Topic 6

Question 1

Investment based crowdfunding is FCA regulated.

True or False?

Answer 1

True.

Question 2

Loan based crowd funding (peer to peer) is FCA regulated.

True or false?

Answer 2

True.

Question 3

Donation based crowdfunding is FCA regulated.

True or false?

Answer 3

False.

Question 4

Reward based crowdfunding is FCA regulated.

True or false?

Answer 4

False.

Question 5

A bank deposit account is a good place to hold a ‘rainy day fund’.

True or false?

Answer 5

True. Deposit accounts allow instant access to funds and they are low risk because savings are protected by the FSCS up to £85k.

Question 6

What, if any, is the minimum age at which a person can take out an NS&I Direct Saver?

a) There is no minimum age.
b) 16.
c) 18.

Answer 6

b) 16.

Question 7

Interest on NS&I Income Bonds is tax‑free.

True or false?

Answer 7

False: interest is paid gross, but is taxable.

Question 8

Jane has invested in short‑dated gilts. According to the UK Debt Management Office (DMO) definition, this means that:

a) the gilts will have a redemption date within the next seven years.

b) interest on the gilts will not be paid to her until the end of the term.

c) the gilts will have a redemption date within the next ten years.

d) she will be unable to access her capital until the end of the term.

Answer 8

a) the gilts will have a redemption date within the next seven years.

Question 9

The main difference between corporate bonds and gilts is that corporate bonds:

a) usually pay a variable rate of interest.

b) are usually for larger amounts of money.

c) normally have no specified redemption date.

d) are considered to be higher‑risk investments.

Answer 9

d) are considered to be higher‑risk investments.

Question 10

The main difference between a debenture and other types of corporate bond is that a debenture:

a) carries the right to vote at the company’s annual general meeting.

b) is usually secured on the assets of the company.

c) can be converted to ordinary shares of the company.

d) pays a fixed rate of interest.

Answer 10

b) is usually secured on the assets of the company.

Question 11

A Eurobond is the equivalent of a gilt, but issued by a government within the eurozone.

True or false?

Answer 11

False: A Eurobond is a bond issued or traded in a country that uses a different currency other than the one in which the bond is denominated, and they can be issued by large companies, not just governments.

Question 12

Jack opens an account so that his wages can be paid into it. He can use his account to pay bills such as utilities and rent via
direct debit, and he can use his debit card to make purchases online and in shops, but he cannot have an overdraft. What kind of account does Jack have?

a) Packaged account.

b) An interbank account.

c) A basic bank account.

d) A debit account.

Answer 12

c) A basic bank account.

Question 13

A structured deposit account:

a) provides a guaranteed fixed return.

b) places the original capital at risk.

c) runs for a fixed term.

d) matches the return from an associated stock market index.

Answer 13

C. The total return is not guaranteed, although the original capital is guaranteed to be returned at the end of the fixed term. The total return is linked to the performance of an associated stock market index, although the return will usually be below the index’s actual return.

Question 14

Income from an offshore deposit account is tax free for a UK resident.

True or false?

Answer 14

False.

Question 15

Jerry has a corporate bond secured on the company’s assets. This is referred to as:

a) an investment bond.

b) loan stock.

c) a debenture.

d) a perpetual subordinated bond.

Answer 15

c) a debenture.

Question 16

Income from a Eurobond received by a higher-rate taxpayer qualifies for:

a) capital gains tax exemption.

b) the annual dividend allowance.

c) tax-free status.

d) personal savings allowance.

Answer 16

d) personal savings allowance.

Question 17

Joanne has a basic bank account. Which feature is her account unlikely to offer?

a) Cash withdrawals from a Post Office.

b) Overdraft facility

c) ATM card.

d) Direct debits.

Answer 17

b) Overdraft facility

Question 18

Amanda has a permanent interest-bearing shareholding. This means:

a) the investment is lower risk than a deposit account.

b) she has no guarantee that her original investment will be repaid.

c) she has a corporate bond holding.

d) the issuing organisation is now a bank.

Answer 18

b) she has no guarantee that her original investment will be repaid.

