Chapter 1 M9A Introduction To Structured Products

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Structured Product Quizzes & Trivia

Questions and Answers
  • 1. 

    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

    Correct Answer
    C. 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 these products are typically referred to as certificates or notes in the market.

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  • 2. 

    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

    Correct Answer
    B. 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 other complex securities. The purpose of structuring these products is to provide investors with a customized investment that meets their specific needs or objectives. By combining traditional investments with derivatives, structured products can offer unique risk and return profiles that may not be available through traditional investment options. Therefore, the correct answer is that structured products are created by combining traditional investments with financial derivatives.

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  • 3. 

    10. Structured deposits are issued by:

    • A.

      Banks

    • B.

      Lloyds' syndicates

    • C.

      Insurance companies

    • D.

      Stock broking houses

    Correct Answer
    A. Banks
    Explanation
    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 and are issued by banks. Lloyds' syndicates are not known for issuing structured deposits, as they are primarily involved in insurance underwriting. Insurance companies may offer other types of investment products, but structured deposits are not typically one of them. Stock broking houses primarily deal with stocks and other securities, not structured deposits. Therefore, the correct answer is banks.

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  • 4. 

    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

    Correct Answer
    D. 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 bear the risk of losing their entire investment if the assets perform poorly. These products do not provide any form of protection against potential losses, making them a high-risk investment option.

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  • 5. 

    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

    Correct Answer
    A. Rare gems
    Explanation
    The correct answer is "Rare gems" because it implies that these investments are valuable and hard to find, just like rare gems. This suggests that they are unique and have a high potential for returns while also having a low risk of losing the initial investment.

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  • 6. 

    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

    Correct Answer
    D. Provide access to investment markets that are otherwise closed to them
    Explanation
    Investors may wish to invest in structured products because they provide access to investment markets that are otherwise closed to them. This means that structured products offer opportunities to invest in markets or assets that may not be easily accessible through traditional investment vehicles. This can be beneficial for investors looking to diversify their portfolios or take advantage of specific market opportunities.

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  • 7. 

    30. Structured products:

    • A.

      Are equity securities

    • B.

      Are also known as hybrid products

    • C.

      Carry singled-faceted, non-complex investment risks

    • D.

      Typically combine traditional investments with property investments

    Correct Answer
    B. Are also known as hybrid products
    Explanation
    Structured products are financial instruments that are designed to meet specific investment objectives. They are called hybrid products because they combine elements of traditional investments, such as stocks or bonds, with other types of investments, such as derivatives or options. This combination allows investors to customize their exposure to different asset classes and potentially enhance returns or manage risks. Therefore, the statement that structured products are also known as hybrid products is a correct explanation of their nature.

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  • 8. 

    37. Investors may wish to invest in structured products as they:

    • A.

      Have the ability to offer customized exposure

    • B.

      Are useful as a complement to traditional investments

    • C.

      Are accessible to retail investors in the same ways that other investment products are

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Structured products have the ability to offer customized exposure, meaning that investors can tailor their investments to match their specific investment goals and risk tolerance. They are also useful as a complement to traditional investments, as they can provide diversification and potentially enhance returns. Additionally, structured products are accessible to retail investors in the same ways that other investment products are, allowing individual investors to participate in these opportunities. Therefore, all of the given statements are valid reasons why investors may wish to invest in structured products.

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  • 9. 

    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?

    • A.

      S$100

    • B.

      S$200

    • C.

      S$300

    • D.

      S$380

    Correct Answer
    C. 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 is because the structured product manager purchased the bond at S$100 for every S$300 invested in the structured product. Therefore, if the maturity value of the bond is S$300, it would be equal to the amount invested in the structured product, ensuring that the principal is returned to the investor.

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  • 10. 

    45. Structured deposits are:

    • A.

      Capable of generating high returns

    • B.

      Not considered as investment products

    • C.

      Included in the Deposit Insurance Scheme in Singapore

    • D.

