dipfa - sample papers

8/11/2019 DipFA - Sample Papers

1/93

18.05.13

DipFa

FinancialServices,Regulationand Ethics (FSRE)

Exam - Style Questions

2012/13

Douglas James Training Consultants Limited


2/93

Douglas James Training Consultants Ltdbelieves that the sources of information on which this material

is based are reliable and has made every effort to ensure the complete accuracy of the text. However, neither

Douglas James Training Consultants Ltd, the author, nor any contributor can accept any legal

responsibility whatsoever for consequences that may arise from any errors or omissions, or any opinion or

advice given.

Whilst Douglas James Training Consultants Ltdmakes every effort to ensure that all information (writtenand verbal) provided is accurate and correct at the time, no liability for claims in relation to loss of business

or consequential damage incurred by a customer as a result of using or relying on the information will be

accepted. Douglas James Training Consultants Ltd shall not accept responsibility for loss or damage,

whether direct, indirect, incidental or consequential in connection with, or arising from your use of any

information provided by or omitted by Douglas James Training Consultants Ltd.

The documentation could include inaccuracies or typographical errors and is in no way intended to be an

official representation of the CII examinations. Douglas James Training Consultants Ltdmay make

improvements and/or changes to documentation at any time, without notice.

All rights reserved. No part of this publication may be reproduced in any material form (including

photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally

to some other use of this publication) without prior written permission of the copywright owner except in

accordance with the provisions of the Copywright, Designs and Patents Act 1988 or under the terms of a

license issued by the Copywright Licensing Agency Ltd. Applications for the copywright owners written

permission to reproduce any part of this publication should be addressed to the publisher at the following

address :

Douglas James Training Consultants Limited

Ravensthorpe House

London Road EastAmersham

Bucks

HP7 9DH

T 01494 722015

F 01494 725310

E [email protected]

Douglas James Training 2013

12.05.13


3/93

DA A C 4 :

1 , ()

2 A A (AA)

1 90 , , 5

100 . 70%. 10 .

A :

1 3 10

4 9 10

10 11 10

12 10

13 14 15

15 16 15

17 18 15

19 20 5

21 10

346

.

& 33

A 47

C 48

C 55 57

C 76 82 85

87

89


4/93

Specimen Questions Topic 1

The role and structure of financial markets

1) Which of the following is notone of the ways in which new shares can be offered

to the market ? (1.3.7)

A Public auction

B Private placement

C Rights issue

D Prospectus issue

2) An equilibrium price is one that : (1.1.3)

A provides the highest return for the seller.

B ensures that regulatory requirements are met.

C is determined by the interaction of supply and demand.D ensures both buyer and seller settle on a reasonable price.

3) What is the annual rate of interest on a repo agreement, where securities are exchanged for

5,500,000 and repurchased six months later for 5,750,000 ? (1.3.1)

A 4.35%

B 4.54%

C 9.09%

D 9.56%

4) A repo market is : (1.3.1)

A an unsecured secondary market where repossession contracts can be traded.

B a primary market for secured sale and repurchase agreements.

C an unsecured market in which banks lend to and borrow from each other.

D an unsecured primary and secondary market that brings together companies and investors.

5) When the securities in a repo agreement are transferred, the borrower retains the

(1.3.1)

A legal title

B economic ownership

C equitable ownership

D right of subrogation

6) The price of a corporate bond is primarily determined by the : (1.3.6.1)

A interest rate offered.

B term of the bond.

C companys credit rating.

D the interest rate and the term of the bond.


5/93

7) Which of the following correctly describes a rights issue ? (1.3.7)

A New shares are issued to existing shareholders at current market value .

B New shares are not offered to the general public, but placed with institutional investors.

C New shares are issued to the general public at current market value.

D New shares are issued to existing shareholders at a discount to current market value

8) How are Treasury Bills issued ? (1.3.3)

A Guaranteed interest, with a discount to par value

B Short term, zero coupon, at a discount to par value

C Long-term, with the redemption amount at par value

D Deep-discounted, with the redemption amount at par value

9) Which one of the following types of investment does notpay interest ? (1.3.3)

A Gilts

B Treasury bills

C Local authority stock

D Permanent Interest Bearing Shares (PIBS)

10) If Richard pays 95.00 for a Gilt with a coupon of 5%, what is his yield ? (1.3.6)

A 1.9%

B 4.75%

C 5.00%

D 5.26%

11) The Bank of England is a central bank because it (1.1.1)

A deposits money with the International Monetary Fund.

B has been approved by the Treasury and lends money direct to other banks.

C holds reserves of foreign currency for other banks and institutional investors.

D acts as banker to the government, supervises the economy and regulates the supply of

money.

12) Why would a client be interested in the coupon of a gilt-edged security ? (1.3.1.1)

A It gives an indication of expected income and capital growth.B It indicates the amount of capital repaid at maturity.

C It indicates the possible gain over the issue price at the redemption date.

D It indicates the interest rate payable over the term.


6/93

13) A large PLC company issued a corporate bond three years ago. There are two years remaining to

redemption. The value of the bond has suddenly fallen by over 50%. What are the two mainfactors

likely to have contributed to this fall in value ? (1.3.6.1)

A a reduction in the companys share price and credit rating

B an improvement in the companys profits and credit rating

C the length of time until redemption and the reduction in the share priceD an increase in bank base rate and the companys share price.

14) Which of the following correctly describes certificates of deposit ? (1.3.4)

A Medium term and non-tradeable

B Medium term and tradeable

C Short term and non-tradeable

D Short term and tradeable

15) CAC40 is a stock market index of: (1.3.7.3)

A the major German stocks

B 40 representative blue chip US stocks

C 40 Hong Kong Shares

D the largest French shares

16) Reinsurance refers to (1.3.9)

A the right of an insurer to call on another to meet a claim.

B the agent acting outside the terms of an agency agreement.

C the unknown consequences of an event occurring.D a risk-transfer method for insurance companies.

17) The Bank of England is the lender of last resort in the event of : (1.1.1)

A Illiquidity and insolvency

B Illiquidity and solvency

C Liquidity and solvency

D Liquidity and insolvency

18) Which is nota role of the Bank Of England ? (1.1.1)

A Regulate the supply of money and manage gold reserves

B Supervise the Financial Ombudsman Service

C Act as adviser to the Government

D Act as lender of last resort


7/93

19) How are UK Government gilts issued and traded ? (1.3.1.1)

A New issues and subsequent trading are carried out on the London Stock Exchange.

B New issues and subsequent trading are both done through the Debt Management Office

(DMO)

C New gilts are issued on the London Stock Exchange and subsequent trading is done through

the Debt Management OfficeD New gilts are issued by the Debt Management Office and subsequent trading is done on The

London Stock Exchange

20) Which of the following is notone of the traditional functions of money ? (1.1)

A A standard for advanced payment

B A unit of account

C Medium of exchange

D A store of value

21) The most important repo market in the UK is the : (1.3.1.1)

A Securities repo market

B Equity repo market

C London Stock Exchange

D Gilt repo market

22) Commercial paper is used by : (1.3.5)

A large companies who need short-term unsecured borrowing

B smaller companies who need long-term secured borrowing

C large companies who need short-term secured borrowing

D large companies who need long-term unsecured borrowing

23) The term commercial paper is used for securities issued by companies: (1.3.5)

A for a term of up to one year

B for terms of between one and five years

C for a term of more than five years

D for long-term borrowing

24) The main use of a foreign exchange market is : (1.3.8)

A to act as a market where banks and other financial institutions can lend to

each other in different currencies

B to enable banks and other financial institutions to convert one currency into

another, on their own account, or for their customers

C to act as a market where banks can borrow or lend to each other in different currencies.

D to act as an exchange where intermediaries can find the best rates at which to

deal in foreign currencies.


8/93

25) The main role of the Bank of England is currently to : (1.1.1)

A act as the UKs central bank

B be responsible for microprudential supervision

C be responsible for setting the Governments inflation target.

D regulate the UK money supply.


