Mock 2

Question 1

Karen, a higher rate taxpayer and her husband, Graham, who currently has no taxable income, have been married for twenty years. They are both now in their early fifties. You, as their financial advisor, have been enlisted to review their existing investments with a view to potentially realising some of them in order to purchase a new residential property. Their current residence is in Karen’s sole name, as this was purchased pre-marriage, at a market value of £365,000. Current professional estimates place this at a level of £835,000. Karen has 14 years and an amount of £210,000 remaining on the mortgage which is structured with a variable rate of 3.9% p.a.

Karen also owns UK government bonds, with a market valuation of £48,000, which she purchased £35,000, yielding a return on average of 3.7% on a flat yield basis on the purchase price. She also owns £11,300 worth of blue-chip shares, originally bought for £16,200. Graham also owns £26,000 of equities, purchased for £22,000. They also own, set up under a joint tenancy agreement, a property on one of the Spanish islands which they purchased for £220,000 over seven years ago and is unencumbered. It has a current valuation standing at £314,000. Each has an annual Capital Gains exemption of £3,000, which is currently unused. At what rate of capital gains tax would Karen be liable on any disposals of her share holdings?

a) 10%
b) 18%
c) 20%
d) 28%

Answer 1

C) 20%

Question 2

Karen, a higher rate taxpayer and her husband, Graham, who currently has no taxable income, have been married for twenty years. They are both now in their early fifties. You, as their financial advisor, have been enlisted to review their existing investments with a view to potentially realising some of them in order to purchase a new residential property. Their current residence is in Karen’s sole name, as this was purchased pre-marriage, at a market value of £365,000. Current professional estimates place this at a level of £835,000. Karen has 14 years and an amount of £210,000 remaining on the mortgage which is structured with a variable rate of 3.9% p.a.

Karen also owns UK government bonds, with a market valuation of £48,000, which she purchased £35,000, yielding a return on average of 3.7% on a flat yield basis on the purchase price. She also owns £11,300 worth of blue-chip shares, originally bought for £16,200. Graham also owns £26,000 of equities, purchased for £22,000. They also own, set up under a joint tenancy agreement, a property on one of the Spanish islands which they purchased for £220,000 over seven years ago and is unencumbered. It has a current valuation standing at £314,000. Each has an annual Capital Gains exemption of £3,000, which is currently unused.

If Karen were to sell her holding of gilts, what capital gains tax liability, in sterling, would be faced?

a) £0
b) £1,300
c) £2,340
d) £2,600

Answer 2

A) £0

Question 3

Karen, a higher rate taxpayer and her husband, Graham, who currently has no taxable income, have been married for twenty years. They are both now in their early fifties. You, as their financial advisor, have been enlisted to review their existing investments with a view to potentially realising some of them in order to purchase a new residential property. Their current residence is in Karen’s sole name, as this was purchased pre-marriage, at a market value of £365,000. Current professional estimates place this at a level of £835,000. Karen has 14 years and an amount of £210,000 remaining on the mortgage which is structured with a variable rate of 3.9% p.a.

Karen also owns UK government bonds, with a market valuation of £48,000, which she purchased £35,000, yielding a return on average of 3.7% on a flat yield basis on the purchase price. She also owns £11,300 worth of blue-chip shares, originally bought for £16,200. Graham also owns £26,000 of equities, purchased for £22,000. They also own, set up under a joint tenancy agreement, a property on one of the Spanish islands which they purchased for £220,000 over seven years ago and is unencumbered. It has a current valuation standing at £314,000. Each has an annual Capital Gains exemption of £3,000, which is currently unused.

Calculate Karen’s chargeable gain if both the property on the Spanish island and her shares were sold.

a) £39,100
b) £49,800
c) £77,400
d) £89,100

Answer 3

A) £39,100

Question 4

Karen, a higher rate taxpayer and her husband, Graham, who currently has no taxable income, have been married for twenty years. They are both now in their early fifties. You, as their financial advisor, have been enlisted to review their existing investments with a view to potentially realising some of them in order to purchase a new residential property. Their current residence is in Karen’s sole name, as this was purchased pre-marriage, at a market value of £365,000. Current professional estimates place this at a level of £835,000. Karen has 14 years and an amount of £210,000 remaining on the mortgage which is structured with a variable rate of 3.9% p.a.

Karen also owns UK government bonds, with a market valuation of £48,000, which she purchased £35,000, yielding a return on average of 3.7% on a flat yield basis on the purchase price. She also owns £11,300 worth of blue-chip shares, originally bought for £16,200. Graham also owns £26,000 of equities, purchased for £22,000. They also own, set up under a joint tenancy agreement, a property on one of the Spanish islands which they purchased for £220,000 over seven years ago and is unencumbered. It has a current valuation standing at £314,000. Each has an annual Capital Gains exemption of £3,000, which is currently unused.

