Craigs Cemap Flashcards
Q1. Jon has notes which are accepted as legal tender. This is because they have:
A ) been issued by a high street bank.
B ) been issued by the Government.
C )the backing of the Government and the central bank.
D )the backing of the International Monetary Fund.
Q1 answer & justifications
A ) Banknotes are Issued by the Bank of England not high street banks.
B ) Banknotes are issued by the Bank of England not the Government.
C ) Correct. Legal tender has the backing of the Government and central bank.
D ) Legal tender has the backing of the Government and central bank, not the IMF.
Q2. A building society has liabilities of £900m. How much, if anything, is the maximum it is permitted to raise on the wholesale markets?
A) Nil.
B) £225m.
C) £450m.
D) £900m.
Q2 answer & justifications
A) Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
B) Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
C) Correct. Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
D) Building societies can raise funds on the wholesale markets up to 50% of the value of their liabilities.
Q3. The term ‘bancassurance’ describes the situation where:
A) a bank offers insurance services.
B) a bank owns an insurance company.
C) a bank owns an insurance company or an insurance company that owns a bank.
D) an insurance company owns a bank.
Q3 answer & justifications
A) A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
B) A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
C) Correct. A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
D) A bancassurer is a bank that owns an insurance company or an insurance company that owns a bank.
Q4. Under what circumstances, if any, can an EU member state opt out of a regulation laid down by the European Parliament and Council of Ministers?
A) None.
B) Only if a specific dispensation has been granted.
C) Only if an alternative approach has been agreed.
D) Only if the member has joined within the previous three years.
Q4 answer & justifications
A) A state can opt out if a specific dispensation has been granted.
B) Correct. A state can opt out if a specific dispensation has been granted.
C) An alternative approach is allowed under directives, but not under regulations.
D) No such time limit applies.
Q5. Why are bank deposit accounts not generally considered to be the most suitable asset class for long-term investment?
A) Interest on deposit accounts is taxable.
B) Longer term deposits are often subject to notice of withdrawal.
C) Over longer timescales they have usually proved to offer lower returns than asset-backed investments.
D) They normally have a maximum investment term.
Q5 answer & justifications
A) Both deposit accounts and asset-backed investments are generally taxable. However, over the longer term., asset-backed investments tend to outperform bank deposit accounts.
B) Over the longer term, asset-backed investments tend to outperform bank deposit accounts.
C) Correct. Over the longer term, asset-backed investments tend to outperform bank deposit accounts.
D) Bank deposit accounts do not have a maximum investment term. However, over the longer term, asset-backed investments tend to outperform bank deposit accounts.
Q6. Gilt-edged securities are considered to be safe investments, because they:
A) are backed by assets held by the Central Clearing Bank, which underwrites payment of interest and capital.
B) are British government securities and the government is unlikely to default on interest or capital repayments.
C) are regulated by the UK Financial Conduct Authority.
D) invest in physical assets, such as property and gold, that can be sold to realise redemption proceeds.
Q6 answer & justifications
A) Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
B) Correct. Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
C) Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
D) Gilts are considered to be safe, as interest and capital repayments are guaranteed by the government.
Q7. A new gilt issue has received wide publicity in the financial press, in which it has been referred to as ‘medium-dated’. However, the UK Debt Management Office has described it as ‘short-dated’. It will therefore be for which of the following terms?
A) Two years.
B) Four years.
C) Six years.
D) Eight years.
Q7 answer & justifications
A) A two year gilt is commonly referred to as ‘short-dated’ by both the financial press and the Debt Management Office.
B) A four year gilt is commonly referred to as ‘short-dated’ by both the financial press and the Debt Management Office.
C) Correct. The financial press refers to medium-dated as 5 to 15 years but the Debt management office refers to 0-7 years as ‘short-dated’.
D) An eight year gilt is commonly referred to by both the financial press and the Debt Management Office as ‘medium-dated’.
Q8. If a company distributes 25% of its profits in the form of dividends to shareholders, what is the dividend cover?
A) 4.
B) 8.
C) 10.
D) 25.
Q8 answer & justifications
A) Correct. The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
B) The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
C) The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
D) The dividend cover indicates the number of times that dividends could have been paid from profits. If a company distributes 25% of profits, the dividend cover is 4.
Q9. A public limited company wishes to raise additional finance by issuing more shares. It is taking which of the following actions?
A) Delaying dividend payments.
B) Guaranteeing that no existing shareholder will be adversely affected.
C) Making a rights issue.
D) Making at least 25% more shares available.
Q9 answer & justifications
A) Dividend payments need not be delayed.
B) If existing shareholders do not take up their rights, their holding will be diluted.
C) Correct. Further shares must first be offered to existing shareholders via a rights issue.
D) There are no specific criteria laid down for the number of new shares to be offered.
Q10. Historically, why were most buy-to-let mortgages charged at a higher rate of interest than most owner-occupied mortgages?
A) The legal costs of setting up the mortgage were higher.
B) The lender usually had to raise mortgage funds by issuing fixed-term loan stock on the commercial money market.
C) They had to be registered with the Land Registry.
D) They were assessed on commercial loan terms.
Q10 answer & justifications
A) Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
B) Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
C) Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
D) Correct. Buy-to-let mortgages were treated as commercial loans and were therefore charged higher interest.
Q11. Why could UK equities be considered an inappropriate source of income for non-taxpayers?
A) Dividends are normally paid annually.
B) Income from equities is subject to capital gains tax.
C) Stamp duty reserve tax is payable on all dividends paid.
D) Tax credit on dividends paid cannot be reclaimed.
Q11 answer & justifications
A) Dividends are normally paid half-yearly.
B) Dividends are not subject to capital gains tax.
C) Stamp duty reserve tax is payable on purchase of shares, not on dividends.
D) Correct. Non-taxpayers cannot reclaim the 10% tax credit on dividends.
Q12. A key difference between a debenture and a loan stock issued by a company is that a debenture:
A) can be converted to ordinary shares in the company.
B) holder has the right to vote at the company’s annual general meeting.
C) is secured on the assets of the company.
D) pays a fixed rate of interest.
Q12 answer & justifications
A) Debentures are usually secured on company assets whereas loan stocks are unsecured.
B) Debentures are usually secured on company assets whereas loan stocks are unsecured.
C) Correct. Debentures are secured on company assets whereas loan stocks are unsecured.
D) Debentures are usually secured on company assets whereas loan stocks are unsecured.
Q13. Richard intends to invest in a money-market deposit account. This is most likely to suggest that he:
A) has a large amount to invest temporarily.
B) is increasing his risk profile.
C) is over age 65.
D) wishes to invest in a tax-efficient manner.
Q13 answer & justifications
A) Correct. Money-market deposit accounts are considered suitable for large amounts of cash to be held short-term pending other plans.
B) The intention to invest some funds in a particular way need not reflect a definitive risk profile. An increase in risk profile would normally mean that an investor would be avoiding deposits.
C) There is no direct correlation between age and a requirement to specifically invest in money markets.
D) No particular tax advantages attach to money market investments.
Q14. An investment trust is best described as:
A) a company which invests in shares of other companies.
B) a trust which invests solely in commercial property.
C) a trust which is owned by its members.
D) an open-ended investment company which invests in shares of other companies.
Q14 answer & justifications
A) Correct. An investment trust is a company whose sole purpose is to invest in other companies.
B) An investment trust is a company whose sole purpose is to invest in other companies.
C) An investment trust is a company whose sole purpose is to invest in other companies.
D) An investment trust is a company whose sole purpose is to invest in other companies.
Q15. David has been particularly attracted to investment trusts because of their ability to benefit from gearing. This indicates that David believes that the market will:
A) favour income stocks.
B) fall.
C) remain stable.
D) rise.
Q15 answer & justifications
A) The ability of an investment trust to borrow (gearing) is considered favourable in a rising market.
B) The ability of an Investment Trust to borrow (gearing) is considered favourable in a rising market.
C) The ability of an Investment Trust to borrow (gearing) is considered favourable in a rising market.
D) Correct. The ability of an Investment Trust to borrow (gearing) is considered favourable in a rising market.
Q16. On a with-profits policy, what is a reversionary bonus?
A) A payment made on maturity, reflecting the investment performance over the term of the policy.
B) A payment that is declared regularly and, once attached to the policy, cannot be removed.
C) A payment that is pre-set at an anticipated bonus rate, but is reduced if investment performance is less than anticipated.
D) An irregular payment, made at the discretion of the insurance company from orphan funds.
