IAD Level 1 - Mock 6 Flashcards
The Government allows the exchange rate to fall and at the same time interest rates increase. This would have which of the following effects?
A. A negative effect with regards to interest rates and a positive effect with regards to exchange rates on the current account
B. A positive effect with regards to interest rates and a negative effect with regards to exchange rates on the current account
C. Both have a negative effect on the current account
D. Both have a positive effect on the current account
A. The current account measures flows in relation to trade in goods and services, income from investment and as compensation of employees, and current transfers (eg, private sector gifts to people overseas, or government aid to abroad). The current account balance is usually seen as the most important component of the balance of trade, because it has the greatest impact on other economic factors such as output and employment.
One method of correcting a current account deficit may be to allow sterling to fall in value against other currencies. This will tend to make foreign goods and services more expensive for UK buyers and so will encourage them to reduce imports and ‘buy British’ instead. In addition, it makes UK goods and services cheaper for overseas customers, helping UK exports. Both these factors will help to restore a positive current account balance.
Higher interest rates can encourage foreign investors to invest in sterling assets, pushing up the exchange rate as they buy sterling to do so. Rising interest rates may well lead to a strengthening of the currency which is clearly at odds with the strategy we discussed in the previous paragraph, of trying to manage the current account through a low exchange rate.
An investor receives four financial promotions in the post.
- Promotion 1 is for the firm’s financial services and states the FCA as the firm’s regulator
- Promotion 2 is for a brand new fund and states the future performance of the fund
- Promotion 3 offers no service or investment, but only contains basic information about the financial services firm
- Promotion 4 is for regulated activities and is communicated by an unauthorised person
Which of the following is FALSE?
A. Promotion 1 is not in breach of the FCA financial promotions rules if the services being promoted are regulated by the FCA
B. Promotion 2 is in breach of the FCA financial promotions rules if the future performance is based on simulated past performance
C. Promotion 3 is exempt from the FCA financial promotions rules
D. Promotion 4 is in breach of the FCA financial promotions rules as unauthorised persons may never communicate financial promotions
D. The FCA does not state that firms should not use the FCA name or logo on financial promotions. It does, however, state that any activities or investments not covered by the FCA must be stated as such.
Future performance cannot be based on simulated past performance.
Promotion 3 is considered image advertising and this is exempt from the financial promotions rules.
Unauthorised persons can communicate financial promotions if the promotion has been approved by an authorised firm.
What is the purpose of PERG 2?
A. It represents guidance on conditions to achieve Part IV permission
B. It represents the criteria the FCA will consider in relation to approved persons
C. It describes the responsibility of approved persons to comply with the fit and proper tests
D. It represents guidance about the circumstances in which authorisation is required
D. The Conditions (COND) Sourcebook gives guidance on the threshold conditions set out in or under Schedule 6 of the FSMA (‘Threshold conditions’).
Vick is 20 years old and is the stepson of Janice. Vick is studying full-time for his A-levels. Janice also has a natural born son, Bob, who she is claiming child benefit for.
Which of the following is TRUE?
A. Janice cannot claim child benefit because Vick is not her natural son
B. Janice may claim child benefit because Vick is studying full-time for his A-levels
C. Janice may not claim child benefit because Vick is over 20 years old
D. Janice cannot claim child benefit for Vick because she is already claiming child benefit for Bob
C. You do not need to be the child’s parent but you must be responsible for the child.
The child must be under 16, or under 20 and studying full time for A-levels, NVQ level 3 or equivalent.
It is paid for each child and is not affected by your income or savings.
As part of your fact finding exercise with a client consider the following:
Establish a relationship
1. Mainly opened ended questions with some closed ended
2. Mainly closed ended questions with some open ended
Identify objectives
3. Open ended questions with clarification
4. Closed ended questions with paraphrasing
Judging Risk Attitude
5. Open ended with closed ended questions
6. Mainly either/or questions
The structure of your conversation should be which of the following?