What would be the TOTAL capital gains tax payable if they sold the overseas property?

a) £16,238
b) £18,858
c) £35,300
d) £94,000

Answer 4

B) £18,858

Question 5

Karen, a higher rate taxpayer and her husband, Graham, who currently has no taxable income, have been married for twenty years. They are both now in their early fifties. You, as their financial advisor, have been enlisted to review their existing investments with a view to potentially realising some of them in order to purchase a new residential property. Their current residence is in Karen’s sole name, as this was purchased pre-marriage, at a market value of £365,000. Current professional estimates place this at a level of £835,000. Karen has 14 years and an amount of £210,000 remaining on the mortgage which is structured with a variable rate of 3.9% p.a.

Karen also owns UK government bonds, with a market valuation of £48,000, which she purchased £35,000, yielding a return on average of 3.7% on a flat yield basis on the purchase price. She also owns £11,300 worth of blue-chip shares, originally bought for £16,200. Graham also owns £26,000 of equities, purchased for £22,000. They also own, set up under a joint tenancy agreement, a property on one of the Spanish islands which they purchased for £220,000 over seven years ago and is unencumbered. It has a current valuation standing at £314,000. Each has an annual Capital Gains exemption of £3,000, which is currently unused.

Calculate the net asset value of Karen and Graham’s holdings.

a) £814,300
b) £1,024,300
c) £1,234,300
d) £1,444,300

Answer 5

B) £1,024,300

Question 6

Which purchases in the following sterling-denominated securities would MOST likely attract stamp duty reserve tax?

a) A US hedge fund buys Eurobonds
b) A mutual fund manager buys shares in dematerialised format
c) A market maker at UK based French investment bank buys shares
d) The RSPCA buys convertible bonds

Answer 6

B) A mutual fund manager buys shares in dematerialised format

Question 7

Which of the following statements is MOST likely correct?

A CFA member or candidate:

a) Is not held responsible for participating in illegal acts where violation of the law is evident to those who should know it.
b) Must report evidence of illegal violations to the appropriate regulatory organisation.
c) Can participate or assist in a violation simply by having knowledge of the violation and not acting to stop it.
d) Must report evidence of illegal violations to the CFA within 21 days.

Answer 7

C) Can participate or assist in a violation simply by having knowledge of the violation and not acting to stop it

Question 8

Euroclear UK and Ireland operate a settlement system for UK securities known as this system organises the prompt payment and delivery of securities, but what extra service does CREST also arrange?

a) It collects payment for SDRT and transfers them directly to HMRC.
b) It acts as a central securities depository for bearer documents in the UK.
c) The netting of SDRT payments during the trading day and collects this at the end of each day.
d) The novation of trades performed on all of the LSE’s trading systems.

Answer 8

A) It collects payment for SDRT and transfers them directly to HMRC.

Question 9

When attempting to fulfil their obligations to clients in terms of best execution, a broker/dealer must consider which of the following -

a) The nature of the market for the security eg. volatility, communication availability, price, relative liquidity and commissions paid to third parties .
b) The costs related to the transaction and settlement.
c) The number of markets examined and how easily a quote can be obtained.
d) All of the above.

Answer 9

D) All of the above

Question 10

When a UK listed company releases price sensitive information, according to UKLA listing rules, which of the following methods are required?

a) By conducting a press conference on the day of the announcement before the market officially opens.
b) By informing a primary information provider (PIP) without delay.
c) By sending a circular to all shareholders on the register.
d) By announcement at the next general meeting.

Answer 10

B) By informing a primary information provider (PIP) without delay

Question 11

Which of the following are key amendments introduced by MiFID II in 2018?

i) Greater restrictions on the funding of third-party research.
ii) The ability to passport investment services.
iii) The creation of organised trading facilities.
iv) Enhanced control over algorithmic trading.

1) I and IV only
2) II and III only
3) I, II and III only
4) I, III and IV only

Answer 11

D) I, III and IV only

Question 12

Which of the following is FALSE with regard to liquid markets?

a) In order-driven markets, liquidity can be judged by the spread between the best bid and offer prices.
b) Transparency tends to increase liquidity.
c) Spreads tend to be wider in liquid markets.
d) Spreads tend to be narrower than in opaque markets.

Answer 12

C) Spreads tend to be wider in liquid markets

Question 13

All of the following best reflect activities that occur in the wholesale financial markets, EXCEPT?

a) Commodity consumers using derivatives to hedge price exposure.
b) A life assurance fund manager making a purchasing equities.
c) A pension fund manager purchasing a large block of T-Bills.
d) The of selling bonds on the London Stock Exchange’s ORB system.

Answer 13

D) The of selling bonds on the London Stock Exchange’s ORB system.

Question 14

An investor is looking for capital appreciation and/or income at very high risk.

As their adviser which of the following would you recommend -

a) Investing in an index-tracker fund.
b) Investing in a fixed income security.
c) Investing in a new start-up company quoted on AIM.
d) Investing in a diversified portfolio of FTSE 100 shares.

