Chapter 4 M9A - Introduction To Structured Ilp

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Chapter 4 M9A - Introduction To Structured Ilp - Quiz

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Questions and Answers
  • 1. 

    (C4 / S1 / Pg69 & Pg70) 36. Which statement on the general features of structured ILPs is FALSE?

    • A.

      They do not have maturity dates and are renewed at the end of each trading period

    • B.

      They are usually complex

    • C.

      They are bought with single premiums

    • D.

      They are exposed to counterparty and liquidity risks

    Correct Answer
    A. They do not have maturity dates and are renewed at the end of each trading period
  • 2. 

    (C4 / S1.2 / Pg72) 37. The Net Asset Value (NAV) of a fund is the

    • A.

      Total value of the assets in the fund at any point in time

    • B.

      total value of the assets in the fund less total liabilities

    • C.

      based on the difference between the highest and lowest price of the day

    • D.

      based on the highest price of the day

    Correct Answer
    B. total value of the assets in the fund less total liabilities
    Explanation
    The correct answer is "total value of the assets in the fund less total liabilities" because the Net Asset Value (NAV) of a fund is calculated by subtracting the total liabilities of the fund from the total value of the assets. This gives an accurate representation of the fund's value and is commonly used to determine the price at which shares of the fund are bought and sold.

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  • 3. 

    (C4 / S1.2 / Pg73) 38. Soft dollars are paid by the fund manager for

    • A.

      Portfolio analyses

    • B.

      data and quotation services

    • C.

      research analyses

    • D.

      all of the above

    Correct Answer
    D. all of the above
    Explanation
    Soft dollars are a form of payment made by fund managers for various services related to portfolio analyses, data and quotation services, and research analyses. This means that fund managers use soft dollars to cover the costs of obtaining and analyzing data, as well as conducting research. Therefore, the correct answer is "all of the above" as soft dollars are paid for all these services.

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  • 4. 

    (C4 / S5.1 / Pg81) 39. The difference between structured ILPs and unit trusts is that

    • A.

      Structured ILPs are less regulated

    • B.

      The legal owner of the assets in the ILP fund is the insurer

    • C.

      unit trusts come with a death benefit but not for a structured ILP

    • D.

      Structured ILPs do not carry as much risk as would unit trusts

    Correct Answer
    B. The legal owner of the assets in the ILP fund is the insurer
  • 5. 

    (C4 / S6.1a / Pg84-85) 40. What information is NOT found in the Product Summary?

    • A.

      A list of the ILP sub-funds available for investment

    • B.

      risk information

    • C.

      potential accumulation policy value

    • D.

      return on the ILP sub-fund over the last 1,3,5, 10 years since inception of the ILP sub- fund

    Correct Answer
    C. potential accumulation policy value
    Explanation
    The potential accumulation policy value is not found in the Product Summary. The Product Summary provides information on the ILP sub-funds available for investment, risk information, and the return on the ILP sub-fund over the last 1, 3, 5, and 10 years since inception. However, it does not include information on the potential accumulation policy value.

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  • 6. 

    (C4 / S6.1c / Pg86) 41. What information should NOT be included in the Product Highlights Sheet?

    • A.

      Key risks of the investments

    • B.

      Frequency of valuations

    • C.

      Fees and charges payable

    • D.

      Disclaimers

    Correct Answer
    D. Disclaimers
    Explanation
    The Product Highlights Sheet should include information about the key risks of the investments, the frequency of valuations, and the fees and charges payable. However, disclaimers should not be included in the sheet. Disclaimers are typically separate documents that provide legal protection for the issuer and may contain important information regarding the limitations or risks associated with the product.

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  • 7. 

    (C4 / S6.3 / Pg88) 42. Information to be included in the annual policy statement to policy owners include

    • A.

      Number of units held at the end each month

    • B.

      number and value of units deducted during the statement period

    • C.

      risk of the investment

    • D.

      pricing basis of units

    Correct Answer
    B. number and value of units deducted during the statement period
    Explanation
    The annual policy statement to policy owners should include the number and value of units deducted during the statement period. This information is important for policy owners to understand the deductions made from their policy and how it affects the value of their units. It provides transparency and clarity regarding the deductions and helps policy owners make informed decisions about their investment.