9/93


The Role of Government

1) Which of the following would notbe considered to be one of the main economic objectives of modern

governments ? (2.2.1)

A) Price stability

B) Low unemployment

C) Balance of payments equilibrium

D) Expansionary fiscal policy

2) The Government outlines its fiscal policy in the annual Budget statement. When is this statement

normally made each year ? (2.2.2)

A) JanuaryB) March

C) April

D) September

3) The Public Sector Net Borrowing Requirement (PSNBR) is a measure of the amount of

money the Government needs to borrow in order to: (2.2.2)

A Manage interest rates

B Finance its spending plans

C Determine the level of tax increasesD Ensure inflationary pressures are avoided

4) Which one of the following would notbe used by the Government as part of its fiscal policy ? (2.2.2)

A Interest rates

B Spending

C Taxation

D Borrowing

5) The Governments target for annual inflation is 2%. Which of the following statements is correct ?(2.2.3)

A The target is based on RPI and the intention is to keep inflation within 1% (plus or minus) of the

target.

B The target is based on RPI with the intention that inflation is kept within 0.5%

(plus or minus) of the target.

C The target is based on CPI and the intention is to keep inflation within 1% (plus or minus) of the

target

D The target is based on CPI and the intention is to keep inflation within 0.5% (plus or minus) of the

target.


10/93

6) The two main functions of the Government in relation to financial markets are : (2.1)

A Price stability and low unemployment

B Balance of payments equilibrium and economic growth

C Monetary and fiscal policy

D Managing the economy and regulation

7) When the Bank of England Monetary Policy Committee changes interest rates, what is actually changingis : (2.2.3)

A The London Interbank Offered Rate (LIBOR)

B The 14-day Gilt Repo Interest Rate

C The average variable mortgage interest rate

D Long-term gilt yields

8) What will normally be the effect, if any, if sterling falls in value against other currencies ? (2.2.3.4)

A Deflation

B Inflation

C Depression

D There would be no effect

9) Which of the following correctly describes the Retail Prices Index (RPI) and the Consumer Prices Index(CPI) ? (2.2.3.1)

A House price movements are included in the CPI, but excluded from the RPI

B House price movements are included in the RPI, but excluded from the CPI

C Many housing-related costs are included in the CPI, but excluded from the RPID Many housing-related costs are included in the RPI, but excluded from the CPI

10)Inflation can be described as : (2.2.3.1)

A A fall in the general level of prices and a rise in the purchasing power of money

B A rise in the general level of prices and a rise in the purchasing power of money

C A fall in the general level of prices and a fall in the purchasing power of money

D A rise in the general level of prices and a fall in the purchasing power of money

11)Which of the following is most likelyto lead to an increase in the rate of inflation ? (2.2.3.1)

A A reduction in interest rates

B A rise in the budget surplus

C An interest rate increase

D An exchange rate increase

12)What happens to prices during a period of disinflation ? (2.2.3.1)

A They match trends in output and demand

B They rise, but at a slower rate than before.

C They start to fall across the entire economy

D There is negative inflation


11/93

13)During a period of deflation, prices tend to : (2.2.3.1)

A rise, but at a slower rate than previously.

B fall significantly across the entire economy.

C fall dramatically only for identified industries.

D rise and fall in line with average earnings.

14)If the nominal rate of return on an investment is 3.5%, annual inflation is 1.5% and Bank base rate is0.5%, what, roughly, is the realrate of return ? (2.2.3.2)

A 1.3%

B 1.5%

C 2.0%

D 3.0%

15)In terms of the money supply, which of the following measures is the broad money aggregate ? (2.2.3.3)

A M0

B M1

C M3

D M4

16)Financial services regulation in the UK is a five-tier process. Which of the following comprises the firstlevel ? (2.3)

A European legislation

B Acts of Parliament

C Regulatory bodiesD Arbitration schemes

17)The 1987 Single European Act specifies four main freedoms which of the following is notone of them? (2.3.1)

A Freedom of movement for assets

B Freedom of movement for goods

C Freedom of movement of capital

D Freedom to provide services in other states

18)The European Union has issued a new DIRECTIVE. This means that the member state (2.3.1)

A must implement the Directive immediately.

B can choose whether or not to adopt the Directive.

C has the choice of how to meet the Directives objectives.

D must implement the Directive, provided the member state is part of the Eurozone.


12/93

19)The main difference between European Union Regulations and Directives is that EU Regulations :(2.3.1)

A are binding as to the result to be achieved, with the choice as to exactly how they are

achieved being left up to the national authorities in each state.

B are binding in their entirety and directly applicable in all member states, unless

particular states have specific dispensation.C have to be adopted by the national authorities of every state before they can be

enforced across the whole Union.

D must be achieved within a specific timescale typically two years.

20) Which approach is the Government likely to take if it is concerned about risinginflation during an economic boom ? (2.2.2)

A Contractionary monetary policy

B Contractionary fiscal policy

C Expansionary monetary policy

D Expansionary fiscal policy

21) If the EU issues regulations in respect of the financial services industry, how wouldthe UK be expected to respond ? (2.3.1)

A It must implement them without any changes

B It may ignore them if existing national regulations already exist

C It will amend and then implement them through new UK legislation

D The regulations must be reviewed by the UK regulator, who will decide the

merits of their implementation

22) If the UK adopted the euro, what would be the outcome ? (2.3.1)

A The need for exchange rates would be eliminated

B The European Central Bank would set interest rates

C All eurozone states would have the same inflation rate

D Interest rates would immediately reduce

23) Which of the following is most commonly an indicator of an increase in the M4

growth rate ? (2.2.3.3)

A Decreasing consumer borrowingB Decreasing consumer spending

C Increased public confidence

D Increasing rates of inflation

24) The key component of monetary policy is : (2.2.3)

A Interest rates

B Government spending

C Taxation

D Balance of payments


13/93

25) Under the Freedom of Movement for capital under the Single European Act,restrictions on payments are prohibited for which of the following ? (2.3.1)

A Goods only

B Goods and services

C Services only

D Neither goods nor services

26) Who sets the inflation target for the UK Monetary Policy Committee ? (2.2.3)

A The Governor of the Bank of England

B The Chancellor of The Exchequer

C The Financial Secretary to The Treasury

D The First Lord of The Treasury

27) Regulation of the UK financial services industry comprises five levels. What is thesecond level of regulation ? (2.3)

A European legislation

B Regulatory bodies

C Acts of Parliament

D Arbitration schemes

28) What is the typical timescale within which the objectives of a European Directive mustbe implemented ? (2.3.1)

A Six months

B One yearC Two years

D Three years

29) The realrate of interest is calculated by : (2.2.3.2)

A The nominal rate of interest + the rate of inflation

B Inflation rate less the nominal rate of interest

C The nominal rate less the rate of inflation

D Inflation rate multiplied by the nominal rate of interest

30) Which of the following would the UK Government not consider in relation to correctinga trade deficit ? (2.2.2.1)

A Reduce interest rates

B Borrow foreign currency

C Impose import tariffs

D Impose exchange controls


14/93

31) Which of the following are the three main components of the Governments fiscalpolicy ? (2.2.2)

A Government spending, interest rates and taxation

B Taxation, borrowing and Government spending

C Interest rates, taxation, borrowing

D Government spending, interest rates, borrowing


15/93


Financial services in the wider economy

1) Financial intermediaries can provide maturity transformation because they: (3.1)

A offer a wide range of deposit accounts to a wide range of depositors.

B aggregate many small deposits from a large number of clients.

C provide services to clients from many different geographical locations

D reduce the risk of default of fraud by lending to a wide variety of borrowers.

2) Which of the following is always a mutual organisation ? (3.2.1)

A Bank

B Insurance Company

C Centralised lender

D Friendly Society

3) All of the following factors relate to the main reasons why companies and individualsneed the services of financial intermediaries, with the exception of : (3.1)

A geographic location

B maturity transformation

C risk transformation

D share disintermediation.

4) A bank can use small customer deposits to provide larger loans. This is an example of (3.1)

A Aggregation

B Disintermediation

C Maturity transformation

D Risk transformation

5) Since the Building Societies Act 1986, building societies have been able to demutualise. Such achange requires : (3.2.1)

A the consent of its shareholders

B the society to have operated for at least three years

C at least 25% of its issued share capital to be available to the public

D approval by its members

6) What minimum percentage of their funds must building societies provide from their retail markets ?(3.2.2)

A 10%

B 25%

C 50%

D 75%


16/93

7) Which one of the following factors distinguishes building societies from other financial institutions ?(3.2.1)

A they are mutual institutions owned by their members.

B they are owned by their shareholders.

C they only lend for mortgage purposes.

D they cannot make regulated loans.