Q16 answer & justifications
A) A reversionary bonus is declared regularly, not just on maturity.
B) Correct. A reversionary bonus is declared regularly. Once attached, it cannot be removed.
C) A reversionary bonus is not pre-set; it is dependent on investment performance.
D) A reversionary bonus is declared regularly.
Q17. A key difference between a warrant and a call option is that a warrant:
A) can usually be traded by investors on the open market, whereas options are not tradable.
B) has an exit charge if the investor chooses not to exercise their right to buy.
C) is generally issued by companies to give the warrant holder the right to purchase that company’s ordinary shares.
D) places the legal obligation on the investor to purchase at a fixed price on the specified date.
Q17 answer & justifications
A) Both warrants and options can be traded.
B) There is no exit charge with warrants and options. If an investor does not purchase the shares, the right will simply lapse.
C) Correct. Unlike options, warrants are issued by a company and relate to the company’s shares.
D) A warrant is a right, not an obligation, to purchase shares.
Q18. Four years ago, when aged 27, Clive started a stakeholder pension plan for the minimum term, which he intended to use to repay the capital under his interest-only mortgage, This minimum term of the mortgage will be:
A) 23 years.
B) 25 years.
C) 28 years.
D) 38 years.
Q18 answer & justifications
A) The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
B) The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
C) Correct. The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
D) The normal minimum pension is 55. Clive’s mortgage term will be for a minimum of 28 years.
Q19. What is the main advantage of a capped interest rate option when taking out a mortgage?
A) If interest rates go up, the mortgage interest rate will be limited to a pre-set ceiling.
B) Interest rates are linked to the Bank of England’s base rate.
C) The amount payable is fixed for the duration of the capped rate.
D) There is a genuine discount off the normal variable mortgage interest rate.
Q19 answer & justifications
A) Correct. The interest rate will have an upper fixed limit.
B) The interest rate will have an upper fixed limit. Even if the Bank of England’s base rate is higher than this figure, the interest rate will not rise above the limit.
C) The interest rate will have an upper fixed limit. Below this limit, interest will be variable, not fixed.
D) The interest rate will have an upper fixed limit. There will not be a discount to the variable rate.
Q20. Sue earns £30.000 per annum and does not currently have any pension arrangements. Ignoring carry-forward of previous unused allowances, what is the maximum tax relieved pension contribution she could make in the current tax year?
A) £2,880.
B) £3,600.
C) £30,000.
D) £40,000.
Q20 answer & justifications
A) This is the £3,600 figure netted down.
B) This is the maximum if earning £3,600 or less.
C) Correct. She can contribute 100% of her earnings.
D) This is the 15/16 annual allowance for pension contributions for people earning £40,000 and above.
Q21. A mortgage protection policy is a type of:
A) convertible term assurance.
B) decreasing term assurance.
C) increasing term assurance.
D) level term assurance.
Q21 answer & justifications
A) A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
B) Correct. A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
C) A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
D) A mortgage protection policy reduces the amount of cover it provides over time. It is therefore a type of decreasing term assurance.
Q22. Investment risk can most commonly be spread by using which of the following?
A) Clustering.
B) Diversification.
C) Dynamisation.
D) Gearing.
Q22 answer & justifications
A) Diversification reduces risk by spreading the investment across a range of companies/sectors.
B) Correct. Diversification reduces risk by spreading the investment across a range of companies/sectors.
C) Diversification reduces risk by spreading the investment across a range of companies/sectors.
D) Diversification reduces risk by spreading the investment across a range of companies/sectors.
Q23. What is the correct name for a mortgage scheme that typically allows overpayments, underpayments and payment holidays?
A) Cap and collar.
B) Fixed.
C) Flexible.
D) Variable.
Q23 answer & justifications
A) A cap and collar rate would not typically allow these features.
B) A fixed rate itself will not permit these features.
C) Correct. Flexible products permit overpayments, underpayments and payment holidays within pre-set limits.
D) A variable rate is unlikely to offer underpayments and payment holidays as ‘standard.’
Q24. In relation to stakeholder and personal pensions, the open market right enables the planholder to:
A) have more than one personal pension plan, with different providers, in order to get the best returns.
B) move their pension fund between providers in order to get the best investment return before retirement.
C) move the accumulated fund at retirement to the pension provider offering the most suitable benefits.
D) take their pension with one provider, but arrange dependants’ benefits with another.
Q24 answer & justifications
A) It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
B) It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
C) Correct. It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
D) It allows an individual to move the fund at retirement in order to purchase the best available annuity/access the most advantageous benefit structure.
Q25. Dave has an onshore investment bond issued by a life office, invested in their managed fund. At what rate is the provider’s underlying fund deemed to be taxed?
A) 18%.
B) 20%.
C) 32.5%.
D) 40%.
Q25 answer & justifications
A) Life offices’ underlying funds are currently deemed to be taxed at 20%.
B) Correct. Life offices’ underlying funds are currently deemed to be taxed at 20%.
C) Life offices’ underlying funds are currently deemed to be taxed at 20%.
D) Life offices’ underlying funds are currently deemed to be taxed at 20%.
Q26. Brian is reviewing a range of investment products before selecting the most appropriate solution for his client, Claire. Which factor is he least likely to take into account when selecting an appropriate solution?
A) Claire’s desire to access her investments in five years to purchase a time share in Portugal.
B) Claire’s existing portfolio of investment products.
C) The fact that she has recently moved into a higher-rate tax bracket.
D) The possibility of Claire getting married in the future and having children.
Q26 answer & justifications
A) When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered.
B) When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered.
C) When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered.
D) Correct. When deciding on investments, accessibility, existing holdings and tax position are all factors that need to be considered. Unknown future changes in circumstances cannot be considered.
Q27. What is the advantage of explaining the benefits when making a product presentation to a client?
A) It enables the adviser to focus on the sale rather than the client queries.
B) It enables the client to better understand how this product will meet his or her needs.
C) It ensures that all point-of-sale FCA regulatory requirements are met.
D) It ensures that the client understands the cancellation rights offered by the product.
Q27 answer & justifications
A) The adviser should explain product features and how these benefit the client.
B) Correct. The adviser should explain product features and how these benefit the client.
C) The adviser should explain product features and how these benefit the client.
D) The adviser should explain product features and how these benefit the client.
Q28. Which of the following financial needs usually becomes the priority on becoming a parent?
A) Investment.
B) Pensions.
C) Protection.
D) Savings.
Q28 answer & justifications
A) Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.
B) Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.
C) Correct. Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.
D) Protection for dependants against the eventuality of death or illness of an income provider is normally a priority for new parents.
Q29. Of the information below, gathered in respect of Alice, which item represents a ‘hard’ fact?
A) Her investment portfolio performance has been below her expectations.
B) Her savings account balance has fallen to £5,000.
C) She hopes to retire by the age of 60.
D) She wishes to be financially secure when she retires.
Q29 answer & justifications
A) How a client feels about current arrangements is a soft fact.
B) Correct. The balance of a bank account is a hard fact.
C) A client objective is a soft fact.
D) A client objective is a soft fact.
Q30. Martin has set up a trust fund for the benefit of his three grandchildren and has appointed two trustees with discretion to exercise their powers. In these circumstances, which of the following is correct?
A) Both trustees must agree, before exercising their discretionary powers.
B) Martin Is known as the testator of the trust and the grandchildren as the beneficiaries.
C) The Trustee Act 2000 requires the grandchildren to obtain advice when reviewing investments.
D) The trustees have no legal interest in the trust property.
Q30 answer & justifications
A) Correct. The agreement of all trustees is required.
B) Martin is the settlor of the trust. The term testator applies to wills.
C) It is the trustees who are required to obtain investment advice.
D) The trustees take legal ownership of the property.
Q31. Having been named as an executor under a will, Stella now has the legal authority to act, because:
A) letters of administration have been granted.
B) probate has been granted.
C) the testator has signed the will.
D) the witnesses have signed the will.
Q31 answer & justifications
A) Letters of administration relate to administrators who are appointed where someone dies intestate.
B) Correct. The grant of probate gives the executors named in a will the legal authority to act.
C) The executors are appointed in the will but grant of probate creates legal authority to act.
D) The executors are appointed in the will but grant of probate creates legal authority to act.
Q32. Any loss made by a partnership is usually:
A) deducted from future dividends.
B) the responsibility of the partners.
C) the responsibility of the shareholders.
D) written off.
Q32 answer & justifications
A) Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses. There are no shareholder dividends.
B) Correct. Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses.
C) Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses. There are no shareholders.
