Free CISI ICWIM Practice Exam with Questions & Answers | Set: 8

A quote-driven market relies on market makers who continuously provide bid and ask prices for securities.

Key Characteristics of Quote-Driven Markets:

Market makers buy and sell securities from their own inventory, ensuring liquidity.

Prices are set by market makers rather than by matching buy and sell orders.

Common in less liquid markets (e.g., corporate bonds, some equities).

Examples:

The London Stock Exchange’s SEAQ system operates as a quote-driven market.

Why Not Other Options?

A (Order-driven) → Uses an electronic order book, not market makers.

C (On-exchange) → Both quote-driven and order-driven systems exist on exchanges.

D (Over-the-counter) → OTC markets may have market makers, but they are not exclusively quote-driven.

???? Reference: London Stock Exchange Trading Systems, CISI Wealth & Investment Management.

Money laundering typically involves three stages: Placement, Layering, and Integration. Let's break down each stage for clarity and to verify why the correct answer is C. Integration:

Placement

This is the initial stage where illicit funds enter the financial system.

For example, depositing large amounts of cash into a bank, buying high-value assets, or smuggling cash to another country.

Layering

This stage involves separating the illicit funds from their illegal origin by conducting complex layers of financial transactions.

Examples include wire transfers, currency exchanges, and purchasing securities to obscure the money trail.

Integration (Final Stage)

The last step involves reintroducing the "cleaned" money into the legitimate economy.

At this stage, the laundered funds appear to be derived from legitimate sources.

Examples include investing in real estate, luxury assets, or legitimate businesses.

This stage is critical because it completes the money laundering cycle and makes the funds usable without arousing suspicion.

Why the Correct Answer is "C. Integration"

Integration represents the culmination of money laundering efforts.

It allows the perpetrator to enjoy the proceeds of crime by disguising them as legitimate income or assets.

This stage relies heavily on creating the illusion of legality.

ACAMS (Association of Certified Anti-Money Laundering Specialists): Discusses the standard three-stage process of money laundering.

International Certificate in Wealth & Investment Management (ICWIM) Study Guide: Outlines the process in Chapter 3 (AML & CFT).

Financial Action Task Force (FATF) Guidelines: Recognizes the integration phase as the endpoint of the money laundering cycle.

References

Risk appetite is determined by investment time horizon, asset allocation, and financial goals.

Why is Option B Correct?

A 15-year time horizon allows for some exposure to risk, but a heavy allocation to bonds and cash suggests a conservative approach.

The presence of some equities implies a moderate willingness to take risk.

Why Not Other Options?

A (Low risk) → A pure cash and bond portfolio would be low risk, but equities add some risk.

C (Mid risk) → A balanced portfolio would have higher equity exposure.

D (Mid-high risk) → A higher-risk portfolio would be equity-heavy.

???? Reference: CFA Institute (Risk Profiling), CISI Wealth & Investment Management.

The balance of payments is a framework that records a country’s economic transactions with the rest of the world over a period. It is organised into two main components. The first is the current account, which captures trade in goods and services, primary income such as investment income and compensation of employees, and secondary income such as transfers. The second component records cross-border capital flows and changes in financial claims and liabilities. In modern descriptions, this is split into the capital account and the financial account, with the financial account typically being the larger and more significant. Many exam questions simplify this by referring to the current account and the financial and capital account together as the two accounts used to measure the balance of payments. The key idea is that current transactions and capital and financial flows must reconcile through accounting identities, with any imbalance reflected in financing flows. Options that describe services alone or domestic categories do not represent the recognised balance of payments structure.

Expansionary fiscal policy involves increased government spending and/or tax cuts to stimulate economic growth.

Why is Option D Correct?

If the government spends more than it collects in taxes, it must borrow money, increasing the budget deficit.

Governments issue bonds to finance the deficit.

Why Not Other Options?

A (Less tax revenue) → While tax cuts may reduce revenue, borrowing is the main reason for a budget deficit.

B (Falling interest rates) → Interest rates are monetary policy, not fiscal policy.

C (Drop in private spending) → Expansionary policy aims to increase private spending, not reduce it.

???? Reference: UK Office for Budget Responsibility (OBR), CISI Wealth & Investment Management.

Key Person Protection:

This insurance protects a business against financial loss if a critical employee (e.g., founder, CEO) becomes incapacitated or dies.

It is designed to mitigate reliance on essential individuals whose absence would disrupt operations.

Elimination of Other Options:

B: Size of the business is not the determining factor.

C: Significant customers are protected under other insurance (e.g., credit insurance).

D: Seasonal profits do not relate to key person risk.