Answer 14

C) Investing in a new start-up company quoted on AIM

Question 15

William S. Scott is the beneficiary of a bare trust set up by his father.

Which of the following is a reason that William would NOT take possession of the assets?

a) His father has taken early retirement.
b) William is 16 years old
William is a student.
A bare trust means that William has no claim on any assets put under this form of agreement.

Answer 15

B) William is 16 year old

Question 16

When performing which of the following activities would a client be considered as an eligible counterparty?

i) Assisting a manufacturing company with an initial public offer
ii) Providing advice to a fund management company
iii) Entering into a deal with an investment bank

a) I & II only
b) II & III only
c) III only
d) All of the above

Answer 16

C) III only

Question 17

All of the following items would generally appear within the Key Information Document (KID), drafted up by the manufacturer of a PRIIP, EXCEPT?

a) An account of the relative importance the firm assigns to execution factors.
b) Costs associated with the product, including both direct and indirect costs.
c) Time restrictions, such as early encashment opportunities.
d) A description of what happens if the manufacturer is unable to pay.

Answer 17

A) An account of the relative importance the firm assigns to execution factors

Question 18

Nile Fitzpatrick CFA is a corporate financier and a non-executive director (NED) of CoolGear PLC. Nile and his family receives designer clothing as part of his compensation package for his role with CoolGear. He discloses his non-executive salary to his current employer but not the clothing as he considers them to be a private matter.

Is there a breach under his disclosure obligation to his employer?

a) Yes, it is illegal to receive any outside compensation from another source, separate from his main employment.
b) No, it would be difficult to define a fair cash equivalent valuation.
c) No, clothing is classified as a tangible asset.
d) Yes, he should disclose all forms of compensation from any outside sources.

Answer 18

D) Yes, he should disclose all forms of compensation from any outside sources.

Question 19

Under the original MiFID legislation, firms providing advice to clients have had to assess suitability of such advice in advance. With the inception of MiFID II, which of the following client attributes relating to suitability, not referenced in the original directive, must now be considered?

a) Overall financial situation
b) Investment knowledge and experience
c) Entire portfolio
d) Investment objectives

Answer 19

C) Entire portfolio

Question 20

Irene has recently had a substantial win on the EuroMillions and a best friend has suggested that she should invest a large proportion of the money in shares as this typically offers the best return. However, Mary does not fully understand how this is the case. As Irene’s financial adviser, you know that a previous fact-find that you conducted revealed her as a cautious investor. Irene asks for your advice on the most suitable equity investments.

Which of the following is the best course of action for you to take?

a) You should perform another fact-find to assess Irene’s current attitude to risk.
b) You should refuse to suggest equity, as it does not fit in with her profile.
c) You should give advice on blue-chip shares only, as these are low-risk.
d) You should give the advice on equity after explaining the risks.

Answer 20

A) You should perform another fact-find to assess Irene’s current attitude to risk

Question 21

Which employees of a relevant authorised person need to follow the FCA Code of Conduct (COCON)?

a) All employees
b) Senior managers only
c) Senior managers and certified persons only
d) All employees other than ancillary staff.

Answer 21

D) All employees other than ancillary staff

Question 22

Which of the following would require disclosure under the notifiable interest requirement?

a) A market maker acquiring 0.5% to add to an existing stake of 4.9%.
b) A custodian acquiring 0.5% to add to an existing stake of 5.7%.
c) An individual acquiring shares to take their stake to 2.8%.
d) An individual acquiring 0.5% to add to an existing holding of 2.9%.

Answer 22

D) An individual acquiring 0.5% to add to an existing holding of 2.9%.

Question 23

Which of the following is under the lists of powers of the European Securities and Markets Authority (ESMA)?

a) The creation of EU directives and EU regulation.
b) The creation of a single EU market place.
c) The prosecution of local competent authorities for incompetence.
d) The investigation of non-compliance with EU law.

Answer 23

D) The investigation of non-compliance with EU law

Question 24

Which one of the following is NOT a requirement placed upon a Recognised Investment Exchange?

a) The exchange must work with the FCA to ensure fair dealing.
b) Transactions must pass through the system in an adequate manner.
c) Management must be competent in their roles.
d) Compensation procedures must be in place in case of default.

Answer 24

C) Management must be competent in their roles

Question 25

What would an adviser MOST likely suggest to be the main advantage of a husband giving a portion of his equity portfolio to his wife? a) It halves capital risk exposure. b) It serves to double the equity return. c) It effectively doubles capital gains tax allowance. d) It halves the higher rate tax liability.

