Saudi Capital Markets CME Exam Questions and Answers
Question 1. Currency A is quoted at 0.7404 units of Currency B per A, and Currency B is quoted at 129.12 units of
Currency C per B. What is the implied Currency C per Currency A cross rate?
A. 0.0057 units of Currency C per Currency A
B. 129.86 units of Currency C per Currency A
C. 174.39 units of Currency C per Currency A
D. 95.60 units of Currency C per Currency A
Correct Answer: D. 95.60 units of Currency C per Currency A
Explanation: When the quotation units align, multiply the two exchange rates so that Currency B cancels. 0.7404 B/A × 129.12 C/B
= 95.60 C/A. Dividing instead of multiplying would leave the unit conversion inconsistent with the requested quotation.
Question 2. A candidate preparing for Saudi Capital Markets Exams (CME) encounters the following description:
“The variability of a portfolio's return relative to the return of its benchmark.” Which term is most directly
associated with this description?
A. Open-end fund
B. Index fund
C. Tracking error
D. Net asset value
Correct Answer: C. Tracking error
Explanation: Tracking error is best understood as the variability of a portfolio's return relative to the return of its benchmark. This
interpretation is consistent with the way the concept is applied in professional securities and investment practice, including activity
overseen by Capital Market Authority (CMA). The other choices describe different concepts or would lead to a materially different
risk, trading, valuation, or compliance conclusion.
Question 3. A company earns net income of 15 million and has average common equity of 60 million. What is
return on equity?
A. 15.00%
B. 25.00%
C. 75.00%
D. 4.00%
Correct Answer: B. 25.00%
Explanation: Return on equity compares earnings available to common equity with the equity capital supporting those earnings.
Using the stated figures, × 100 = 25.00%. The measure should not be inverted because equity divided by income answers a
different question.
Question 4. A company's share price is SAR24.00 and earnings per share are SAR2.50. What is the price-earnings
ratio?
A. 0.10 times
B. 26.50 times
C. 21.50 times
D. 9.60 times
Correct Answer: D. 9.60 times
Explanation: The price-earnings ratio equals market price per share divided by earnings per share. SAR24.00 divided by SAR2.50
equals 9.60 times. The reciprocal would be an earnings-yield style measure, not the P/E ratio.
Page 1
,Question 5. An investment has a 40% probability of returning 0.0% and a 60% probability of returning 4.0%. What
is the expected return?
A. 2.00%
B. 2.40%
C. 4.00%
D. 1.60%
Correct Answer: B. 2.40%
Explanation: Expected return is the probability-weighted average of the possible outcomes. The calculation is 0.40 × 0.0% + 0.60 ×
4.0% = 2.40%. A simple average would ignore the fact that the two outcomes do not have equal probabilities.
Question 6. In the context of Saudi capital market and Tadawul, which statement about Sharpe ratio is most
accurate?
A. A measure of an asset's sensitivity to movements in a specified market benchmark.
B. A probability-weighted average of possible investment returns under the stated assumptions.
C. A standardized measure of the degree to which two variables move together linearly.
D. Excess portfolio return over the risk-free rate divided by the portfolio's return volatility.
Correct Answer: D. Excess portfolio return over the risk-free rate divided by the portfolio's return volatility.
Explanation: Sharpe ratio is best understood as excess portfolio return over the risk-free rate divided by the portfolio's return
volatility. This interpretation is consistent with the way the concept is applied in professional securities and investment practice,
including activity overseen by Capital Market Authority (CMA). The other choices describe different concepts or would lead to a
materially different risk, trading, valuation, or compliance conclusion.
Question 7. A 35-year-old client has a 5-year stated horizon and identifies the primary objective as moderate
growth. Before recommending a complex high-volatility product, what should the representative do first?
A. Recommend the product whenever it is legal to sell, regardless of the client's profile.
B. Recommend the product if its recent return exceeds the client's existing portfolio return.
C. Rely only on the client's age because age is the dominant suitability factor.
D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and capacity, then assess whether
the product fits those facts.
Correct Answer: D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and
capacity, then assess whether the product fits those facts.
Explanation: Suitability or analogous appropriateness standards require the recommendation process to start with a sufficiently
current understanding of the client and the product. Under a framework overseen by Capital Market Authority (CMA), recent
performance or legal availability alone does not establish that a product fits the client's circumstances. A complex or volatile product
generally requires particular attention to knowledge, loss capacity, time horizon, liquidity needs, and relevant risk disclosures.