D) Although some partnerships are limited liability, most do not have a separate legal entity and partners are responsible for losses. The losses will not be written off.
Q33. Under the law of agency, a recent act by an agent has been subject to ratification. This implies that the agent has:
A) asked his principal to deal directly with a client.
B) exceeded his authority.
C) received money or money’s worth from a client.
D) submitted a written contract.
Q33 answer & justifications
A) Ratification takes place where, if an agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.
B) Correct. Ratification takes place where, ifan agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.
C) Ratification takes place where, if an agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.
D) Ratification takes place where, if an agent exceeds his authority, the principal can, if he chooses, agree after the event to what the agent has done.
Q34. Walter and Winnie own their house on a joint tenancy basis. If Walter dies:
A) his share of the property will pass automatically to Winnie.
B) his share will pass to whoever is nominated in his will.
C) Winnie will need to purchase Walter’s share of the property.
D) Winnie will own 50% of the property but retain an interest in the other 50%.
Q34 answer & justifications
A) Correct. Where a property is held on a joint tenancy basis and one party dies, the deceased’s share of the property automatically transfers to the survivor.
B) Where a property is held on a joint tenancy basis and one party dies, the deceased’s share of the property automatically transfers to the survivor.
C) Where a property is held on a joint tenancy basis and one party dies, the deceased’s share of the property automatically transfers to the survivor.
D) Where a property is held on a joint tenancy basis and one party dies, the deceased’s share of the property automatically transfers to the survivor.
Q35. The difference between a lasting power of attorney and an ordinary power of attorney is that:
A) a lasting power of attorney can be agreed on a verbal basis between donor and donee but ordinary power of attorney must be registered at the Public Trust Office.
B) a lasting power of attorney can be revoked at any time by the donor, whereas an ordinary power of attorney can only be revoked by the Court of Protection.
C) an ordinary power of attorney becomes invalid if the donor loses mental capacity, whereas a lasting power of attorney remains effective.
D) an ordinary power of attorney remains valid if the donor loses mental capacity, whereas a lasting power of attorney becomes invalid.
Q35 answer & justifications
A) A lasting power of attorney must be registered at the Office of the Public Guardian.
B) Once in force, a lasting power of attorney can only be revoked by the Court of Protection.
C) Correct. An ordinary power of attorney will cease when the donor loses mental capacity: a lasting power of attorney will come into force upon mental incapacity.
D) An ordinary power of attorney will cease when the donor loses mental capacity; a lasting power of attorney will come into force upon mental incapacity.
Q36. If Roger is declared bankrupt, under normal circumstances, for how long will his bankruptcy order remain in place?
A) 1 year.
B) 2 years.
C) 3 years.
D) 4 years.
Q36 answer & justifications
A) Correct. Under normal circumstances, a bankruptcy order will remain in force for 12 months.
B) Under normal circumstances, a bankruptcy order will remain in force for 12 months.
C) Under normal circumstances, a bankruptcy order will remain in force for 12 months.
D) Under normal circumstances, a bankruptcy order will remain in force for 12 months.
Q37. Which of the following persons would most likely be considered automatically resident in the UK for tax purposes?
A) Bella, a first-time visitor to the UK, who will spend 180 days in this tax year in the UK developing her Italian-based fashion company.
B) Dmitri, a first-time visitor to the UK, who has a seven-month contract for business consultancy in London, which commenced in January 2015.
C) Luigi, a first-time visitor to the UK, who has a nine-month contract in Essex with a telecoms company, which commenced in April 2015.
D) Sandra, who normally lives in France but spends two months a year helping on the family farm in Scotland.
Q37 answer & justifications
A) An individual will be automatically resident in the UK if they are present in the UK for at least 183 days in a tax year. Bella’s stay is just below this limit.
B) An individual will be automatically resident in the UK if they are present in the UK for at least 183 days in a tax year. Although Dmitri is here for more than 183 days, his stay is spread over two tax years and will not exceed the 183 days per tax year rule.
C) Correct. An individual will be automatically resident in the UK if they are present in the UK for at least 183 days in a tax year. Luigi’s stay will exceed this in the current tax year.
D) An individual will be automatically resident in the UK ift hey are present in the UK for at least 183 days in a tax year. Sandra’s stay is well below this limit.
Q38. Harold has received a cheque for £300 in respect of share dividends. What was the gross amount upon which this payment was based?
A) £330.00.
B) £333.33.
C) £367.50.
D) £387.00.
Q38 answer & justifications
A) The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.
B) Correct. The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.
C) The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.
D) The net dividend of £300 will be based on a gross dividend of £333.33 less 10% (£33.33) deducted at source ie 10/9 x £300 = £333.33.
Q39. Jake has been advised that his redundancy payment will definitely suffer a tax liability because:
A) he is a higher rate taxpayer in the current tax year.
B) he was previously made redundant four years ago.
C) the availability of an alternative employment was rejected.
D) the total amount of his redundancy payment is £52,500.
Q39 answer & justifications
A) It is the amount of the redundancy payment, not the current tax status, which initially determines liability.
B) Previous redundancy payments are discounted.
C) The offer of alternative employment does not impact once redundancy is declared.
D) Correct. If a redundancy payment exceeds £30,000 it is liable to be taxed.
Q40. Which of the following personally owned assets would be exempt from capital gains tax?
A) A piece of personal jewellery valued at £20,000.
B) A Spanish property used for holiday visits.
C) Euros held for use on foreign holidays.
D) Shares purchased on the UK stock market.
Q40 answer & justifications
A) Only chattels valued at £6,000 or less are exempt from CGT.
B) Unlike a principal residence, a second home will not be exempt from CGT.
C) Correct. Foreign currency (for private use) is exempt from CGT.
D) Listed shares are not exempt from CGT.
Q41. Gains from which of the following are not exempt from capital gains tax in the hands of the investor?
A) Authorised unit trust.
B) Gilts.
C) NS&I 65+ Guaranteed Growth Bonds.
D) Stocks and shares ISA.
Q41 answer & justifications
A) Correct. An investor, in unit trusts is potentially liable for CGT on gains.
B) Gilts are exempt from CGT.
C) NS&I products are exempt from CGT.
D) ISAs are exempt from CGT.
Q42. In the calculation of capital gains tax liability, what are ‘allowable deductions’?
A) Costs incurred in acquiring, enhancing and disposing of an asset.
B) Costs incurred in acquiring, maintaining and disposing of an asset.
C) Government fixed allowances dependent on how long the asset is held.
D) Indexation allowance.
Q42 answer & justifications
A) Correct. Allowable deductions are the overall costs of acquisition, enhancement and disposal.
B) Maintenance costs are not an allowable deduction.
C) Indexation and taper relief have not been available since 6 April 2008.
D) Indexation has not been available since 6 April 2008.
Q43. When shares are purchased using a telephone share dealing service, the:
A) buyer pays the stamp duty reserve tax based on the market value.
B) owner of the shares must be a stockbroker.
C) share transfer can be registered before the documents are stamped.
D) transaction has been completed orally so no stamp duty reserve tax is payable.
Q43 answer & justifications
A) Correct. On purchase of shares, SDRT of 0.5% of market value must be paid.
B) On purchase of shares, SDRT of 0.5% of market value must be paid.
C) On purchase of shares, SDRT of 0.5% of market value must be paid.
D) On purchase of shares, SDRT of 0.5% of market value must be paid.
Q44. A sole trader with no employees may be subject to which classes of National Insurance contributions?
A) Classes 1 and 4.
B) Classes 2 and 3.
C) Classes 2 and 4.
D) Classes 3 and 4.
Q44 answer & justifications
A) A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).
B) A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).
C) Correct. A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).
D) A self-employed person normally pays Class 2 contributions (flat rate) and Class 4 contributions (based on profits).
Q45. Mandy is pregnant with her first baby. She has been a full-time self-employed graphic designer since leaving university. What state benefit might Mandy be able to claim before her baby is born?
A) Child Benefit.
B) Income Support.
C) Maternity Allowance.
D) Statutory Maternity Pay.
Q45 answer & justifications
A) Child Benefit will only be payable once the child is born.
B) Income Support is designed to help those on a lower income and who are working less than 16 hours per week.
C) Correct. Maternity Allowance is to help working women who are pregnant but who cannot claim SMP (in this case because Mandy is self-employed).
D) Mandy cannot claim SMP as she is not an employee.
Q46. When a ‘chargeable lifetime transfer’ is made, what maximum rate of tax, if any, can apply immediately?