Answer 25

C) It effectively doubles capital gains tax allowance

Question 26

A retail client has made a transfer of their pension. How long must the firm retain records of this transaction? a) 3 years b) 5 years c) 6 years d) Indefinitely

Answer 26

D) Indefinitely

Question 27

During an FCA investigation it was found that, Dodge Gee Plc, displayed a behaviour that created a misleading impression to the markets regarding the value of a regulated investment. Which of the following Principles for Businesses is most likely to have been breached? a) Integrity b) Financial Prudence c) Market Conduct d) Skill, Care and Diligence

Answer 27

C) Market conduct

Question 28

An additional rate taxpayer receives non-dividend savings income of £6,250, how much tax is the investor liable for on this interest income stream? a) £0.00 b) £2,025 c) £1,015.75 d) £2,812.50

Answer 28

D) £2,812.50

Question 29

Which of the following is the BEST description of the role of an inter-dealer broker? a) They facilitate stock lending and borrowing. b) They quotes prices to market makers and agency brokers. c) They provide a range of services to hedge fund clients. d) They act as agent between market makers.

Answer 29

D) They act as agent between market makers

Question 30

Which of the following would be a potential benefit of marketing your shares on AIM instead of on the official list of the LSE? a) Wider pool for potential investors. b) Lower regulatory burden. c) Less liquidity. d) The ability of order book trading.

Answer 30

B) Lower regulatory burden

Question 31

Which of the following is not classified as a packaged retail investment and insurance product (PRIIPs) by the FCA? a) Shares in a Real-Estate Investment Trust (REIT). b) Shares in an authorised Collective Investment Scheme (CIS). c) A life assurance policy with an investment element. d) A car insurance policy.

Answer 31

D) A car insurance policy

Question 32

What would be the maximum time period that a complainant would have to wait, after making a complaint, before being able to refer the matter to the Financial Ombudsman Service? a) Two weeks b) Four weeks c) Eight weeks d) Ten weeks

Answer 32

C) 8 weeks

Question 33

An investor approaches you, their adviser, stating an investment objective of long-term capital growth. Which of the following are you MOST likely to recommend? a) UK Government Bonds b) Debentures c) ADRs d) Ordinary shares

Answer 33

D) Ordinary shares

Question 34

Listed companies must keep a register of interests in shares that are disclosed to it. Which of the following statements is FALSE in relation to this requirement? a) The register of interests identifies all beneficial owners for tax, money laundering and terrorist financing purposes. b) Any person that the company suspects of having an interest in its shares can be required to disclose their current interests and any holdings in the last two years. c) The register allows the company to discover the beneficial ownership of those shares that may be held with connected parties or under nominee names. d) All persons with significant control (PSC) must be held on a statutory register.

Answer 34

B) Any person that the company suspects of having an interest in its shares can be required to disclose their current interests and any holdings in the last two years.

Question 35

In relation to anti-money laundering, the Joint Money-Laundering Steering Group (JMLSG) guidance provides best practice provisions for firms to adopt. Which is not a provision of JMLSG guidance? a) The keeping good quality records of client identity for five years. b) The prompt reporting of suspicious transactions. c) The targeting of resources towards those clients whose identity is easiest to verify. d) Ensuring that staff are adequately trained in their reporting responsibilities.

Answer 35

C) The targeting of resources towards those clients whose identity is easiest to verify.

Question 36

A client seeks your advice on inflation protection. Which of these would provide the LEAST protection for their income against inflation? a) A regular UK account b) UK shares c) Overseas shares d) Conventional gilts

Answer 36

D) Conventional gilts

Question 37

Ali Mobishera is a fund manager specialising in the energy sector. He has the vast majority of his current exposure in the US markets but has a small number of his positions that are UK based. He is currently attempting to purchase shares in Hotstuff PLC. Ali’s fund has seen been mainly positive returns this year and with this in mind, he is seeking to further increase his exposure to the US markets by buying into a number of companies that are traded on the NYSE. These include Sizzle Inc. and Crackle Corp; both of which have seen significant gains since the start of the year. Rick Rogers is a UK equity market maker with a major investment bank. He has amassed a large position in DiamondCut Pharmaceuticals, due to recent client actions. Due to recent fatalities involving one of their products, the shares in DiamondCut have seen a fall of 18% from a recent high of 231p. Liz Hoang has had a mixed year since relocating to the Paris office of her firm. She has suffered losses in both the first and second quarters and is feeling a great deal of pressure to improve her performance in the second half of the year. Due to recent research, she has begun to heavily invest in financial companies trading on the NYSE Euronext exchange. Were Rick to receive inside information what action should he take? a) Only use the information to use the information to offset the likely losses on his positions b) He should cease trading immediately c) He should carry on trading as normal d) Only use the information to alter his prices to reflect the information

