EXAM QUESTIONS

Question 1

Which of the following is an example of the process of disintermediation?
A. A bank offering savings accounts
B. A building society agreeing to offer a mortgage
C. An insurance company underwriting an application for term assurance
D. Crowdfunding

Answer 1

Answer is D

Question 2

‘Bancassurance’ was coined to describe 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 owns a bank
D. An insurance company owns a bank

Answer 2

Answer is C

Question 3

The Financial Services Compensation Scheme (FSCS) provides protection for those without deposit-savings and investments in the event that:
A. Incorrect advice is given in respect of the most suitable type of account to use
B. Interest rates are reduced
C. Investment returns fail to match expectations
D. The account provider becomes insolvent

Answer 3

Answer is D

Question 4

Which body sets interest rates in the UK and what is its inflation target?
A. The Treasury; 2% CPI
B. The Treasury; 2% RPI
C. The Monetary Policy Committee; 2% CPI
D. The Monetary Policy Committee; 2% RPI

Answer 4

Answer is C

Question 5

A ‘directive’ is a form of EU legislation. This requires Member States to implement the directive:
A. to achieve a set outcome, but how this is achieved is left to each State
B. in its entirety with no discretion about how it is implemented
C. by introducing high level principle-based regulation that underpin the directive
D. only if they choose to do so

Answer 5

Answer is A

Question 6

Which regulator is charged with ensuring that competition between businesses is a benefit to customers and the economy as a whole?
A. The Office of Fair Trading
B. Competition Commission
C. The Prudential Regulation Authority
D. Competition and Markets Authority

Answer 6

Answer is D

Question 7

For those on a fixed income, high levels of inflation would normally:
A. Allow them to save more
B. Reduce their tax allowances
C. Allow them to invest for longer periods
D. Reduce the amount of goods they can buy

Answer 7

Answer is D

High levels of inflation mean that prices rise and so someone on a fixed income would be able to buy fewer goods

Question 8

Which organisation provides compensation in the event that a bank goes bust?
A. FCA
B. FOS
C. FSCS
D. PRA

Answer 8

Answer is C

Question 9

In the event of a company going into liquidation, who would normally have the lowest priority for payment?
A. Banks
B. Bondholders
C. Ordinary shareholders
D. Preference shareholders

Answer 9

Answer is C

Question 10

If interest rates increase, what will be the effect on a 5% government bond?
A. Price will rise
B. Price will fall
C. Coupon will rise
D. Coupon will fall

Answer 10

Answer is B

Bonds have an inverse relationship with interest rates so if interest rates rise, then bond prices will fall

Question 11

From 2013, which UK regulatory body is responsible for the supervision of investment exchanges?
A. Financial Conduct Authority
B. Financial Policy Committee
C. Financial Services Authority 
D. Prudential Regulatory Authority

Answer 11

Answer is A

The FCA is responsible for the regulation of all firms in retail and wholesale financial markets as well as the infrastructure that supports these markets

Question 12

Which of the following assets is exempt from capital gains tax?
A. Buy-to-let properties
B. Shares
C. UK government bonds
D. Unit trusts

Answer 12

Answer is C

Question 13

What income tax will an additional taxpayer with an overall income of £250,000 per year pay on a UK dividend?
A. 7.5%
B. 32.5%
C. 38.1%
D. 45%

Answer 13

Answer is C

Question 14

Sue, a higher rate taxpayer aged 43, receives £10,000 in dividend income. What rate of income tax will she pay on her dividend income?
A. 7.5%
B. 20%
C. 32.5%
D. 37.5%

Answer 14

Answer is C

The first £2,000 of dividend income each tax year is tax free. Sums above this will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate

Question 15

What is the minimum age for holding a stocks and Shares ISA?
A. 16
B. 18
C. 25
D. There is no min age

Answer 15

Answer is B

Question 16

What age can a child withdraw money from their Junior ISA?
A. 15
B. 16
C. 18
D. 21

Answer 16

Answer is C

While they have responsibility for it at 16, they cannot withdraw funds until 18.