17/93


Industry obligations to the customer

1) An independent financial adviser has given investment advice to an investment firm which requires

advice as well as the execution of the transaction. The firm would be treated as which of thefollowing categories of client ? : (4.1)

A a retail client

B an execution-only investor

C a professional client

D an eligible counterparty

2) Which of the findings of the Financial Services Trust Index 2009, is correct? (4.3)

A Institutions gain the highest trust ratings in terms of shared values and the

lowest in terms of skills and ability.B Older customers tend to show significantly higher levels of trust than younger

customers.

C Levels of trust amongst those who use the internet is higher, particularly for

bank and credit card providers.

D Successful resolution of complaints does little to avoid the negative impact on

trust.

3) A survey of consumer attitudes and buying experiences carried out by the Financial

Services Consumer Panel in 2006 found that negative perceptions of the industry are

higher among those who : (4.3)

A have bought few if any financial products

B have significant financial wealth

C have a reasonable knowledge of financial matters

D are in the 35-55 age group

4) The target audience for a study which was commissioned by the FSA around its basicadvice regime, focussed on which of the following groups ? (4.3.1)

A Less sophisticated consumers with annual incomes below 30,000

B The self-employed

C Those who had purchased Stakeholder productsD Those in the 35-55 age range

5) Of the three categories of customer, which requires the lowestlevel of protection ?(4.1)

A Eligible counterparty.

B Retail client

C Professional client

D Execution-only


18/93

6) One of the findings of the Financial Services Trust Index survey was that although there was areasonable level of trust in financial services providers, there was low trust indicated by what percentage

of consumers ? (4.3)

A 10%

B 20%

C 30%D 40%


19/93


Types of customers and their needs

1) Which of the following is true ? (5.4)

A Trustees have automatic borrowing powers, irrespective of the contents of the trust deed.

B Trustees have no legal capacity to borrow because of the duty of care they owe to the

beneficiaries.

C Trustees can only borrow if the loan is to be used specifically for dealing with

probate matters.

D Trustees can only borrow if they are specifically empowered to do so by the trust deed.

2) Which one of the following is usually the priority financial need for young families ?

(5.5.4)

A SavingsB Investment

C Income and life assurance protection

D Pension planning

3) The usual financial priority of a retired individual is to : (5.5.7)

A build a capital reserve.

B increase income from investments.

C minimise capital gains tax liability.

D produce income from capital.

4) Albert, a widower aged 66, is reviewing his financial needs and priorities with his financial adviser.If his attention is particularly being drawn to tax planning issues, this would most likely be because

he has :

A amended his will to include his grandchildren.

B a current annual income of 20,000

C recently downsized his house to fund for long term care.

D total assets valued at 750,000

5) Damian and Collette have been business partners for over 20 years and are reviewing their finances

with Jack, their financial adviser. They are keen to mitigate the risk of being personally responsible

for any debts of the business over and above any capital that they have invested ; Jack has advisedthem to consider : (5.3.2.1)

A becoming a limited liability partnership

B becoming sole traders and employing each other

C taking out a re-insurance policy to ring-fence future profits

D taking out separate indemnity insurance policies and assign them to the other

partner


20/93

6) Tom and Bobby both run their own businesses, but only Tom is personally liable for

the debts of his business, because : (5.3.1)

A Tom is self-employed and Bobby is a company director

B Bobby is self-employed and Tom is a company director

C Tom is in a limited liability partnership and Bobby is a company director

D Bobby is in a limited liability partnership and Tom is a company director

7) Which of the following would notbe seen as a typical financial need for a limitedcompany ? (5.3.3)

A Business banking

B IHT planning

C Business insurance

D Loan protection

8) One of the key drawbacks of a limited liability partnership (LLP) compared with anordinary partnership, is that : (5.3.2.1)

A if one partner disappears, the other partners will be responsible for the debts of

the business.

B a limited liability partnership is not a legal entity in its own right.

C requirements for financial and accounting information are far more onerous.

D a limited liability partnership does not have the ability to borrow.

9) For mature households, which of the following is seen as a priority ? (5.5.6)

A pension provisionB savings and investment

C long term care

D family protection

10) Ashley is aged 40 and earns 57,000 per annum as a musical director. What is hisincome tax liability for the 2012/13 tax year ? (5.8.1)

A 12,284

B 12,684

C 15,860

D 19,558

11) Martin, a basic rate taxpayer, sold some shares after all deductions and allowancesand made a gain of 5,000. If his taxable income in 2012/13 was 25,300, what capital

gains tax, if any, will he be required to pay ? (5.8.2)

A Nil

B 900

C 1,400

D 2,646


21/93

12)Howard died in Dec 2007 and left his entire estate of 150,000 to his son, when the nil-rate band was300,000. Hilda, his widow, subsequently died in May 2012, when the nil rate band was 325,000. By

how much, if any, was her nil-rate band increased ? (5.8.3)

A Nil

B 150,000

C 162,500D 325,000

13) Mike recently made a potentially exempt transfer to his son Freddie for 30,000. What is the minimum

period he must survive from the date of the transfer before any inheritance tax is charged at a reduced

rate ? (5.8.3)

A 2 years

B 3 years

C 4 years

D 7 years

14) A persons domicile mainly affects which of the following forms of taxation ? (5.8.3)

A Capital gains tax

B Income tax

C Corporation tax

D Inheritance tax

15) Veronica made a gift to her son Jack in excess of the nil-rate band for inheritance tax purposes

and then died five years later. What relief, if any, would apply to the gift ? (5.8.3)

A None

B Roll-over relief

C Indexation relief

D Taper relief


22/93


Meeting customers needs protection

1) All other factors being equal, which one of the following statements is correct in relation to lifeassurance premiums ? (6.1.1.1)

A Men pay higher premiums than women because of higher morbidity risk

B Men pay higher premiums than women because of higher mortality risk

C Women pay higher premiums than men because of higher morbidity risk

D Women pay higher premiums than men because of higher mortality risk

2) Johns employer has an annual gross profit of 500,000 and an annual wage bill of 100,000.Johnssalary is 50,000 per annum and his loss would be felt by the firm for three years. What key person

cover could the firm apply for on Johns life ? (6.4.1)

A 250,000

B 500,000C 750,000

D 850,000

3) Which of the following methods of arranging partnership protection gives the remaining partners theright, but not the legal obligation, to purchase the deceased partners share ? (6.4.2)

A The automatic accrual method

B The buy and sell method

C The cross-option method

D The qualifying shareholder method

4) Which one of the following is the mosttax-efficient method for establishing a share protectionscheme, from an inheritance tax perspective ? (6.4.2)

A Key person insurance

B The buy and sell method

C The cross-option method

D Automatic accrual

5) Which one of the following protection products is designed to provide benefits on death only?

A Mortgage payment protection insuranceB Critical illness cover

C Income protection insurance

D Term assurance


23/93

6) Which one of the following is unlikelyto be considered a financial priority for a young, single adult

A Life assurance

B Accident, sickness and unemployment cover

C Savings

D Critical illness

7) Jack and Vera are in their late 50s and their children are now financially independent. Which of thefollowing financial planning needs is likely to be the lowestpriority for them ?

A Inheritance tax planning

B Family protection

C Private medical insurance

D Long-term care insurance

8) The main use of a joint life second death policy is : (6.1.1.4)

A to pay a lump sum on diagnosis of a terminal illness.

B to provide a tax-efficient savings vehicle

C to provide funds to pay an inheritance tax liability

D to repay a joint mortgage

9) Paul and Heather have now decided to divorce. They have two children, George and Stella, aged sevenand nine. What actions, if any, should be taken with regard to existing life, accident and health

insurance policies ?

A No action need be taken until a decree absolute is issued by the court.

B All insurances will need to be re-evaluated, which should take place before the next reviewdate.

C Arrangements should be appraised at the next review meeting.

D Life assurance protection should be reviewed and adjusted, because the level of insurable

interest will now be reduced.

10)Which of the following benefits and options would not be added to a Universal Whole of Life policy ?(6.1.2.2.1)

A Income Protection Insurance

B Critical Illness Cover

C Accident and Sickness coverD Hospitalisation Benefit


24/93

11)What is the assumption where a company decides to adopt the standard formula whencalculating the appropriate level of key person cover for an employee whose loss would have an

adverse impact on the profitability of the company ? (6.4.1)

A That the key employees contribution to profit is in the same proportion as his/her

remuneration bears to the companys total wage bill.

B That the key employees remuneration is in the same proportion as his/her overallcontribution to the companys annual turnover.

C That it would take one year for the company to recover from the financial impact of the loss

of the employee.

D That the key employees contribution to profit is in the same proportion as his/her

remuneration bears to the annual turnover of the company.

