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CISI Securities > Chapter 9 Investment Management > Flashcards

Chapter 9 Investment Management Flashcards

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SIE Exam flashcards
1
Q

Systematic risk

A

Economic, political global factors

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2
Q

Unsystematic risk

A

Specific to company and can be reduced with diversification

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3
Q

Rank securities from high to low risk

A

Leveraged securities (Warrants/etf)
equities
collective investment schemes
corporate bonds
government bonds
bank accounts

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4
Q

What is a future

A

an agreement to buy or sell an asset on a fixed future date for a price agreed today

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5
Q

What does long and short mean

A

Long means you own asset- hope price rises

Short means you need asset - hope price falls

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6
Q

What is a option

A

Gives the holder the right to buy (call) or sell (put) an asset on or before a fixed future at a fixed price.

Holder pays a premium to get these rights

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7
Q

What is CFD

A

Cash settled derivative giving exposure to returns on asset without ownership of asset

They are margin traded

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8
Q

Hedging strategy for long underlying position

A

Short future
Long put
CFD: short position

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9
Q

Hedging strategy for short underlying position

A

Long future
Long call
CFD: Long position

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10
Q

List active portfolio management strategies

A

Anomaly switching
Policy switching
Inter market switching
Riding the yield curve

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11
Q

List passive portfolio management strategies

A
  • Cash matching/dedicated portfolio
  • Duration matching/ immunisation
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12
Q

What is anomaly switching

A

Exploiting mispricing in the bond market

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13
Q

what is intermarket switching

A

Trading on spread between bond and its benchmark

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14
Q

What are cash matched/dedicated portfolios

A

Matching cash flows of bonds to liabilities (dont reinvest)

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15
Q

what is duration matching/immunisation

A

Match duration of bonds to liabilities

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16
Q

What is ladder immunisation

A

A variety of bonds with different durations either side of the liability- weighted average duration is same as liability

17
Q

What is bullet immunisation

A

Bonds with durations close to timing of the liability

18
Q

Who has risky long term profile

A

Life assurance fund and pension fund

19
Q

Who has low risk short term profile

A

general insurance fund and bank

20
Q

Who has high risk short term profile

A

Hedge fund

21
Q

What is PIP

A

Primary info provider

22
Q

An investor wants to hedge a short equity position as she believes that the stock price will rise thereby incurring a loss on her positions. Which of the following is the best strategy to adopt?

A

Long-futures

23
Q

An investor holds an asset. In order to hedge, they should

A

Buy puts

24
Q

A large fire destroys a company’s warehouse and this, in turn, causes the company’s share price to fall. This is an example of:

A

Unsystematic risk

25
Q

Which of the following institutions would be most interested in assets that are highly-liquid and low-risk?

A

Home insurance company

26
Q

Which of the following investments are regarded as being very high-risk?

A

Buying or selling futures

Its more risky than options and warrants

27
Q

Which one of the following is the best description of anomaly switching?

A

Moving between two bonds similar in all respects apart from the yield and price at which each trades.

28
Q

A bank is seeking to hedge a short-term exposure to interest rates using a standardised, liquid, low-cost contract. Which of the following would be best?

A

A short-term interest rate future

A swap would not be used short-term. Exchange-traded STIR futures generally provide a cheaper hedge than options because there is no upfront premium.

29
Q

A rise in inflation would benefit:

A

A borrower

30
Q

Which of the following is TRUE in respect of passive fund management relative to active fund management?

A

Fewer trades

31
Q

An investor owns a large portfolio of UK equity but now has a very bearish attitude to the markets. What would you recommend to them if they are a very high risk investor?

A

Sell futures and buy puts on the market

32
Q

Which of the following would a charity find most useful?

A

Gross redemption yield
Charities do not pay tax and hold bonds in the long-term.

CISI Securities (15 decks)

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