Question 17

When an investment bond is uncashed, the profits are subject to which tax?
A. Capital gains tax
B. Corporation tax
C. Income tax
D. Inheritance tax

Answer 17

Answer is C

When investment bonds are uncashed, the profits made are taxed as income rather than capital gains

Question 18

The individual charged with looking after the assets of a trust is known as the:
A. Beneficiary
B. Executor
C. Settlor
D. Trustee

Answer 18

Answer is D

A settlor creates the trust and the person he gives the property to, to look after for the beneficiaries is the trustee

Question 19

If you expect interest rates to rise over the next few years, which type of mortgage payment would you expect to be most attractive?
A. Tracker
B. Discounted
C. Fixed
D. Variable

Answer 19

Answer is C

A fixed-mortgage should be the most attractive if interest rates are expected to rise

Question 20

A policy that only pays out if death occurs during the term of the policy is:
A. An endowment plan
B. A term assurance
C. An income replacement plan
D. A whole-of-life assurance

Answer 20

Answer is B

Term assurance is designed to pay out only if death occurs within a specified period

Question 21

If a person is declared bankrupt, their debts are usually written off after:
A. 6 months.
B. 12 months. 
C. 3 years.
D. 5 years.

Answer 21

Answer is B

Question 22

Derek and Connie have a joint savings account at a building society with a balance of £190,000. Under normal circumstances, how much of their savings would be covered by the Financial Services Compensation Scheme (FSCS) if the building society became insolvent?
A. £50,000.
B. £85,000.
C. £170,000.
D. £190,000.

Answer 22

Answer is C

Each person gets £85,000

Question 23

Harry has total gross earnings of £120,000 for the last tax year. What rates of income tax apply to his earnings?
A. 10% and 20% only.
B. 10%, 20% and 40% only.
C.  20% and 40% only.
D.  20%, 40% and 45% only.

Answer 23

Answer is C

Question 24

How does the UK financial market operate in respect of both investments and loans?
A. All short-term investments are used to create short-term loans.
B. Financial intermediaries help transform short-term savings to long-term loans.
C. Long-term risk is transformed to short-term risk via financial intermediation.
D. Small investments are grouped together to facilitate larger loans via financial disintermediation.

Answer 24

Answer is B

Question 25

How do the financial markets across the various EU Member States operate?
A. As a single market governed by European Parliament. 

B. As independent markets regulated by bodies in each Member State where capital may flow in
and out without restriction. 

C. As independent markets regulated by the European Central Bank where capital may flow in and 
out without restriction. 

D. As independent markets regulated by bodies in each Member State where capital flow is 
restricted by limits set centrally.

Answer 25

Answer is B

Question 26

Within the UK economy, an example of disintermediation would be the
A. arrangement of a life assurance policy through an independent adviser.
B. arrangement of a personal loan with a bank.
C. purchase of securities from a stockbroker.
D. purchase of UK gilts from the Debt Management Office.

Answer 26

Answer is D

Question 27

A UK life assurance company is establishing a separate offshore company in the Isle of Man. In respect of the relevant EU Directives, the UK company should be aware that
A. all EU Directives that apply to the UK company will automatically apply to the company in the Isle of Man.
B. EU Directives will not apply in respect of the company in the Isle of Man.
C. the UK company’s registration by the Financial Conduct Authority will be automatically
passported to the Isle of Man.
D. the Isle of Man regulators must apply all EU Directives to non UK-based companies only.

Answer 27

Answer is B

Question 28

How do EU Directives affect UK financial services companies, if at all?
A. Directives are binding on companies immediately and must be implemented as prescribed in the Directive.
B. Directives are binding on all companies and the methods of implementation will be prescribed by the Government.
C. Directives do not affect UK financial services companies.
D. Directives may be considered by the Government and implemented only if it is considered appropriate to do so.

Answer 28

Answer is B

Question 29

With respect to UK short-dated gilts, index-linked gilts and National Savings & Investments products, a financial adviser should be aware that they
A. are always tax free for the investor.
B. are all issued by the Debt Management Office.
C. are all used by the Government to raise funds.
D. cannot be purchased by corporate investors.

Answer 29

Answer is C

Question 30

When the Bank of England announces it will undertake quantitative easing, a financial adviser should consider that typically
A. interest rates will fall as a result.
B. a new tranche of gilts will be issued.
C. the Debt Management Office will offer to buy back a limited number of gilts.
D. the Bank of England will purchase an amount of gilts that are in circulation.

Answer 30

Answer is D

Question 31

The tripartite regulators of UK financial firms, when considering issues relating to financial stability, will report to
A. the European Systemic Risk Board.
B. the European Central Bank.
C. the Financial Action Task Force.
D. the Basel Committee on banking supervision.

Answer 31

Answer is A

Question 32

Terry has various debts, including a mortgage, a credit card, a secured personal loan and a hire purchase finance agreement on his car. When considering how he might reduce his outgoings, he should be aware that
A. the secured loan cannot be repaid until his mortgage is repaid.
B. debt consolidation may involve increasing the term of his repayments.
C. an introductory deal on a credit card is always available.
D. a hire purchase agreement cannot be repaid before the end of the term.