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  • 8. 

    (C4 / S5.2 / Pg82) 43. Market risks can be diversified

    • A.

      Across different asset classes

    • B.

      across different geographical locations

    • C.

      using negatively correlated securities

    • D.

      all of the above

    Correct Answer
    D. all of the above
    Explanation
    Market risks can be diversified across different asset classes, geographical locations, and by using negatively correlated securities. Diversification across different asset classes helps to spread the risk by investing in a variety of assets such as stocks, bonds, and commodities. Diversification across different geographical locations helps to reduce the impact of regional economic or political events on the portfolio. Using negatively correlated securities means investing in assets that tend to move in opposite directions, which can further reduce the overall risk in the portfolio. Therefore, all of the above options are correct ways to diversify market risks.

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  • 9. 

    (C4/S1) 37. The investment experience of an investment fund of participating policies is ‘smoothed’ so as to

    • A.

      give the policy owner the maximum upside of the investment returns on his money

    • B.

      maintain a degree of certainty of stability in the non-guaranteed benefits to policy owners

    • C.

      give the policy owner a limited downside of the investment returns on his money

    • D.

      to an average return to policy owners

    Correct Answer
    B. maintain a degree of certainty of stability in the non-guaranteed benefits to policy owners
    Explanation
    The investment experience of an investment fund of participating policies is 'smoothed' in order to maintain a degree of certainty and stability in the non-guaranteed benefits to policy owners. This means that the fund aims to minimize fluctuations in returns and provide a consistent level of benefits to policy owners, even if the investment performance of the fund is not as high as expected. This approach helps to reduce the risk and uncertainty for policy owners and ensures that they can rely on a certain level of benefits from their investment.

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  • 10. 

    (C4/S1.2) 38. Which of the following charges and fees are NOT included in the expense ratio of a sub-fund?

    • A.

      Initial sales charges and redemption fees

    • B.

      custodial expenses and investment management fees

    • C.

      auditing fees

    • D.

      legal fees

    Correct Answer
    A. Initial sales charges and redemption fees
    Explanation
    Initial sales charges and redemption fees are not included in the expense ratio of a sub-fund. The expense ratio is a measure of the total annual operating expenses of a fund, expressed as a percentage of its net assets. It includes costs such as custodial expenses, investment management fees, auditing fees, and legal fees. However, initial sales charges and redemption fees are transactional costs that are paid by investors when buying or selling shares of the fund, and they are not considered part of the ongoing operating expenses of the fund.

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  • 11. 

    (C4/S1.2) 39. The turnover ratio measures __________________________________ as a percentage of the daily average NAV.

    • A.

      the highest number of purchases of underlying investments of a fund

    • B.

      the lowest number of sales of underlying investments of a fund

    • C.

      the largest volume of transactions of underlying investments of a fund D. the lower of the purchases or sales of underlying investments of a fund

    • D.

      the lower of the purchases or sales of underlying investments of a fund

    Correct Answer
    D. the lower of the purchases or sales of underlying investments of a fund
    Explanation
    The turnover ratio measures the lower of the purchases or sales of underlying investments of a fund as a percentage of the daily average NAV. This ratio indicates the level of trading activity within the fund, with a higher turnover ratio indicating a higher level of buying and selling of investments.

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  • 12. 

    (C4/S2.2) 40. Structured ILPs have their drawbacks too. One of them is that

    • A.

      Some investments are issued in large sizes, making it difficult for investors to have the financial means

    • B.

      the portfolio is spread out in too many different assets and asset classes which investors may not be knowledgeable about

    • C.

      there is an element of opportunity costs as non-performing assets in the portfolio reduces the gains from those that are performing well

    • D.

      there are transaction costs to be incurred

    Correct Answer
    C. there is an element of opportunity costs as non-performing assets in the portfolio reduces the gains from those that are performing well
    Explanation
    One of the drawbacks of structured ILPs is that there is an element of opportunity costs. This means that when there are non-performing assets in the portfolio, it reduces the gains from those that are performing well. In other words, the presence of underperforming assets in the portfolio can negatively impact the overall returns.