12) Which one of the following regarding waiver of premium benefit on a lifeassurance policy is false ? (6.1.2.2)

A Waiver is not an automatic feature of the plan.

B Benefits are usually payable immediately.

C There is a small additional monthly charge

D The waiver of premium option is particularly attractive to the self-employed.

13)What is the deferred period under an income protection insurance policy ? (6.2.2)

A The time before the policy cover takes effect.

B A period of sickness during which no benefit is payable.

C The period before the start of the policy and completion of underwriting.

D A period during which no premiums are allocated to purchase units.

14)Derek made a claim on his critical illness policy, but later recovered andreturned to work. How was his policy affected ? (6.2.1)

A He had the option to re-start the policy at a higher premium.

B The cover was reinstated, but his previous illness was excluded.

C No further premiums were required because the policy had ceased.

D The policy could be reinstated, provided he repaid the claim.

15)For whom is income protection insurance (PHI) particularly important ? (6.2.2)

A Self-employedB Part time employees

C Full-time employees

D Part time self-employed


25/93

16) On a with-profits policy, what is a reversionary bonus ? (6.1.2.1)

A An irregular payment determined by the type of policy and the number of lives

assured.

B A payment made on maturity at the discretion of the assurance company.

C One which reverts to a minimum level in the event of a claim.

D One which is declared regularly and once attached to the policy is guaranteedpayable at the maturity of the policy.

17)There are three key elements to consider when advising on life cover which of the following is notincluded ? (6.1.1.1)

A The level of cover required

B The type of plan

C Potential inheritances

D The term for which cover is required

18)What will cause fluctuations in the value of a unit-linked policy ? (6.1.2.2)

A Fluctuations in the value of the underlying investments.

B The amount of the reversionary bonuses which have been allocated.

C The length of time the policy has been held.

D The amount of terminal bonus added.

19) How would a life company underwrite premiums on an increasing term assurance plan

(6.1.3.2)

A On the initial level of coverB By a fixed percentage each year

C On the level of cover halfway through the policy term

D On the final level of sum assured.

20) John is a self-employed bricklayer. To which benefit is he initially entitled if he is

unable to work because of illness ? (6.2.6.2)

A Statutory Sick Pay

B Employment and Support Allowance

C Short-term higher rate Incapacity Benefit

D Long-term Incapacity Benefit

21) Under the Employment and Support Allowance, an assessment phase rate is initially paid for what

period of the claim ? (6.2.6.2)

A Three days

B The first 13 weeks

C The first 14 weeks

D 28 weeks


26/93

22) Keith is considering using the conversion option under his convertible term assurance

policy and can easily afford to increase his premiums. What factor is most likely to

influence his choice of the two main options typically available under this facility ?

(6.1.3.4)

A The amount of disability cover he already has in place

B The degree of risk he is prepared to acceptC The duration of cover required

D The state of health of his wife

23) An insurance policy which includes accident cover would most likely be used in connection with

which particular financial need ?

A Estate planning

B House purchase

C Tax planning

D Retirement planning

24) Adam is married with three young children and following a financial review, the need for additional

life assurance was identified, with the proceeds going to someone outside the family. This was

justified because he is :

A self-employed

B the trustee of an estate

C one of three business partners

D a discharged bankrupt

25) Statutory Maternity Pay is payable for a maximum of : (6.2.6.7)

A 11 weeks

B 26 weeks

C 33 weeks

D 39 weeks

26) In which of the following circumstances would a decreasing term

assurance notbe considered suitable ? (6.1.3.6.1)

A As part of a low-cost endowment policy.

B As a gifts inter-vivos plan.C As cover for an interest-only loan.

D As a mortgage protection policy linked to a repayment mortgage.

27) Employers who contribute to private medical insurance for their employees : (6.2.4.2)

A receive plan benefits that are taxed as trading receipts.

B can claim the cost as an allowable deduction against corporation tax.

C pay benefits to employees without deduction of income tax

D pay corporation tax on their contributions.


27/93

28) Which of the following would notbe considered a factor in the underwriting

process ? (6.1.1.1)

A Health

B Marital status

C Age

D Sex

29) When a life policy is being taken out on a life of another basis, which legal

principle applies ? (6.1.1.4)

A Caveat emptor

B Utmost good faith

C Insurable interest

D Subrogation

30) The maximum life assurance cover that a person can arrange on themselves is :

(6.1.1.4)

A unlimited

B 10 million

C 10 times their current salary

D Equivalent of the persons lifetime income

31) Which of the following is generallythe maximum benefit on an Income Protection

Plan (PHI) ? (6.2.2)

A 50% - 65% of pre-disability earnings plus state benefitsB 55% - 60% of post-disability earnings less state benefits

C 50% - 60% of pre-disability earnings less state benefits

D 60% - 65% of post-disability earnings plus state benefits

32) Units in a unit-linked policy are purchased at the : (6.1.2.2)

A Bid price

B Offer price

C Cancellation price

D Strike price


28/93

State Benefits summary

People on low incomes Means-tested

income

Means-tested

savings

Dependent on

NI contributions

Taxable

Working Tax Credit Yes Yes No No

Income Support Yes Yes No No

Jobseekers Allowance:

Contribution-based No No Yes Yes

Income-based Yes Yes No No

Child Tax Credit Yes Yes No No

People bringing up children

Statutory Maternity Pay No No Yes Yes

Maternity Allowance No No No No

Child Benefit Yes No No No

People who are ill or disabled

Statutory Sick Pay No No Yes Yes

Incapacity Benefit No No Yes Yes

Employment & Support All. No No Yes Yes

Attendance Allowance No No No No

Disability Living Allowance No No No No

Carers Allowance Yes No No Yes

People in hospital or

residential/nursing care

Income Support Yes Yes No No

People in retirement

Basic State Pension No No Yes Yes

Additional State Pension No No Yes Yes

Bereavement

Bereavement payment No No Yes No

Bereavement allowance No No No Yes


29/93


Meeting customers needs savings and investment

1) Mr and Mrs Green have three children aged 15, 17 and 19. Excluding Junior ISAs, what is the

maximum monthly contribution the family can make to stocks and shares ISAs in the 2012/13 tax

year ? (7.5.3)

A 2,820

B 2,670

C 3,760

D 4,700

2) Which of the following National Savings and Investments products provides tax-free

returns ? (7.6.7)

A Investment AccountB Guaranteed Growth Bond

C Fixed Interest Savings Certificates

D Income Bonds

3) The minimum opening deposit in a NS & I Direct Cash ISA is (7.6.6)

A 10.00

B 100.00

C 500.00

D 1,000.00

4) A higher level of interest applies to NS & I Income Bonds with a balance of over : (7.6.5)

A 10,000

B 15,000

C 25,000

D 50,000

5) Jack encashed his two-year NS&I Fixed Rate Certificate after just 10 months. What did he receive

back ? (7.6.7)

A Return of capital + tax-free interest

B Return of capital + taxable interestC Return of capital only

D Return of capital only, less an early redemption penalty.

6) Public limited companies whose business is investing in the stocks and shares of other

companies are known as : (7.4.3.4)

A Unit trusts

B Investment trusts

C Venture capital trusts

D Corporate bonds


30/93

7) The price at which clients buy units in a unit trust is known as the: (7.4.3.1.4)

A Creation price

B Offer price

C Cancellation price

D Bid price

8) Margaret invested 30,000 in an insurance investment bond 15 years ago. The investment has now

grown to 61,000. Which of the following withdrawals would have triggered a chargeable event ?

(7.4.3.6.1.4)

A 1,000 in year 11

B 4,000 in year 12

C 7,200 in year 15

D 8,300 in year 5

9) The maximum overall investment into an Individual Savings Account (ISA) in the 2012/13 tax year

is 11,280. What percentage of this figure can be invested in a cash ISA ? (7.5.3)

A 25%

B 50%

C 75%

D 100%

10) Bob is aged 67, retired and wishes to save 80 per month for an event occurring in four years time.

He wants a tax-efficient, risk-free environment. Which of the following savings products would you

consider to be the most suitable for him ?

A A maximum investment plan

B NS and I Guaranteed Income Bond

C A National Savings Fixed Interest Savings Certificate

D A Cash ISA

11) Which of the following pooled investments permits investment in unquoted private companies ?

(7.4.3.4)

A Investments trusts only

B OEICs and unit trusts

C OEICs onlyD Unit trusts and investment trusts

12) In an Open Ended Investment Company (OEIC), the role of the Depository is to :

(7.4.3.2)

A manage the investments.

