Free and Premium CISI ICWIM Dumps Questions Answers

Personal Accident Policies:

These policies often include a waiting period before payouts, allowing insurers to verify claims and ensure eligibility.

The waiting period varies depending on the policy terms.

Elimination of Other Options:

A: A doctor's visit is often necessary but not sufficient for payout.

B: Payments are not instantaneous.

D: Documentation is required, but it is part of the claim process, not the trigger for payout.

References:

ICWIM Module 5: Details on insurance policy structures and claims processes.

Personal Accident Policies:

These policies often include a waiting period before payouts, allowing insurers to verify claims and ensure eligibility.

The waiting period varies depending on the policy terms.

Elimination of Other Options:

A: A doctor's visit is often necessary but not sufficient for payout.

B: Payments are not instantaneous.

D: Documentation is required, but it is part of the claim process, not the trigger for payout.

References:

ICWIM Module 5: Details on insurance policy structures and claims processes.

Minimum Efficient Scale:

This is the point where a company achieves the lowest average cost per unit due to economies of scale.

Once this level is reached, the firm can afford to lower prices to remain competitive and expand market share.

Elimination of Other Options:

A: Halting expansion would waste the cost advantages achieved.

B: Accelerating output expansion could lead to diseconomies of scale.

C: Increasing unit prices is counterintuitive at this stage.

References:

ICWIM Module 3: Coverage of cost structures and the theory of the firm.

Real vs. Nominal Terms:

Inflation-linked bonds adjust their coupon payments and principal based on inflation rates.

Expressing the coupon in real terms ensures it reflects purchasing power rather than face value.

Elimination of Other Options:

B: Redemption date length is unrelated to coupon expression.

C & D: Security type (unsecured/bearer) does not dictate coupon terms.

References:

ICWIM Module 3: Explanation of bond types, including inflation-linked securities.

Money laundering typically involves three stages: Placement, Layering, and Integration. Let's break down each stage for clarity and to verify why the correct answer isC. Integration:

Placement

This is the initial stage where illicit funds enter the financial system.

For example, depositing large amounts of cash into a bank, buying high-value assets, or smuggling cash to another country.

Layering

This stage involves separating the illicit funds from their illegal origin by conducting complex layers of financial transactions.

Examples include wire transfers, currency exchanges, and purchasing securities to obscure the money trail.

Integration(Final Stage)

The last step involves reintroducing the "cleaned" money into the legitimate economy.

At this stage, the laundered funds appear to be derived from legitimate sources.

Examples include investing in real estate, luxury assets, or legitimate businesses.

This stage is critical because it completes the money laundering cycle and makes the funds usable without arousing suspicion.

Why the Correct Answer is "C. Integration"

Integration represents the culmination of money laundering efforts.

It allows the perpetrator to enjoy the proceeds of crime by disguising them as legitimate income or assets.

This stage relies heavily on creating the illusion of legality.

ACAMS (Association of Certified Anti-Money Laundering Specialists): Discusses the standard three-stage process of money laundering.

International Certificate in Wealth & Investment Management (ICWIM) Study Guide: Outlines the process in Chapter 3 (AML & CFT).

Financial Action Task Force (FATF)Guidelines: Recognizes the integration phase as the endpoint of the money laundering cycle.

References

What is an Accumulation and Maintenance Trust?

This is a trust designed primarily for minors or young beneficiaries.

Trustees have discretion over income and capital distributionsuntil a specified event or age, after which the discretion typically ceases.

When Does Discretion Cease?

Generally, trustees' discretion ends at theend of a prescribed periodor when the beneficiary reaches a predetermined age, often 18 or 25.

This ensures the trust complies with legal requirements, such as therule against perpetuitiesin some jurisdictions.

ICWIM Study Guide, Chapter on Trusts: Details the rules around accumulation and maintenance trusts.

Trust Law Principles: Highlights limitations of trustee discretion.

References

Understanding Bullet Payments:

A bullet payment is a single payment of principal and interest at maturity.

Zero coupon bonds do not provide periodic interest payments, making them associated with bullet payments.

Elimination of Other Options:

A: Treasury bonds typically pay semiannual interest.

C: Convertible bonds may have periodic interest.

D: Premium bonds involve prize draws, not bullet payments.

References:

ICWIM Module 3: Coverage of fixed income securities and payment structures.

Understanding Execution-Only Sales:

Execution-only sales occur when the client makes a financial transaction without receiving any advice or recommendations from the intermediary.

The client assumes full responsibility for the decision.

Elimination of Other Options:

A: Charges are typically present in execution-only sales.

C: The product is being sold; the sale cannot occur without it.

D: Guarantees are unrelated to the advisory process.

References:

ICWIM Module 4: Focus on financial advice models, including execution-only services.