A) Nil.
B) 18%.
C) 20%.
D) 40%.
Q46 answer & justifications
A) A fixed rate of 20% can apply to chargeable lifetime transfers.
B) A fixed rate of 20% can apply to chargeable lifetime transfers.
C) Correct.
D) A fixed rate of 20% can apply to chargeable lifetime transfers.
Q47. For the current tax year, what is the small companies rate for corporation tax?
A) 18%.
B) 20%.
C) 21%.
D) 22%.
Q47 answer & justifications
A) The rate is 20% in 2015/16.
B) Correct. The rate is 20% in 2015/16.
C) The rate is 20% in 2015/16.
D) The rate is 20% in 2015/16.
Q48. For an investment to grow in real terms, it must increase in value:
A) after allowing dealing costs.
B) at a rate greater than inflation.
C) at regular intervals.
D) in line with national average earnings.
Q48 answer & justifications
A) Real growth is growth above the increase in inflation.
B) Correct. Real growth is growth above the increase in inflation.
C) Real growth is growth above the increase in inflation.
D) Real growth is growth above the increase in inflation.
Q49. Which type of fee is normally charged on a fixed-rate mortgage, but not on a standard variable rate mortgage?
A) Arrangement fee.
B) Broker fee.
C) Higher lending charge.
D) Valuation fee.
Q49 answer & justifications
A) Correct. An arrangement fee is most likely to be charged on a fixed-rate mortgage, but not on a SVR mortgage
B) A broker fee would be payable if a broker is used irrespective of the type of mortgage arranged.
C) A higher lending charge applies at certain loan-to-value levels, and is not applied with reference to the interest rate option used.
D) A valuation fee would be charged on both mortgages.
Q50. An advantage of a variable rate mortgage is that:
A) arrangement fees can always be added to the loan.
B) borrowers are able to benefit from reductions in interest rates.
C) first-time buyers are able to budget accurately in the early years.
D) repayments to the lender are lower than any other product.
Q50 answer & justifications
A) A variable rate mortgage does not normally carry an arrangement fee.
B) Correct. A variable rate mortgage is beneficial if interest rates fall.
C) Unlike a fixed rate (or capped) mortgage, a variable rate mortgage does not allow accurate budgeting.
D) It is not possible in advance to accurately predict how repayments will compare to other products.
Q1. The section within the FCA Handbook covering specialist sourcebooks includes arrangements for:
A) individual responsibilities.
B) international trading.
C) product derivatives.
D) professional firms.
Q1 answer & justifications
A) The specialist sourcebooks include arrangements for professional firms such as accountants and solicitors and the supervision of Lloyds of London.
B) The specialist sourcebooks include arrangements for professional firms such as accountants and solicitors and the supervision of Lloyds of London.
C) The specialist sourcebooks include arrangements for professional firrns such as accountants and solicitors and the supervision of Lloyds of London.
D) Correct. The specialist sourcebooks include arrangements for professional firms such as accountants and solicitors and the supervision of Lloyds of London.
Q2. Which body is responsible for the Financial Ombudsman Service?
A) Competitions and Markets Authority.
B) Financial Conduct Authority.
C) Financial Policy Committee.
D) Prudential Regulation Authority.
Q2 answer & justifications
A) The FCA is responsible for the Financial Ombudsman Service.
B) Correct. The FCA is responsible for the Financial Ombudsman Service.
C) The FCA is responsible for the Financial Ombudsman Service.
D) The FCA is responsible for the Financial Ombudsman Service.
Q3. One of the six outcomes for retail consumers in relation to Treating Customers Fairly requires that firms ensure that there are no unreasonable barriers to:
A) accessing products, receiving suitable advice, or complaining.
B) accessing products, switching product or provider, or making a claim.
C) switching product or provider, receiving suitable advice, or making a claim.
D) switching product or provider, making a claim, or complaining.
Q3 answer & justifications
A) It is a requirement under outcome 6 that consumers must not face unreasonable barriers when switching product or provider, making a claim, or complaining.
B) It is a requirement under outcome 6 that consumers must not face unreasonable barriers when switching product or provider, making a claim, or complaining.
C) It is a requirement under outcome 6 that consumers must not face unreasonable barriers when switching product or provider, making a claim, or complaining.
D) Correct. This is a requirement under outcome 6.
Q4. Miranda is an approved person in a customer function. Which of the following principles does not specifically apply to her role?
A) She must act with due skill, care and diligence.
B) She must act with integrity.
C) She must observe proper standards of market conduct.
D) She must take reasonable steps to ensure that the whole business complies with the regulations.
Q4 answer & justifications
A) Acting with due skill, care and diligence is a key principle.
B) Acting with integrity is a key principle.
C) Observing proper standards of market conduct is a key principle.
D) Correct. Taking steps to ensure that the business complies is a principle only for those in a position of significant influence.
Q5. The FCA requires that a firm’s systems and controls must:
A) be agreed by the FCA before implementation.
B) be notified to customers.
C) be regularly reviewed.
D) meet an agreed industry standard.
Q5 answer & justifications
A) There is no requirement for systems and controls to be agreed by the FCA before implementation.
B) There is no requirement for systems and controls to be notified to customers.
C) Correct. It is a requirement that systems and controls should be regularly reviewed.
D) There is no agreed industry standard, although the systems and controls must be appropriate to the business.
Q6. Which statement best describes the relationship between the ‘fit and proper’ test and approved persons?
A) A ‘fit and proper’ test is recommended by the FCA for anyone applying for a role in a controlled function.
B) A satisfactory ‘fit and proper’ test is necessary before an individual can fulfil a role in a controlled function.
C) The ‘fit and proper’ test is mainly designed to establish the creditworthiness of an authorised person.
D) The ‘fit and proper’ test relates solely to previous business activity in a controlled function.
Q6 answer & justifications
A) The fit and proper test Is mandatory (rather than simply recommended) for anyone applying for a role in a controlled function.
B) Correct. The fit and proper test is mandatory for anyone applying for a role in a controlled function.
C) Creditworthiness is only part of the fit and proper test.
D) The fit and proper test applies to current circumstances (eg financial soundness, competence) as well as previous activity.
Q7. Under the definitions of market abuse, which of the following is specifically covered?
A) Dishonesty.
B) Insider dealing.
C) Money laundering.
D) Pricing.
Q7 answer & justifications
A) Market abuse is separated Into two aspects, insider dealing and market manipulation.
B) Correct. Market abuse is separated into two aspects, insider dealing and market manipulation.
C) Market abuse is separated into two aspects, insider dealing and market manipulation.
D) Market abuse is separated into two aspects, insider dealing and market manipulation.
Q8. Which of the following is not one of the Financial Conduct Authority’s Principles for Businesses?
A) To act with due skill, care and diligence.
B) To act with integrity.
C) To have a clear chain of responsibility.
D) To observe proper standards of market conduct.
Q8 answer & justifications
A) To act with due skill, care and diligence is one of the 11 Principles for Businesses.
B) To act with integrity is one of the 11 Principles for Businesses.
C) Correct. While it is important for a firm to have a clear chain of responsibility, this is not one of the 11 Principles for Businesses.
D) To observe proper standards of market conduct is one of the 11 Principles for Businesses.
Q9. Which of the following is exempt from the Consumer Credit Act 2006?
A) A credit card account with a limit of £5,000.
B) A further advance for £15,000 for home improvements, from the existing lender.
C) A second-charge loan for £20,000, secured on property, for a car purchase.
D) An unsecured personal loan of £10,000.
Q9 answer & justifications
A) A credit card arrangement is not exempt.
B) Correct. Further loans from the existing provider are exempt and would fall under mortgage regulation.
C) A second-charge loan used for a purpose other than home purchase / improvements is not exempt.
D) An unsecured loan will not be exempt.
Q10. When Henry received his monthly payslip on 21 June, his normal occupational pension scheme contribution of £250 had been deducted by his employer. What is the latest date that his employer should pass this contribution to the scheme, if the Pension Regulator’s guidelines are followed?
A) 22 June.
B) 30 June.
C) 19 July.
D) 21 July.
Q10 answer & justifications
A) Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.
B) Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.
C) Correct. Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.
D) Contributions should be paid to the scheme by the 19th day of the month following the month in which they were deducted.
Q11. The maximum size of loan, if any, regulated by the Consumer Credit Act 2006 is:
A) £15,000.
B) £20,000.
C) £25,000.
D) unlimited.
Q11 answer & justifications
A) There is no maximum size of loan for consumer credit regulation.
