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| Section | Weight | Objectives |
|---|---|---|
| Regulation and Ethics | 15% | - Ethical conduct
|
| Client Advisory | 25% | - Portfolio construction
|
| Risk and Return | 20% | - Portfolio theory
|
| Market Environment | 20% | - Role and function of financial markets
|
| Financial Products | 20% | - Equities and shares
|
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NEW QUESTION # 31
Which term is used to describe a dividend payment made by a company with insufficient earnings to do so?
Answer: B
Explanation:
* 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
NEW QUESTION # 32
Which of the following is a money laundering offence?
Answer: D
Explanation:
Money laundering is the process of disguising the origins of illegally obtained money to make it appear legitimate. Concealing assets derived from criminal activities is a criminal offence under anti-money laundering (AML) laws.
* Definition: "Concealing" means hiding or disguising the true nature, location, source, ownership, or control of funds derived from criminal activity.
* Legal Framework: The Financial Action Task Force (FATF) and UK Proceeds of Crime Act 2002 (POCA) classify "concealing" as an offence.
* Three Stages of Money Laundering:
* Placement: Introducing illicit funds into the financial system.
* Layering: Concealing the source via multiple transactions.
* Integration: Reintroducing "cleaned" funds into the economy.
# Reference: CISI Wealth & Investment Management (AML), FATF Guidelines, UK POCA 2002.
NEW QUESTION # 33
Which of the following is an example of a mandatory corporate action with options?
Answer: D
Explanation:
# Reference: FCA Handbook (Corporate Actions), CISI Wealth & Investment Management.
NEW QUESTION # 34
Which of the following actions constitutes market abuse?
Answer: D
Explanation:
Market abuse under the UK Market Abuse Regulation includes three broad categories: insider dealing, unlawful disclosure of inside information, and market manipulation. A clear example is an insider passing inside information to someone else without a legitimate reason in the normal exercise of their employment, profession, or duties. That behaviour is specifically captured as unlawful disclosure and is therefore market abuse. Simply being made aware of inside information inside a firm is not, by itself, an abusive act; what matters is whether the person then misuses it, for example by dealing, recommending, inducing others to deal, or disclosing it unlawfully. A market maker executing multiple trades over consecutive days is typical market activity and not abusive unless the orders are intended to mislead the market or distort price formation.
Trading after reading a tip online is not automatically market abuse either; it depends on whether the tip constitutes inside information and whether the trader knows, or ought to know, it is inside information. CISI exams typically reward choosing the option that most unambiguously fits the legal definition: unlawful disclosure by an insider without good reason.
NEW QUESTION # 35
An active portfolio manager is deliberately holding securities in a portfolio in differing proportions from that in which they are weighted within the benchmark. Why are they doing this?
Answer: A
Explanation:
Active management involves taking positions that differ from the benchmark to try to generate excess return, often referred to as alpha. If a portfolio held securities in exactly the same weights as the benchmark, before fees it would deliver benchmark-like performance and would be classified as passive or index tracking. By overweighting securities expected to outperform and underweighting or excluding those expected to underperform, the manager is expressing investment views and accepting active risk, commonly measured by tracking error. This deliberate deviation is the defining feature of active management and is undertaken to outperform after costs. Liquidity considerations and dealing costs can influence how active bets are implemented, but they are not the primary reason for deviating from benchmark weights. Anticipating a benchmark re-weighting is possible, but that is just one specific type of active view and is not the broad objective being tested. The examinable principle is that active managers differ from the benchmark in order to outperform it.
NEW QUESTION # 36
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