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  • 13. 

    (C4/S2.4a) 41. Which of the following statements describe a structure ILP that provides regular payments?

    • A.

      They have the same risk profile as ordinary bonds

    • B.

      The regular payouts, at the stated level, are made annually to provide the investor with an annual income

    • C.

      The capital invested is guaranteed at maturity

    • D.

      The insurer is not obligated to make good at maturity if the investments don’t deliver

    Correct Answer
    D. The insurer is not obligated to make good at maturity if the investments don’t deliver
    Explanation
    This statement describes a structure ILP that provides regular payments. It states that the insurer is not obligated to make good at maturity if the investments don't deliver, indicating that the regular payments are dependent on the performance of the investments. This suggests that the investor may not receive regular payments if the investments underperform.

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  • 14. 

    42. A structured ILP linked to index return uses derivatives to track the performance of a selected index. To protect the downside, it uses

    • A.

      Equities

    • B.

      fixed income instruments

    • C.

      options

    • D.

      swaps

    Correct Answer
    B. fixed income instruments
    Explanation
    A structured ILP linked to index return uses fixed income instruments to protect the downside. Fixed income instruments, such as bonds, provide a fixed rate of return and are considered less risky compared to equities. By incorporating fixed income instruments into the ILP, the investor can mitigate potential losses and ensure a more stable performance in case the selected index experiences a downturn. Options and swaps are also commonly used in structured ILPs, but in this case, the correct answer is fixed income instruments.

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  • 15. 

    (C4/S6.1c) 43. Which of the following is a requirement/s that must be met in preparing the Product Highlights Sheet?

    • A.

      There must be at least 4 pages, including glossary and diagrams

    • B.

      The text should be a font size of at least 10-point Times New Roman

    • C.

      Disclaimers must be included

    • D.

      Technical jargon should be used for greater clarity

    Correct Answer
    B. The text should be a font size of at least 10-point Times New Roman
    Explanation
    The requirement that must be met in preparing the Product Highlights Sheet is that the text should be a font size of at least 10-point Times New Roman.

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  • 16. 

    44. When switching of ILP sub-funds is allowed free of charge, the switch is done on a

    • A.

      Offer-to-bid basis

    • B.

      bid-to-offer basis

    • C.

      offer-to-offer basis

    • D.

      lowest bid basis

    Correct Answer
    C. offer-to-offer basis
    Explanation
    When switching of ILP sub-funds is allowed free of charge, the switch is done on an offer-to-offer basis. This means that the switch is based on the prevailing offer prices of the sub-funds. The investor can switch from one sub-fund to another at the offer price of the new sub-fund. This allows the investor to switch without incurring any additional costs or fees.

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  • 17. 

    (C4/S5) 45. Structured ILPs have to comply with various requirements, regulations, guidelines and codes set out under the

    • A.

      Financial Advisers Act (Cap 110)

    • B.

      Insurance Act (Cap 142)

    • C.

      Code on Collective Investment Scheme

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Structured ILPs have to comply with various requirements, regulations, guidelines, and codes set out under the Financial Advisers Act (Cap 110), Insurance Act (Cap 142), and Code on Collective Investment Scheme. This means that structured ILPs must adhere to the rules and guidelines outlined in all three of these acts and codes.

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  • 18. 

    (C4/S2.4) 26 The fund aims to provide long-term capital appreciation and to achieve the best possible result. This best describes an _____________.

    • A.

      ILP providing regular payments

    • B.

      ILP linked to index returns

    • C.

      ILP with capital appreciation potential

    • D.

      ILP with term insurance component

    Correct Answer
    C. ILP with capital appreciation potential
    Explanation
    The given statement states that the fund aims to provide long-term capital appreciation and achieve the best possible result. This aligns with the description of an ILP (Investment-Linked Policy) with capital appreciation potential, as it suggests that the policy is designed to grow the invested capital over time.

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  • 19. 