B) There is no maximum size of loan for consumer credit regulation.
C) There is no maximum size of loan for consumer credit regulation.
D) Correct. There is no maximum size of loan for consumer credit regulation.
Q12. A firm of stockbrokers is conducting MiFID business. When giving advice to their clients, for what minimum period, if any, must they keep records of such advice?
A) Three years.
B) Five years.
C) Six years.
D) Indefinitely.
Q12 answer & justifications
A) Records of advice for MiFID business must be kept for a minimum of five years.
B) Correct. Records of advice for MiFID business must be kept for a minimum of five years.
C) Records of advice for MiFID business must be kept for a minimum of five years.
D) Records of advice for MiFID business must be kept for a minimum of five years.
Q13. Which of the following statements would be the correct definition of the solvency margin required of a life assurance company?
A) The excess of the company’s assets over its mathematical provisions.
B) The excess of the company’s assets over the projected mortality rate.
C) The excess of the company’s mathematical provisions over its assets.
D) The excess of the company’s mathematical provisions over the projected mortality rate.
Q13 answer & justifications
A) Correct. The solvency margin is the excess of the company’s assets over its mathematical provisions.
B) The solvency margin is the excess of the company’s assets over its mathematical provisions.
C) The solvency margin is the excess of the company’s assets over its mathematical provisions.
D) The solvency margin is the excess of the company’s assets over its mathematical provisions.
Q14. In the context of FCA supervision of firms, the term ‘flexible portfolio’ means:
A) firms that are supervised by a team of sector specialists.
B) firms with a customer base that is prone to significant fluctuations.
C) firms with a wide range of regulatory permissions.
D) firms with diverse investment interests.
Q14 answer & justifications
A) Correct. Flexible portfolio firms are supervised by a team of sector specialists.
B) Flexible portfolio firms are supervised by a team of sector specialists.
C) Flexible portfolio firms are supervised by a team of sector specialists.
D) Flexible portfolio firms are supervised by a team of sector specialists.
Q15. Mark sold an investment bond in 2007 and receives trail commission. In June 2015, he advised that the client make an additional investment into the bond. Which of the following explains how Mark should be paid?
A) The client must decide the basis of payment.
B) The total investment may continue on a commission basis.
C) The trail commission may continue but the additional investment must be paid under adviser charging.
D) The trail commission must cease and the adviser must charge the client for the total investment.
Q15 answer & justifications
A) Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.
B) Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.
C) Correct. Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.
D) Advisers may continue to receive trail commission on investments sold before 31 December 2012 (until April 2016) but must charge clients for advice on top-up investments.
Q16. If the FCA discovers a contravention of its rules, one of the steps it may take is to vary a firm’s permissions.
This means that the firm:
A) may have its authorisation withdrawn.
B) may have one of its regulated activities removed or restricted.
C) will be forced to transact business that it does not wish to conduct.
D) will be subject to an injunction preventing it from profiting from the breach.
Q16 answer & justifications
A) Variation of a firm’s permissions may involve removal or restriction of one of the firm’s regulated activities.
B) Correct. Variation of a firm’s permissions may involve removal or restriction of one of the firm’s regulated activities.
C) Variation of a firm’s permissions may involve removal or restriction of one of the firm’s regulated activities.
D) Variation of a firm’s permissions may involve removal or restriction of one of the firm’s regulated activities.
Q17. For dual-regulated firms, which of the following controlled functions is approved as a required function by the PRA?
A) Appointed actuary.
B) Chief executive officer.
C) Director.
D) Head of internal audit.
Q17 answer & justifications
A) Correct. Required functions for PRA regulated firms are CF12 actuary, CF12A with profits actuary and CF12B Lloyds actuary function.
B) This is a governing function.
C) This is a governing function.
D) This is a systems and control function.
Q18. Which of the following individuals’ roles in a regulated firm would be classified by the FCA as a ‘customer function’?
A) Barry, who is in charge of the risk assessment department.
B) David, a non-executive director of a multi-national insurer.
C) George, who is a pension transfer adviser.
D) Ron, who is in charge of settlements.
Q18 answer & justifications
A) Risk assessment is a systems and control function, not a customer function.
B) Non-executive director is a governing function, not a customer function.
C) Correct. Pension transfer adviser is a customer function.
D) Management of settlements is a significant management function, not a customer function.
Q19. What specific FCA financial promotions rules requirements apply to direct offer financial promotions?
A) Records must be retained for 7 years.
B) The promotion must be approved by a director of the firm.
C) The promotion must contain the name of the conduct regulator, the FCA.
D) They must only be sent to customers who have specifically requested them.
Q19 answer & justifications
A) Direct offer financial promotions are not subject to different record keeping requirements.
B) Direct offer financial promotions are not subject to different approval requirements.
C) Correct. Direct offer financial promotions must contain the name of the conduct regulator, the FCA.
D) Direct offer financial can be sent to any customer who has not opted out of receiving marketing.
Q20. Which risk warning must appear on all advertising material containing details of past investment performance?
Past performance:
A) is not necessarily a guide to future performance.
B) is not necessarily better than future performance.
C) is only a general guide to the future.
D) over a period of five years or more is a reasonable guide to the future.
Q20 answer & justifications
A) Correct. There must be a warning that past performance is not necessarily a guide to future performance.
B) There must be a warning that past performance is not necessarily a guide to future performance.
C) There must be a warning that past performance is not necessarily a guide to future performance.
D) There must be a warning that past performance is not necessarily a guide to future performance.
Q21. Once an employee of a regulated firm is deemed to be competent, the firm must have arrangements in place for this competence to be maintained. This is most commonly achieved through:
A) continuing professional development.
B) imposed learning courses.
C) in-house tutorials.
D) regular testing.
Q21 answer & justifications
A) Correct. Employees are expected to maintain competence primarily through continuing professional development.
B) It is unusual for learning courses to be imposed for maintaining competence, although this often occurs for new products, etc.
C) In-house tutorials are normally only available in larger institutions. They are not appropriate across the board.
D) Regular testing does take place in larger organisations but it is the end product rather than the process.
Q22. Simon has undergone his initial training as a financial adviser but has not yet passed the regulatory module of an appropriate approved examination. Under what circumstances might he be allowed to advise customers about regulated products, if at all?
A) He may do so, provided he acts under close supervision.
B) He may do so, provided investments are below an agreed level.
C) He may do so, if all advice is double-checked by a representative of the FCA.
D) Under no circumstances can he offer advice to customers.
Q22 answer & justifications
A) Even when acting under supervision, an adviser must have passed the regulation and ethics module before giving advice.
B) An adviser must have passed the regulation and ethics module of the level 4 qualification before giving advice under supervision, regardless of the level of investments.
C) An adviser must have passed the regulation and ethics module of the level 4 qualification before giving advice under supervision.
D) Correct. An adviser must have passed the regulation and ethics module of the level 4 qualification before giving advice under supervision, in all circumstances.
Q23. For a non-MiFID firm, training and competence records for all individuals must be retained for what minimum period after they have stopped carrying out regulated activity?
A) Three years.
B) Five years.
C) Seven years.
D) Ten years.
Q23 answer & justifications
A) Correct. Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.
B) Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.
C) Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.
D) Training and competence records must be kept for a minimum of three years after an employee has left the firm or ceased carrying out regulated activities.
Q24. Which of the following statements is true in relation to Training and Competence rules?
A) All employees must pass an appropriate examination.
B) All new entrants to the industry must attain competence within 12 months.
C) Firms must monitor continuing competence.
D) Records of assessment criteria must be kept for ten years.
Q24 answer & justifications
A) Not all employees must pass an appropriate examination.
B) There is no specific time limit set by the regulator for new entrants to gain competence, although a firm may wish to set its own standards.
C) Correct. Ongoing competence must be monitored.
D) Records of assessment criteria must be kept for a minimum of three years after an employee has left the firm.
Q25. A number of particular advantages were identified as a benefit that would result from the basic advice process. Which of the following was not specifically identified as an advantage?
A) Larger average investments.
B) Less complex regulation.
C) Reduced costs.
D) Wider potential customer market.
Q25 answer & justifications
A) Correct. Broadening the market should encourage less sophisticated and poorer Investors into play. This is likely to reduce average investments, not increase them.
B) Less complex regulation was seen as deliverable.
C) Less complex regulation was seen as leading to lower costs.
D) Simplified advice was seen as a way of broadening the market.
Q26. Simon has found that his loan, taken out in 2005, is subject to Financial Conduct Authority regulation. This is because it is a:
A) business loan, secured by a first charge over his business premises.