B buy and sell the OEIC shares.

C ensure the share price reflects the underlying net asset value of the OEIC investments.

D oversee the operation of the company and ensure compliance with the rules for

investor protection.


31/93

13) EIS shares are eligible for 100% Business Property Relief if they have been held

for what period prior to the investors death ? (7.7.2)

A One year

B Two years

C Three years

D Five years

14) Who buys and sells the shares of an Open-Ended Investment Company (OEIC), as required by

investors ? (7.4.3.2)

A The Authorised Corporate Director

B The Depositary

C The Fund Manager

D The Trustee

15) Hannah wants to build a retirement fund and has been recommended a stocks and shares ISA, rather

than a stakeholder pension. This was because :

A her National Insurance record is not up to date

B she is in good health, with a family history of longevity

C the entire fund is to finance a round the world cruise

D her employer closed the company scheme several years ago

16) Which of the following statements relating to (EIS) Enterprise Investment Schemes is

correct ? (7.7.2)

A EIS shares held for a minimum of two years qualify for IHT Business PropertyRelief

B Dividends from EIS shares are free of tax if held for five years

C Investors receive tax relief of 30% on investments up to 200,000 in each tax

year

D Gains will not be subject to capital gains tax if shares are held for five years

17) An insurance company may pay a terminal bonus on a with-profits endowment policy in which of

the following situations ? (7.4.3.6.2.1)

A Death only

B Surrender onlyC Death or maturity

D Death, maturity or assignment

18) In which of the following ways does a unit-linked endowment differ from a traditional with-profits

endowment ? (7.4.3.6.2.2)

A The sum assured relates only to the death benefit.

B The qualifying rules are different

C A potential capital gains tax liability exists for the investor

D They are more readily saleable on the traded endowment market.


32/93

19) Which one of the following is true in relation to the manager of an investment trust ?

(7.4.3.4)

A He cannot borrow funds

B He can borrow to improve capital growth and income.

C He can issue more units or repurchase units according to demand.

D He can cancel units if the fund value falls sharply

20) Since 6 April 2012, the maximum investment into an Enterprise Investment Scheme (EIS) that will

attract tax relief, is : (7.7.2)

A 100,000

B 150,000

C 400,000

D 1million

21) A higher rate taxpayer receives a net dividend of 90.00. What additional tax will

be payable, if any ? (7.4.3.1.5))

A Nil

B 18

C 20

D 22.50

22) The fixed price at which a put option can be exercised is known as the : (7.7.1.1)

A Spot price

B At the money priceC Strike price

D Bid price


33/93

National Savings and Investments (NS&I)

Here is a blank NS & I matrix with which to practice

Product Tax Min Max Basic criteria Interest

Premium

BondsIndex linkedCertificatesFixed InterestCertificatesDirect ISA

ChildrensBonus Bonds

Guaranteed

Income BondGuaranteedGrowth Bond

Direct Saver

InvestmentAccountIncomeBonds


34/93

National Savings and Investments (NS& I)

These are a range of savings and investment products offered on behalf of the Government. Allproducts guarantee a return of capital.

Now one of the largest savings organisations in the UK, NS&I has almost 27 million customersand over 97 billion invested.

The table below sets out the key NS&I products with which you will need to be familiar for theexam. The first 5 products in the table provide tax-free returns and can be remembered by thepnemonic PIFI Kids

Product Tax Min Max Basic criteria Interest

PremiumBonds

Tax Free 100 30,000 Age 16

Index linked

Certificates

Tax Free 100 15,000 Age 7

3 & 5 yrs

Fixed rate + RPI

Fixed InterestCertificates

Tax Free 100 15,000 Age 72 & 5 yrs

Fixed rate

Direct ISA Tax Free 100 5,640 Age 16UK Residents

Variable rate

ChildrensBonus Bonds

Tax Free 25 3,000 IndividualsUnder 16

Fixed rate

GuaranteedIncome Bond

Taxable 500 1 million 16 Paid net of basic ratetax

GuaranteedGrowth Bond

Taxable 500 1 million 16 Paid net of basic rate

tax at end of the term

Direct Saver Taxable 1 2 million 16 Variable rate Gross

InvestmentAccount

Taxable 20 1 million 7 Gross

Variable rateIncomeBonds

Taxable 500 1 million 7Monthly income

Gross

Taxable

Variable rate

Refer to your study text for more details on these products (7.6)


35/93

Topic 8 Specimen Questions

Meeting customers needs retirement and estate planning

1) Molly will receive the basic State pension in her own right next month when she retires. The pension she

receives will be directly related to : (8.1.3.1)

A her credited National Insurance contributions

B a percentage of her average band earnings over her working life.

C her age

D her pre-retirement salary

2) The Government is in the process of equalising the State retirement age for men and women. Theequalisation will be fully implemented in : (8.1.3)

A 2010

B 2015C 2020

D 2023

3) Pensions and certain other investments, such as ISAs, offer tax advantages. Which of the following

is an advantage that is enjoyed by pensions, but not by ISAs ?

A No capital gains tax in the fund

B The ability to take tax-free cash

C Tax relief on contributions

D No income tax liability, other than the tax credit on UK dividend income.

4) How much tax-free cash, if any, can be taken from a pension arrangement at retirement ? (8.1.1.3)

A None

B 25%

C 50%

D 100%

5) What is the minimum number of qualifying years contributions or credits required to

qualify for a full basic State pension ? (8.1.3.1)

A 20

B 25

C 30

D 35

6) What is the minimumage at which National Insurance Contributions can be made ?

A There is no minimum age

B 16

C 18 or the end of full-time education

D 21


36/93

7) Robert, an additional rate taxpayer, makes a contribution to a pension scheme which exceeds the

annual allowance by 15,000. What tax charge, if any, will be applied ? (8.1.1.2)

A Nil

B 3,300

C 7,500

D 8,640

8) Which of the following has the effect of restricting the amount of tax-relieved contributions in an

individual tax year ? (8.1.1.2)

A Annual allowance

B Lifetime allowance

C Pension input amount

D Earnings cap

9) Richards pension fund growth will become totally free of taxation if he switches from :

A Corporate bonds to ordinary shares

B Ordinary shares to corporate bonds

C Ordinary shares to preference shares

D Property to preference shares

10) Which one of the following will notaffect the level of retirement benefits received by an individual

in a defined-benefit scheme ? (8.1)

A The individuals final salary

B The number of years for which the individual is a member of the schemeC The investment performance of the pension fund

D The schemes accrual rate

11) From April 6th 2011, the basic State pension increases each year by: (8.1.3.1)

A the increase in the Retail Prices Index (RPI)

B the greater of the annual increase in earnings and RPI

C the greater of the annual increase in earnings, Consumer Prices Index and 2.5%

D 2.5%

12) On a stakeholder pension taken out in 2008/9, annual charges must not exceed what percentage ofthe value of the fund ? (8.1.2.2.1)

A 0.5%

B 1.0%

C 1.5%

D 2.0%


37/93

13) A SIPP can borrow up to what percentage of the net value of the fund with which to buy a

commercial property ? (8.1.2.2.2)

A 25%

B 50%

C 75%

D 100%

14) Teresa, 60 has no net relevant earnings. Assuming she has funds to invest in both a stakeholder

pension and a stocks and shares ISA, she can invest how much more, if any, in the ISA than the

stakeholder pension in 2012/13 ? (8.1.1.2)

A The contributions are the same

B 2,040

C 7,080

D 7,680

15) Jill has relevant earnings of 3,000 per annum in the 2012/13 tax year. What is the

maximum net annual tax-relievable contribution she can make to a personal pension

or stakeholder plan ? (8.1.1.2)

A 2,400

B 2,880

C 3,000

D 3,600

16) The flexible drawdown facility is available to those with secure retirement income of what annual

amount ? (8.1.1.3)

A 20,000

B 25,000

C 30,000

D 50,000

17) A Stakeholder Pension has which one of the following features ? (8.1.2.2.1)

A Guaranteed returns

B Proceeds easily accessible

C Low chargesD Early retirement age


38/93


Meeting customers needs : borrowing

1) Which of the following might be regarded as a disadvantage of an interest-only mortgage?

(9.1.1.2)

A The interest rate charged is usually higher than for a repayment mortgage.

B The outstanding capital remains constant throughout the mortgage term.

C The mortgage cannot be arranged on a monthly or a daily rest basis.

D The mortgage term cannot be longer than that of any repayment vehicle.