    (C4/S1.2) 27 What is expense ratio?

    • A.

      The number of times that a dollar of assets is reinvested in a given year

    • B.

      The price at which units are subscribed

    • C.

      The ratio of the sub-fund’s operating expenses to the daily average NAV

    • D.

      Total value of fund assets, less total liabilities

    Correct Answer
    C. The ratio of the sub-fund’s operating expenses to the daily average NAV
    Explanation
    The expense ratio is a measure of the cost of owning a mutual fund. It is calculated by dividing the sub-fund's operating expenses by the daily average net asset value (NAV). This ratio indicates the percentage of a fund's assets that are used to cover operating expenses such as management fees, administrative costs, and other expenses. A lower expense ratio is generally preferred as it means that a larger portion of the fund's returns are being passed on to the investors.

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  • 20. 

    (C4/S6.3) 33 The Semi-Annual Report or Relevant Audit Report may exclude the reporting of the following funds, EXCEPT

    • A.

      Newly launched funds

    • B.

      Funds that are going to be terminated

    • C.

      Funds reaching maturity soon

    • D.

      Poor performing funds

    Correct Answer
    D. Poor performing funds
    Explanation
    The Semi-Annual Report or Relevant Audit Report may exclude the reporting of poor performing funds. This means that the report may choose not to include information about funds that are not performing well. However, the report must still include information about newly launched funds, funds that are going to be terminated, and funds reaching maturity soon.

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  • 21. 

    (C4/S7.1) 34 Fair value is the price that the fund can reasonably expect to receive upon the current sale of the asset, determined __________.

    • A.

      By auditors

    • B.

      With due care and good faith

    • C.

      By due diligence

    • D.

      By fund managers

    Correct Answer
    B. With due care and good faith
    Explanation
    The fair value of an asset is determined with due care and good faith. This means that the fund managers must make a reasonable effort to accurately assess the value of the asset based on available information and market conditions. It is their responsibility to ensure that the valuation is done in an unbiased and diligent manner, taking into account all relevant factors. The involvement of auditors may provide additional assurance, but ultimately it is the fund managers who are responsible for determining the fair value.

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  • 22. 

    (C4/S6) 38 The policy document of an ILP should include the following information, EXCEPT

    • A.

      Potential of funds

    • B.

      Minimum holding amount

    • C.

      Pricing basis

    • D.

      Dealing deadline

    Correct Answer
    A. Potential of funds
    Explanation
    The policy document of an ILP should include information such as the minimum holding amount, pricing basis, and dealing deadline. However, it should not include the potential of funds, as this is not relevant to the policy document. The potential of funds refers to the potential return or growth of the invested funds, which is not a necessary detail to include in the policy document.

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  • 23. 

    C4/S2.2) 41 Disadvantages of investing in a structured ILP may include the following, EXCEPT

    • A.

      Several layers of fees and charges

    • B.

      Loss of investment control

    • C.

      Opportunity cost

    • D.

      Inaccessibility to bulky investments

    Correct Answer
    D. Inaccessibility to bulky investments
    Explanation
    Investing in a structured ILP may have several disadvantages, such as incurring multiple layers of fees and charges, losing investment control, and experiencing opportunity cost. However, one disadvantage that is not mentioned is inaccessibility to bulky investments. This means that investing in a structured ILP does not limit or restrict the investor from making large investments.

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  • 24. 

    (C4/S5) 49 The investment restrictions imposed by the Code on CIS includes the following, except

    • A.

      Liquidity risk

    • B.

      Concentration risk

    • C.

      Credit risk

    • D.

      Guarantee capital risk

    Correct Answer
    D. Guarantee capital risk
    Explanation
    The investment restrictions imposed by the Code on CIS include liquidity risk, concentration risk, and credit risk. However, guarantee capital risk is not included as one of the investment restrictions.

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  • 25. 

    (C4/S2.1) 25 Which of the following is a disadvantage of investing in structured ILPs?

    • A.

      Access to bulky investments

    • B.

      Fees and charges

    • C.

      Economies of scale

    • D.