In an order-driven market, an electronic order book is used to match buy and sell orders based on strict price and time priority. This system ensures transparency and fair pricing since all orders are visible to market participants.

GDP Formula

GDP=C+I+G+(X−M)\text{GDP} = C + I + G + (X - M)GDP=C+I+G+(X−M)

Where:

CCC: Consumption

III: Investment

GGG: Government spending

XXX: Exports

MMM: Imports

Why Imports Are Subtracted and Exports Are Added

Exports represent goods produced domestically and sold abroad, contributing to domestic production (added to GDP).

Imports are goods produced abroad and consumed domestically, reducing domestic production (subtracted from GDP).

Why the Answer is C

The formula directly supports adding exports and subtracting imports.

ICWIM Study Guide, Chapter on Economic Indicators: Explains the GDP formula and its components.

Macroeconomics Textbooks: Confirms the impact of imports and exports on GDP.

References

Modern Portfolio Theory (MPT) and the Efficient Frontier

The efficient frontier represents portfolios that offer thehighest return for a given level of risk.

Portfolios below the frontier areinefficientbecause they providelower returns for the same level of riskorhigher risk for the same level of return.

Why the Answer is D

Portfolios below the efficient frontier are suboptimal; the investor is not maximizing return relative to the risk taken.

ICWIM Study Guide, Chapter on Portfolio Theory: Discusses the efficient frontier and inefficiency of suboptimal portfolios.

MPT Literature: Explains risk-return optimization.

References

What is an Uncovered Dividend?

An uncovered dividend payment occurs when a company pays a dividenddespite having insufficient earningsto support the payout.

The dividend is effectively "uncovered" by profits, meaning the company might be using reserves, taking on debt, or liquidating assets to fund the dividend.

Why Companies Pay Uncovered Dividends

To maintain investor confidence and avoid negative signals to the market.

Investors may interpret a dividend cut as a sign of financial trouble, so companies sometimes prioritize dividends even at a financial strain.

Other Options Explained

A. Ex-dividend payment: Refers to the status of a stock when a dividend has already been declared, and new buyers are not entitled to the dividend.

B. Proxy dividend payment: No such widely recognized term in this context.

C. Scrip dividend payment: A dividend paid in the form of additional shares rather than cash.

Example

A company reports $500,000 in profits but declares a $1,000,000 dividend, funding the shortfall through borrowing. This is an uncovered dividend.

ICWIM Textbook, Chapter on Corporate Actions: Discusses uncovered dividends and their implications.

Corporate Finance Standards: Defines uncovered dividends and contrasts them with scrip and ex-dividends.

References

Performance attribution analysis evaluates the performance of a portfolio by breaking it into components attributed to specific investment decisions. These include:

Asset Allocation: The decision on the proportion of the portfolio allocated to different asset classes (e.g., stocks, bonds).

Sector Choice: Selecting specific sectors (e.g., technology, healthcare) within asset classes.

Security Selection: Choosing individual securities within the selected sectors.

Risk analysis, while critical for investment management, is not typically part of standard performance attribution frameworks.

References:

International Certificate in Wealth & Investment Management: Portfolio performance evaluation section.

Standard attribution models: Brinson, Hood, and Beebower model widely used in performance attribution.

The ongoing charges figure (OCF) of a mutual fund is included in its Key Investor Information Document (KIID). The KIID provides standardized and essential information about a fund’s costs, risks, and performance, ensuring transparency for investors.

Definition of Recession:

A recession is defined as two consecutive quarters of negative GDP growth, indicating a sustained economic downturn.

It reflects reduced consumer spending, higher unemployment, and lower production.

Elimination of Other Options:

B (Slump): A slump is a more general term and not a specific phase.

C (Depression): Refers to prolonged and severe economic downturns.

D (Inflationary): Opposite of the scenario described.

References:

ICWIM Module 1: Explanation of economic cycles and recession indicators.

A recommendation report for a client should contain comprehensive details of their existing financial arrangements. This ensures that advice aligns with the client’s goals and existing commitments. The inclusion of previous arrangements helps provide a full financial picture and ensures the recommendations are appropriate.

Definition of Costs in Economics

Costs in economics are defined asopportunity costs, which represent the value of the next best alternative foregone when a decision is made.

Examples

If a business invests in Project A, the opportunity cost is the potential return from Project B, which was not pursued.

Why the Other Options are Incorrect

B. Financial: Financial costs are explicit, but economics considers opportunity costs as broader.

C. Normal Profit: Normal profit is a component of total costs but not the definition of "costs" itself.

D. MES (Minimum Efficient Scale): Refers to the production scale at which average costs are minimized, unrelated to cost definition.

ICWIM Study Guide, Chapter on Economic Principles: Emphasizes opportunity cost as the core definition.

Economic Textbooks: Widely recognize opportunity cost as the key concept in cost theory.