Question 8. An investment has a 40% probability of returning 15.0% and a 60% probability of returning 4.0%. What
is the expected return?
A. 10.60%
B. -11.00%
C. 8.40%
D. 9.50%
Correct Answer: C. 8.40%
Explanation: Expected return is the probability-weighted average of the possible outcomes. The calculation is 0.40 × 15.0% + 0.60
× 4.0% = 8.40%. A simple average would ignore the fact that the two outcomes do not have equal probabilities.
Page 2
,Question 9. A share trades at SAR40.00 and pays annual cash dividends of SAR2.50 per share. What is the
dividend yield based on the current price?
A. 2.50%
B. 6.25%
C. 93.75%
D. 16.00%
Correct Answer: B. 6.25%
Explanation: Dividend yield equals annual cash dividend per share divided by current market price per share. SAR2.50 /
SAR40.00 × 100 = 6.25%. The calculation does not include capital gains or losses, so it is not a total-return measure.
Question 10. A trader takes a short futures position at 150.00. The contract multiplier is 100, and the position is
closed at 145.00. Ignoring fees and daily financing effects, what is the profit or loss per contract?
A. SAR500.00
B. SAR-5.00
C. SAR650.00
D. SAR-500.00
Correct Answer: A. SAR500.00
Explanation: Futures profit or loss equals the price change multiplied by the contract multiplier, with the sign determined by
whether the position is long or short. For this short position, the result is SAR500.00. The contract's quoted price change alone is
not the cash profit or loss because the multiplier converts the quotation into contract value.
Question 11. A rights issue allows shareholders to buy 1 new share at SAR25.00 for every 3 existing shares. The
shares trade at SAR40.00 immediately before the theoretical ex-rights adjustment. Ignoring market effects, what is
the theoretical ex-rights price?
A. SAR32.50
B. SAR36.25
C. SAR15.00
D. SAR28.75
Correct Answer: B. SAR36.25
Explanation: The theoretical ex-rights price is the combined value of 3 old shares plus the subscription cash for one new share,
divided by 4 total shares. (3 × 40 + 25) / 4 = SAR36.25. This is a theoretical dilution calculation and actual market prices can differ
because of expectations, frictions, and changing information.
Question 12. The best bid for a security is SAR103.33 and the best ask is SAR103.43. What is the quoted bid-ask
spread in price units?
A. SAR206.76
B. SAR0.10
C. 0.10%
D. SAR103.38
Correct Answer: B. SAR0.10
Explanation: The quoted spread in price units equals ask minus bid. SAR103.43 - SAR103.33 = SAR0.10. A percentage spread
would require an additional denominator such as the midpoint, but the question asks only for price units.
Page 3
, Question 13. In the context of Saudi capital market and Tadawul, which statement about Net asset value is most
accurate?
A. A pooled investment vehicle whose shares trade on an exchange during the trading day.
B. A fund designed primarily to track the performance of a specified market index or benchmark.
C. The value of a fund's assets minus liabilities, commonly expressed per unit or share.
D. A pooled investment vehicle that generally issues and redeems units or shares based on net asset value under its governing
rules.
Correct Answer: C. The value of a fund's assets minus liabilities, commonly expressed per unit or share.
Explanation: Net asset value is best understood as the value of a fund's assets minus liabilities, commonly expressed per unit or
share. This interpretation is consistent with the way the concept is applied in professional securities and investment practice,
including activity overseen by Capital Market Authority (CMA). The other choices describe different concepts or would lead to a
materially different risk, trading, valuation, or compliance conclusion.
Question 14. A candidate preparing for Saudi Capital Markets Exams (CME) encounters the following description:
“An offering that gives existing shareholders rights to subscribe for new shares, commonly in proportion to
existing holdings.” Which term is most directly associated with this description?
A. Underwriting
B. Internal rate of return
C. Free cash flow
D. Rights issue
Correct Answer: D. Rights issue
Explanation: Rights issue is best understood as an offering that gives existing shareholders rights to subscribe for new shares,
commonly in proportion to existing holdings. This interpretation is consistent with the way the concept is applied in professional
securities and investment practice, including activity overseen by Capital Market Authority (CMA). The other choices describe
different concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 15. Currency A is quoted at 0.8673 units of Currency B per A, and Currency B is quoted at 163.68 units of
Currency C per B. What is the implied Currency C per Currency A cross rate?