      Portfolio diversification

    Correct Answer
    B. Fees and charges
    Explanation
    Investing in structured ILPs (Investment-Linked Policies) has a disadvantage of fees and charges. These fees can include policy fees, administration fees, and fund management fees, which can reduce the overall returns on the investment. These fees are deducted from the investment amount and can vary depending on the policy and the investment funds chosen. Therefore, investors should consider the impact of these fees on their investment returns before investing in structured ILPs.

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  • 26. 

    (C4/S1) 1 Compared to an ILP, a structured ILP

    • A.

      Has a more complex structure

    • B.

      Has a higher insurance element

    • C.

      Is not as heavily regulated

    • D.

      Is less risky

    Correct Answer
    A. Has a more complex structure
    Explanation
    A structured ILP has a more complex structure compared to a regular ILP. This means that it may have additional features or components that make it more intricate and sophisticated. This complexity can offer more flexibility and customization options for the policyholder but may also require a deeper understanding of the product.

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  • 27. 

    (C4/S2.1) 2 The advantages of investing in a structured ILP may include the following, EXCEPT

    • A.

      Portfolio diversification

    • B.

      Access to bulky investments

    • C.

      Economies of scale

    • D.

      Low fees and charges

    Correct Answer
    D. Low fees and charges
    Explanation
    Investing in a structured ILP offers several advantages, such as portfolio diversification, access to bulky investments, and economies of scale. However, the one advantage that it may not include is low fees and charges. This means that investors may have to pay higher fees and charges when investing in a structured ILP compared to other investment options.

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  • 28. 

    (C4/S5) 3 For counterparty risk, the counterparty exposure is capped at

    • A.

      5%

    • B.

      9%

    • C.

      10%

    • D.

      15%

    Correct Answer
    C. 10%
    Explanation
    The correct answer is 10% because it is the only option that is higher than 5% but lower than 15%. The question is asking about the cap on counterparty exposure, which means the maximum amount of risk that can be taken with a counterparty. A cap of 10% means that the exposure cannot exceed 10% of the total value.

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  • 29. 

    (C4/S1.1) 5 The payouts under a structured ILP include the following, EXCEPT

    • A.

      Death benefits

    • B.

      Maturity benefits

    • C.

      Cash benefits

    • D.

      Survival benefits

    Correct Answer
    C. Cash benefits
    Explanation
    A structured ILP (Investment-Linked Policy) is a type of insurance policy that combines investment and protection. It offers various benefits such as death benefits, maturity benefits, and survival benefits. Cash benefits, however, are not included in a structured ILP.

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  • 30. 

    (C4/S1.2) 19 Redemption in a structured ILP refers to __________.

    • A.

      The price at which units are redeemed

    • B.

      The price at which units are subscribed

    • C.

      Return of units in ILP sub-fund for cash

    • D.

      Purchase of units in ILP sub-fund

    Correct Answer
    C. Return of units in ILP sub-fund for cash
    Explanation
    Redemption in a structured ILP refers to the process of returning units in an ILP sub-fund for cash. This means that investors can sell their units back to the ILP and receive cash in return. It is essentially a way for investors to exit their investment and receive liquidity.

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  • 31. 

    (C4/S4.3) 21 A bank can use ______ to transfer the credit risk of a borrower in exchange for a series of fee payments.

    • A.

      Currency swaps

    • B.

      Credit default swaps

    • C.

      Interest rate swaps

    • D.

      Equity swap

    Correct Answer
    B. Credit default swaps
    Explanation
    A bank can use credit default swaps to transfer the credit risk of a borrower in exchange for a series of fee payments. Credit default swaps are financial derivatives that allow the bank to transfer the risk of default on a loan or bond to another party. In this case, the bank would pay a series of fees to the counterparty in exchange for them assuming the credit risk of the borrower. This helps the bank to mitigate its exposure to potential losses in case of default by the borrower.

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  • 32. 

    (C4/S1) 24 While smoothing process maintains certain degree of __________ in the non-guaranteed benefits, it means that policy owners may not receive the full upside’ downside of investment return on this money.

    • A.

      Stability

    • B.

      Benefits

    • C.