B) buy-to-let loan, secured by a first charge over the property.
C) debt consolidation loan, secured by a second mortgage over his residential property.
D) home improvement loan, secured by a first charge over his residential property.
Q26 answer & justifications
A) This is not subject to FCA regulation.
B) This is not subject to FCA regulation.
C) This is not subject to FCA regulation.
D) Correct. This is subject to FCA regulation.
Q27. Ben, an adviser, is required under FCA rules to provide a key features illustration (KFI) detailing the APR to his client. This confirms that the client has expressed a particular interest in:
A) collective investment business.
B) mortgage business.
C) offshore business.
D) protection business.
Q27 answer & justifications
A) A KFI detailing the APR must be provided when giving mortgage advice.
B) Correct. A KFI detailing the APR must be provided when giving mortgage advice.
C) A KFI detailing the APR must be provided when giving mortgage advice.
D) A KFI detailing the APR must be provided when giving mortgage advice.
Q28. Jason is in the process of applying for a mortgage and has just received a tariff of charges from the lender. What is the latest point in the process that he has reached?
A) Issue of the initial disclosure documentation.
B) Pre-application disclosure.
C) Offer stage.
D) Legal completion.
Q28 answer & justifications
A) A tariff of charges should be issued at the offer stage (MCOB 6).
B) A tariff of charges should be issued at the offer stage (MCOB 6).
C) Correct. A tariff of charges should be issued at the offer stage (MCOB 6).
D) A tariff of charges should be issued at the offer stage (MCOB 6).
Q29. David, an existing residential mortgage adviser, is required to take a further examination to be permitted to give advice on which of the following mortgages?
A) Buy-to-let mortgages.
B) Equity release.
C) Further advances.
D) Second charges.
Q29 answer & justifications
A) David would not need to take a further examination to advise on a buy-to-let mortgage. However, to be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.
B) Correct. To be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.
C) David would not need to take a further examination to advise on further advances. However, to be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.
D) David would not need to take a further examination to advise on second charges. However, to be able to give equity release advice, an adviser requires further qualification eg Certificate in Regulated Equity Release.
Q30. If a customer cancels their general insurance contract within the cooling-off period, the insurance company must return any sums paid to it within how many days?
A) 7.
B) 14.
C) 28.
D) 30.
Q30 answer & justifications
A) If a customer cancels, the insurance company must return any sums paid to it within 30 days.
B) If a customer cancels, the insurance company must return any sums paid to it within 30 days.
C) If a customer cancels, the insurance company must return any sums paid to it within 30 days.
D) Correct. If a customer cancels, the insurance company must return any sums paid to it within 30 days.
Q31. Which of the following is most likely to be an eligible counterparty?
A) A firm acting on behalf of a retail client.
B) A private individual.
C) A small business.
D) Another authorised firm.
Q31 answer & justifications
A) A firm authorised to conduct investment business is normally an eligible counterparty.
B) A firm authorised to conduct investment business is normally an eligible counterparty.
C) A firm authorised to conduct investment business is normally an eligible counterparty.
D) Correct. A firm authorised to conduct investment business is normally an eligible counterparty.
Q32. When disclosing the adviser charge to a client in cash terms, what information is not required when the charge is payable over a period of time?
A) The amount due.
B) The frequency.
C) The implications of cancellation of a retail investment product before the adviser charge is paid.
D) The term.
Q32 answer & justifications
A) The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.
B) The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.
C) The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.
D) Correct. The information disclosed must include the amount due, frequency and implications if the Investment product is cancelled before payment is made.
Q33. To meet the FCA definition of independent advice, recommendations must be based on:
A) a complete analysis of the relevant market.
B) a comprehensive and fair analysis of the relevant market.
C) a comprehensive and inclusive analysis of the whole market.
D) a thorough and fair analysis of the whole market.
Q33 answer & justifications
A) Independent advice must be based on a comprehensive and fair analysis of the relevant market.
B) Correct. Independent advice must be based on a comprehensive and fair analysis of the relevant market.
C) Independent advice must be based on a comprehensive and fair analysis of the relevant market.
D) Independent advice must be based on a comprehensive and fair analysis of the relevant market.
Q34. Which of the following most accurately describes the advice that must be given by independent intermediaries?
A) A suitable product from the host employer.
B) That which is unrestricted, unbiased and comprehensive.
C) The cheapest product from any provider.
D) The cheapest product from the host employer.
Q34 answer & justifications
A) Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market. They will not be tied to selling the products of a host employer.
B) Correct. Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market.
C) Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market, but the most suitable product will not necessarily be the cheapest.
D) Independent intermediaries must make recommendations that are unrestricted and unbiased and from the whole of the market, but the most suitable product will not necessarily be the cheapest, nor will they be tied to selling the products of a host employer.
Q35. When carrying out designated investment business, other than advising on packaged products, a firm must provide which additional document to the client?
A) A business card carrying out-of-hours contact details.
B) A client agreement.
C) A suitability letter.
D) An IDD and a menu.
Q35 answer & justifications
A) The adviser is not obliged to provide ‘out-of-hours’ contact details, even for designated investment business. The adviser should provide a client agreement
B) Correct. The document given to the client when carrying out designated investment business is the client agreement.
C) A suitability letter is provided for sales of life assurance, pension, collective investment and pensions transfer business. The document given to a client when carrying on designated investment business is a client agreement.
D) The IDD and menu have been replaced by the SCDD. For designated investment business, the adviser is obliged to provide an additional document, the client agreement.
Q36. Joe runs his own firm of independent financial advisers and wishes to create his own factfind document. Under what circumstances, if any, can this be permitted?
A) None.
B) Joe is free to prepare his own document.
C) Joe must seek approval from his main product providers.
D) Joe must seek the FCA’s approval of the text.
Q36 answer & justifications
A) There is no prescribed format for a factfind.
B) Correct. There is no prescribed format for a factfind.
C) There is no prescribed format for a factfind.
D) There is no prescribed format for a factfind.
Q37. David has arranged a life policy for his customer, Jane. When is the latest date that the suitability report can be sent to Jane?
A) Five days after the end of the cooling-off period.
B) Five days after the final interview.
C) Five days after the initial interview.
D) Before conclusion of the contract.
Q37 answer & justifications
A) For a life policy, a suitability report must be sent before the contract is concluded.
B) For a life policy, a suitability report must be sent before the contract is concluded.
C) For a life policy, a suitability report must be sent before the contract is concluded.
D) Correct. For a life policy, a suitability report must be sent before the contract is concluded.
Q38. Responsibility for product selection in relation to ‘execution-only’ business rests with the:
A) adviser.
B) customer.
C) product provider.
D) regulator.
Q38 answer & justifications
A) With an ‘execution-only’ transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.
B) Correct. With an ‘execution-only’ transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.
C) With an ‘execution-only’ transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.
D) With an ‘execution-only’ transaction, there is no requirement to provide advice or make any recommendations. The responsibility lies with the customer.
Q39. When an adviser transacts designated investment business for a client, the essential rights and obligations applying to the relationship would normally be disclosed in which document?
A) The client agreement.
B) The key features document.
C) The statutory cancellation notice.
D) The suitability report.
Q39 answer & justifications
A) Correct. For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.
B) For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.
C) For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.
D) For designated investment business, the essential rights and obligations of the relationship are normally disclosed in the client agreement.
Q40. Henry invested £10,000 in a unit-linked lump sum product and cancelled seven days later. He subsequently received a refund of £9,500. What did the reduction in his original investment represent?
A) The adviser’s fee.
B) The cancellation charge.
C) The handling charge.
D) The reduction in the value of investment.
Q40 answer & justifications
A) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.
B) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.
C) Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.
D) Correct. Where a single-premium unit-linked investment has fallen in value during the cancellation period, the customer may find that the refund has been adjusted to take account of the fall. No fees or charges can be taken.
Q41. A financial adviser must issue a key features illustration prior to a sale being concluded, for all of the following products except:
A) gilt-edged securities.
B) life assurance.
C) stakeholder pensions.
D) unit trusts.
Q41 answer & justifications
A) Correct. A key features illustration will be required where advice is being given on a packaged product. It will not be required for a direct investment such as gilts.
B) A key features illustration will be required where advice is being given on a packaged product (eg life assurance, pension policies, unit trusts / OEICs).
C) A key features illustration will be required where advice is being given on a packaged product (eg life assurance, pension policies, unit trusts / OEICs).