      Usually arranged such that the capital is guaranteed by the bank

    Correct Answer
    D. 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 a deposit account and an investment product. These deposits are usually designed in a way that guarantees the return of the initial capital invested by the customer, regardless of the performance of the underlying investment. This ensures that the customer's capital is protected and not at risk. Therefore, the statement "Usually arranged such that the capital is guaranteed by the bank" is the correct answer.

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  • 11. 

    50. Which of the following investment product may provide guaranteed to the principal amount?

    • A.

      Bond

    • B.

      Structured Fund

    • C.

      Structured Deposit

    • D.

      All of the above

    Correct Answer
    C. Structured Deposit
    Explanation
    A structured deposit is an investment product that may provide a guarantee on the principal amount. This means that the investor's initial investment is protected and will be returned to them at maturity, regardless of market conditions. Bonds and structured funds do not necessarily provide a guarantee on the principal amount, so they are not the correct answer.

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  • 12. 

    3. Which RISK relates to the return component of a structured product?

    • A.

      Market Volatility

    • B.

      Interest Rate

    • C.

      Counterparty defaults

    • D.

      Credit Risk of the issuer

    Correct Answer
    A. Market Volatility
    Explanation
    Market volatility relates to the return component of a structured product because it refers to the degree of variation in the price or value of the underlying assets. Higher market volatility can lead to larger price swings, which can impact the return on the structured product. Therefore, market volatility is a key factor to consider when assessing the potential return of a structured product.

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  • 13. 

    11. Performance participation products offer

    • A.

      High returns low risk

    • B.

      full upside potential

    • C.

      downside protection

    • D.

      A fixed income instrument for the principal component

    Correct Answer
    B. full upside potential
    Explanation
    This answer is correct because full upside potential means that there is no limit to the potential returns that can be earned from the performance participation product. This suggests that the product offers high returns without any restrictions or limitations.

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  • 14. 

    14. Structured Fund is :

    • A.

      Issued by a bank

    • B.

      Issued by an insurance company

    • C.

      A collective investment scheme

    • D.

      Principal protected

    Correct Answer
    C. A collective investment scheme
    Explanation
    A structured fund is a type of collective investment scheme where investors pool their money together to invest in various assets. This allows for diversification and professional management of the fund. Structured funds are not issued by a bank or an insurance company, although they may be offered by these institutions. The term "principal protected" refers to a feature of some structured funds where the investor's initial investment is guaranteed, but this is not a defining characteristic of structured funds. Therefore, the correct answer is that a structured fund is a collective investment scheme.

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  • 15. 

    17. Structured Deposits are:

    • A.

      Issued by fund managers

    • B.

      Not investment products

    • C.

      Structured products

    • D.

      Covered by Deposit Insurance Scheme in Singapore

    Correct Answer
    C. Structured products
    Explanation
    Structured deposits are a type of structured product. They are not investment products, but rather a type of investment that combines a deposit with a derivative component. Structured deposits are not covered by the Deposit Insurance Scheme in Singapore, which means that investors may not receive compensation in the event of default.

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  • 16. 

    20. Which of the following is NOT TRUE about Structured Products?

    • A.

      They are unsecured debt securities of the issuer.

    • B.

      They have equity-like structures and participate in the profits of the issuer.

    • C.

      They are hybrid products.

    • D.

      They are more complex products.

    Correct Answer
    B. They have equity-like structures and participate in the profits of the issuer.
    Explanation
    Structured Products are financial instruments that are typically created by combining various financial assets to create a single product. They are known for their complex nature and often have features that make them different from traditional debt or equity securities. While it is true that they are hybrid products and can have both debt and equity-like characteristics, it is not true that they participate in the profits of the issuer. Structured Products are typically designed to provide investors with specific risk and return profiles, and their returns are determined by the performance of the underlying assets rather than the profits of the issuer.

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  • 17. 

    27. The credit risk of the issuer of the structured product forms a

    • A.

      Primary risk to principal

    • B.

      Primary risk to return

    • C.

      Secondary risk to upside potential

    • D.

