ICWIM Exam Dumps - CISI level 3 Certificate in Wealth & Investment Management Questions and Answers

Bearer shares are physical certificates that grant ownership, and the rights to those shares are with the bearer. If the certificate is lost or stolen, the investment could effectively be unrecoverable since ownership cannot be traced back to the investor.

Not being publicly named (A): This is an advantage of bearer shares, not a disadvantage.

Difficulty in valuation (C): Bearer shares’ value is similar to registered shares based on market conditions.

Impossible to sell part (D): Fractional transactions can still occur with bearer shares.

Fund Gating:

Gating occurs when fund managers temporarily restrict redemptions to protect the remaining investors and ensure liquidity.

This allows the fund to sell illiquid assets to generate sufficient cash for redemptions.

Elimination of Other Options:

A: Tax deferral benefits are irrelevant to gating.

B: Commission proportions are unrelated to liquidity.

C: Lock-in periods are predetermined and not linked to gating.

Capital gains tax is charged on the gain realised when a chargeable asset is disposed of. The taxable amount is generally the difference between the disposal proceeds and the allowable cost base, adjusted for any permitted reliefs and exemptions. The key concept is that the tax is not charged on the value of the asset itself, but on the profit made on disposal. Disposal usually includes sale, gift, exchange, or certain other events treated as disposals for tax purposes, but the exam-friendly wording is gains arising from the sale or disposal of an asset. Option A is a trap because it implies all assets are taxed and that the tax is on the asset rather than the gain. Option B is incorrect because pensions are typically subject to their own tax rules and CGT is not described as being charged at a reduced rate for pensions. Option C is incorrect in standard exam framing because death is commonly treated as a tax event for inheritance tax considerations, while CGT treatment at death is handled differently depending on regime; the safest syllabus-consistent statement is that CGT is charged on gains on disposal, not simply on transfer on death.

Double Taxation Relief (DTR) is a mechanism to prevent individuals or companies from paying tax on the same income in two different jurisdictions. This is critical for taxpayers with international earnings or investments. The relief is typically provided under double taxation agreements (DTAs) between countries.

A recommendation report for a client should contain comprehensive details of their existing financial arrangements. This ensures that advice aligns with the client’s goals and existing commitments. The inclusion of previous arrangements helps provide a full financial picture and ensures the recommendations are appropriate.

Understanding Negative Interest Rates:

Negative interest rate policies (NIRP) are used by central banks to stimulate the economy by discouraging banks from hoarding excess reserves.

Under NIRP, banks are charged interest for holding deposits with the central bank, incentivizing lending to businesses and consumers instead.

Elimination of Other Options:

A & B: Interest is still charged on loans, and consumers are not directly "paid" to borrow.

C: Discounting loan interest rates is a potential consequence but not the direct mechanism of NIRP.

A Certificate of Deposit (CD) is a negotiable bearer security issued by banks, representing a fixed-term deposit with a specified interest rate.

Key Features of CDs:

Issued by commercial banks.

Fixed-term investment (e.g., 3 months to 1 year).

Can be traded in secondary markets, making them a liquid investment.

Why Not Other Options?

A (Treasury Bills) → Issued by governments, not banks.

B (Commercial Paper) → Issued by corporations, not banks.

C (Bills of Exchange) → Used for trade finance, not fixed-term deposits.

???? Reference: Bank of England (Certificates of Deposit), CISI Wealth & Investment Management.

In a perfectly competitive market, short-term supernormal profits attract new firms into the industry, driving down profits to normal levels in the long run.

Why is Option B Correct?

Free market entry allows competitors to reduce market share and drive down prices.

Eventually, firms earn only normal profits, meaning no economic profit remains.

Why Not Other Options?

A (Continue making supernormal profit) → Not possible in perfect competition, as new firms enter.

C (Government regulation) → Market forces, not regulation, determine profit in perfect competition.

D (Firm cuts prices) → Price reduction occurs due to new competition, not voluntary price cuts.

???? Reference: Microeconomic Theory (Perfect Competition), CISI Wealth & Investment Management.

Central banks use foreign currency reserves to stabilise or influence their national currency in the foreign exchange (FX) market.

Why Intervene?

To prevent excessive currency depreciation/appreciation.

To control inflation by managing exchange rates.

To maintain export competitiveness.

Example: The People’s Bank of China (PBOC) intervenes in FX markets to stabilise the Chinese Yuan (CNY).

???? Reference: IMF Guidelines on Currency Intervention, CISI Wealth & Investment Management.

Arbitrage pricing theory explains expected returns using multiple systematic risk factors rather than relying on a single market factor. In this framework, each factor has an associated risk premium, and each security has a sensitivity to each factor. Those sensitivities are commonly described as factor betas. The expected return is constructed by adding the risk free rate to the sum of each factor beta multiplied by that factor’s risk premium. This is what makes the model multi-factor: risk is decomposed into several drivers, such as economic growth, inflation, interest rate changes, or other broad influences, with separate exposures to each. The capital asset pricing model uses one beta against a market portfolio, so it is simpler but also more restrictive. Arbitrage pricing theory does not require the strong single-factor structure and does not depend on psychological elements of investing. It also does not assume factors are correlated to each other as a defining feature. The key distinguishing point that CISI tests is that arbitrage pricing theory applies separate betas to multiple risk premiums.