

    • To profit from the falling prices.

    • Achieve protection against unfavourable price changes.

    • All of the above.

    Correct Answer
    A. Achieve protection against unfavourable price changes.
    Explanation
    Hedgers participate in the future market to achieve protection against unfavourable price changes. They use futures contracts to hedge their positions in the underlying asset. By taking opposite positions in the futures market, they can offset potential losses in the cash market. This allows them to protect themselves from adverse price movements and manage their risk effectively.

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  • 11. 

    11. Which of the following describe a non-standardised contract?

    • Forward contract traded over the counter

    • Commodity future contracts

    • Financial future contracts

    • All of the above.

    Correct Answer
    A. Forward contract traded over the counter
    Explanation
    A non-standardized contract refers to a contract that is tailored to the specific needs and requirements of the parties involved, rather than following a standardized format or terms. In this case, a forward contract traded over the counter would be considered non-standardized as it is negotiated directly between the buyer and seller, allowing them to customize the terms to suit their individual circumstances. On the other hand, commodity future contracts and financial future contracts are standardized contracts that follow predetermined terms and conditions set by the exchange.

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  • 12. 

    12. The strike price of the put option is $10. The market price is $15. The intrinsic value of the put option is...

    • In-the-money

    • At-the-money

    • Out-of-the-money

    • Under-the-money

    Correct Answer
    A. Out-of-the-money
    Explanation
    The strike price of the put option is higher than the market price, indicating that the option is out-of-the-money. In this case, exercising the put option would result in a loss as the market price is higher than the strike price.

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  • 13. 

    13. John long a put option, he is..

    • Bullish about the market.

    • bearish about the market.

    • neutral about the market.

    • intending to hold the stock.

    Correct Answer
    A. bearish about the market.
    Explanation
    John is bearish about the market because he has taken a put option. A put option gives the holder the right to sell a specific asset at a predetermined price within a certain timeframe. This indicates that John believes the market price of the asset will decrease in the future, as he wants the ability to sell it at a higher price than the market value. This aligns with a bearish outlook, where an individual expects the market to decline.

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  • 14. 

    14. The following statements are true for call option:

    • The seller of call option pays the premium.

    • The holder of call option has the right to buy.

    • The buyer of the call option has unlimited downside.

    • The seller decides on the exercise price.

    Correct Answer
    A. The holder of call option has the right to buy.
    Explanation
    The holder of a call option has the right, but not the obligation, to buy the underlying asset at a specified price (exercise price) within a specified period of time. This means that the holder has the choice to exercise the option and buy the asset if it is profitable to do so. The other statements are not true for call options. The seller of the call option receives the premium, not pays it. The buyer of the call option has limited downside, as they can only lose the premium paid for the option. The exercise price is predetermined and decided by the option contract, not by the seller.

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  • 15. 

    • 15. A swap will not result in the change in

    • Cash flow

    • Ownership

    • Level of risk

    • Credit risk

    Correct Answer
    A. Ownership
    Explanation
    A swap is a financial derivative contract in which two parties agree to exchange cash flows or ownership of certain assets. In the context of the given question, it is stated that a swap will not result in a change in ownership. This means that even though there may be a transfer of cash flows or other financial obligations, the ownership of the underlying assets or entities involved in the swap remains the same.

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  • 16. 

    16. A 5-year structured ILP has the following features: 1. Death Benefit = 102% of initial investment 2. Maturity Benefit = 100% of initial investment 3. Maturity Payout = 20% if the 3 of the stock as listed went up by 10% from the initial stock price The product is likely to comprise of:

    • Bond + Insurance

    • Fixed deposit + Insurance

    • Bond + Derivative + Insurance

    • Equity + Bond + Insurance

    Correct Answer
    A. Bond + Derivative + Insurance
    Explanation
    The product is likely to comprise of Bond + Derivative + Insurance because it offers a death benefit and a maturity benefit, which are typical features of an insurance product. Additionally, the maturity payout is dependent on the performance of the stock market, indicating the presence of derivatives. The inclusion of bonds suggests a conservative investment approach, which is common in insurance products.

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  • 17. 