ReferencesThus, the correct answer isA. Opportunity.

ROCE (Return on Capital Employed)

Measures the efficiency and profitability of a company relative to the capital invested in the business.

Formula: ROCE=Earnings Before Interest and Tax (EBIT)Capital Employed\text{ROCE} = \frac{\text{Earnings Before Interest and Tax (EBIT)}}{\text{Capital Employed}}ROCE=Capital EmployedEarnings Before Interest and Tax (EBIT)​

Why the Answer is C

ROCE specifically focuses on the returns generated from the capital base, providing insight into how effectively the business is using its resources.

Why Other Options are Incorrect

A. Net profitability: Refers to net profit margins, not ROCE.

B. Borrowing costs: ROCE ignores borrowing costs as it considers EBIT.

D. Net profit in relation to cost of sales: Refers to gross profit margin, not ROCE.

ICWIM Study Guide, Chapter on Financial Ratios: Covers ROCE and its applications.

Corporate Finance Texts: Defines ROCE as a key performance metric.

ReferencesThus, the correct answer isC. Returns generated from capital invested in the business.

Purpose of Client Meetings: A face-to-face meeting allows the adviser to personally communicate complex financial recommendations.

Importance of Clarity: Clients may misunderstand written reports due to technical jargon or unfamiliarity with financial terms. This meeting provides an opportunity to ensure clarity and build trust.

Elimination of Other Options:

A: Collecting fees can be done online or through invoices; this is not the primary purpose of a meeting.

B: Tax position assessment is typically done before preparing recommendations.

C: Reviewing adviser qualifications is rare in meetings; trust is built through prior interactions.

References:

ICWIM Module 2: Focus on professional adviser-client relationships and clear communication.

Understanding Negative Interest Rates:

Negative interest rate policies (NIRP) are used by central banks to stimulate the economy by discouraging banks from hoarding excess reserves.

Under NIRP, banks are charged interest for holding deposits with the central bank, incentivizing lending to businesses and consumers instead.

Elimination of Other Options:

A & B: Interest is still charged on loans, and consumers are not directly "paid" to borrow.

C: Discounting loan interest rates is a potential consequence but not the direct mechanism of NIRP.

References:

ICWIM Module 1: Economic Policy: Coverage of unconventional monetary policies like NIRP.

Avoiding Conflicts of Interest:

By placing orders in the order they are received, the firm ensures fairness and transparency.

This approach avoids any preferential treatment and complies with regulatory obligations.

Elimination of Other Options:

A: Withdrawing services would not address the conflict and is impractical.

C: Disclosing orders breaches confidentiality agreements.

D: Prioritizing sell orders introduces bias and conflict.

References:

ICWIM Module 5: Discussion on ethics and conflict of interest mitigation in trading.

Central Bank Actions with Foreign Reserves

Central banks use foreign reserves to intervene in currency markets to stabilize or influence their nation’s currency exchange rate.

This can involve buying or selling foreign currencies.

Why the Answer is C

Currency interventions aim to manage exchange rate volatility, maintain competitiveness, or stabilize the currency during economic shocks.

Why Other Options are Incorrect

A. Inflation: Not directly controlled through currency market interventions.

B. Money supply: Managed through monetary policy tools like open market operations.

D. Short-term interest rates: Controlled through domestic monetary policy, not foreign reserves.

ICWIM Study Guide, Chapter on Monetary Policy: Explains the use of foreign reserves for currency stabilization.

Central Banking Principles: Discusses currency interventions.

ReferencesThus, the correct answer isC. To influence the nation's currency.

Stocks with abeta of less than oneare less volatile than the overall market. Including such stocks in a portfolio helps reduce its overall volatility, aligning with the risk-averse nature of the client.

Easier to understand (A): Simplicity is not a factor in beta selection.

Moves in line with the market (B): A beta of less than one means the portfolio moves less than the market.

High-volatility portfolio (D): This would involve stocks with a beta greater than one, contrary to the client’s risk profile.

References:

International Certificate in Wealth & Investment Management: Beta as a measure of systematic risk and its implications for portfolio construction.

CAPM (Capital Asset Pricing Model) principles on beta and risk.

Global Currency Trading

The US dollar dominates the foreign exchange market due to its status as the global reserve currency.

It is heavily used in international trade, financial transactions, and as a benchmark currency.

Market Share

The US dollar is involved in approximately88% of all forex trades.

Other currencies like the euro, Japanese yen, and British pound have significant market shares but are far behind the US dollar.

ICWIM Study Guide, Chapter on Global Financial Markets: Highlights the US dollar as the most traded currency.

Bank for International Settlements (BIS)Forex Market Surveys: Confirms trading dominance of the US dollar.

References

Sharpe Ratio Defined

The Sharpe ratio measuresrisk-adjusted return, specifically the excess return over the risk-free rate per unit of volatility.