Answer 37

C) He should carry on trading as normal

Question 38

Ali Mobishera is a fund manager specialising in the energy sector. He has the vast majority of his current exposure in the US markets but has a small number of his positions that are UK based. He is currently attempting to purchase shares in Hotstuff PLC. Ali’s fund has seen been mainly positive returns this year and with this in mind, he is seeking to further increase his exposure to the US markets by buying into a number of companies that are traded on the NYSE. These include Sizzle Inc. and Crackle Corp; both of which have seen significant gains since the start of the year. Rick Rogers is a UK equity market maker with a major investment bank. He has amassed a large position in DiamondCut Pharmaceuticals, due to recent client actions. Due to recent fatalities involving one of their products, the shares in DiamondCut have seen a fall of 18% from a recent high of 231p. Liz Hoang has had a mixed year since relocating to the Paris office of her firm. She has suffered losses in both the first and second quarters and is feeling a great deal of pressure to improve her performance in the second half of the year. Due to recent research, she has begun to heavily invest in financial companies trading on the NYSE Euronext exchange. How could Rick lighten his position in DiamondCut Pharmaceuticals without revealing his position to the market? a) Sell the shares via a SBLI b) Sell the shares via SETS c) Sell the shares through an agency broker d) Sell the shares through an IDB

Answer 38

D) Sell the shares through an IDB

Question 39

Ali Mobishera is a fund manager specialising in the energy sector. He has the vast majority of his current exposure in the US markets but has a small number of his positions that are UK based. He is currently attempting to purchase shares in Hotstuff PLC. Ali’s fund has seen been mainly positive returns this year and with this in mind, he is seeking to further increase his exposure to the US markets by buying into a number of companies that are traded on the NYSE. These include Sizzle Inc. and Crackle Corp; both of which have seen significant gains since the start of the year. Rick Rogers is a UK equity market maker with a major investment bank. He has amassed a large position in DiamondCut Pharmaceuticals, due to recent client actions. Due to recent fatalities involving one of their products, the shares in DiamondCut have seen a fall of 18% from a recent high of 231p. Liz Hoang has had a mixed year since relocating to the Paris office of her firm. She has suffered losses in both the first and second quarters and is feeling a great deal of pressure to improve her performance in the second half of the year. Due to recent research, she has begun to heavily invest in financial companies trading on the NYSE Euronext exchange. Which of the following trading systems is Ali most likely to use to purchase his US equities? a) Universal Trading System b) CREST c) SEAQ d) SETS

Answer 39

A) Universal Trading System

Question 40

Ali Mobishera is a fund manager specialising in the energy sector. He has the vast majority of his current exposure in the US markets but has a small number of his positions that are UK based. He is currently attempting to purchase shares in Hotstuff PLC. Ali’s fund has seen been mainly positive returns this year and with this in mind, he is seeking to further increase his exposure to the US markets by buying into a number of companies that are traded on the NYSE. These include Sizzle Inc. and Crackle Corp; both of which have seen significant gains since the start of the year. Rick Rogers is a UK equity market maker with a major investment bank. He has amassed a large position in DiamondCut Pharmaceuticals, due to recent client actions. Due to recent fatalities involving one of their products, the shares in DiamondCut have seen a fall of 18% from a recent high of 231p. Liz Hoang has had a mixed year since relocating to the Paris office of her firm. She has suffered losses in both the first and second quarters and is feeling a great deal of pressure to improve her performance in the second half of the year. Due to recent research, she has begun to heavily invest in financial companies trading on the NYSE Euronext exchange. Under which of the following products could Rick’s service be MOST useful in executing? a) FTSE 100 shares only b) FTSE 250 shares only c) AIM shares d) ETFS

Answer 40

C) AIM shares

Question 41

If Liz were to spread fake news about the companies that she was investing in to positively impact the prices, which legislation European legislation would she MOST likely be challenged under? a) EMIR b) MAR 2016 c) MiFID II d) FNEL 2018

Answer 41

B) MAR 2016

Question 42

Which of the following is FALSE in respect of the conflicts of interest policy? a) Firms should take all reasonable steps to maintain effective and administrative arrangements. b) A description of the policy should be provided to retail clients and potential retail clients. c) Firms should disclose conflicts where there remains a risk of damage to clients’ interests. d) The rules protect retail clients alone from the conflicts that could arise between clients of the same firm.

Answer 42

D) The rules protect retail clients alone from the conflicts that could arise between clients of the same firm.

Question 43

A financial adviser attends a charity function. During various conversations he discusses some of his clients that he believes might be interest in assisting the fund raisers and passes on their contact details, suggesting that they should get in touch. Which of the following best describes the action in reference to the ethical standards of professional conduct? a) No breach has occurred as it is considered a charitable cause. b) The adviser should not pass on client information without their permission. c) The adviser should not pass on client information under any circumstance. d) A breach has occurred because the information passed on in no way benefits his firm.

Answer 43

B) The adviser should not pass on client information without their permission.