      Secondary risk to downside protection

    Correct Answer
    A. Primary risk to principal
    Explanation
    The credit risk of the issuer of the structured product refers to the likelihood that the issuer may default on its obligations, resulting in a loss of principal for the investor. This risk is considered primary because it directly impacts the amount of money invested in the product. The other options, such as primary risk to return, secondary risk to upside potential, and secondary risk to downside protection, do not accurately describe the specific risk associated with the creditworthiness of the issuer.

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  • 18. 

    31. Which of the following gives the most capital protection?

    • A.

      Derivatives

    • B.

      Coupon Bearing Bonds

    • C.

      Options

    • D.

      Real Estate Investment Trusts

    Correct Answer
    B. Coupon Bearing Bonds
    Explanation
    Coupon Bearing Bonds give the most capital protection because they provide a fixed interest payment (coupon) to the bondholder at regular intervals until the bond matures. This fixed income stream provides a level of stability and reduces the risk of capital loss. In contrast, derivatives, options, and real estate investment trusts may have higher levels of risk and volatility, making them less secure in terms of capital protection.

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  • 19. 

    36. Which of the following best describe reverse convertible bonds?

    • A.

      Investor has full upside potential

    • B.

      Use a Put option

    • C.

      Tracks the performance of underlying asset

    • D.

      Investor has limited downside protection

    Correct Answer
    B. Use a Put option
    Explanation
    Reverse convertible bonds use a Put option, which allows the investor to sell the bond back to the issuer at a predetermined price. This provides the investor with some downside protection, as they have the option to sell the bond if the value of the underlying asset decreases. However, the investor also has full upside potential, as they can still benefit from any increase in the value of the underlying asset. Additionally, reverse convertible bonds track the performance of the underlying asset, meaning that their value is influenced by the price movement of the asset.

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  • 20. 

    40. Which of the following statements is FALSE? Structured products deliver return to investors only when:

    • A.

      Pricing on the structure is reasonable

    • B.

      Anticipated market view is correct

    • C.

      Able to attract more than expected fund size

    • D.

      Strategy or structure to capture market view is appropriate

    Correct Answer
    C. Able to attract more than expected fund size
    Explanation
    This statement is false because structured products can still deliver returns to investors even if they are not able to attract more than expected fund size. The other statements are true as pricing on the structure being reasonable, having a correct anticipated market view, and having an appropriate strategy or structure to capture market view are all factors that contribute to delivering returns to investors.

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  • 21. 

    41. Which of the following about callable securities are INCORRECT?

    • A.

      Issuer is likely to exercise his right to "call" when the interested rate has declined

    • B.

      They expose investors to high risks and should be avoided at all times

    • C.

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

    • D.

      May be redeemed before maturity

    Correct Answer
    B. They expose investors to high risks and should be avoided at all times
    Explanation
    Callable securities are bonds or other financial instruments that give the issuer the right to redeem or "call" the security before its maturity date. The issuer is likely to exercise this right when interest rates have declined because they can then issue new securities at a lower interest rate. This allows the issuer to save money on interest payments. Callable securities are generally cheaper than straight, non-callable securities and may offer higher coupons to compensate investors for the risk of early redemption. Therefore, the statement that callable securities expose investors to high risks and should be avoided at all times is incorrect.

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  • 22. 

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

    • A.

      The principal is guaranteed.

    • B.

      Provide stability in returns.

    • C.

      They have fixed maturity dates.

    • D.

      They have upside participation.

    Correct Answer
    C. They have fixed maturity dates.
    Explanation
    The correct answer is "They have fixed maturity dates." This is a similarity between structured products, bonds, and options because all three types of investments have a predetermined date at which they will mature or expire. This allows investors to know exactly when they will receive their principal or have the option to exercise their investment.

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  • 23. 

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

    • A.

      It is only distributed by the bank channel.

    • B.

      The main disclosure document is the factsheet.

    • C.

      It has low administration cost.

    • D.

      It has a trust structure.

    Correct Answer
    D. 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 investors and ensures that the fund is managed in their best interests. The other options mentioned, such as being distributed by the bank channel, having a factsheet as the main disclosure document, and having low administration costs, do not specifically define a structured fund.

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  • 24. 

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

    • A.