    17. Which of the following best described price which units of portfolio bond are subscribed?

    • Forward pricing

    • Offer price

    • Bid price

    • Historic pricing

    Correct Answer
    A. Offer price
    Explanation
    The offer price is the best description for the price at which units of a portfolio bond are subscribed. This is the price at which investors can buy units of the bond from the fund manager. It is also known as the "ask" price and is typically higher than the bid price, which is the price at which the fund manager is willing to buy back units from investors. Forward pricing refers to the pricing of units based on the next available net asset value, while historic pricing refers to pricing based on past net asset values.

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  • 18. 

    18. John invest in a US$ structured product issue by Bank A with a credit rating of AA. The fund size is US$8mil. John is concern about getting his money when he needs, he is most concern about which of the risk?

    • Foreign exchange risk

    • Interest rate risk

    • Liquidity risk

    • Credit risk

    Correct Answer
    A. Liquidity risk
    Explanation
    John's main concern is about getting his money when he needs it. This indicates that he is most concerned about liquidity risk. Liquidity risk refers to the risk of not being able to easily convert an investment into cash without incurring a significant loss. In this case, if John needs to access his investment in the structured product, he wants to ensure that he can do so without facing any difficulties or loss of value.

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  • 19. 

    19. Which of the following applies to portfolio rebalancing?

    • It can only be performed by fund managers.

    • It can be done in portfolio bond.

    • It can only be done on a quarterly basis.

    • The desired level of performance is not adversely affected

    Correct Answer
    A. It can be done in portfolio bond.
    Explanation
    Portfolio rebalancing refers to the process of adjusting the allocation of assets in a portfolio to maintain the desired level of risk and return. It can be done by fund managers as well as individual investors. This process can be carried out in various investment vehicles, including portfolio bonds. By rebalancing the portfolio, investors can ensure that their desired level of performance is not adversely affected by market fluctuations. Therefore, the given answer, "It can be done in portfolio bond," accurately describes one of the characteristics of portfolio rebalancing.

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  • 20. 

    20. Which of the following has the least impact on the price of the derivatives?

    • The current spot price of the underlying asset.

    • The number of investor for the underlying asset.

    • The market demand for the underlying asset.

    • The volatility of the underlying asset.

    Correct Answer
    A. The number of investor for the underlying asset.
    Explanation
    The number of investors for the underlying asset has the least impact on the price of derivatives. The price of derivatives is primarily influenced by factors such as the current spot price of the underlying asset, the market demand for the underlying asset, and the volatility of the underlying asset. The number of investors may have some impact on the overall demand for the derivatives, but it is not as significant as the other factors mentioned.

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  • 21. 

    21. The coefficient of correlation of 2 securities that are not correlated is

    • . +0.5

    • 0

    • -0.5

    • 1

    Correct Answer
    A. 0
    Explanation
    The coefficient of correlation measures the strength and direction of the relationship between two variables. A coefficient of 0 indicates no correlation between the two securities, meaning that there is no linear relationship between their returns. In other words, the returns of one security do not depend on or predict the returns of the other security.

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  • 22. 

    22. Hoi Seng is thinking about investing in stocks but he is not expecting the market to move much in either direction. What strategy should he adopt?

    • Bull straddle

    • Bear straddle

    • Long put

    • Long call

    Correct Answer
    A. Bear straddle
    Explanation
    Hoi Seng should adopt the bear straddle strategy. A straddle involves buying both a call option and a put option with the same strike price and expiration date. In this case, since Hoi Seng is not expecting the market to move much in either direction, a bear straddle would be more suitable. A bear straddle involves buying a put option and selling a call option, allowing the investor to profit if the stock price decreases or remains stagnant.

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  • 23. 

    23. Which of these least describe an issuer-specific risk?

    • Internal operation of Company A

    • Regulatory impact on the industry which Company B is in

    • Down grade in credit rating of Company C

    • Exchange rate of the securities in which Company D is traded in

    Correct Answer
    A. Exchange rate of the securities in which Company D is traded in
    Explanation
    Issuer-specific risk refers to risks that are specific to a particular company and not related to external factors. In this case, the other options all describe risks that are specific to a particular issuer. The internal operations of Company A, the regulatory impact on the industry of Company B, and the downgrade in credit rating of Company C are all factors that directly affect the respective companies. However, the exchange rate of securities in which Company D is traded is not directly related to the operations or characteristics of the company itself, making it the least descriptive of an issuer-specific risk.

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  • 24. 