2) Charles has a capital and interest tracker mortgage - which of the following is a correctdescription ? (9.1.2.5)

A capped

B fixed.C LIBOR -linked

D variable rate

3) Anne has a mortgage with a 2% discount over the first two years. At the end of the discountperiod her payments : (9.1.2.4)

A are expected to increase.

B are expected to decrease.

C are expected to stay the same.

D could decrease or increase, depending on prevailing interest rates.

4) Personal loans are offered by banks, building societies and some finance houses. The purpose ofthe loan determines whether it is regulated under the terms of the

(9.3.1)

A Consumer Credit Act 2006

B Financial Services Act 1986

C Investment Services Directive

D Financial Services Action Plan

5) Which of the following would be a benefit to a couple who have a tracker mortgage linked to astocks and shares ISA ? (9.1.2.5)

A The addition of reversionary bonuses

B A rise in the rate of inflation

C A rise in the FTSE 100 index

D A rise in interest rates


39/93


Regulatory authorities in the UK

1) Supervisory powers for the financial services industry are delegated to the Financial Services Industry

under the Financial Services and Markets Act 2000 by the : (10.3)

A Chancellor of the Exchequer

B Secretary of State for the Department of Business, Innovation and Skills

C EU Commissioner for Financial Markets

D Governor of the Bank of England

2) Which of the following defines regulated investments ? (10.3.3)

A FSMA 2000

B The Regulated Activities Order 2001

C The Regulated Investment Act 2002

D The Bank of England

3) Which of the following is notone of the FSAs Statutory objectives ? (10.5)

A EU harmonisation of financial services

B Market confidence

C Consumer protection

D Reducing financial crime

4) Which of the following would be exempt from the Consumer Credit Act 2006regulations ? (10.7.1)

A A loan to a small partnership for 26,500

B A loan to a self-employed builder for 15,500

C A loan to a small business for 30,000

D A loan to an individual for 25,000

5) Which of the following is notdeemed to be included in the terms of the Supply ofGoods and Services Act 1982 ? (10.7.4)

A The work will be done to a specified standard.

B The work will be done with reasonable care.C A reasonable charge will be made

D The work will be done within a reasonable time


40/93

6) Any firm applying for permission to carry out a regulated activity must satisfy theFSA that it is fit and proper, by meeting a set of threshold conditions. Which of the

following is not one of those conditions ? (10.3.1)

A Close links

B Adequate resources

C Legal statusD Accountability

7) The tripartite system of regulation comprises : (10.4)

A HM Treasury,The Office of Fair Trading and The FSA

B The FSA, The Bank of England and the Home Office

C The Bank of England, HM Treasury and The FSA

D The FSA, HM Treasury and the Department for Trade and Industry (DTI)

8) What is the function of the Pensions Regulator ? (10.7.2)

A To advise the FSA on the regulation of occupational pension schemes.

B To deal with complaints about the running of pension schemes.

C To give advice and general information about pension schemes.

D To protect the benefits of members of work-based pension schemes.

9) Jacks complaint to his credit card company under the Unfair Terms in ConsumerContracts Regulations Act 1999 is still unresolved to whom can he now take his complaint ? (10.7.5)

A The Office of Fair Trading

B The Financial Ombudsman ServiceC The Consumers Association

D The FSA

10) Which one of the following contracts would be subject to the Unfair Terms in Consumer

Contracts Regulations 1999 ? (10.7.5)

A A contract between two businesses for the supply of metal sheeting.

B A contract for the sale of a house between a private seller and buyer.C An individually negotiated contract for the sale of a fitted kitchen.

D A standard service contract between an electrical company and a consumer.


41/93


International regulation

1) The implementation of financial regulation across EU member states is carried out

under which overarching programme ? (11.4.1)

A Financial Services Action Plan

B Financial Services and Markets Act 2000

C Markets in Financial Investments Directive (MiFID)

D Insurance Mediation Directive

2) Regulations concerning minimum capital adequacy requirements for banks, are focused on which of

the following ? : (11.1.1)

A Basel Accord

B Banking Act 1987

C Financial Services and Markets Act 2000D FSA Conduct of Business rules

3) The effect of the 1988 Basel Accord was that any losses made when bank customers defaulted on

their loans should be borne by the banks : (11.1.1)

A Depositors

B Directors

C Regulators

D Shareholders

4) The Basel Committee on Banking Supervision is a multinational committee of whichof the following institutions ? (11.1.1)

A The Bank of England

B The Bank of International Settlements

C The European Parliament

D The European Central Bank (ECB)

5) Which one of the following is notone of the specific objectives of the Financial

Services Action Plan ? (11.4.1)

A Open and secure retail marketsB A single market for financial services

C State of the art prudential rules and supervision

D A single regulatory authority for all financial services in the UK


42/93

6) The Life Directive of 2002 stipulated that for policies that carry an investment risk, a

life assurance companys required minimum solvency margin is what

percentage of its mathematical provisions ? (11.2)

A 4%

B 99%

C 100%D 104%

7) Under Basel 11, the minimum capital requirements are calculated by multiplying the

institutions gross income by : (11.1.1)

A 0.1

B 0.15

C 4%

D 8%


43/93


The FSAs responsibilities and approach to regulation

1) Caroline and Anne are both approved persons, but only Caroline performs a significant influencefunction, which means that: (12.7.4)

A Carolines requirement to exercise due skill, care and diligence, is broader

B Carolines requirement to observe proper market conduct standards lasts

longer

C only Caroline can be personally fined for an offence

D only Caroline can be imprisoned for an offence

2) Stuart, an employee of an investment management company, is subject to an ongoingfit and proper test because he: (12.7.4.1)

A is an administration manager

B undertakes a controlled function

C is a senior manager

D does not require individual registration

3) An authorised firms senior management controls should : (12.7.2.2)

A be approved by the Financial Services Authority annually

B form part of the firms disclosure documentation

C be reviewed regularly by the firm

D conform to accepted industry practice

4) If the FSA discovers a contravention of its rules, one of the steps it may take is to vary a firmspermissions this means that : (12.6.1)

A the firm may have one of its regulated activities removed.

B the firm will be required to sell assets to provide restitution.

C the firm will need to vary its authorisation from a different regulator.

D the firm will need to submit each sale to the regulator for approval.

5) An authorized person has made a direct profit of 500,000 by contravening an investment regulation.The FSA is now seeking restitution from the Court. The restitution order will require the person to

forfeit the profit to whom ? (12.6.1)

A The Police Authority

B The Financial Services Compensation Scheme

C The Regulator

D The Stock Exchange Council


44/93

6) Phil has been asked by his firms senior management to carry out an audit of their systems andcompliance procedures. Under FSA regulations, Phil must have: (12.7.2.2)

A no operational involvement.

B been a former member of the firms sales team.

C been an employee for at least 5 years.

D a governing function.

7) The Public Interest Disclosure Act 1998 covers which of the following ? : (12.7.2.3)

A Data protection

B Disclosure

C Whistle-blowing

D Prevention of crime

8) There are eleven Principles for Business which apply to the behaviour of firms and those that carryout the firms activities; the principle covering conflicts of interest means that firms must : (12.4)

A take reasonable care to ensure the suitability of its advice.

B arrange adequate protection for clients assets when conflicts of interest arise.

C deal in a fair way between itself and its customers.

D deal with its regulator in a way that does not cause conflicts of interest.

9) A prudential risk is described as : (12.1.2)

A The risk of the firm collapsing because of incompetent management.

B The risk of loss due to mis-selling or misrepresentation.

C The risk of a customer not understanding a product.D The risk that investments fail to deliver the expected returns.

10)Which part of the FSA Handbook contains the Principles for Businesses (12.3.1)

A Prudential standards

B High level standards

C Specialist standards

D Business standards

11)Which one of the following roles in a regulated firm would be classified as a customer function ?

(12.5.1)

A John, a director of a multi-national insurance company.

B George, the manager of a department dealing in risk-assessment.

C Paul, in charge of a claims department.

D Stuart, a pension transfer specialist.


45/93

12)Which set of criteria has the FSA established in order for an individual to be approved to undertake acontrolled function ? (12.7.4.1)

A Authorisation

B Fit and Proper test

C Part 4 Permission Eligibility

D Controlled Functionality test

13)Which of the following types of risk is closely associated with fraud, in relation to theselling of investment products. (12.1.2)

A Prudential risk

B Fraud risk

C Provider risk

D Bad faith

14)Any firm applying for permission to carry out a regulated activity must satisfy the FSA by meeting aset of : (12.7.3)

A high level standards

B threshold conditions

C OFT guidelines

D statutory objectives

15)In which category of controlled function would insurance underwriting be listed ? (12.5.1)

A significant management

B governingC systems and control

D required

16)The concept of Treating Customers Fairly developed from which of the following FSA initiatives ?(12.4.1.)