A. 1, 4 and 5
B. 1, 4 and 6
C. 2, 3 and 6
D. 2, 3 and 5
D. In terms of assessing the client’s knowledge and experience, the firm should gather information on: - the types of service/transaction/investment with which they are familiar; - the nature, volume, frequency and period of their involvement in such transactions/investments; and -their level of education, profession or relevant former profession.
The forerunnner of the FCA, the FSA, noted that, out of a sample of investment files assessed as unsuitable between March 2008 and September 2010, half of these were assessed as unsuitable on the grounds that the investment selection failed to meet the risk that the customer would be willing and able to take. The FSA considers that this level of failure in this area is unacceptable. It has taken, and the FCA continues to take, tough action to address these failings with individual firms.
Suitability must have a robust process for assessing the risk a customer is willing and able to take, including: - assessing a customer’s capacity for loss; - identifying customers that are best suited to placing their money in cash deposits because they are unwilling or unable to accept the risk of loss of capital; - appropriately interpreting customer responses to questions and not attributing inappropriate weight to certain answers; - tools, where used, are fit for purpose and any limitations recognised and mitigated; - any questions and answers that are used to establish the risk a customer is willing and able to take, and descriptions used to check this, are fair, clear and not misleading; - it has a robust and flexible process for ensuring investment selections are suitable given a customer’s investment objectives and financial situation (including the risk he is willing and able to take) as well as his knowledge and experience; - it understands the nature and risks of products or assets selected for customers; and - it engages customers in a suitability
Which of the following is TRUE regarding the Bank of England’s operational standing facilities for eligible UK banks and building societies?
A. The lending/deposit rates are 25bp higher than the Bank Rate and 25bp lower than the Bank Rate respectively
B. The lending/deposit rates are 50bp higher than the Bank Rate and 50bp lower than the Bank Rate respectively
C. The lending/deposit rates are 25bp higher than the Bank Rate and 50bp lower than the Bank Rate respectively
D. The lending/deposit rates are 50bp higher than the Bank Rate and 25bp lower than the Bank Rate respectively
A. The lending/deposit rates are 25bp higher than the Bank Rate and 25bp lower than the Bank Rate respectively.
Note: the Operational Standing Facilities are collateralised.
An investment firm has aggregated its clients’ orders and in total the clients want to buy 500,000 shares of ABC. The firm also wants to buy 500,000 ABC shares and added its order to the aggregated order of the clients. Under what circumstances would clients only receive 400,000 shares?
A. An order driven system shows orders totalling 600,000 shares to sell
B. A market maker was offering a block of 600,000 shares only
C. An order driven system shows orders totalling 800,000 shares to sell
D. A market maker was offering a block of 800,000 shares only
D. A firm may allocate a partial order where it has reasonable grounds to show its participation was necessary in order to execute the order. If a market maker is offering a block of 800,000 shares, the client order could not be executed without the firm’s part of the order. For this reason, the firm could give half to itself and half to the clients as per the original 50:50 split on the ticket.
Which of the following activities do NOT require authorisation?
A. Operating an electronic payment system for the financial services
B. Giving advice on a home reversion plan to a pensioner
C. Acting as principal and end user in a debenture trade
D. Effecting contracts of insurance as principal with clients
C. Acting as principal and end user in a debenture trade is someone buying a bond for their own account and not holding themselves out to deal. This is an excluded activity.
Harold sets up a life interest trust to allow a fair distribution of his assets on death. He appoints Bradley as the trustee and gives him the power to protect the assets and distribute the benefits to his wife, Mary. Harold and Mary’s grandchildren are named as remaindermen. In order to ensure Bradley performs his actions in the best interests of Mary, Harold appoints Michael as protector.
Assuming Harold dies and the trust is created, which of the following is true?
A. On the death of the life tenant, Bradley has the power of appointment over the beneficiaries
B. Harold and Mary’s grandchildren will gain absolute vested interest in the assets at the point of Harold’s death
C. If the trust property is a house Mary can continue to live in it without intervention by the remaindermen
D. Michael will have the power to modify Bradley’s actions, but not direct them
C. The trust set up by Harold is an interest in possession trust; this gives the life interest (or life tenant) an entitlement to the benefits of the asset during a set period of time (often the life of the life tenant). After this the remaindermen gain possession of the assets. The protector of a trust can be both reactive to and proactive in the behaviour of a trustee.