      Profit

    • D.

      Performance

    Correct Answer
    A. Stability
    Explanation
    The correct answer is Stability. The smoothing process aims to maintain stability in the non-guaranteed benefits of a policy. This means that policy owners may not receive the full upside or downside of the investment return on their money. Smoothing helps to even out fluctuations in returns and provides a more stable and predictable outcome for policy owners.

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  • 33. 

    (C4/S2.4) 29 The fund seeks daily investment results, before fees and expenses that correspond to twice the inverse of the daily performance of NASDAQ-100 index. This best describes an

    • A.

      ILP providing regular payments

    • B.

      ILP linked to index returns

    • C.

      ILP with capital appreciation potential

    • D.

      ILP with term insurance component

    Correct Answer
    B. ILP linked to index returns
    Explanation
    The given statement describes an ILP (Investment-Linked Policy) that seeks daily investment results corresponding to twice the inverse of the daily performance of the NASDAQ-100 index. This means that the ILP is linked to the returns of the index, specifically aiming to provide inverse returns that are twice the daily performance of the index. This indicates that the ILP's performance is directly tied to the performance of the NASDAQ-100 index, making it an ILP linked to index returns.

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  • 34. 

    (C4/S1.2) 30 Which of the following is an example of soft dollars?

    • A.

      Bid-offer spread

    • B.

      Net asset value of investment

    • C.

      Commission payable for sale of structured ILP

    • D.

      Research and advisory services from broker

    Correct Answer
    D. Research and advisory services from broker
    Explanation
    Soft dollars refer to the practice of using client commission dollars to pay for research and advisory services provided by brokers. This means that instead of paying for these services directly, the client's commission fees are used to cover these costs. Therefore, the option "Research and advisory services from broker" is an example of soft dollars. The other options, such as bid-offer spread, net asset value of investment, and commission payable for the sale of structured ILP, do not involve the use of client commission dollars for services.

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  • 35. 

    (C4/S4) 31 Which one of the following is LEAST likely to be an investor’s reason for investing in structured products?

    • A.

      They allow investors to have a tailor-made product

    • B.

      They offer investors access to exotic asset classes

    • C.

      They allow investors to have direct access to restricted markets

    • D.

      They provide investors with a financial product that is easy to understand

    Correct Answer
    D. They provide investors with a financial product that is easy to understand
    Explanation
    Investors typically invest in structured products because they offer them the opportunity to have a tailor-made product that suits their specific investment needs. Additionally, structured products provide investors with access to exotic asset classes, which can potentially offer higher returns. They also allow investors to have direct access to restricted markets, which may not be available through traditional investment options. However, structured products are often complex and may not be easy to understand, making the statement that they provide investors with a financial product that is easy to understand least likely to be a reason for investing in structured products.

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  • 36. 

    (C4/S1.2) 36 Bid price in an ILP refers to

    • A.

      Price at which units are redeemed

    • B.

      Price at which units are subscribed

    • C.

      Return of units in ILP sub-fund for cash

    • D.

      Purchase of units in ILP sub-fund

    Correct Answer
    A. Price at which units are redeemed
    Explanation
    The bid price in an ILP refers to the price at which units are redeemed. This means that when an investor wants to sell their units in an ILP sub-fund, the bid price is the price at which they will receive for their units. It represents the value of the investment when it is being liquidated.

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  • 37. 

    (C4/S2.2) 38 Which one of the following statements about structured Investment-linked Life Insurance policies (ILPs) is FALSE?

    • A.

      They offer death benefits on top of investment gains

    • B.

      They are offered as a short-term investment instrument

    • C.

      They typically have higher fees than a normal unit trust

    • D.

      They typically suffer a capital loss if an early redemption is carried out

    Correct Answer
    B. They are offered as a short-term investment instrument
    Explanation
    Structured Investment-linked Life Insurance policies (ILPs) do not typically offer death benefits on top of investment gains. They are long-term investment instruments that combine life insurance coverage with investment options. They are not designed to be short-term investments and usually have a longer investment horizon. They may have higher fees compared to normal unit trusts due to the additional insurance coverage provided. Early redemption of ILPs may result in a capital loss due to fees and charges, but this does not imply that they are offered as short-term investment instruments.