    24. Which will track the opposite direction of an index?

    • Bonds

    • Derivatives

    • Fixed Income instruments

    • D Warrants

    Correct Answer
    A. Derivatives
    Explanation
    Derivatives are financial instruments whose value is derived from an underlying asset, such as an index. When the index moves in one direction, derivatives can be used to track and profit from the opposite direction. This is because derivatives allow investors to take positions that are inversely related to the underlying asset. Therefore, if an index is moving in a certain direction, derivatives can be used to track and profit from the opposite direction, making them the correct answer in this case.

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  • 25. 

    25. Which is true about Structure ILP's death benefit?

    • Death benefit is the same amount as the single premium invested

    • Death benefit is more than the single premium invested

    • Death benefit is lower than the single premium invested

    • Death benefit is capped at 110% of the single premium invested

    Correct Answer
    A. Death benefit is more than the single premium invested
    Explanation
    The correct answer is that the death benefit is more than the single premium invested. This means that if an individual invests a certain amount as a single premium in a Structure ILP, the death benefit that will be paid out in the event of their death will be greater than the amount they initially invested.

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  • 26. 

    26. Which is not true about options?

    • Gives the right not to exercise

    • Call option is the right to buy

    • Put option is the right to sell

    • Maximum potential loss is the cost of premium

    Correct Answer
    A. Call option is the right to buy
    Explanation
    A call option is the right to buy a specified quantity of an underlying asset at a predetermined price within a specific time period. This statement is true, as a call option gives the holder the right, but not the obligation, to buy the underlying asset.

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  • 27. 

    27. Which feature makes Portfolio Bond different from Unit Trust?

    • Fees

    • Charges

    • Dealing Account

    • Drip-feeding

    Correct Answer
    A. Dealing Account
    Explanation
    Portfolio Bond is different from Unit Trust because it offers a Dealing Account feature. This means that investors can actively buy and sell individual investments within the portfolio, providing more flexibility and control over their investments. Unit Trusts, on the other hand, do not typically offer this feature and instead pool investors' funds to invest in a diversified portfolio managed by a professional fund manager.

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  • 28. 

    28. What information is found in the "Statement to Policy Owners"?

    • Net cash surrender value at the end of the previous statement period

    • Number and value of units held at the end of the previous statement period

    • Projection on policy values under reasonable investment expectation

    • Current death benefit at the start of current statement period

    Correct Answer
    A. Number and value of units held at the end of the previous statement period
    Explanation
    The "Statement to Policy Owners" provides information about the number and value of units held at the end of the previous statement period. This information is important for policy owners to track the performance and value of their policy. It allows them to understand how their investments are performing and make informed decisions about their policy.

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  • 29. 

    29. Which investment product offers some degree of capital guarantee?

    • Portfolio Bonds

    • Structured Deposits

    • Structured Notes

    • T raditional fixed income instruments

    Correct Answer
    A. Structured Deposits
    Explanation
    Structured Deposits offer some degree of capital guarantee, meaning that the investor is guaranteed to receive at least the initial amount invested at maturity. This makes them a relatively low-risk investment option compared to other products such as Portfolio Bonds, Structured Notes, and Traditional fixed income instruments, which may not offer the same level of capital protection.

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  • 30. 

    30. Which is least descriptive of callable structured products?

    • Exposes investors to interest rate and reinvestment risks

    • Cheaper than straight, non-callable securities and pay higher coupons

    • The price of callable bond is more than the price of a call option

    • D Issuer callable feature may be redeemed before it's maturity date, at the issuer's discretion

    Correct Answer
    A. The price of callable bond is more than the price of a call option
    Explanation
    Callable structured products are financial instruments that give the issuer the right to redeem the product before its maturity date. This feature exposes investors to interest rate and reinvestment risks, as the issuer may choose to redeem the product at a time when interest rates are lower, resulting in lower reinvestment rates for the investor. Callable structured products are usually cheaper than straight, non-callable securities and pay higher coupons to compensate investors for the added risk. However, the statement that the price of a callable bond is more than the price of a call option is incorrect. Callable bonds are typically priced lower than non-callable bonds due to the added risk of early redemption.

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  • 31. 

