Pass the CISI level 3 Certificate in Wealth & Investment Management ICWIM Questions and answers with ExamsMirror

The EU and Financial Services

The European Union’s goal is to establish a single market where financial services, goods, and capital can move freely between member states.

This involves harmonizing laws and regulations across countries to reduce barriers to trade and investment.

Why the Other Options are Incorrect

A. Single regulator: The EU has no single financial regulator; financial regulation is shared across bodies like ESMA and EBA.

C. Power of veto: The EU does not override national regulators; instead, it ensures compliance with its directives.

D. ECB and systemic risk: The ECB handles systemic risk in the Eurozone but not for the entire EU, especially countries outside the Eurozone.

ICWIM Study Guide, Chapter on Global Financial Markets: Covers the EU’s role in creating a single market.

EU Financial Directives: MiFID and others promote cross-border market access.

ReferencesThus, the correct answer is B. It aims to bring about a single market.

What is Key Person Protection?

A policy designed to compensate a company for financial losses incurred if a key employee dies or becomes disabled.

A prerequisite is that the company must prove an insurable interest in the key person.

Why D is Correct

Insurable interest ensures that the company has a legitimate financial dependency on the key person, a requirement for taking out such a policy.

Other Options Analyzed

A. Ever-increasing premiums: Not a feature specific to key person policies.

B. Moving to a competitor: Irrelevant; this is not an insurable risk.

C. Undefined sum: Key person policies require a specific sum based on financial calculations.

ICWIM Textbook, Chapter on Business Insurance: Emphasizes insurable interest in key person policies.

Insurance Industry Standards: Insurable interest is a fundamental requirement.

References

ROCE (Return on Capital Employed)

Measures the efficiency and profitability of a company relative to the capital invested in the business.

Formula: ROCE=Earnings Before Interest and Tax (EBIT)Capital Employed\text{ROCE} = \frac{\text{Earnings Before Interest and Tax (EBIT)}}{\text{Capital Employed}}ROCE=Capital EmployedEarnings Before Interest and Tax (EBIT)​

Why the Answer is C

ROCE specifically focuses on the returns generated from the capital base, providing insight into how effectively the business is using its resources.

Why Other Options are Incorrect

A. Net profitability: Refers to net profit margins, not ROCE.

B. Borrowing costs: ROCE ignores borrowing costs as it considers EBIT.

D. Net profit in relation to cost of sales: Refers to gross profit margin, not ROCE.

ICWIM Study Guide, Chapter on Financial Ratios: Covers ROCE and its applications.

Corporate Finance Texts: Defines ROCE as a key performance metric.

ReferencesThus, the correct answer is C. Returns generated from capital invested in the business.

Offshore Foundations

These legal entities are typically used for wealth preservation, estate planning, or philanthropic purposes.

Foundations are managed by a council, which is responsible for operational decisions and ensuring the foundation’s goals are met.

Why the Answer is C

The council acts similarly to a board of directors but focuses specifically on the foundation’s assets and objectives.

Why Other Options are Incorrect

A. Board of directors: Applies to companies, not foundations.

B. Trustees: Apply to trusts, not foundations.

D. Beneficiaries: Beneficiaries do not have decision-making authority.

ICWIM Study Guide, Chapter on Trusts and Foundations: Discusses the governance of offshore foundations.

Legal Principles of Foundations: Confirms the role of the council.

ReferencesThus, the correct answer is C. The council.

Price of Closed-Ended Investment Companies:

These companies issue a fixed number of shares. Prices can trade at a premium or discount to NAV based on market demand and supply for their shares.

Strong demand increases prices above NAV (premium), while weak demand decreases prices below NAV (discount).

Elimination of Other Options:

A: Charges affect long-term returns but not immediate pricing.

B: Tax status is generally consistent and not a determinant of premiums or discounts.

D: Interest rates indirectly affect demand but are not a direct cause.

References:

ICWIM Module 3: Discussion on pricing mechanisms of closed-ended funds and NAV premiums/discounts.

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

Impact of Technological Change and Globalisation:

Both trends encourage economic expansion and diversification.

Bond issuance rises as companies and governments seek capital to invest in infrastructure, technology, and globalization-driven initiatives.

Elimination of Other Options:

A: Urbanization has increased due to globalization, making this incorrect.

B: Equity issuance has not significantly decreased; bonds have grown alongside equities.

C: Technological change often reduces inflationary pressure through efficiency.

References:

ICWIM Module 1: Globalization and Financial Markets: Examines the role of debt markets in global finance.

Definition of Costs in Economics

Costs in economics are defined as opportunity costs, which represent the value of the next best alternative foregone when a decision is made.

Examples

If a business invests in Project A, the opportunity cost is the potential return from Project B, which was not pursued.

Why the Other Options are Incorrect

B. Financial: Financial costs are explicit, but economics considers opportunity costs as broader.

C. Normal Profit: Normal profit is a component of total costs but not the definition of "costs" itself.

D. MES (Minimum Efficient Scale): Refers to the production scale at which average costs are minimized, unrelated to cost definition.

ICWIM Study Guide, Chapter on Economic Principles: Emphasizes opportunity cost as the core definition.

Economic Textbooks: Widely recognize opportunity cost as the key concept in cost theory.

ReferencesThus, the correct answer is A. Opportunity.

What is a Non-Profit, Whole-of-Life Assurance Policy?

It provides guaranteed coverage for the entire life of the insured.

The policy does not participate in the insurer’s profits (hence "non-profit") and pays a pre-determined sum upon death.

Why D is Correct

The payout is fixed at the policy’s inception, offering certainty to beneficiaries.

Other Options Analyzed

A. Linked to units: Describes a unit-linked or investment-linked policy.

B. Predetermined time: Describes term insurance.

C. Linked to inflation: Describes index-linked policies.

ICWIM Textbook, Chapter on Insurance Products: Explains non-profit policies and their characteristics.

Insurance Guidelines: Confirm fixed payouts as a feature of non-profit, whole-of-life assurance.

References

Avoiding Conflicts of Interest:

By placing orders in the order they are received, the firm ensures fairness and transparency.

This approach avoids any preferential treatment and complies with regulatory obligations.

Elimination of Other Options:

A: Withdrawing services would not address the conflict and is impractical.

C: Disclosing orders breaches confidentiality agreements.

D: Prioritizing sell orders introduces bias and conflict.

References:

ICWIM Module 5: Discussion on ethics and conflict of interest mitigation in trading.