Pass the CISI CISI level 3 Certificate in Wealth & Investment Management ICWIM Questions and answers with CertsForce

Standard deviation measures the volatility of returns. A higher standard deviation means higher risk.

Key Concept:

Fund A (Lower Standard Deviation) = Lower Risk.

Fund B (Higher Standard Deviation) = Higher Risk.

Risk-Return Tradeoff: Fund B may not necessarily be more profitable, but it is riskier.

???? Reference: CFA Institute (Risk Metrics), CISI Wealth & Investment Management.

Long Futures Contract Defined

A long futures contract represents a commitment to buy an underlying asset at a set price on a future date.

Closing Out the Position

If the holder sells the contract before expiry, they are said to close out the position, effectively negating their obligation to take delivery of the underlying asset.

Why the Answer is B

Selling ahead of expiry removes the obligation, hence closing the position.

Why Other Options are Incorrect

A. Exercised: Applies to options, not futures.

C. Taken delivery: Happens only if the contract is held to maturity.

D. Delivered: Applies to the short position, not the long holder.

ICWIM Study Guide, Chapter on Derivatives: Explains closing out futures contracts.

Futures Market Principles: Discusses position management in futures trading.

References

What is Key Person Protection?

A policy designed to compensate a company for financial losses incurred if a key employee dies or becomes disabled.

A prerequisite is that the company must prove an insurable interest in the key person.

Why D is Correct

Insurable interest ensures that the company has a legitimate financial dependency on the key person, a requirement for taking out such a policy.

Other Options Analyzed

A. Ever-increasing premiums: Not a feature specific to key person policies.

B. Moving to a competitor: Irrelevant; this is not an insurable risk.

C. Undefined sum: Key person policies require a specific sum based on financial calculations.

ICWIM Textbook, Chapter on Business Insurance: Emphasizes insurable interest in key person policies.

Insurance Industry Standards: Insurable interest is a fundamental requirement.

References

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.

A conflict of interest arises when a financial professional’s own interests compete with their duty to act in the best interest of the client.

Examples:

A financial adviser recommending a high-commission product instead of the best investment for the client.

An investment manager trading ahead of client orders to profit personally (front-running).

Regulatory Requirements:

Under FCA and MiFID II regulations, firms must disclose conflicts and take reasonable steps to manage them.

???? Reference: FCA Handbook (COBS 2.1 - Acting Honestly & Fairly), CISI Ethical Standards.

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 is C. Returns generated from capital invested in the business.

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.

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.

???? Reference: Compound Interest Formula, CISI Wealth & Investment Management.

A Negative Interest Rate Policy (NIRP) is used by central banks to stimulate economic activity by penalising banks for holding excess reserves.

How It Works:

Instead of earning interest, banks pay to keep reserves with the central bank.

To avoid losses, banks increase lending to businesses and consumers.

This increases money supply, investment, and spending, boosting economic growth.

Real-World Example: The European Central Bank (ECB) and Bank of Japan implemented NIRP to encourage lending.

???? Reference: ECB Negative Interest Rate Policy, CISI Wealth & Investment Management.