Under the accountability regime, once a certification employee has been deemed fit and proper, and awarded a certificate to perform a specified function by their firm, what is the maximum that a certificate can last for?
A. Until the employee retires
B. Six years
C. Until their role changes
D. Twelve months
D. The maximum length of time a certificate can last for is twelve months. If the employee changes to a different certificated role before this time, a new certificate must be issued.
Consider only the following facts about a country:
- Gross national product £22.6bn
- Capital inflows from overseas investments £2.4bn
- Capital consumption £1.6bn
Which ONE of the following statements is TRUE?
A. GDP is £22.6bn
B. National income is £21.0bn
C. GDP is £24.4bn
D. National income is £18.6bn
B. The national income = GNP - capital consumption.
Which of the following would be classified as a per se professional client? A trustee of:
A. A trust set up prior to November 2007
B. A trust with substantial net assets
C. A trust which has satisfied quantitative and qualitative criteria
D. A trust which has assets of £10m
D. A trust which has assets of £10m would be considered a per se professional client.
For non-MiFID business, large undertakings are:
- a company whose called-up share capital or net assets is, or has at any time in the past two years been, at least £5 million, or currency equivalent (or any company whose holding companies/subsidiaries meet this test);
- a company which meets (or which the holding companies/subsidiaries meet) any two of the following criteria: a balance sheet total of €12.5 million; a net turnover of €25 million; an average of 250 employees during the year;
- a partnership or unincorporated association whose net assets is or have at any time in the past two years been, at least £5 million, or currency equivalent. In the case of limited partnerships, this should be calculated without deducting any loans owing to the partners;
- a trustee of a trust (other than certain types of pension scheme, dealt with in the next bullet point) which has, or has at any time in the past two years had, assets of at least £10 million;
- a trustee of an occupational pension scheme or a small self-administered scheme, or the trustee/operator of a personal pension or stakeholder pension scheme, where the scheme has, or has at any time in the past two years had: at least 50 members; and assets under management of at least £10 million.
A South African company has recently been granted a listing on the London Stock Exchange. The FCA, acting as the competent authority, will require which of the following Disclosure and Transparency rules?
A. That the company will make public its annual accounts within six months of them being produced
B. Price sensitive information must be made public in a timely manner
C. If the FCA wishes to de-list the company it is the UKLA to whom they would appeal
D. If a restricted person wishes to trade in their own company they must first seek approval from the LSE
B. The Continuing Obligations are contained in the FCA’s Listing Rules and the Disclosure and Transparency Rules Sourcebook. The first main requirement of the Continuing Obligations is the timely disclosure of all relevant information. A listed company has a general duty to disclose all information necessary to apprise investors of the company’s position and to avoid a false market in its shares.
If a company is appointed as trustee and another is appointed as a depository, which of the following statements is true?
A. They are both responsible for implementing an investment strategy
B. There is no need for the trustee to be authorised if they comply with the conditions of the Trust Deed
C. They are both performing a regulated activity
D. An investor can purchase these securities in the secondary market
C. The FCA not only authorises investment firms undertaking activities as contained in the regulated activities order, it also approves and regulates collective investment schemes. A trustee will be appointed for a Unit Trust and a depository will be appointed for an OEIC/ICVC.
Alice wants to put assets into a trust for the benefit of her daughter Mary. On Mary’s death, she wants the assets to pass to her grandchild Jane. She has asked her best friend Liz to hold legal title on the trust’s assets. Which ONE of the following statements is TRUE?
A. Liz is the remainderman
B. Mary is the trustee
C. Jane has the life interest
D. Alice is the settlor
D. Alice is the settlor.
Mary has the life interest.
Jane is the remainderman.
Liz is the trustee.