Formula: Sharpe Ratio=Portfolio Return - Risk-Free RateStandard Deviation of Portfolio Returns\text{Sharpe Ratio} = \frac{\text{Portfolio Return - Risk-Free Rate}}{\text{Standard Deviation of Portfolio Returns}}Sharpe Ratio=Standard Deviation of Portfolio ReturnsPortfolio Return - Risk-Free Rate​

Why the Answer is B

The ratio quantifies the return generated for each unit of risk taken, relative to the risk-free rate.

Why Other Options are Incorrect

A. Benchmark performance: The Sharpe ratio does not measure performance relative to a benchmark.

C. Annual charge effect: Unrelated to fund expenses.

D. Manager ability: Focuses on risk-adjusted returns, not managerial skill.

ICWIM Study Guide, Chapter on Risk-Adjusted Metrics: Explains the Sharpe ratio.

Portfolio Management Literature: Highlights its use in assessing performance.

ReferencesThus, the correct answer isB. Return above a risk-free rate.

Active Fund Management

Active fund managers aim to outperform or avoid underperforming their peers by dynamically managing asset allocation.

Asset allocation by consensusensures alignment with the strategies and expectations of the broader investment community, minimizing the risk of significant divergence from the peer group.

Why the Answer is A

Using consensus-driven allocation avoids extreme deviations in performance relative to peers, which is key for managers seeking to maintain competitive performance.

Why Other Options are Incorrect

B. Assessing prospects: This involves market analysis but does not specifically address peer performance.

C. Hedging risks: Focuses on risk management, not peer alignment.

D. Quantitative models: Useful for analysis but not tailored to peer group considerations.

ICWIM Study Guide, Chapter on Portfolio Management: Discusses consensus-driven asset allocation.

Active Fund Management Literature: Highlights peer-relative performance strategies.

ReferencesThus, the correct answer isA. Through the use of asset allocation by consensus.

Why Affordability is the Major Constraint

A client’s ability to mitigate risks is directly limited by their financial resources.

Even the most sophisticated risk strategies, such as diversification, derivatives, or insurance, require financial capacity.

Other Options Analyzed

Age: Impacts risk tolerance but does not constrain the financial ability to manage risks.

Risk aversion: A behavioral factor, not a financial constraint.

Tax implications: Important but secondary compared to affordability.

ICWIM Textbook, Chapter on Investment Constraints: Highlights affordability as the top financial constraint.

Wealth Planning Principles: Discusses practical limitations of risk mitigation strategies.

ReferencesThus, the answer isB. Affordability.

Compound Interest Formula:A=P×(1+r)nA = P \times (1 + r)^nA=P×(1+r)n

P: Initial principal (£1,000)

r: Annual interest rate (3% or 0.03)

n: Number of years (5)A=1,000×(1+0.03)5A = 1,000 \times (1 + 0.03)^5A=1,000×(1+0.03)5A=1,000×(1.159274)A = 1,000 \times (1.159274)A=1,000×(1.159274)A=£1,157.63A = £1,157.63A=£1,157.63

Elimination of Other Options:

All other values result from incorrect application of the formula or ignoring compounding.

References:

ICWIM Module 2: Focus on time value of money and compounding.

TheUCITS (Undertakings for the Collective Investment in Transferable Securities)regulations mandate that fund managers provide a standardizedKey Investor Information Document (KIID)to investors. This document ensures that all retail investors receive clear and concise information about the fund’s objectives, risks, charges, and past performance.

Company accounts (A): UCITS does not govern corporate accounting.

Corporate actions (B): Corporate actions such as dividends or mergers are unrelated to UCITS.

Trade settlement (D): UCITS does not standardize trade settlement processes.

References:

International Certificate in Wealth & Investment Management: Regulations surrounding UCITS and KIIDs.

UCITS directives and their implementation across the European Union.

Key Person Protection:

This insurance protects a business against financial loss if a critical employee (e.g., founder, CEO) becomes incapacitated or dies.

It is designed to mitigate reliance on essential individuals whose absence would disrupt operations.

Elimination of Other Options:

B: Size of the business is not the determining factor.

C: Significant customers are protected under other insurance (e.g., credit insurance).

D: Seasonal profits do not relate to key person risk.

References:

ICWIM Module 5: Focus on business risk management and insurance needs.

Private Equity and Growing Companies:

Private equity involves investing in privately-held companies with the goal of increasing their value and exiting through a stock market listing (IPO) or sale.

This investment type targets growth-stage businesses requiring significant capital.

Elimination of Other Options:

A: Convertible bonds are debt instruments, not equity investments.

B: Preference shares provide fixed dividends and are not growth-oriented investments.

D: Structured products are financial instruments tied to underlying assets and not specific to growth financing.

References:

ICWIM Module 3: Coverage of private equity investments and their objectives.