Answer 32

Answer is B

Question 33

A client is considering mortgage payments for both capital and interest and interest-only mortgages. He should be aware that if interest rates stay constant throughout the mortgage term, compared to a capital and interest mortgage, an interest-only mortgage will result in
A. a lower monthly cost, but a higher overall borrowing cost.
B. a higher monthly cost, but a lower overall borrowing cost.
C. both a lower monthly and overall borrowing cost.
D. both a higher monthly and overall borrowing cost.

Answer 33

Answer is A

Question 34

Michael, aged 27, has recently purchased a property with a mortgage on a capital and interest basis. He is single and has no dependants and is employed by the local authority. Michael’s main priority is most likely to be arranging an
A. amountoflifeassurancethatremainsconstantoverthetermoftheloan.
B. amount of life assurance that reduces over the term of the loan.
C. amount of income protection insurance sufficient to continue meeting the mortgage payments.
D. investment vehicle to create a lump sum to repay the mortgage at the end of the term.

Answer 34

Answer is C

Question 35

Claire, aged 38, is concerned about funding the future further education costs for her children, aged 9 and 10. When considering an appropriate timescale for any investment and reflecting her medium attitude to risk, she is most likely to consider using
A. instantly-accessible deposit accounts providing a guaranteed return.
B. a range of tax-efficient savings plans investing in a range of investment types.
C. contributing to a personal pension plan and drawing income to fund her children’s education
costs.
D. an equity release arrangement secured on her home to fund the education costs.

Answer 35

Answer is B

Question 36

John, aged 64, is married to Margaret, aged 62, and they are both approaching retirement. They have always worked for the same company and have both accrued pension benefits through the company’s group money purchase scheme. If they both purchase annuities at retirement and both wish to receive the maximum possible income level, they should both select
A. an index-linked annuity payable on a single-life basis with no guarantee.
B. an index-linked annuity payable on a joint-life basis with a 10-year guarantee.
C. a level annuity on a single-life basis with no guarantee.
D. a level annuity on a joint-life basis with a 10-year guarantee.

Answer 36

Answer is C

Question 37

Geoffrey and Andrew are brothers and have both retired. All of Geoffrey’s retirement income, but only part of Andrew’s, is treated as earned income. This is because
A. Andrew was an employee, Geoffrey was self-employed.
B. Geoffrey is aged 59, Andrew is aged 69.
C. only Andrew receives two forms of State Pension.
D. only Andrew took out a purchased life annuity with the funds raised from his pension
commencement lump sum entitlement.

Answer 37

Answer is D

Question 38

When considering estate and Inheritance Tax planning for a retired couple, who have no
outstanding debts or liabilities and a substantial estate, their first priority should be
A. arranging a joint whole of life assurance policy under trust and payable on a second death basis to cover the potential tax liability.
B. ensuring that they have sufficient resources to pay for long-term care.
C. starting to gift assets outside of the estate using annual exemptions.
D. writing a valid will.

Answer 38

Answer is D

Question 39

Bob and Gillian, both aged 28, have recently arranged an interest-only mortgage on their first home which they intend to repay with the proceeds of a trust fund that Bob will receive when he attains the age of 35. To ensure that this loan is adequately protected in the event of death before the trust fund is distributed, the most suitable arrangement is likely to be
A. a reducing term assurance policy on Bob’s life only for the outstanding mortgage amount.
B. a level term assurance policy on a joint-life basis for the outstanding mortgage amount.
C. an income protection insurance policy for both of them to cover the monthly repayments.
D. a whole of life assurance policy on Bob’s life only for the outstanding mortgage amount.

Answer 39

Answer is B

Question 40

Kim and Richard have two children, aged five and seven. They have no outstanding mortgage and Richard is the sole wage earner. To ensure that Kim is able to continue looking after the children in the event of Richard’s death, they should consider a family income benefit policy based on
A. Richard’s life and his income level.
B. Kim’s life and her income requirement.
C. Richard’s life and Kim’s income requirement.
D. Kim’s life and her expenditure.