D) A key features illustration will be required where advice is being given on a packaged product (eg life assurance, pension policies, unit trusts / OEICs).
Q42. In relation to money laundering, how is ‘property’ defined under the European Directive 2005?
A) Assets held in cash within the European Union only.
B) Assets of every kind including legal documents giving title to such assets.
C) Intangible assets only.
D) Tangible assets only.
Q42 answer & justifications
A) Property is defined as assets of every kind, tangible or intangible, including legal documents. It is not restricted to cash assets.
B) Correct. Property is defined as assets of every kind, tangible or intangible, including legal documents.
C) Property is defined as assets of every kind, tangible or intangible, including legal documents.
D) Property is defined as assets of every kind, tangible or intangible, including legal documents.
Q43. What is the main reason why an authorised firm’s senior management must obtain an annual report from its Money Laundering Reporting Officer?
A) So that they can be compliant with the Financial Services and Markets Act.
B) So that they can be compliant with the Proceeds of Crime Act.
C) To monitor activities and report suspicions.
D) To review activities and strengthen controls.
Q43 answer & justifications
A) The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group’s guidelines.
B) The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group’s guidelines.
C) The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group’s guidelines.
D) Correct. The annual report is to monitor activities and reduce deficiencies. This will be compliant with the Joint Money Laundering Steering Group’s guidelines.
Q44. Why was the Financial Action Task Force set up?
A) To assist consumers who have unmanageable debts.
B) To co-ordinate the international fight against money laundering.
C) To implement the Treating Customers Fairly initiative.
D) To provide a central point for consumers to receive information on pension queries.
Q44 answer & justifications
A) The Financial Action Task Force was set up to assist international initiatives to combat money laundering.
B) Correct. The Financial Action Task Force was set up to assist international initiatives to combat money laundering.
C) The Financial Action Task Force was set up to assist international initiatives to combat money laundering.
D) The Financial Action Task Force was set up to assist international initiatives to combat money laundering.
Q45. Why might money laundering regulations create financial exclusion?
A) Because certain non-residents cannot be offered banking facilities.
B) Because customers want to know why they have been declined for a financial product.
C) Because financial organisations are wary of opening bank accounts with cash deposits.
D) Because not everyone can provide the necessary identification.
Q45 answer & justifications
A) Money laundering requirements may create financial exclusion because not everyone will have the necessary identification.
B) Money laundering requirements may create financial exclusion because not everyone will have the necessary identification.
C) Money laundering requirements may create financial exclusion because not everyone will have the necessary identification.
D) Correct. Money laundering requirements may create financial exclusion because not everyone will have the necessary Identification.
Q46. Under the FCA’s complaints-handling requirements, firms must make a commitment to try to resolve complaints within:
A) three working days.
B) one month.
C) eight weeks.
D) three months.
Q46 answer & justifications
A) Firms should try to resolve complaints within eight weeks.
B) Firms should try to resolve complaints within eight weeks.
C) Correct. Firms should try to resolve complaints within eight weeks.
D) Firms should try to resolve complaints within eight weeks.
Q47. Which of the following statements regarding complaints referred to the Financial Ombudsman Service is false?
A) The firm involved should investigate the complaint before the Ombudsman.
B) The Ombudsman’s decision is binding on the firm and the client.
C) The Ombudsman’s decision is binding on the firm only.
D) The Ombudsman will not usually consider any complaint that is the subject of a court case.
Q47 answer & justifications
A) A complaint should be made to a firm before it is referred to the Ombudsman.
B) Correct. The Ombudsman’s ruling is binding upon the firm, only not on the client.
C) The Ombudsman’s ruling is binding upon the firm only.
D) The Ombudsman will not usually consider any complaint that is the subject of a court case.
Q48. John held deposits with both Bank A and Bank B for a number of years. It is 1 September 2015 and both banks have become insolvent. John received a higher level of compensation from the FSCS for Bank A than in respect of his savings with Bank B. This is because:
A) Bank B had recently made the annual interest payment on John’s account.
B) John had £70,000 in a joint account with Bank A and £70,000 in a sole named account with Bank B.
C) John had £100,000 in a joint account he held with his wife at Bank A and £100,000 in a sole named account with Bank B.
D) John had £100,000 saved with Bank A and £90,000 with Bank B.
Q48 answer & justifications
A) Compensation from the FSCS is based on the amount held.
B) FSCS would pay the same amount in respect of each account.
C) Correct. Compensation is limited to £85,000 per person so John and his wife would have received £100,000 in respect of the account with Bank A and only £85,000 in respect of the account with Bank B.
D) FSCS would pay £85,000 in respect of each account.
Q49. Under the Data Protection Act 1998, the definition of ‘sensitive personal data’ includes all of the following areas, except:
A) mental health.
B) political persuasion.
C) proceedings in civil courts.
D) religious beliefs.
Q49 answer & justifications
A) Information about an individual’s mental health will be classed as sensitive data.
B) Information about an individual’s political persuasion will be classed as sensitive data.
C) Correct. Information about civil proceedings (unlike criminal proceedings) will not be classed as sensitive data.
D) Information about an individual’s religious beliefs will be classed as sensitive data.
Q50. Fred has requested a copy of his personal data held by his bank. The Data Protection Act 1998 requires that: -
A) any corrections must be completed within 14 days.
B) he first confirms his identity, by providing a copy of his birth certificate or passport.
C) his bank provides his data within 40 days of Fred’s written request.
D) the bank limits any administrative charge to a maximum of £25.
Q50 answer & justifications
A) Information must be provided within 40 days.
B) In general, as data must be kept confidential, identification is often required. The Data Protection Act 1998 does not insist on the type of identification.
C) Correct. Information must be provided within 40 days.
D) The maximum charge can be up to £50 depending on the nature of the request.
Q1. Financial intermediaries can provide maturity transformation because they:
A) aggregate many small deposits from a large number of clients.
B) match a wide range of short-term deposit accounts to longer term loans.
C) provide services to clients from many different geographical locations.
D) reduce the risk of default or fraud by lending to a wide variety of borrowers.
Q1 answer & justifications
A) Pooling many small deposits is a process of aggregation (rather than maturity transformation).
B) Correct. Maturity transformation involves matching a wide range of deposit accounts with different terms to a wide range of depositors.
C) Maturity transformation involves the matching of differing timescales rather than geographical locations.
D) Maturity transformation involves matching a wide range of deposit accounts with different terms to a wide range of depositors.
Q2. Which of the following describes a function of the Bank of England?
A) Acting as banker to the government.
B) Depositing money with the International Monetary Fund.
C) Managing new issues of gilt-edged securities.
D) Regulating the sale and marketing of all UK investments.
Q2 answer & justifications
A) Correct. The Bank of England acts as banker to the government.
B) The Bank of England does not deposit money with the IMF.
C) The Bank of England no longer manages the issue of gilt-edged securities (This function is now carried out by the Debt Management Office.)
D) The FCA regulates the sale and marketing of investments in the UK.
Q3. The main reason that the Bank of England transferred responsibility for the management of new issues of gilt edged securities to the Debt Management Office was to:
A) avoid conflicts of interest.
B) give control to the Treasury.
C) limit the power of the Monetary Policy Committee.
D) minimise the administrative costs.
Q3 answer & justifications
A) Correct. This function was transferred to avoid conflicts of interest that might arise from the bank’s responsibility for setting interest rates.
B) This function was transferred to avoid conflicts of interest that might arise from the bank’s responsibility for setting interest rates.
C) This function was transferred to avoid conflicts of interest that might arise from the bank’s responsibility for setting interest rates.
D) This function was transferred to avoid conflicts of interest that might arise from the bank’s responsibility for setting interest rates.
Q4. Jenny has had an element of her husband John’s income tax allowance transferred to her. This must mean that:
A) Jenny is a higher-rate taxpayer.
B) Jenny is an additional-rate taxpayer.
C) John died in the current financial year.
D) John was born after 5 April 1935.
Q4 answer & justifications
A) Spouses and civil partners can transfer up to 10% of their personal allowance as long as the transferor was born after 5th April 1935 and neither party Is a higher or additional-rate taxpayer.
B) Spouses and civil partners can transfer up to 10% of their personal allowance as long as the transferor was born after 5th April 1935 and neither party Is a higher or additional-rate taxpayer.
C) An income tax personal allowance does not transfer at death.
D) Correct. Spouses and civil partners can transfer up to 10% of their personal allowance as long as the transferor was born after 5th April 1935 and neither party is a higher or additional-rate taxpayer.