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  • 38. 

    (C4/S6) 39 Point-of-sales disclosure includes the following, EXCEPT

    • A.

      Application form

    • B.

      Product summary

    • C.

      Benefit illustration

    • D.

      Product highlights sheet

    Correct Answer
    A. Application form
    Explanation
    The point-of-sales disclosure includes the product summary, benefit illustration, and product highlights sheet. These documents provide information about the product, its features, and the potential benefits to the consumer. The application form, on the other hand, is not a disclosure document but rather a form that the consumer fills out to apply for the product. Therefore, the application form is the exception in this case.

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  • 39. 

    (C4/S6.4) 45 Foreign exchange risks can be transferred away using _________.

    • A.

      Swaps

    • B.

      Insurance

    • C.

      Portfolio bonds

    • D.

      None of the above

    Correct Answer
    A. Swaps
    Explanation
    Foreign exchange risks can be transferred away using swaps. Swaps are financial agreements between two parties to exchange cash flows based on different variables, such as interest rates or foreign exchange rates. In the case of foreign exchange risks, a currency swap can be used to exchange one currency for another at a predetermined exchange rate, thus mitigating the risk of fluctuations in exchange rates. This allows companies or individuals to transfer their foreign exchange risks to another party, reducing their exposure to potential losses.

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  • 40. 

    (C4/S1.2) 9 Which one of the following options does NOT fall under the soft dollar commission?

    • A.

      Management fee

    • B.

      Research services

    • C.

      Economic analyses

    • D.

      Entertainment expense

    Correct Answer
    A. Management fee
    Explanation
    Soft dollar commissions refer to the practice of using client funds to pay for research and other services provided by brokerage firms. Management fees, on the other hand, are charges paid to investment managers for overseeing and managing a client's investment portfolio. While both management fees and soft dollar commissions involve payments, management fees do not fall under the category of soft dollar commissions as they are not specifically related to research or other services provided by brokerage firms.

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  • 41. 

    C4/S6.2) 14 Which of the following is NOT required at the point-of-sale for a structured ILP?

    • A.

      Product highlights sheet

    • B.

      Benefit Illustration

    • C.

      Product summary

    • D.

      Fund report

    Correct Answer
    D. Fund report
    Explanation
    A fund report is not required at the point-of-sale for a structured ILP. The other options, such as the product highlights sheet, benefit illustration, and product summary, are typically required to be provided to the customer at the point-of-sale. These documents provide important information about the structured ILP, such as its features, benefits, and potential risks. However, a fund report, which provides detailed information about the performance and holdings of the funds within the ILP, is not typically required to be provided at the point-of-sale.

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  • 42. 

    (C4/S2.4) 15 This fund pays out annually 3.5% of Initial Unit Price per unit held by policy owner as at each policy anniversary and is 100% capital protected on maturity. This best describes an

    • A.

      ILP providing regular payments

    • B.

      ILP linked to index returns

    • C.

      ILP with capital appreciation potential

    • D.

      ILP with term insurance component

    Correct Answer
    A. ILP providing regular payments
    Explanation
    The given description states that the fund pays out annually 3.5% of the Initial Unit Price per unit held by the policy owner on each policy anniversary. This indicates that the ILP provides regular payments to the policy owner.

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  • 43. 

    (C4/S6.4) 18 A common method to reduce market risks is using securities with _______.

    • A.

      Positive correlation

    • B.

      Negative correlation

    • C.

      Zero correlation

    • D.

      Higher correlation

    Correct Answer
    B. Negative correlation
    Explanation
    Using securities with negative correlation can help reduce market risks because when one security is performing poorly, the other security is likely to perform well. This creates a balance in the portfolio and helps to offset potential losses.

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  • 44. 

    (C4/S3) 47 Investors may wish to invest in structured ILPs as they:

    • A.

      Are highly liquid assets

    • B.

      Carry low investment risk

    • C.

      Provide access to bulky investments

    • D.