      Market Risk

    • B.

      Interest Rate Risk

    • C.

      Counterparty Risk

    • D.

      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 structured product to fluctuate due to changes in market conditions, such as the overall performance of the market or the specific asset or index that the structured product is linked to. This risk arises from factors such as economic conditions, geopolitical events, and investor sentiment. Market risk is inherent in all investments and can result in losses if the market moves against the investor's position.

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  • 25. 

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

    • A.

      Bonus certificate may be knocked-out only at maturity.

    • B.

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

    • C.

      Airbag certificate has limited upside potential.

    • D.

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

    Correct Answer
    D. Airbag certificate was created to reduce the impact of price decline.
    Explanation
    The answer states that the Airbag certificate was created to reduce the impact of price decline. This means that the Airbag certificate is designed to protect investors from losses in the event of a decline in the price of the underlying asset. This is in contrast to the Bonus certificate, which does not provide this protection and the investor bears the full downside risk. The answer also mentions that the Airbag certificate has limited upside potential, indicating that while it offers protection against price declines, it may not provide significant gains if the price of the underlying asset increases.

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  • 26. 

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

    • A.

      Banking Act

    • B.

      Company Act

    • C.

      Deposit Insurance Act

    • D.

      Code on Collective Investment Scheme

    Correct Answer
    D. 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 the fund operates in a structured and regulated manner, protecting the interests of investors and maintaining the integrity of the financial system. The Banking Act, Company Act, and Deposit Insurance Act do not specifically apply to structured ILP funds, making the Code on Collective Investment Scheme the correct answer.

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  • 27. 

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

    • A.

      Portfolio Bonds

    • B.

      Structured Deposits

    • C.

      Structured Notes

    • D.

      T raditional fixed income instruments

    Correct Answer
    B. Structured Deposits
    Explanation
    Structured deposits offer some degree of capital guarantee. This means that the investor's initial investment is protected, and they are guaranteed to receive at least the original amount invested. Structured deposits typically combine a fixed income component with a derivative component, allowing investors to earn interest while also potentially benefiting from market movements. This combination of features provides a level of protection for the investor's capital.

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  • 28. 

    30. Which is least descriptive of callable structured products?

    • A.

      Exposes investors to interest rate and reinvestment risks

    • B.

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

    • C.

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

    • D.

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

    Correct Answer
    C. The price of callable bond is more than the price of a call option
    Explanation
    Callable structured products are financial instruments that have a feature allowing the issuer to redeem the product before its maturity date. This feature gives the issuer the advantage of being able to call back the product if it becomes advantageous for them to do so. However, this feature also exposes investors to interest rate and reinvestment risks, as the issuer may choose to redeem the product when interest rates are low or when reinvestment options are not favorable. Callable structured products are generally cheaper than straight, non-callable securities and pay higher coupons to compensate investors for the additional risks. The statement that the price of a callable bond is more than the price of a call option is least descriptive of callable structured products.

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  • 29. 

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

    • A.

      Participating products are unsecured debentures

    • B.

      Participating products has unlimited downside protection

    • C.

      Participating products has lower risk compared to other structured products

    • D.

      Participating products are capital guaranteed

    Correct Answer
    A. Participating products are unsecured debentures
    Explanation
    Participating products are unsecured debentures means that these products do not have any collateral or security backing them. This implies that the investors who purchase these products are not guaranteed any repayment in case of default or bankruptcy of the issuer. Therefore, the statement is true as it correctly describes the nature of participating products.

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  • 30. 

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

    • A.

      Reverse convertible bond is a structured product

    • B.

      Reverse convertible bond protects capital

    • C.

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

    • D.

      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. This means that it is a financial instrument that is created by combining multiple assets or derivatives to create a specific investment strategy. In the case of a reverse convertible bond, it is typically a bond that pays a higher interest rate than a regular bond, but also includes an embedded option that allows the issuer to repay the bond in cash or stock. This structure allows investors to potentially earn a higher return, but also exposes them to additional risks.

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  • 31. 

    43. Structure deposits are:

    • A.