A Threshold Conditions for approved persons

B Statutory objectives

C Principles for Business

D Prudential standards

17)Which of the following is notone of the FSAs Statutory objectives ? (12.1.1)

A To maintain confidence in the UK financial system

B To promote financial stability

C Secure an appropriate level of protection for consumers

D To employ a risk-based approach to regulation


46/93

18)Which of the following roles is notincluded in the categories of controlled functions ? (12.5.1)

A Head actuary

B Mortgage adviser

C Investment adviser

D Money Laundering Reporting Officer

19)Which of the five sections of the FSA handbook deals with the requirements firms must meet inrelation to their financial soundness ? (12.3.2)

A High Level Standards

B Prudential Standards

C Business Standards

D Regulatory Processes

20)Arrangements for the supervision of professional firms, such as accountants and solicitors, can befound in which section of the FSA Handbook ? (12.3.5)

A High Level Standards

B Regulatory Processes

C Business Standards

D Specialist Sourcebooks

21)In which category of controlled function would a Money Laundering Reporting Officer be included ?(12.5.1)

A Governing

B RequiredC Systems and control

D Significant management

22)Effective balance sheet management is seen as a way of mitigating which one of the following risks ?(12.1.2)

A Prudential risk

B Capital adequacy risk

C Credit risk

D Operational risk

23)Which of the following would notbe a step that the FSA would take if it discovered a contraventionof its rules ? (12.6.1)

A Rendition

B Variation of a firms permissions

C Injunction

D Restitution


47/93

12.3

:

1

B ,

.

A

2

,

3

C B

C , .

4

; , A

.

5

C, ,

,

,


48/93

Approved persons and controlled functions

Role Governing Required Systems &

Control

Significant

Management

Customer

Manager insurance

underwriting

Money Laundering

Reporting Officer

Investment adviser

Compliance officer

Corporate financeAdviser

Chief executive

Chief Internal

Auditor

Actuary

Head of risk

assessment

Manager of a claims

department

Sole Trader

Director

Pension Transfer

Specialist

Business Operations

Manager


49/93

Approved persons and controlled functions

Role Governing Required Systems &

Control

Significant

Management

Customer

Manager insurance

underwritinga

Money Laundering

Reporting Officera

Investment adviser a

Compliance officer a

Corporate financeAdvisera

Chief Executive a

Chief internal auditor

a

Actuary a

Head of risk

assessmenta

Manager of a claims

departmenta

Sole Trader b

Director b

Pension Transfer

Specialistb

Business Operations

Managerb


50/93


Principles and rules of the FSA Conduct of Business Sourcebook

1) Which of the following would nottypically be found within a key features document ? (13.1.7.2)

A Client-specific information relating to chargesB Details of where additional information can be obtained

C Essential elements of the product

D Money laundering requirements

2) Harrow Bank are about to begin an advertising campaign to promote fresh interest in their UK EquityUnit Trust Fund which was launched ten years ago. What is the minimum period for which performance

figures must be shown ? (13.1.3.2)

A 5 years

B 7 years

C 10 yearsD There is no specific period

3) When drawing up a client agreement, which of the following is leastlikely to beincluded ? (13.1.4.2)

A Any restrictions to be placed on the adviser

B Details of options available in the recommended product

C How the agreement can be terminated

D The clients aims relating to the service being provided

4) Regarding client communications, comparisons with other products must be presented: (13.1.3.1)

A with skill, care and diligence

B adequately and reasonably

C accurately

D in a fair and balanced way

5) Which of the following statements relating to non-solicited real-time promotions (cold calls)is incorrect ? (13.1.3.3)

A The person receiving the call must have an existing client relationship with the firm.

B The person receiving the call expects to receive calls as part of the relationship.

C The call relates to a generally marketable packaged product that isnt a higher volatility fund.

D A contact point must be given to the client at the beginning of the call

6) A financial promotion is defined as (13.1.3)

A Mediation activity

B An offer to enter into pension activity

C An offer to enter into life assurance activity.

D An invitation or inducement to engage in investment activity


51/93

7) Advisers are permitted to operate in one of three categories. Which is the exception ? (13.1.4.1)

A Whole-of-market advisers

B Multi-tied advisers

C Panel advisers

D Tied advisers

8) Which of the following is one of the main aims of the Retail Distribution Review ? (13.1.5)

A Standardise the way in which advice is paid for

B Raising professional standards

C Reduction of financial crime

D Maintaining confidence in the UK financial system

9) With regard to a whole-of-life policy, for how long must fact find information beretained ? (13.1.6.1)

A Indefinitely

B 3 years

C 5 years

D 10 years

10)Conduct of Business Sourcebook (COBS) 4 deals with client communications, particularly financialpromotions. Which type of financial promotions are covered ? : (13.1.3)

A internet and written

B written and non-written

C broadcast and non-broadcastD verbal and written

11)Financial promotions can be communicated only if they have been prepared, or approved by : (13.1.3)

A a suitably-qualified individual

B an approved person

C an authorised person

D a person who has a controlled function within the firm

12)The Retail Distribution Review, published in 2008 was implemented at the end of : (13.1.5)

A 2010

B 2011

C 2012

D 2013


52/93

13)When must a suitability report be provided for an execution-only customer ? (13.1.6.3)

A A suitability report is not required

B Before the transaction is effected

C Within 14 days of the transaction being effected

D No later than the cancellation notice

14)The cancellation period for a cash ISA is : (13.1.8)

A 7 days

B 10 days

C 14 days

D 30 days

15) In which of the following areas are the fundamental requirements for mortgage

advisers significantly less onerous than for pensions advisers ? (13.1.6.2)

A Suitability reports

B Data protection

C Personalised illustrations

D Client affordability

16) With the sale of a monthly unit trust, a suitability report must be sent to the client nolater than which of the following : (13.1.6.2)

A five days after the initial interview

B as soon as possible after the transaction was effected and no later than the

issue of the cancellation noticeC the end of the cooling-off period

D 14 days after the policy was effected

17) The FSAs KeyFacts logo can be incorporated in which of the following documents ?(13.1.4.1)

A Annual Stakeholder Pension statements

B Annual with-profits documentation

C Suitability reports

D Services and costs disclosure documents (SCDD)

18) Which of the following statements regarding information provided by financialpromotions to retail clients is incorrect? Information supplied must : (13.1.3)

A be accurate giving a fair and prominent indication of risks.

B be understandable by an average member of the target group.

C not disguise or obscure important terms or warnings.

D be tested in advance by representatives of the target group.


53/93

19) Which of the following information would notbe included in a Services and Costs DisclosureDocument (SCDD) ? (13.1.4.1)

A The name of the regulator

B The method of payment for the service

C How to obtain compensation

D How future unsolicited calls can be made

20) In terms of product design, the FSA considers that three of the following areas areparticularly important which is the exception? (13.2.1.1)

A identifying the target market for which the product is likely to be suitable

B stress-testing the product

C the target groups financial profile to fall within regulatory boundaries

D systems and controls in place to manage the risks posed by the product or

service design.

21) The statutory cancellation period for a free-standing AVC is : (13.1.8)

A 7 days

B 14 days

C 21 days

D 30 days

22) The statutory cancellation period for an annuity is : (13.1.8)

A 7 days

B 14 daysC 21 days

D 30 days

23) The overall principle of financial promotions to retail and professional clients, is thatthey must be : (13.1.3)

A legal, decent, honest and truthful

B fair, clear and not misleading

C reasonable

D understandable by most of the target group.

24) Which of the following is covered in Section 3 of the Conduct of Business Sourcebook(13.1.2)

A Client communications

B Suitability

C Client categorisation

D Conduct of business obligations


54/93

25) Whats covered in COBS 2 ? (13.1.1)A Financial promotions

B Conduct of business obligations

C Cancellation

D Providing product information to clients


55/93

COBS 15 - Cancellation

Quiz

Which Statutory cancellation (cooling-off) period applies to each product ?