Q5. For a basic-rate taxpayer, which of the following statements would be regarded as an advantage of having an ordinary building society savings account?
A) A high rate of interest, reflecting the risks involved.
B) A tax-free return, but no guarantee of performance.
C) Security of capital with interest payments.
D) The potential for capital growth with little risk.
Q5 answer & justifications
A) As a low risk investment, a building society account will not usually offer high rates of interest.
B) Interest from a building society account will be taxable.
C) Correct. Building society savings accounts offer regular interest payments with little risk to capital.
D) Building Society accounts do not offer potential for capital growth.
Q6. Jon has invested in short-dated gilts. According to the definition provided by the Debt Management Office, this means that:
A) he is unable to access his capital until the end of the fixed term.
B) payment of interest is net of UK basic rate tax.
C) the interest will be paid at the end of the fixed term.
D) they have a maximum term to redemption of seven years.
Q6 answer & justifications
A) Capital can be accessed by selling the gilts before redemption date.
B) Interest is paid gross on UK gilts.
C) Interest is paid during the term of the gilt.
D) Correct. The DMO defines short dated gilts as those with a term to redemption of up to 7 years.
Q7. Jim is a higher-rate taxpayer who has investments in gilt-edged securities that pay interest of £10,000 p a. How much tax, if any, will be deducted at source from the payment made to him?
A) None.
B) £1,000.
C) £2,000.
D) £4,000.
Q7 answer & justifications
A) Correct. Although subject to income tax, the interest is paid gross.
B) Although subject to income tax, the interest is paid gross.
C) Although subject to income tax, the interest is paid gross.
D) Although subject to income tax, the interest is paid gross.
Q8. If Helen invests in shares which are quoted in the Alternative Investment Market, her shares:
A) are likely to be in new, small companies with growth potential.
B) have a minimum guaranteed capital value.
C) must be held by her for at least one year before they can be sold.
D) will provide a fixed income for the first five years.
Q8 answer & justifications
A) Correct. The AIM is intended for new, small companies with the potential for growth.
B) The AIM is intended for new, small companies with the potential for growth. There is no minimum capital value.
C) The AIM is intended for new, small companies with the potential for growth. There is no minimum holding period.
D) The AIM is intended for new, small companies with the potential for growth. They do not offer fixed income.
Q9. A company is paying a dividend which has a dividend cover of 0.95. This indicates that it:
A) has reduced its payment compared with last year.
B) is highly profitable.
C) is quoted on the Alternative Investment Market.
D) will be paid out of retained surpluses.
Q9 answer & justifications
A) There is no direct correlation between dividend cover and previous dividends paid.
B) The dividend cover does not automatically reflect profitability.
C) The dividend cover is not a direct indicator of the market traded on.
D) Correct. Dividend cover of less than 1 indicates that part of the dividend is being paid out of retained surpluses and therefore calling on reserves.
Q10. Which of the following is not regarded as a ‘commodity’ investment?
A) Commercial property.
B) Electricity.
C) Gold.
D) Royalties on works of art.
Q10 answer & justifications
A) Correct. This is not a commodity.
B) Electricity is now regarded as a commodity.
C) Gold is a commodity.
D) These are regarded as commodities.
Q11. Which of the following statements regarding investments is true?
A) Gilts are negotiable and any gain may be subject to capital gains tax.
B) Interest on gilts is paid without deduction of income tax but is taxable.
C) Interest on local authority stock is paid without deduction of income tax but is taxable.
D) Local authority stocks are not negotiable and carry a government guarantee.
Q11 answer & justifications
A) Gilts are not subject to CGT.
B) Correct. Interest on gilts is paid gross but is taxable.
C) Interest on local authority stock is paid net of tax.
D) Local authority stock is not government backed.
Q12. Returns from which of the following NS&I products are tax-free?
A) Children’s Bonds.
B) Direct Saver.
C) Income Bonds.
D) Investment account.
Q12 answer & justifications
A) Correct. Returns on Children’s Bonds are tax-free.
B) Direct Saver pays interest gross but is taxable.
C) Income Bonds pay interest net of tax.
D) Investment accounts pay interest gross but the payment is taxable.
Q13. The primary reason why an individual would consider using a short-term investment in a foreign currency is connected with:
A) capital funding.
B) investment diversification.
C) the overall level of return.
D) the taxation benefits.
Q13 answer & justifications
A) The requirement to fund capital would be more likely to be achieved with longer term holdings.
B) Long-term, not short-term investments are used to achieve investment diversification.
C) Correct. Short-term foreign currency investment is usually driven by high interest rates.
D) Although taxation can be an issue, it is the level of returns which is the primary driver for short-term investment.
Q14. Which of the following is true in relation to the manager of an investment trust?
A) They can borrow to potentially improve capital and income growth.
B) They can cancel units if the fund value falls sharply.
C) They can issue more units or repurchase units according to demand.
D) They cannot benefit from the effects of gearing.
Q14 answer & justifications
A) Correct. As a company, an investment trust can borrow for investment purposes.
B) Shares in an investment trust cannot be cancelled.
C) An investment trust has a fixed share capital - it cannot change the number of shares.
D) An investment trust can borrow for investment purposes and can benefit from the effects of gearing.
Q15. Michael requires a life policy to pay out a guaranteed fixed cash value at maturity and needs the level of life cover and premiums to remain fixed throughout the term. Which of the following types of policy would be most suitable?
A) Low cost with-profits endowment assurance.
B) Non-profit endowment assurance.
C) Unit-linked endowment assurance.
D) Universal whole-of-life assurance.
Q15 answer & justifications
A) The return from a with-profits policy is dependent on bonuses.
B) Correct. A non-profit endowment has a fixed sum assured upon death or maturity.
C) The return from a unit linked policy is based on investment performance.
D) A whole-of-life policy does not have a maturity date or guaranteed cash value.
Q16. Under the terms of a traditional split-capital investment trust, what minimum percentage, if any, of the income generated by the portfolio is allocated to the income shares?
A) Nil.
B) 50%.
C) 75%.
D) 100%.
Q16 answer & justifications
A) Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.
B) Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.
C) Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.
D) Correct. Under the terms of a traditional split capital investment trust, all of the income is allocated to the income shares.
Q17. Chris has entered into a futures contract for the purchase of a commodity. Which of the following is correct?
A) She can convert the future into a call option at a fixed price on the contract date.
B) She can trade her derivative on the open market at any time prior to the contract’s specified date.
C) She has an obligation to buy the commodity at the agreed time and price.
D) She will be able to choose whether to exercise her option to trade in the commodity at the fixed price and time, or let the contract lapse.
Q17 answer & justifications
A) Futures contracts and call options are separate types of derivative. They are pot linked.
B) Futures contracts cannot be traded.
C) Correct. Futures contracts involve an obligation to trade.
D) The investor cannot choose whether or not to trade. Futures contracts involve an obligation to trade.
Q18. Which of the following is a feature of a repayment mortgage?
A) Repayments will be unchanged throughout the term of the mortgage.
B) The borrower will have to take out an investment policy to cover the shortfall at the end of the mortgage.
C) The capital amount does not reduce over the term of the mortgage.
D) The proportions of capital and interest making up the payment change over the term of the mortgage.
Q18 answer & justifications
A) Repayments will not be fixed throughout the term, as they may vary with interest rate movements.
B) Provided that monthly payments are made on time, the loan will be fully repaid at the end of the term. There will not be a shortfall.
C) The capital amount owing will reduce over the term.
D) Correct. Payments mainly consist of interest in the early stages of the mortgage. Later in the term, more of the payments will be for the capital.
Q19. Which of the following is true in relation to mortgages?
A) A remortgage is a way of lenders charging a higher interest rate.
B) A remortgage is an additional loan from a new lender.
C) A second mortgage increases the loan from the same lender.
D) A second mortgage is an additional secured loan from a new lender.
Q19 answer & justifications
A) If lenders wish to increase interest rates, they can do so on an existing mortgage.
B) A remortgage is not an additional loan. It is a replacement of the first mortgage.
C) A second mortgage is an additional secured loan on the same property from a new lender.
D) Correct. A second mortgage is an additional secured loan on the same property from a new lender.
Q20. When contributing to a personal pension, what rate of tax relief, if any, is given at source?
A) Nil.
B) 10%.
C) 20%.
D) 40%.
Q20 answer & justifications
A) 20% relief is given at source for everyone.
B) 20% relief is given at source for everyone.
C) Correct. 20% relief is given at source for everyone.
D) 20% relief is given at source for everyone.