    31. Which of the following statement is TRUE about warrant?

    • Warrant can only be traded over the counter

    • The holder of warrant may choose whether or not to exercise their contractual rights

    • The holder of warrant must fulfill the contractual rights

    • Warrants have value after the expiry date

    Correct Answer
    A. The holder of warrant may choose whether or not to exercise their contractual rights
    Explanation
    A warrant is a financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price within a specific time period. This means that the holder of a warrant has the choice to exercise their contractual rights or not. They are not obligated to fulfill the rights granted by the warrant. Therefore, the statement "The holder of warrant may choose whether or not to exercise their contractual rights" is true.

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  • 32. 

    32. James is expecting big volatility of gold but was not sure in which direction. What strategy can he adopt?

    • Bull straddle

    • Bear straddle

    • Long put

    • Long call

    Correct Answer
    A. Bull straddle
    Explanation
    James can adopt the Bull straddle strategy because it allows him to profit from a large movement in the price of gold, regardless of whether it goes up or down. This strategy involves buying both a call option and a put option with the same strike price and expiration date. If the price of gold increases significantly, James can exercise the call option and profit from the price increase. If the price of gold decreases significantly, James can exercise the put option and profit from the price decrease.

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  • 33. 

    33. Market maker's role is to:

    • Ensure there is a seller and a buyer

    • Ensure that the security increase in price

    • Ensure that the fund managers earn a commission

    • N Speculate on the price movements of an underlying security

    Correct Answer
    A. Ensure there is a seller and a buyer
    Explanation
    The role of a market maker is to ensure there is a seller and a buyer in the market. They facilitate the trading of securities by being willing to buy or sell at any given time. This helps to maintain liquidity in the market and ensures that there is always someone available to trade with. Market makers help to create a fair and efficient market by providing liquidity and narrowing the bid-ask spread.

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  • 34. 

    34. Issuer: Company Y Credit rating : C Tenure: 2 years Maturity value: 100% capital Payout 7% annual payout Which of the following risk will be MOST concern to an investor based on the above mentioned information?

    • Leverage risk

    • Market risk

    • Liquidity risk

    • Credit risk

    Correct Answer
    A. Credit risk
    Explanation
    Based on the given information, the most concerning risk for an investor would be credit risk. This is because the credit rating of Company Y is C, indicating a higher level of risk associated with the issuer's ability to repay the investment. The investor may be concerned about the possibility of default or the issuer's financial stability, which could result in a loss of capital.

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  • 35. 

    35. Which of the following statement about participation products is TRUE?

    • Participating products are unsecured debentures

    • Participating products has unlimited downside protection

    • Participating products has lower risk compared to other structured products

    • Participating products are capital guaranteed

    Correct Answer
    A. Participating products are unsecured debentures
    Explanation
    Participating products are unsecured debentures, meaning that they do not have any collateral or security backing them. This implies that if the issuer of the participating product defaults, the investor may not be able to recover their investment.

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  • 36. 

    36. Jasmine invested $20,000 in a structure ILP with sum assured of $25,000. In event of early redemption, what will she NOT receive?

    • Capital invested

    • Sum assured

    • Accrued interest

    • All the above

    Correct Answer
    A. Sum assured
    Explanation
    Jasmine will not receive the sum assured in the event of early redemption. The sum assured is the guaranteed amount that the investor will receive at the end of the investment period or in the event of early redemption. Since Jasmine is redeeming early, she will not receive the sum assured of $25,000.

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  • 37. 

    37. Which of the following is the MOST risky investment?

    • Synthetic bond + Insurance

    • Synthetic bond + Derivative

    • Conventional bond + Insurance

    • Conventional bond + Derivative

    Correct Answer
    A. Synthetic bond + Derivative
    Explanation
    The combination of a synthetic bond and a derivative is the most risky investment because both synthetic bonds and derivatives are complex financial instruments that involve a higher level of risk compared to conventional bonds and insurance. Synthetic bonds are created by combining different financial instruments, such as options or swaps, to mimic the characteristics of a bond. Derivatives, on the other hand, derive their value from an underlying asset and can be highly leveraged and speculative. Therefore, the combination of these two instruments increases the overall risk of the investment.

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  • 38. 