      Capable of generating high returns

    • B.

      Considered as investment products

    • C.

      Included in the Deposit Insurance Scheme in Singapo

    • D.

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

    Correct Answer
    B. Considered as investment products
    Explanation
    Structure deposits are considered as investment products because they offer the potential for high returns. They are not traditional bank deposits, but rather complex financial products that typically combine a deposit with an investment component. Investors who purchase structure deposits are taking on a higher level of risk compared to traditional bank deposits, but they also have the opportunity to earn higher returns. It is important to note that structure deposits are not covered by the Deposit Insurance Scheme in Singapore, and investors are considered secured creditors of the issuer in the event of liquidation.

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  • 32. 

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

    • A.

      Company Act

    • B.

      Insurance Act

    • C.

      Code on CIS

    • D.

      All the above

    Correct Answer
    B. Insurance Act
    Explanation
    The Insurance Act provides policy owners with the right to have priority claim on insurance fund assets over general creditors in the event 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 provisions related to bankruptcy, but the Insurance Act specifically addresses the priority claim of policy owners.

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  • 33. 

    1 When buying reverse convertible bonds, we are actually buying a bond and a

    • A.

      Long call option

    • B.

      Written put option

    • C.

      Sell naked call

    • D.

      Protective puts

    Correct Answer
    B. Written put option
    Explanation
    When buying reverse convertible bonds, we are actually buying a bond and a written put option. A reverse convertible bond is a type of bond that pays a higher interest rate but also carries the risk of the underlying asset falling in value. By buying a written put option, the investor is essentially selling the right to sell the underlying asset at a predetermined price. This can provide some downside protection for the investor, as they will receive the premium from selling the put option.

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  • 34. 

    2. Performance participation structured products

    • A.

      Are unsecured debt instrument

    • B.

      have unlimited downside protection element

    • C.

      Do not track the performance of any underlying assets

    • D.

      Carry low degrees of investment risk compared to yield enhancement products.

    Correct Answer
    A. Are unsecured debt instrument
    Explanation
    Performance participation structured products are unsecured debt instruments. This means that they do not have any collateral backing and are not secured by any specific assets. As a result, if the issuer of the product defaults on its obligations, the investor may not be able to recover their full investment. This lack of security makes these products riskier compared to other types of investments.

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  • 35. 

    12. Which of the following features has the LEAST similarity among the various structured products?

    • A.

      To protect capital

    • B.

      To hedge away risks

    • C.

      To address tax issues

    • D.

      To standardise contract features

    Correct Answer
    D. To standardise contract features
    Explanation
    The other three features mentioned in the options (protecting capital, hedging away risks, addressing tax issues) are all related to managing and mitigating risks in structured products. However, standardizing contract features is not directly related to managing risks but rather focuses on establishing uniformity and consistency in the terms and conditions of structured product contracts.

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  • 36. 

    20. Which of the following is the most common consideration when structured products adopt different structures?

    • A.

      Product complexity

    • B.

      Pricing

    • C.

      Tax treatment

    • D.

      Investment Objectives

    Correct Answer
    C. Tax treatment
    Explanation
    When structured products adopt different structures, the most common consideration is the tax treatment. This means that the way the product is taxed, such as whether it is subject to capital gains tax or income tax, is an important factor in determining the structure of the product. The tax treatment can have a significant impact on the overall return and profitability of the product, so it is crucial for investors and issuers to carefully consider the tax implications when designing structured products.

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  • 37. 

    22. Which of the following does not describe callable bonds?

    • A.

      They are cheaper.

    • B.

      Cannot be invested via portfolio bond.

    • C.

      As interest rate decreases, there will be a higher chance for callable bond to be called.

    • D.

      They offer higher coupons.

    Correct Answer
    C. As interest rate decreases, there will be a higher chance for callable bond to be called.
    Explanation
    Callable bonds are bonds that can be redeemed by the issuer before the maturity date. When interest rates decrease, the issuer of a callable bond may choose to call the bond and issue new bonds at a lower interest rate. Therefore, as interest rates decrease, there is a higher chance for callable bonds to be called. The other options do describe callable bonds - they are cheaper compared to non-callable bonds, cannot be invested via portfolio bond, and often offer higher coupons to compensate investors for the risk of being called.