Question 19

Sally has a National Savings and Investment (NS&I) product, but her friend Sarah cannot open a similar account because new issues of the product are no longer available. This means Sally has an NS&I:

a) guaranteed growth bond.

b) income bond.

c) premium bond.

d) investment account.

Answer 19

a) guaranteed growth bond.

Question 20

An investor has bought a gilt ‘cum dividend’. This means they:

a) will receive 100% of the next due interest payment.

b) will not receive any of the next due interest payment.

c) will be entitled to a bonus dividend on the next due interest date.

d) and the seller will each receive 50% of the next due interest payment.

Answer 20

a) will receive 100% of the next due interest payment.

Question 21

Which of the following is true? Peer-to-peer lending is:

a) not protected by the Financial Services Compensation Scheme.

b) a direct contract between one lender and one borrower.

c) regulated by the Prudential Regulation Authority.

d) co-ordinated by banks and building societies.

Answer 21

a) not protected by the Financial Services Compensation Scheme.

Question 22

Kimberley’s paid £105 for a 4% Treasury gilt with a par value of £100. What is the running yield of the gilt?

a) 2.5%.

b) 3.8%.

c) 4%.

d) 5%.

Answer 22

b) 3.8%.

The running yield is the income of £4 (par value of £100 x 4%) as a percentage of the £105 price paid = 3.8%.

Question 23

Jim is a higher-rate taxpayer who has investments in gilt-edged securities that pay interest of £10,000 pa. He has not elected to change the original tax treatment of the gilts.

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.

Answer 23

a. None.

Question 24

Which statement best explains the tax treatment of National Savings and Investments (NS&I) Income Bonds?

Income:

a. is paid gross but is taxable.

b. is paid net of 10% savings tax, and higher and additional-rate taxpayers must pay any remaining tax through their tax return.

c. is paid net of basic-rate tax, and higher and additional-rate taxpayers must pay any remaining tax through their tax return.

d. paid is always tax-free.

Answer 24

a. is paid gross but is taxable.

Question 25

What is the main type of risk that a personal customer is exposed to, when investing £80,000 in a deposit account?

a. Default.

b. Inflation.

c. Investment.

d. Liquidity.

Answer 25

b. Inflation.

Question 26

Gilt-edged securities in the UK 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 securities issued by the UK government and the government is unlikely to default on interest or capital repayments.

c. are regulated by the Financial Conduct Authority.

d. invest in physical assets, such as property and gold, that can be sold to realise redemption proceeds.

Answer 26

b. are securities issued by the UK government and the government is unlikely to default on interest or capital repayments.

Question 27

The Financial Services Compensation Scheme (FSCS) provides protection for those with deposit-based 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 27

d. the account provider becomes insolvent.

Question 28

Jon has invested in short-dated gilts.

According to the definition provided by HM Treasury’s UK 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 usually 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.

Answer 28

d. they have a maximum term to redemption of seven years.

Question 29

Returns from which of the following National Savings and Investments (NS&I) products are always tax free?

a. Direct Saver.

b. Green Savings Bonds.

c. Income Bonds.

d. Premium Bonds.

Answer 29

d. Premium Bonds.

Question 30

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. does not provide a charge over the company’s stock of goods.

c. is secured on the assets of the company.

d. pays a fixed rate of interest.

Answer 30

c. is secured on the assets of the company.

Question 31

Which of the following investments would be the most suitable for a person with £25,000 to invest, who does not wish to be subject to capital risk?

a. A building society deposit account.

b. A unit trust in a managed fund.

c. Blue chip UK equities.

d. Warrants.

Answer 31

a. A building society deposit account.

Question 32

What feature distinguishes corporate bonds from government securities (gilts)?

a. Corporate bonds are always issued with a shorter term than gilts.

b. Corporate bonds are generally riskier than gilts, which leads to higher interest rates for corporate bonds.

c. Gilts can be both secured and unsecured, whereas corporate bonds are always secured.

d. Gilts offer higher interest rates compared to corporate bonds due to the higher risk associated with government debt.

Answer 32

b. Corporate bonds are generally riskier than gilts, which leads to higher interest rates for corporate bonds.