    38. Which of the following about reverse convertible bonds is TRUE?

    • Reverse convertible bond is a structured product

    • Reverse convertible bond protects capital

    • Reverse convertible has protection on downside as value of the stock falls

    • Reverse convertible bond and conventional bond can be used interchangeably

    Correct Answer
    A. Reverse convertible bond is a structured product
    Explanation
    A reverse convertible bond is a type of structured product, meaning it is a complex financial instrument that is designed to meet specific investment objectives. Unlike conventional bonds, reverse convertible bonds have features that make them unique and different from traditional fixed income securities. These features may include embedded options, such as the ability to convert the bond into a predetermined number of shares of the underlying stock. Therefore, the statement that reverse convertible bonds are structured products is true.

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  • 39. 

    • 39. Which of the following scenario is FALSE?

    • Interest rate increase, cost of borrowing increase, company share's price goes down

    • Interest rate goes down, cost of borrowing goes down, price of corporate bond increase

    • SGD appreciates against USD, the supplier of a US toy maker makes more profit because SGD is now worth more

    • Thai Baht appreciates against SGD, a Thai restaurant owner earns less and it cost more now to buy raw materials from Thailand

    Correct Answer
    A. Thai Baht appreciates against SGD, a Thai restaurant owner earns less and it cost more now to buy raw materials from Thailand
    Explanation
    If the Thai Baht appreciates against the SGD, it means that the Baht is stronger compared to the SGD. For a Thai restaurant in Singapore, this means it would cost more SGD to buy the same amount of raw materials from Thailand. However, earning less does not directly follow from the currency appreciation; it might increase costs but does not inherently reduce earnings. This part of the scenario is not necessarily true.

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  • 40. 

    40. Which of the following statement is FALSE?

    • Portfolio bond has an insurance element

    • Portfolio bond has a wide range of investment choice

    • Portfolio bond are popular in countries where insurance enjoy tax benefits

    • Investor of portfolio bond can choose to invest in funds outside the insurer's platform

    Correct Answer
    A. Investor of portfolio bond can choose to invest in funds outside the insurer's platform
    Explanation
    The statement "Investor of portfolio bond can choose to invest in funds outside the insurer's platform" is true. Portfolio bonds offer investors the flexibility to choose from a wide range of investment options, including funds outside the insurer's platform. Therefore, this statement is false.

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  • 41. 

    41. Which of the following statement is FALSE?

    • A. Portfolio rebalancing maintains the original risk exposure

    • Portfolio rebalancing is used across all structured ILP

    • Portfolio rebalancing means moving units from a fund that is outperforming into funds that are performing less well

    • Portfolio rebalancing is an automatic rebalancing on a monthly, quarterly, half yearly or annual basis

    Correct Answer
    A. Portfolio rebalancing is used across all structured ILP
    Explanation
    The given statement is false because portfolio rebalancing is not used across all structured ILP (Investment-Linked Policies). Portfolio rebalancing is a strategy used to maintain the original risk exposure by moving funds from outperforming investments to underperforming investments. It is typically done on a regular basis, such as monthly, quarterly, half yearly, or annually, but it is not used in all structured ILP.

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  • 42. 

    42. Which one of the following regarding speculator is TRUE?

    • Buy high sell low

    • Buy low sell high

    • Buy low and keep the investment for a long period

    • Buy and sell to profit from falling and rising prices

    Correct Answer
    A. Buy and sell to profit from falling and rising prices
    Explanation
    A speculator is someone who engages in buying and selling investments with the intention of making a profit from price fluctuations. This means that they may buy when prices are low and sell when prices are high, or they may even sell first and then buy back later at a lower price. In either case, the goal is to profit from both falling and rising prices.

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  • 43. 

    43. Structure deposits are:

    • Capable of generating high returns

    • Considered as investment products

    • Included in the Deposit Insurance Scheme in Singapo

    • Investors are secured creditors of the issuer in the event of liquidation.

    Correct Answer
    A. Considered as investment products
    Explanation
    Structure deposits are considered as investment products because they offer potential high returns to investors. They are structured financial products that are designed to provide a specific return based on the performance of an underlying asset or index. These deposits are typically offered by financial institutions and are often marketed to investors who are seeking higher returns than traditional savings accounts or fixed deposits. However, it is important to note that structure deposits also carry higher risks compared to traditional deposits, as their returns are dependent on the performance of the underlying asset or index.

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  • 44. 

    44. Which of the following Acts provides policy owners to have priority claim on insurance fund assets over general creditors in case of bankruptcy?