Question 44

All of the following are considered to be core MiFID activities, EXCEPT? a) Dealing on own account b) Portfolio management c) Investment research and financial analysis d) Execution of orders on behalf of clients

Answer 44

C) Investment research and financial analysis

Question 45

In which of the following are life assurance companies likely to mainly invest in: a) Money Market Instruments b) UK Government Bonds c) Commodities d) Equities

Answer 45

D) Equities

Question 46

With regard to tax planning strategies, if Remy were to sell her holdings in Atlantis Plc. and her husband were to purchase them. How many days would they need to leave between the transactions to recognise the disposal for CGT purposes? a) 0 b) 2 c) 30 d) 365

Answer 46

A) 0

Question 47

Which of the following are one of the twelve FCA Principles for Businesses? i) Financial prudence ii) Client interest iii) Market conduct 1) I only 2) I and II 3) I and III 4) I, II and III

Answer 47

C) I and III

Question 48

You are considering advising a client to opt out of an occupational pension. In order to adhere to the suitability requirement, which of the following should be taken account of? i) Existing pension provision ii) Career prospects iii) Age iv) Tax position a) I and II b) II and III c) II, III and IV d) I, II, III and IV

Answer 48

D) I, II, III and IV

Question 49

As adviser, how should you deal with a relatively novice investor? a) Assess their level of understanding and meet it with your explanations. b) Use standard industry terminology and expect them to ask if they are unsure of your explanations. c) Give them a Key Facts Document (KFD) to read if they has any problems with terminology that you use d) Have a third party present to write everything down for the investor.

Answer 49

A) Assess their level of understanding and meet it with your explanations.

Question 50

An electronic quote-driven system can be distinguished from an order-driven system by which of the following? a) Electronic trading is faster and more secure. b) Orders that are received can be matched automatically or by market makers c) Market makers must quote bid and offer prices. d) They are often designed for the most liquid securities.

Answer 50

C) Market makers must quote bid and offer prices.

Question 51

Which of the following is LEAST likely to be considered a UK resident for tax purposes? a) A person who was UK resident in the previous tax year and visits the UK for only 16 days during this tax year. b) A person who is resident for no more than 184 days during the fiscal tax year. c) A person who has their only home in the UK but only uses it for 100 days each tax year. d) A person who was non-UK resident in all of the previous three tax years and visits the UK for 45 days during this tax year.

Answer 51

D) A person who was non-UK resident in all of the previous three tax years and visits the UK for 45 days during this tax year.

Question 52

A firm has a maximum of eight weeks to resolve a complaint. If it is unable to do so, it must send out a response to the complainant. Which of the following need not be contained in this response? a) A copy of the Financial Ombudsman Service standard explanatory leaflet. b) An explanation of why the firm is not able to make a final response. c) A summary of the investigations the firm has made into the complaint. d) An indication of when the firm expects to be able to resolve the complaint.

Answer 52

C) A summary of the investigations the firm has made into the complaint.

Question 53

A CFA charterholder notices that a fellow charterholder, working within his firm, has been making amendments to transaction records in an attempt to hide unfair trade allocation that he has been engaging in. He appears to be discriminating against certain clients to favour others. This is in direct breach of the firm's order allocation policy. Even after informing the firm's compliance department regarding these activities, it still appears that records are still being falsified many weeks later. According to the Standards of Practice, which of the following is required of the charterholder? a) Confront the offending employee themselves. b) Dissociate himself from the unethical activity. c) Report the violation to the appropriate regulatory authority. d) By reporting to his compliance department, the charterholder has already honoured the Standards of Practice and no further action is required.

Answer 53

B) Dissociate himself from the unethical activity.

Question 54

An employee of an authorised firm suspects that deposits being made by a client are suspicious. Which of the following would lead the employee to believe that the funds are being deposited for terrorist activities rather than money laundering? a) The deposits are of a significant size and are made in cash. b) The deposits are being made indirectly through a third-party account. c) The deposits are created on the back of unusual patterns of trading by the client. d) By having full knowledge of the legitimacy of the source of funds.

Answer 54

D) By having full knowledge of the legitimacy of the source of funds.

Question 55

Yulia has a long-term investment horizon. You have ascertained that she is well aware that the value of her equity investments may increase or fall in value. When offering portfolio advice, which of the following strategies would you suggest? a) To invest more in cash deposits to offset interest risk. b) To invest in fixed income to offset shortfall risk. c) To invest in equities to offset inflation risk. d) To invest in UK treasury bills.

Answer 55

C) To invest in equities to offset inflation risk.

Question 56

AGT Plc. has profits chargeable to corporation tax of £6.35m and has paid cash dividends totalling £1.85m. What is its corporation tax liability? a) £855,000 b) £985,000 c) £1,206,500 d) £1,587,500

Answer 56

D) £1,587,500

Question 57

Which of the following should be considered under the 'know your customer' principle when attempting to understand a client's profile and objectives in relation to investing? i) Their current assets and liabilities ii) Their expectations iii) Their current income iv) Their personal details a) I only b) I and II c) I, II and III d) I, II, III and IV

Answer 57

D) I, II, III and IV

Question 58

Declan has a moderate attitude to risk, and rather than invest directly in property, he chooses to invest in the shares of a property construction company. Which of the following represent a non-systematic and systematic risk that he is exposed to? a) Property prices fall and interest rates increase. b) A global financial crisis of the nature witnessed in years following 2007/08 and property prices falling. c) Interest rates increasing and the company being sued for poor construction. d) The company suffers from increasing losses and the entire board resign.