Product 14 Days 30 Days

Cash ISA

Whole of Life policy

Pension Transfer

Personal Pension

Enterprise Investment

Scheme (EIS)

Unit Trust

Pension Annuity

Endowment policy

Free Standing AVC

(13.1.8)


56/93

COBS 15 - Cancellation

Solutions

Product 14 Days 30 Days

Cash ISA

Whole of Life policy

Pension Transfer

Personal Pension

Enterprise Investment

Scheme (EIS)

Unit Trust

Pension Annuity

Endowment policy

Free-Standing AVC

(13.1.8)


57/93

COBS 6 and 8

From the table below, tick the relevant box which shows the information required to be given to the client

(initial disclosure) and that required to be included in a key features document

Information Services and Costs

Disclosure Doc

Key Features

Document

Essential elements of the product

The service offered, ie the range of products on which

advice will based, eg whole of market

Details of the risk factors associated with the product

Client-specific information regarding charges and their

impact on what the customer may receive, including

projected maturity values.

Which service is being provided, eg information only

or advice and a recommendation

The consequences of making the product paid-up

Any commission, or equivalent, that will be paid

Information regarding tax implications on encashment

of the product at maturity, or before

The method of payment for services fees,

commission or a choice

Details of where additional information can be

obtained

How to obtain compensation from the Financial

Services Compensation Scheme

What to do in the event of a complaintWho regulates the firm

Product A Key Features Document to be provided

Share purchase

Life assurance policies

Unit Trusts

Investment Trusts

Gilts

National Savings products

Pension policies

Bank current account

30.01.11


58/93

COBS 6 and 8

The hearts in the table indicate the information that is required to be given to the customer (initial

disclosure) and that required to be included in a key features document

Information Services and Costs

Disclosure Doc

Key Features

Document

Essential elements of the product

The service offered, ie the range of products on which

advice will based, eg whole of market

Details of the risk factors associated with the product

Client-specific information regarding charges and their

impact on what the customer may receive, including

projected maturity values.

Which service is being provided, eg information-only

or advice and a recommendation

The consequences of making the product paid-up

Any commission, or equivalent, that will be paid

Information regarding tax implications on encashment

of the product at maturity, or before

The method of payment for the service fees,

commission or a choice

Details of where additional information can be

obtained

How to obtain compensation from the Financial

Services Compensation Scheme

What to do in the event of a complaint

The name of the regulator

Product A Key Features Document to be provided

Share purchase

Life assurance policies

Unit Trusts

Investment Trusts

Gilts

National Savings productsPension policies

Bank current account

30.01.11

Check your understanding of this material in the text at 13.1.4.1 Initial Disclosure and 13.1.7.2 Product

Disclosure


59/93


Money laundering, data protection and complaints procedures

1) A client has referred his complaint about the investment advice he received from his adviser to the

Financial Ombudsman Service (FOS). The FOS has ruled that the advice was unsuitable and hasrecommended to the firm than an award of 155,000 plus 2,500 reasonable costs be paid. What is

the maximum amount of compensation the adviser is obliged to pay ? (14.3.2)

A 100,000

B 150,000

C 152,500

D 157,500

2) Which of the following does notapply to the work carried out by the Financial Action Task Force?

(14.1.4)

A Law enforcement

B Setting appropriate standards

C Identifying trends in money-laundering

D Evaluating how countries have implemented anti-money laundering programmes.

3) Which is notone of the principal money laundering offences ? (14.1.3)

A Acquiring

B Arranging

C Concealing

D Tipping off

4) Where ID has not previously been obtained, an identity check must be carried out if a bank deposit

transaction exceeds : (14.1.7)

A 1,000

B 2,500

C 10,000

D 15,000

5) At least how often must the senior management of a firm requisition a report from the

Money Laundering Reporting Officer (MLRO) every : (14.1.10)

A 3 months

B 6 months

C year

D 3 years


60/93

6) Under the terms of the Data Protection Act, if a case is heard in the Crown court, the

maximum fine for a successful prosecution for the misuse of data is : (14.2)

A Unlimited

B 5,000

C 10,000

D 100,000

7) In the event of the default of an insurance company, which type of policy would be

treated as compulsory insurance under the Financial Services Compensation Scheme

(14.3.3)

A Personal pension

B Life assurance

C Third Party Motor

D Contents

8) Janet and John held a joint bank deposit account with a balance of 190,000. If the

bank defaulted, what is the maximum the couple could claim under the Financial Services

Compensation Scheme ? (14.3.3)

A 50,000

B 80,000

C 170,000

D 190,000

9) Following the default of WNPO Insurance, Bill and Ben both lost 3,000. They

both received compensation from The Financial Services Compensation Scheme, but Bill received300 more than Ben why was this ? (14.3.3)

A Bill paid his premiums by direct debit.

B Ben started his policy later than Bill

C This was Bens second claim in five years.

D Bills claim was in connection with his third party motor policy.

10) Records of complaints relating to MiFID business must be kept for what period after

the complaint was received ? (14.3.1)

A IndefinitelyB 5 years

C 4 years

D 3 years

11) An authorised firm must produce a report on reportable complaints to the FSA how frequently ?

(14.3.1)

A Every three months

B Every six months

C Annually

D Bi-annually


61/93

12) Which of the following transactions would notrequire satisfactory evidence of

identification to be provided, under the Money Laundering regulations ? (14.1.7)

A Jack, who has applied for an insurance investment bond with an initial investment of 1,200.

B Joe, who wishes to apply for a with-profits endowment policy with annual premiums of

1,500.C James, who is opening a bank deposit account with a gift from his mother of 17,000

D John, who is buying shares in Marks and Spencer plc for 20,000.

13) Under money laundering regulations, evidence of identification must be retained for

what period after the relationship with the customer has ended ? (14.1.9)

A 1 year

B 3 years

C 5 years

D Indefinitely

14) Within a company, who is responsible for ensuring that the requirements of the Data

Protection Act are met ? (14.2.3)

A Data subject

B Data controller

C Data processor

D Information commissioner


62/93

1 2010

,

C , , ,

90% ,

C

, .. C :

A

C

.

C C ,

,

C

90% ,

( , )

85,000

C

..

,

50,000

:

A C

: .

.

100% 50,000


63/93


Important legal principles

1) Above what level is a bankrupts interest in a property included in their assets ? (15.5.2)

A 250

B 500

C 1,000

D 2,000

2) What is the minimum number of partners permitted in a Limited Liability Partnership ?(15.1.3)

A 2

B 4

C 6D 10

3) By whom must an individual voluntary arrangement (IVA) be supervised ? (15.5.3)

A An insolvency trustee

B An insolvency practitioner

C The Trustee in bankruptcy

D The County Court

4) In the context of financial services, which of the following would be treated as legalpersons ? (15.1)

A Beneficiaries

B Executors, beneficiaries and trustees

C Executors and trustees

D Minors

5) In terms of contract law, the subject of a contract must be matched by : (15.3.1)

A an invitation to treat

B an offer

C a consideration

D an acceptance

6) The two forms in which a lasting power of attorney can be arranged, are : (15.2.1)

A protection and welfare

B personal welfare and property and affairs

C personal welfare and financial affairs

D enduring interests and protection


64/93

7) Which of the following maintains a register of those who have set up a lasting power

of attorney ? (15.2.1)

A The Court of Protection

B The Public Guardian

C The FSA

D The Attorney Register

8) The trustee in bankruptcy can attack prior transactions, where assets were gifted or sold at less

than their true value, in what period before bankruptcy ? (15.5.2)

A 1 year

B 2 years

C 4 years

D 10 years

9) In which one of the following circumstances would a donors power of attorney notbe

revoked ? (15.2)

A The donor marries

B The donor dies

C When any time limit specified expires

D The donor becomes bankrupt

10) Jackie has a property and Joan has a stamp collection. How does the law relate to these two types of

property ? (15.4)

A Jackie and Joan both have realtyB Jackie has realty, Joan has personalty.

C Joan has realty, Jackie has personalty.

D Joan and Jackie both have personalty.

11) Contracts for which of the following transactions cannotbe on a verbal basis ? (15.3.1)

A Shares

B OEICs

C Insurance

D Land

12) The Mental Capacity Act 2005 introduced two new criminal offences of ill treatment

and wilful neglect of a person who lacks capacity. A person found guilty of these

offences may be liable to a maximum prison term of : (15.2.1)

A 1 year

B 3 years

C 5 years

D 7 years


65/93

13) An individual voluntary arrangement (IVA) can only be set up if creditors who represent what

percentage of the debts agree to the arrangement ? (15.5.3)

A 25%

B 50%

dipfa - sample papers

Documents