    • Company Act

    • Insurance Act

    • Code on CIS

    • All the above

    Correct Answer
    A. Insurance Act
    Explanation
    The Insurance Act provides policy owners with priority claim on insurance fund assets over general creditors in case of bankruptcy. This means that if an insurance company goes bankrupt, policy owners will have a higher priority in receiving their claims compared to other creditors. The Company Act and Code on CIS may have their own regulations and provisions, but they do not specifically address the priority claim of policy owners in the event of bankruptcy.

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  • 45. 

    45. When one is bullish about the market, he can leverage by using which of following strategy?

    • Long stock

    • Short stock

    • Long call

    • Short call

    Correct Answer
    A. Long call
    Explanation
    When someone is bullish about the market, it means they have a positive outlook and believe that the market will go up. In this scenario, they can leverage their position by using a long call strategy. A long call involves buying a call option, which gives the holder the right to buy the underlying asset (in this case, stocks) at a specified price (strike price) within a certain period of time. If the market goes up, the value of the call option increases, allowing the investor to profit from the price difference.

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  • 46. 

    46. Michael has a strong feeling that a particular stock is about to move lower, yet his is fearful of selling a stock short because of the unlimited losses. What strategy can he use?

    • Covered calls

    • Long puts

    • Protective puts D Naked calls

    • Naked calls

    Correct Answer
    A. Long puts
    Explanation
    Michael can use the strategy of long puts to protect himself from the potential unlimited losses of selling a stock short. By purchasing long puts, he has the right to sell the stock at a predetermined price, known as the strike price, within a specified time frame. This allows him to profit from a decrease in the stock's price without the risk of unlimited losses.

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  • 47. 

    47. Structure Investment-linked Life Insurance policies are suitable for buyers who:

    • Do not want any risk exposure at all

    • wish to provide for their dependants

    • are retiring and wish to receive a series of payouts for life

    • are seeking capital appreciation with medium to high risk of losing the principal

    Correct Answer
    A. are seeking capital appreciation with medium to high risk of losing the principal
    Explanation
    Structure Investment-linked Life Insurance policies are suitable for buyers who are seeking capital appreciation with medium to high risk of losing the principal. This type of insurance policy allows individuals to invest their premiums in various investment funds, such as stocks or bonds. The policy value is linked to the performance of these funds, providing the potential for capital appreciation. However, there is also a risk of losing the principal investment if the funds perform poorly. Therefore, this type of policy is suitable for individuals who are willing to take on a higher level of risk in exchange for potential higher returns.

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  • 48. 

    48. 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 issuers

    Correct Answer
    A. the counterparty may fail to meet its contractual obligations to the issuers
    Explanation
    Investors of structured products may face counterparty risks, which means that the counterparty may fail to meet its contractual obligations to the issuers. This implies that the party on the other side of the trade may not fulfill their end of the agreement, such as making payments or delivering the agreed-upon assets. This can result in financial losses for the investors. It is important for investors to assess the counterparty's creditworthiness and financial stability before engaging in structured product investments.

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  • 49. 

    • 49. A structured Investment-linked Life Insurance policy (ILP) has the following features: Issuer = Insurer A Underlying Asset = Basket of 6 stocks Tenure = 3 years Maturity Value = Single Initial Capital + Guaranteed 1% of the initial capital Bonus payout = 3% of the initial capital amount every year if the price of all 6 stocks has increased by 10% on maturity as compared to the price on the start of date of the investment. Assume that an investor invests S$100,000 in structured ILP. Calculate the total amount that the investor will receive at the end of the 3 years under the BEST possible market performance scenario.

    • S$101,000

    • S$104,000

    • S$109,000

    • S$110,000

    Correct Answer
    A. S$110,000
    Explanation
    In the BEST possible market performance scenario, the investor will receive the Single Initial Capital of S$100,000 at maturity. In addition, they will receive a guaranteed 1% of the initial capital, which is S$1,000. Furthermore, they will receive a bonus payout of 3% of the initial capital amount, which is S$3,000, as the price of all 6 stocks has increased by 10% on maturity. Therefore, the total amount that the investor will receive at the end of the 3 years is S$100,000 + S$1,000 + S$3,000 = S$104,000.

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Quiz Review Timeline (Updated): Jun 28, 2024 +

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  • Current Version
  • Jun 28, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Oct 21, 2014
    Quiz Created by
    Jen1980

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