Answer 40

Answer is C

Question 41

Jerry, a 37-year-old higher-rate taxpayer, is looking to provide a lump sum in the future, for the benefit of his 15-year-old son, Paul, when he finishes further education at the age of 22. Jerry wishes to invest £10,000 per annum. It is likely that the most tax-efficient method of achieving this would be to consider
A. taking the pension commencement lump sum from his pension scheme.
B. arranging an onshore life assurance bond and assigning the value to Paul at the age of 22.
C. utilising his own ISA allowances and gifting the proceeds to Paul at the age of 22.
D. investing in a Junior ISA.

Answer 41

Answer is C

Question 42

Currently, maximum entitlement to the state pension is determined by
A. a complete National Insurance contribution record for the entire working life of the individual.
B. a complete National Insurance contribution record for a specific period of the working life of the
individual.
C. the amount of Class 2 National Insurance contributions that have been paid by the individual.
D. the amount of Class 4 National Insurance contributions that have been paid by the individual.

Answer 42

Answer is B

Question 43

A self-employed jeweller wanting to purchase a shop using his pension scheme should consider a
A. Retirement Annuity Contract.
B. Section 32 buy-out bond.
C. self-invested personal pension (SIPP).
D. small self-administered scheme (SSAS).

Answer 43

Answer is C

Question 44

A financial adviser has been approached by his client, Billy, who has recently been appointed as a deputy by the Court of Protection on behalf of his mother, Betty, who has lost mental capacity. Betty is a joint trustee of a discretionary trust with her brother, Jimmy. Who will have the power to act on any advice given in relation to the trust assets?
A. Billy only.
B. Jimmy only.
C. Only Billy and Jimmy acting together.
D. Either Billy or Jimmy.

Answer 44

Answer is B

Question 45

An independent financial adviser within a large authorised firm is recommending a new personal pension arrangement to her client. She is acting as
A. agent of personal pension provider only.
B. agent to the client only.
C. agent for the client and the pension provider jointly.
D. agent for the authorised firm only.

Answer 45

Answer is B

Question 46

Katrina entered into a personal loan arrangement with a finance company 3 months before her 18th birthday. What is the legal position in respect of this arrangement?
A. The contract is valid as she was within 6 months of her 18th birthday.
B. Katrina can avoid all liability under the contract.
C. Katrina’s parents could be made liable for the debt.
D. the contract is automatically made void from outset.

Answer 46

Answer is B

Question 47

Tony, Peter and Steve jointly own an investment property as tenants in common. Tony owns 20%, Steve owns 30% and Peter owns 50% of the property. The property is subject to a mortgage. If Tony dies, what will happen to his share of the property?
A. It will be automatically shared equally between Steve and Peter.
B. It will be passed to Tony’s estate.
C. It will be passed to Steve and Peter in proportion with their current respective shareholdings in
the property.
D. It will be passed to the lender to repay Tony’s share of the mortgage.

Answer 47

Answer is B

Question 48

Michaela owns a property outright and in perpetuity, but does NOT own the freehold. This is most likely to be because the ownership is
A. on a common hold basis.
B. on a leasehold basis.
C. subject to feudal tenure.
D. subject to a shared ownership agreement.

Answer 48

Answer is A

Question 49

In a case of bankruptcy, who has a statutory duty to investigate, where necessary, the bankrupt’s affairs and send a report to the creditors?
A. An insolvency practitioner appointed by the creditors.
B. The lead creditor.
C. The Official Receiver.
D. Thetrusteeinbankruptcy.

Answer 49

Answer is C

Question 50

Jessica wrote a will some time ago leaving most of her assets to her husband and a small bequest to her mother. What is the impact, if any, of her recent divorce on the will?
A. Her divorce has no impact on the will.
B. The bequest to her mother remains valid and her ex-husband will only receive the statutory
amount.
C. The will becomes invalid and all her assets would pass according to the laws of intestacy.
D. The will remains valid and her assets distributed as if her ex-husband had predeceased her.

Answer 50

Answer is D

Question 51

Ethel has purchased shares for £5,000 and placed them under a trust for her grandson. She has arranged the trust so that he will automatically receive the shares at the age of 18, but there will NOT be any access before that time. The trust she is most likely to have used is a
A. bare trust.
B. discretionary trust.
C. discounted gift trust.
D. flexible trust.

Answer 51

Answer is A

Question 52

In creating a trust for her client, a solicitor recommends the inclusion of a charging clause in the trust wording. What is this most likely to relate to?
A. To allow adhoc payments to beneficiaries, for their education or advancement.
B. To allow professional trustees to be remunerated for their services.
C. To clearly set out the costs of preparing and executing the trust deed under the Law Society
rules.
D. To prevent trustees from deriving any personal benefit from the trust.

Answer 52

Answer is B