A. 164.55 units of Currency C per Currency A
B. 141.96 units of Currency C per Currency A
C. 0.0053 units of Currency C per Currency A
D. 188.72 units of Currency C per Currency A
Correct Answer: B. 141.96 units of Currency C per Currency A
Explanation: When the quotation units align, multiply the two exchange rates so that Currency B cancels. 0.8673 B/A × 163.68 C/B
= 141.96 C/A. Dividing instead of multiplying would leave the unit conversion inconsistent with the requested quotation.
Question 16. A bond has a face value of SAR100.00, an annual coupon rate of 4.0%, and a market price of
SAR88.00. What is its current yield?
A. 4.00%
B. 4.55%
C. 13.64%
D. 5.00%
Correct Answer: B. 4.55%
Explanation: Current yield equals annual coupon cash flow divided by current market price, so the numerator is SAR4.00. Dividing
by SAR88.00 gives 4.55%. Current yield is not the coupon rate and it is not yield to maturity because it ignores the timing and
amount of the redemption cash flow.
Page 4
Question 1. Currency A is quoted at 0.7404 units of Currency B per A, and Currency B is quoted at 129.12 units of
Currency C per B. What is the implied Currency C per Currency A cross rate?
A. 0.0057 units of Currency C per Currency A
B. 129.86 units of Currency C per Currency A
C. 174.39 units of Currency C per Currency A
D. 95.60 units of Currency C per Currency A
Correct Answer: D. 95.60 units of Currency C per Currency A
Explanation: When the quotation units align, multiply the two exchange rates so that Currency B cancels. 0.7404 B/A × 129.12 C/B
= 95.60 C/A. Dividing instead of multiplying would leave the unit conversion inconsistent with the requested quotation.
Question 2. A candidate preparing for Saudi Capital Markets Exams (CME) encounters the following description:
“The variability of a portfolio's return relative to the return of its benchmark.” Which term is most directly
associated with this description?
A. Open-end fund
B. Index fund
C. Tracking error
D. Net asset value
Correct Answer: C. Tracking error
Explanation: Tracking error is best understood as the variability of a portfolio's return relative to the return of its benchmark. This
interpretation is consistent with the way the concept is applied in professional securities and investment practice, including activity
overseen by Capital Market Authority (CMA). The other choices describe different concepts or would lead to a materially different
risk, trading, valuation, or compliance conclusion.
Question 3. A company earns net income of 15 million and has average common equity of 60 million. What is
return on equity?
A. 15.00%
B. 25.00%
C. 75.00%
D. 4.00%
Correct Answer: B. 25.00%
Explanation: Return on equity compares earnings available to common equity with the equity capital supporting those earnings.
Using the stated figures, × 100 = 25.00%. The measure should not be inverted because equity divided by income answers a
different question.
Question 4. A company's share price is SAR24.00 and earnings per share are SAR2.50. What is the price-earnings
ratio?
A. 0.10 times
B. 26.50 times
C. 21.50 times
D. 9.60 times
Correct Answer: D. 9.60 times
Explanation: The price-earnings ratio equals market price per share divided by earnings per share. SAR24.00 divided by SAR2.50
equals 9.60 times. The reciprocal would be an earnings-yield style measure, not the P/E ratio.
Page 1
,Question 5. An investment has a 40% probability of returning 0.0% and a 60% probability of returning 4.0%. What
is the expected return?
A. 2.00%
B. 2.40%
C. 4.00%
D. 1.60%
Correct Answer: B. 2.40%
Explanation: Expected return is the probability-weighted average of the possible outcomes. The calculation is 0.40 × 0.0% + 0.60 ×
4.0% = 2.40%. A simple average would ignore the fact that the two outcomes do not have equal probabilities.
Question 6. In the context of Saudi capital market and Tadawul, which statement about Sharpe ratio is most
accurate?