Answer 58

C) Interest rates increasing and the company being sued for poor construction.

Question 59

Which of the following is true of variable remuneration under the remuneration code? a) It should consider the performance of the individual only. b) It should be adjusted according to the risk taken. c) It should be assessed with respect to non-financial factors only. d) It should be paid whether sustainable or not, if justified.

Answer 59

A) It should consider the performance of the individual only.

Question 60

Nadia is heavily invested in UK equity but now wishes to extend her portfolio to include overseas equity as well. What new risk is she exposing herself to? a) Shortfall Risk b) Liquidity Risk c) Foreign Exchange Risk d) Specific Risk

Answer 60

C) Foreign Exchange Risk

Question 61

In order for a single shareholder to initiate a company meeting, which of the following is required? a) They must have a holding that constitutes at least 15% of the company shares. b) They must have a holding that constitutes at least 5% of the company shares. c) A single shareholder can never call a company meeting. d) Only if they are also a director of the company.

Answer 61

B) They must have a holding that constitutes at least 5% of the company shares.

Question 62

MiFID II introduced which of the following controls with relation to the commodity derivative market? a) Their use is prohibited without license b) Their passporting is now prohibited c) Central clearing is now compulsory for all OTC commodity derivatives d) Position limits have now been established on commodity derivatives

Answer 62

D) Position limits have now been established on commodity derivatives

Question 63

Which of the following is/are true? i) Life assurance companies are taxed on their pensions business ii) General insurance companies are taxed on their profits iii) A pension fund dedicated bond portfolio invested solely in gilts would be tax exempt 1) i only 2) I and II 3) II and III 4) I, II and III

Answer 63

C) II and III

Question 64

Which of the following is TRUE with regards to shares in an ICVC and inheritance tax? a) The shares would be included as part of a deceased's estate b) The shares would be exempt from IHT if held in an ISA c) Shares in an ICVC are exempt from IHT d) Shares in an ICVC purchased more than seven years before death are considered exempt

Answer 64

A) The shares would be included as part of a deceased's estate

Question 65

According to portfolio theory, diversification is a way to mitigate all of the following types of risk EXCEPT? 1) Industry risk 2) Interest rate risk 3) Management risk 4) Business risk

Answer 65

B) Interest rate risk

Question 66

A passive investment strategy is usually one where: 1) The trustees take NO part in the management of the fund at any stage 2) The fund manager is seeking to track a benchmark index 3) The fund manager is trying to identify and acquire undervalued stocks 4) The trustees do not usually evaluate the performance of the fund manage4

Answer 66

B) The fund manager is seeking to track a benchmark index

Question 67

Who is responsible to the investors in a unit trust to ensure adherence to the investment objectives of the fund? 1) The depositary 2) The trustees 3) The fund managers 4) The FCA

Answer 67

B) The trustees

Question 68

What is the VAT charge applicable to a financial adviser that advice's on the sale of retail investments? a) Exempt b) 0 c) 5% d) 20%

Answer 68

A) Exempt

Question 69

How much notice would need be given to a firm, prior to a visit by an enforcement officer from the FCA? a) One day b) 48 hours c) One week d) None

Answer 69

D) None

Question 70

A 50 year old investor with two sons at university has decided to focus his investment portfolio decisions on providing for his retirement whilst still providing protection for his family. He is currently investing in unit trusts and is classified as a low risk investor. As an adviser, what would you recommend as suitable investments? 1) Regular fixed interest bonds for steady income 2) With profits bonds 3) Property and equity for potential capital growth 4) Commodities for their diversification benefits

Answer 70

B) With profits bonds

Question 71

A non-taxpaying, teenager asks an adviser for suggestions on where to invest a birthday present of £1000. They state they are unwilling to take on any risk. What would be the MOST suitable recommendation? a) Longer dated UK government bonds b) Shares in a selection of UK companies c) NS&I Capital bonds d) A deposit account

Answer 71

C) NS&I Capital bonds

Question 72

Which of the following statements BEST defines the role of a Fact Find? a) It is a document that must be attached to any recommendations given by an adviser b) It is a document that must be completed by the client prior to meeting the advisor c) The nature and content of the Fact Find document are not governed by regulations d) The document must be in writing and signed by both the advisor and the client

Answer 72

C) The nature and content of the Fact Find document are not governed by regulations

Question 73

Which of the following is true of the LSE’s SETSQX platform? a) Market maker quotes must be at least 1 x NMS b) There are two auctions per day c) There is no facility that allows for orders d) It is a system for the most liquid UK share

Answer 73

A) Market maker quotes must be at least 1 x NMS

Question 74

Which of the following personal account transactions would need prior permission before dealing, according to the personal account dealing rules? a) The purchasing of shares in a UCITS scheme by the employee. b) The purchasing of shares in a fund managed by an independent broker. c) The purchasing of a life policy. d) The purchasing of shares by the employee on behalf of his spouse.