      Are simple products to understand

    Correct Answer
    C. Provide access to bulky investments
    Explanation
    Structured ILPs (Investment-Linked Policies) provide access to bulky investments. This means that investors can invest in a variety of assets such as stocks, bonds, and real estate through a single ILP. This allows investors to diversify their portfolio and potentially earn higher returns. Additionally, structured ILPs often have lower investment risk compared to investing directly in individual assets. They are not necessarily highly liquid assets or simple products to understand.

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  • 45. 

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

    • A.

      Insurance Act

    • B.

      Companies Financial Act

    • C.

      Deposit Insurance Scheme

    • D.

      All of the above

    Correct Answer
    A. Insurance Act
    Explanation
    Structured Investment-linked Life Insurance policies must comply with the Insurance Act. The Insurance Act is a regulatory instrument that sets out the rules and regulations for insurance companies and policies in a particular jurisdiction. It ensures that insurance policies are fair, transparent, and provide adequate protection to policyholders. Compliance with the Insurance Act is essential for insurance companies offering structured Investment-linked Life Insurance policies to operate legally and ethically. The Companies Financial Act and Deposit Insurance Scheme are not specifically related to structured Investment-linked Life Insurance policies, so they do not need to comply with these regulations.

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  • 46. 

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

    • A.

      Turnover ratio

    • B.

      Expense Ratio

    • C.

      Soft dollar

    • D.

      Bid / offer spread

    Correct Answer
    B. Expense Ratio
    Explanation
    The correct answer is Expense Ratio. The expense ratio is a measure of the operating expenses of a mutual fund or ETF, expressed as a percentage of the fund's average net assets. It includes management fees, administrative fees, and other expenses incurred by the fund. The expense ratio is an important factor to consider when evaluating the cost of investing in a fund, as it directly affects the fund's overall return. A lower expense ratio is generally preferred as it means a higher portion of the fund's assets are being used for investment purposes rather than expenses.

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  • 47. 

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

    • A.

      All structured ILPs are homogenous in nature

    • B.

      A structured ILP is designed purely as a protection product

    • C.

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

    • D.

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

    Correct Answer
    D. The structured ILP's sub-funds are valued less frequently compared to other ILP sub-funds
  • 48. 

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

    • A.

      Liquid

    • B.

      Risky

    • C.

      complex

    • D.

      Regulated

    Correct Answer
    A. Liquid
    Explanation
    The correct answer is "liquid". A structured investment-linked life insurance policy is considered to be less liquid compared to a traditional investment-linked life insurance policy. This means that it may be more difficult to access or withdraw funds from a structured policy compared to a traditional policy.

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  • 49. 

    28. A structured investment-linked product should be valued

    • A.

      At least once a month

    • B.

      At least once every two years

    • C.

      At least once every three years

    • D.

      Only when there are significant changes to the investment portfolio

    Correct Answer
    A. At least once a month
    Explanation
    A structured investment-linked product should be valued at least once a month to ensure that the investment portfolio is being properly managed and to provide accurate and up-to-date information to investors. This frequency allows for timely adjustments to be made if necessary and helps to minimize the risk of potential losses. Valuing the product less frequently, such as once every two or three years, may result in outdated and inaccurate information, which could lead to poor investment decisions. Valuing the product only when there are significant changes to the investment portfolio would not provide regular and consistent monitoring of the product's value.

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  • 50. 

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

    • A.

      Structured ILPs have simple structures

    • B.

      Structured ILP investors are exposed to little downside risk

    • C.

      Structured ILP sub-funds are in tailor-made products

    • D.

      Structured ILPs have relatively high insurance element

    Correct Answer
    C. Structured ILP sub-funds are in tailor-made products
    Explanation
    One of the characteristics of structured Investment-linked Life Insurance policies (ILPs) is that the sub-funds are in tailor-made products. This means that the investment options within the ILP are customized to meet the specific needs and preferences of the policyholder. This allows the policyholder to have more control over their investments and choose options that align with their risk tolerance and financial goals.

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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 17, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jan 05, 2015
    Quiz Created by
    Jen19802809

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