Sample Questions for the RG 146 Knowledge Competency Assessments

Generic Knowledge Competency

Question

What is the name for Commonwealth Government policies which influence short-term interest rates (i.e. cash rates) in the economy?

1. Monetary policy
2. Fiscal policy
3. Regulatory policy
4. Competition policy

Question

What is the general relationship between interest rates and bond prices?

1. When interest rates rise, bond prices tend to rise
2. When interest rates rise, bond prices tend to fall
3. When interest rates rise, bond prices tend to remain unchanged
4. When interest rates fall, bond prices tend to fall

Question

What is the name for the risk that a borrower will default on his/her payment obligations?

1. Operational risk
2. Interest rate risk
3. Credit risk
4. Liquidity risk

Question

What is the term for the fluctuation in the price of the investment that is also one measure of risk?

1. Volatility
2. Arbitrage
3. Float
4. Spread

Securities Knowledge Competency

Question

Which of the following is included amongst the essential elements of an effective securities market?

1. Sufficient demand for capital from companies.
2. Appropriate and effective regulatory and enforcement structure.
3. Political and government support and encouragement for securities markets.
4. Confidence held by all users that the particular markets present fair opportunities for companies to raise funds and for investors in which to invest their funds.

1. (i) and (ii) only
2. (i), (ii) & (iii) only
3. (i), (ii) & (iv) only
4. (i), (ii), (iii) & (iv)

Question

Which of the following has the same effect as a share split that triples the number of shares on issue?

1. A reverse share split of 3 for 1
2. A rights issue of 1 for 3
3. A bonus issue of 2 for 1

Question

When do you have to pay funds for the purchase of shares on the ASX?

1. 5 working days after the date of the transaction
2. 3 working days after the date of the transaction
3. 2 working days after the date of the transaction
4. 1 working day after the date of the transaction

Derivatives Knowledge Competency

Question

Which of the following products is not a derivative?

1. Shares
2. Forward Exchange Contracts
3. Options
4. Futures Contracts

Question

Choose which statement best describes the difference between a bank bill futures contract and a forward rate agreement.

1. A futures contract is an Exchange traded product, starting at a future date and a FRA is an OTC product that always starts out of spot.
2. A futures contract is an OTC product, starting at a future date and a FRA is an Exchange traded product that always starts out of spot.
3. A futures contract is an Exchange traded product, with standardised details and a FRA is an OTC product that can be tailored to suit the client.
4. A futures contract is an OTC product, with standardised details and a FRA is an Exchange tailored product that can be tailored to suit the client.

Question

Decide which of the following factors is likely to result in a cheaper option premium, all other factors being equal.

1. Shorter term to expiry
2. More volatile underlying market
3. A strike price worse than the current market
4. A liquid option market

1. i) only
2. ii) only
3. iii) only
4. i), ii), and iv) only

Question

A borrower has decided to hedge a $10,000,000 loan that she will be drawing down in December and repaying in March, using the futures market. Decide which of the following actions she needs to take to achieve this hedge.

1. Buy 10 December futures contracts
2. Sell 10 December futures contract
3. Buy 10 March futures contracts
4. Sell 10 March futures contracts

Managed Investments Knowledge Competency

Question

What happens when investors acquire many managed funds that are highly co-related?

1. Lowers the investor’s overall investment risk
2. Improves their overall investment return
3. Improves the level of diversification of the investor’s portfolio
4. Does not bring the risk-reducing benefits of diversification.

Question

What is the name of the type of investment manager who is described by the following characteristics?

• aim to identify inefficiencies (mis-priced investments) in various financial markets and profit from the inefficiencies, before they are identified by others;
• returns are expected to come from the generation of “alpha” rather than “beta”
• aim for risk-adjusted absolute rates of return

1. Venture capital manager
2. Hedge fund manager
3. Discretionary fund manager
4. Boutique fund manager

Question

If a specific managed fund has a long-term strategic asset allocation target of 55% to Australian shares, then if Australian share prices rise the actual allocation might increase above 65%. To achieve the long-term asset allocation target you would either sell shares or buy other non-share assets. What is this process called?

1. Minimising losses
2. Taking profits
3. Re-balancing the portfolio
4. Concentrating the portfolio

Question

Under the Australian Investment Performance Standards (AIPS), what is the method of accounting for all investments that are marked to market?

1. Accrual accounting
2. Cash accounting
3. Inflation-adjusted accounting
4. Cost accounting

Superannuation Knowledge Competency

Question

What is the major advantage for the workforce of investing in superannuation?

1. Tax-effective means of saving for retirement savings to ensure adequate income in retirement
2. Provides large funds for investment in different assets classes and is designed to promote investment in Australia and overseas
3. Tax-free investment for employees and a guaranteed return on investment
4. Tax-effective investment for high-income earners only and individual on a low income will have to rely on government pension payments

Question

Which one of the following would comply with the ‘sole purpose’ test for superannuation funds?

1. Purchasing investments that confer a benefit to a member or associate
2. Running a business within the fund as opposed to passive investments
3. Accumulating fund assets and protecting members’ benefits until the time of retirement
4. Providing financial assistance to a person or entity that is neither a member or beneficiary

Question

What is the maximum tax rate payable on income earned by a complying superannuation fund?

1. 10%
2. 15%
3. 20%
4. 25%

Foreign Exchange Knowledge Competency

Question

What would be the effect on a floating currency if a country exported more goods than it imported?

1. Appreciation.
2. Depreciation.
3. Revaluation.
4. No effect.

Question

A speculator wanted to buy a forward foreign exchange contract. The current spot EUR/USD rate was 0.9950. Which ONE of the following would NOT have been a reason for the speculator to enter the market?

1. She thought the Euro was going to strengthen.
2. She needed to trade on behalf of a client.
3. She thought the risk/reward ratio was acceptable for this trade.
4. She thought the USD was going to weaken.

Question

Calculate the value, in the terms currency, if you have 1,110,000 of the base currency and the exchange rate is 0.9255?

1. 1026750
2. 1027305
3. 1199351.7
4. 1200000

Question

Which of the following features is NOT applicable to over-the-counter option contracts?

1. They can be American or European.
2. They have a standardised contract size.
3. The price will increase with an increase in volatility.
4. Market prices are readily available.

Deposit Products and Non Cash Payment Facilities Knowledge Competency

Question

In asking questions, such as the following, what type of regulation is the Australian Prudential Regulatory Authority (APRA) carrying out?

• Is the organisation careful?
• Is the organisation sensible?
• Does the organisation have sound judgement?

1. Competition regulation
2. Investor protection
3. Prudential regulation
4. Solvency

Question

Which ONE of the following deposits pays more interest for a 2-year bank deposit of $100,000 paying 3.25% p.a.?

1. Interest is calculated daily and credited monthly, in arrears
2. Interest is calculated weekly and credited monthly, in arrears
3. Interest is calculated monthly and credited quarterly, in arrears
4. Interest is calculated monthly and credited annually, in arrears

Question

What is the premise behind the time value of money?

1. An investor prefers to receive money today, rather than the same amount in the future (all else being equal)
2. An investor prefers to receive money in the future, rather than the same amount today (all else being equal)
3. An investor is indifferent to whether they receive money today, or the same amount in the future (all else being equal)

Question

Who is ultimately responsible for all the financial services provided under an Australian Financial Services licence, regardless of how they are provided, as well as being ultimately responsible for compliance with the financial services laws?

1. The licence holder
2. The person providing the advice
3. The Compliance Manager
4. Australian Securities and Investment Commission (ASIC)

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