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  • 38. 

    39. Which of the following has a low probability of losing capital and has corresponding low risk?

    • A.

      Rare gem

    • B.

      Bold investment

    • C.

      Safe investment

    • D.

      Unworthy investment

    Correct Answer
    C. Safe investment
    Explanation
    A safe investment has a low probability of losing capital and low risk. This means that the investment is less likely to result in a loss of money and is considered to be a low-risk option. In contrast, a rare gem, bold investment, and unworthy investment may all carry higher risks and a higher chance of losing capital.

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  • 39. 

    48. 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.

      Track the price performance of the underlying assets

    Correct Answer
    D. Track the price performance of the underlying assets
    Explanation
    Performance participation structured products track the price performance of the underlying assets. This means that these products are designed to mirror the movement of the prices of the assets they are based on. They do not necessarily share in the profits of the participating funds or carry lower degrees of investment risk. They are also not secured debt instruments.

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  • 40. 

    50. Which one of the following statements regarding structured products is TRUE?

    • A.

      Structured products are by nature homogenous

    • B.

      most structured products do not have fixed expiry or maturity date

    • C.

      structured products fall under the category of traditional investments

    • D.

      structured products may use different forms of wrappers as the underlying asset

    Correct Answer
    D. structured products may use different forms of wrappers as the underlying asset
    Explanation
    Structured products can use different forms of wrappers as the underlying asset. This means that structured products can be based on various underlying assets such as stocks, bonds, commodities, or derivatives. The use of different forms of wrappers allows for customization and flexibility in designing structured products to meet specific investment objectives or risk profiles.

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  • 41. 

    C1 / S1 / Pg2) 1. Which of the following investment assets are the usual make-up of structured products?

    • A.

      equities and bonds

    • B.

      Bonds and options

    • C.

      Bonds and notes

    • D.

      derivatives

    Correct Answer
    B. Bonds and options
    Explanation
    Structured products typically consist of a combination of bonds and options. Bonds provide stability and fixed income, while options offer potential for higher returns and flexibility in investment strategies. This combination allows investors to customize their risk and return profiles based on their individual preferences and market conditions. Equities and derivatives may be used in certain structured products, but they are not the usual make-up.

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  • 42. 

    (C1 / S1.1 / Pg2) 2. Which of the following statements about structured products is FALSE?

    • A.

      These are unsecured debt securities of the issuer

    • B.

      They are equity securities

    • C.

      He payouts of the structured products may be based on equity price movements

    • D.

      They are also known as hybrid products

    Correct Answer
    B. They are equity securities
    Explanation
    The statement "They are equity securities" is false because structured products are not equity securities. They are actually unsecured debt securities of the issuer that may have payouts based on equity price movements. They are also known as hybrid products because they combine elements of debt and equity.

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  • 43. 

    (C1 / S1.2 / Pg4) 3. Which statement is FALSE?

    • A.

      Structured deposits have low risks

    • B.

      Structured deposits are issued only by banks

    • C.

      Structured deposits are excluded in the Deposit Insurance Scheme in Singapore

    • D.

      Structured notes are unsecured debentures

    Correct Answer
    A. Structured deposits have low risks
    Explanation
    The statement that structured deposits have low risks is FALSE. Structured deposits are actually considered to have higher risks compared to traditional deposits. This is because structured deposits often involve complex investment strategies and may be linked to the performance of underlying assets such as stocks or bonds. Therefore, the risk associated with structured deposits depends on the performance of these underlying assets, making them more susceptible to market fluctuations and potential losses.

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  • 44. 

    (C1 / S3.2 & S3.3 / Pg13-Pg17) 4. One similarity between structured products designed for yield enhancement and those for performance participation is

    • A.

      They have limited downside protection

    • B.

      They have unlimited downside protection

    • C.

      They have capital protection

    • D.