Answer 74

D) The purchasing of shares by the employee on behalf of his spouse.

Question 75

Which of the following is LEAST likely to affect a client's attitude to risk? a) The investments that are currently owned by the client. b) The current tax bracket of the client. c) The client’s investment horizon. d) Whether the client’s objective is for income or capital.

Answer 75

B) The current tax bracket of the client.

Question 76

Khurram has assets totally £475,000 and makes the following gifts - Gift 1: £50,000 to a registered charity. Gift 2: £325,000 to his son. Gift 3: £35,000 to a discretionary trust. For the purposes of inheritance tax calculations, which of the following is/are true? a) Gifts 2 and 3 are potentially exempt transfers b) Gift 3 would trigger an immediate tax charge c) Gifts 1 and 3 are gifts with reservation d) Gifts 1 and 2 are chargeable lifetime transfers

Answer 76

B) Gift 3 would trigger an immediate tax charge

Question 77

Consider the following – A client is 48 years old. They have an interest only mortgage for £365,000. They have been paying £650 per month into a unit trust for several years with a total current value of £60,000. The client is very risk averse. The client wishes to begin to reduce the capital of his mortgage. Which of the following would you, as their adviser, recommend? a) Stop the payments into the unit trust and instead place the capital into a deposit account. Keep the interest only mortgage. b) Cash in the unit trust investment and use the money to reduce the balance to £305,000 then convert to a repayment mortgage. c) Cash in the unit trust investment, deposit the proceeds into a current account and convert to a repayment mortgage. d) Cash in the unit trust and invest in equity, using the increased potential return to pay off the capital in the mortgage.

Answer 77

B) Cash in the unit trust investment and use the money to reduce the balance to £305,000 then convert to a repayment mortgage

Question 78

In terms of a potential takeover that is referred to the CMA for assessment, what level of control of a market in goods or services would suggest a substantial lessening of competition, according to the share of supply test? a) 10% b) 25% c) 30% d) 50%

Answer 78

B) 25%

Question 79

The Tax and Chancery Chamber of the Upper Tribunal (TCCUT) is set up by which entity? a) The FOS b) Her Majesty's Treasury c) The FSCS d) The Ministry of Justice

Answer 79

D) The Ministry of Justice

Question 80

A trust that is governed under the Trustee Act 2000 is not allowed to do which of the following? Invest 15% in UK equity Invest 20% in property Invest 75% in authorised unit trusts Invest 50% in fixed income bonds a) I and II b) III and IV c) All of the above d) None of the above

Answer 80

D) None of the above

Question 81

Lewis Michaels gives his daughter, Melissa, shares worth £2,750 for her 16th birthday. The amount of stamp duty reserve tax (SDRT) payable would be? a) £0.00 b) £13.75 c) £41.25 d) £50.00

Answer 81

A) £0

Question 82

It is permitted for a firm to aggregate a client's order with an own account order in which of the following circumstances? a) The firm has disclosed orally or in writing to clients, either specifically or in the client agreement, that the effect will work to their advantage. b) Aggregation is never allowed. c) Whenever aggregation is deemed necessary. d) If it is likely that the aggregation will not work to the disadvantage of each of the clients concerned.

Answer 82

D) If it is likely that the aggregation will not work to the disadvantage of each of the clients concerned.

Question 83

During a FCA investigation, an authorised firm, was seen to have significant weaknesses in its corporate governance structures and within its overall culture. Which of the following Principles for Businesses is most likely to have been breached? a) Communication with clients b) Management and control c) Skill, care and diligence d) Clients assets

Answer 83

B) Management and control

Question 84

An employee believes a transaction to be suspicious. As per his training, he duly reports his suspicion to the money laundering reporting officer, who in turn reports to the National Crime Agency. Which of the following best describes what should happen next? a) The employee must endeavour to keep the client invested with the firm b) The MLRO should continually monitor the client until encashment of the investment c) The employee has no further obligations in respect of this suspicion d) The MLRO needs to report to the FCA on the transfer of responsibilities to NCA

Answer 84

C) The employee has no further obligations in respect of this suspicion

Question 85

If the FCA decide not to grant Part 4A permission to a firm to whom can the firm appeal? a) The Tax and Chancery Chamber of the Upper Tribunal b) The FCA themselves c) Her Majesty’s Treasury d) The decision can not be appealed once made

Answer 85

A) The Tax and Chancery Chamber of the Upper Tribunal