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CISI International Certificate in Wealth & Investment Management Sample Questions (Q47-Q52):

NEW QUESTION # 47
In normal market circumstances, the yield curve slopes upward. Why is this?

Answer: D

Explanation:
The yield curve typically slopes upward because long-term bonds have higher yields than short-term bonds.
* Why is Option C Correct?
* Investors require a higher return (yield) for longer-maturity bonds due to:
* Greater risk exposure (inflation, interest rate changes).
* Opportunity cost (capital is locked up for a longer period).
* This creates an upward-sloping yield curve.
* Why Not Other Options?
* A (Interest rate sensitivity) # While true, it does not explain why the curve slopes upwards.
* B (Resale value risk) # Not a key factor in yield curve structure.
* D (Bond-equity risk comparison) # Bonds react to interest rate expectations, but this does not cause the yield curve slope.
# Reference: CFA Institute (Fixed Income Markets), CISI Wealth & Investment Management.


NEW QUESTION # 48
Shareholder protection ensures sufficient funds are available to purchase the shareholding of a major shareholder on their death. It does this by:

Answer: D

Explanation:
Shareholder protection insurance is a crucial financial planning tool for businesses. It ensures that if a major shareholder dies, the remaining shareholders have the funds necessary to buy out the deceased's shares, preventing business disruption.
* How It Works:
* Each major shareholder is insured via a life insurance policy (answer C).
* If a shareholder dies, the insurance pays out a lump sum to allow the surviving shareholders to buy the deceased's shares.
* This prevents shares from being passed to family members who may not be involved in the business.
* Why Not Other Options?
* A (Investing in shares of the company) # This does not create liquidity to buy shares on a shareholder's death.
* B (Providing term assurance to employees) # This applies to employee benefits, not shareholder buyouts.
* D (Articles of Association) # These govern company rules but do not provide funding to purchase shares.
# Reference: FCA Guidelines on Business Protection, CISI Wealth & Investment Management (Business Continuity Planning).


NEW QUESTION # 49
When operating a restrictive fiscal policy governments will:

Answer: B

Explanation:
Restrictive fiscal policy, also called contractionary fiscal policy, is used to reduce aggregate demand in an economy, typically when inflationary pressures are high or when the government aims to reduce a budget deficit. The main fiscal tools are taxation and government spending. A restrictive stance is achieved by increasing taxes, reducing government expenditure, or a combination of both. Higher taxes reduce households' disposable income and can dampen consumption, while lower government spending directly reduces demand in the economy. Together, these measures can slow economic growth and help bring inflation under control. Options that involve increasing spending or reducing taxation are expansionary and would be intended to stimulate demand, not restrain it. Reducing interest rates is a monetary policy action carried out by the central bank, not a fiscal policy tool controlled by government in most frameworks, and it would typically be expansionary anyway. The examinable concept is the direction of policy: restrictive fiscal policy tightens budget settings through higher taxes and or lower spending.


NEW QUESTION # 50
The return from a zero coupon bond, held to maturity, is:

Answer: D

Explanation:
A zero coupon bond does not pay periodic coupon interest. Instead, it is issued at a discount to its face value and redeemed at face value at maturity. The investor's total return, when the bond is held to maturity, is therefore the difference between the purchase price and the redemption amount. In exam terms, that return is treated as a capital uplift rather than income, because there are no cash coupon payments received during the life of the bond. While market interest rates do influence the bond's price before maturity, which is why zero coupon bonds can be very volatile if sold early, the question specifies held to maturity. If the investor holds to maturity, the cash flows are fixed as purchase price outflow and redemption value inflow, so the realised return comes entirely from the price accretion from discounted purchase price to par redemption. This is the key conceptual distinction CISI tests: coupon bonds provide income plus potential capital change, whereas zero coupon bonds deliver their return through the capital element only, assuming no default and holding to maturity.


NEW QUESTION # 51
What term is used to describe a situation where clients give investment instructions to a firm without being given advice to do so?

Answer: B

Explanation:
Execution-only trading refers to transactions where the firm executes trades without providing financial advice.
* Why is Option B Correct?
* The client makes all investment decisions independently.
* The financial firm does not assess suitability or risk tolerance.
* Common in DIY investing platforms (e.g., stockbrokers, online trading apps).
* Why Not Other Options?
* A (Discretionary) # The firm manages investments without client approval for each trade.
* C (Non-discretionary) # The firm provides advice, but the client makes the final decision.
* D (Robo-advice) # Automated investment platforms provide algorithm-based recommendations.
# Reference: FCA Conduct of Business Rules (COBS 10), CISI Wealth & Investment Management.


NEW QUESTION # 52
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