      There is a cap on the upside return

    Correct Answer
    A. They have limited downside protection
    Explanation
    Structured products designed for yield enhancement and those for performance participation have limited downside protection. This means that while these products offer potential for higher returns, there is still a level of risk involved as the downside is not fully protected. This limited downside protection allows investors to participate in potential gains while still having some level of protection against losses.

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  • 45. 

    C1 / Fig1.7 / Pg16) 5. Bonus certificates have conditional downside protection which hinges on a pre-determined level. The feature where protection no longer applies is called

    • A.

      Kick-in

    • B.

      Kick-out

    • C.

      Knock-in

    • D.

      Knock-out

    Correct Answer
    D. Knock-out
    Explanation
    A knock-out feature refers to the point at which the conditional downside protection of bonus certificates no longer applies. This means that if the underlying asset's price reaches or falls below a pre-determined level, the protection is "knocked out" and the investor no longer benefits from it. This feature is important because it helps investors understand the conditions under which they may lose their downside protection and potentially incur losses on their investment.

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  • 46. 

    C1 / S4.4 /Pg19) 6. Which statement is FALSE?

    • A.

      Structured notes can be listed and traded on the Singapore Exchange (SGX)

    • B.

      All structured products are liquid

    • C.

      All listed structured products on SGX come under the generic umbrella of Exchange- Traded Funds

    • D.

      SGX requires that listed structured products have at least 75% of the securities spread out to a minimum of 100 investors for Exchange-Traded Notes and Certificates

    Correct Answer
    B. All structured products are liquid
  • 47. 

    (C1 / S4.3 / Pg19) 7. Senior bonds are

    • A.

      older bonds that are near maturity

    • B.

      Rated lower than subordinated bonds by rating agencies

    • C.

      Given priority over shares and subordinated bonds during liquidation

    • D.

      also known as junk bonds

    Correct Answer
    C. Given priority over shares and subordinated bonds during liquidation
    Explanation
    Senior bonds are given priority over shares and subordinated bonds during liquidation. This means that in the event of a company's liquidation or bankruptcy, senior bondholders have a higher claim on the company's assets and are more likely to be repaid before other types of bondholders or shareholders. This priority is based on the contractual agreement between the company and the bondholders, which states that senior bondholders have a higher ranking in the repayment hierarchy.

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  • 48. 

    (C1 / S4.2 / Pg18) 8. Which statement about callable securities is TRUE?

    • A.

      When the interest rate drops, the issuer is likely to exercise his right to ‘call’

    • B.

      Callable securities are more expensive than non-callable securities

    • C.

      The price of a callable bond is the price of a straight bond, plus the price of a call option

    • D.

      The call price is typically lower than the par value

    Correct Answer
    A. When the interest rate drops, the issuer is likely to exercise his right to ‘call’
    Explanation
    When the interest rate drops, the issuer is likely to exercise his right to ‘call’. This means that when interest rates decrease, the issuer of a callable security has the option to redeem the security before its maturity date. This is because the issuer can then issue new securities at a lower interest rate, saving money on interest payments. Therefore, it is true that when interest rates drop, the issuer is more likely to exercise their right to call the security.

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  • 49. 

    C1 / Table1.1 / Pg5) 9. Structured deposits are different from structured ILPs in that structured deposits

    • A.

      Are typically outsourced by the issuer for their structuring

    • B.

      Are issued only by banks

    • C.

      Have higher administrative costs

    • D.

      Are distributed by a wide distribution network

    Correct Answer
    B. Are issued only by banks
    Explanation
    Structured deposits are different from structured ILPs because they are issued only by banks. This means that only banks have the authority to offer structured deposits to customers, while structured ILPs may be offered by other financial institutions or investment companies. The exclusivity of structured deposits being issued by banks sets them apart from structured ILPs.

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  • 50. 

    (C1 / Fig1.3 / Pg9) 10. Investments that offer high return at low risk are called

    • A.

      Bold investments

    • B.

      Unworthy investments

    • C.

      Safe investments

    • D.

      rare gems

    Correct Answer
    D. rare gems

Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jan 03, 2015
    Quiz Created by
    Jen19802809

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