A. A measure of an asset's sensitivity to movements in a specified market benchmark.
B. A probability-weighted average of possible investment returns under the stated assumptions.
C. A standardized measure of the degree to which two variables move together linearly.
D. Excess portfolio return over the risk-free rate divided by the portfolio's return volatility.
Correct Answer: D. Excess portfolio return over the risk-free rate divided by the portfolio's return volatility.
Explanation: Sharpe ratio is best understood as excess portfolio return over the risk-free rate divided by the portfolio's return
volatility. This interpretation is consistent with the way the concept is applied in professional securities and investment practice,
including activity overseen by Capital Market Authority (CMA). The other choices describe different concepts or would lead to a
materially different risk, trading, valuation, or compliance conclusion.
Question 7. A 35-year-old client has a 5-year stated horizon and identifies the primary objective as moderate
growth. Before recommending a complex high-volatility product, what should the representative do first?
A. Recommend the product whenever it is legal to sell, regardless of the client's profile.
B. Recommend the product if its recent return exceeds the client's existing portfolio return.
C. Rely only on the client's age because age is the dominant suitability factor.
D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and capacity, then assess whether
the product fits those facts.
Correct Answer: D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and
capacity, then assess whether the product fits those facts.
Explanation: Suitability or analogous appropriateness standards require the recommendation process to start with a sufficiently
current understanding of the client and the product. Under a framework overseen by Capital Market Authority (CMA), recent
performance or legal availability alone does not establish that a product fits the client's circumstances. A complex or volatile product
generally requires particular attention to knowledge, loss capacity, time horizon, liquidity needs, and relevant risk disclosures.
Question 8. An investment has a 40% probability of returning 15.0% and a 60% probability of returning 4.0%. What
is the expected return?
A. 10.60%
B. -11.00%
C. 8.40%
D. 9.50%
Correct Answer: C. 8.40%
Explanation: Expected return is the probability-weighted average of the possible outcomes. The calculation is 0.40 × 15.0% + 0.60
× 4.0% = 8.40%. A simple average would ignore the fact that the two outcomes do not have equal probabilities.
Page 2
,Question 9. A share trades at SAR40.00 and pays annual cash dividends of SAR2.50 per share. What is the
dividend yield based on the current price?
A. 2.50%
B. 6.25%
C. 93.75%
D. 16.00%
Correct Answer: B. 6.25%
Explanation: Dividend yield equals annual cash dividend per share divided by current market price per share. SAR2.50 /
SAR40.00 × 100 = 6.25%. The calculation does not include capital gains or losses, so it is not a total-return measure.
Question 10. A trader takes a short futures position at 150.00. The contract multiplier is 100, and the position is
closed at 145.00. Ignoring fees and daily financing effects, what is the profit or loss per contract?
A. SAR500.00
B. SAR-5.00
C. SAR650.00
D. SAR-500.00
Correct Answer: A. SAR500.00
Explanation: Futures profit or loss equals the price change multiplied by the contract multiplier, with the sign determined by
whether the position is long or short. For this short position, the result is SAR500.00. The contract's quoted price change alone is
not the cash profit or loss because the multiplier converts the quotation into contract value.
Question 11. A rights issue allows shareholders to buy 1 new share at SAR25.00 for every 3 existing shares. The
shares trade at SAR40.00 immediately before the theoretical ex-rights adjustment. Ignoring market effects, what is
the theoretical ex-rights price?
A. SAR32.50
B. SAR36.25
C. SAR15.00
D. SAR28.75
Correct Answer: B. SAR36.25
Explanation: The theoretical ex-rights price is the combined value of 3 old shares plus the subscription cash for one new share,
divided by 4 total shares. (3 × 40 + 25) / 4 = SAR36.25. This is a theoretical dilution calculation and actual market prices can differ
because of expectations, frictions, and changing information.
Question 12. The best bid for a security is SAR103.33 and the best ask is SAR103.43. What is the quoted bid-ask
spread in price units?
A. SAR206.76
B. SAR0.10
C. 0.10%
D. SAR103.38
Correct Answer: B. SAR0.10
Explanation: The quoted spread in price units equals ask minus bid. SAR103.43 - SAR103.33 = SAR0.10. A percentage spread
would require an additional denominator such as the midpoint, but the question asks only for price units.
Page 3
, Question 13. In the context of Saudi capital market and Tadawul, which statement about Net asset value is most
accurate?
A. A pooled investment vehicle whose shares trade on an exchange during the trading day.
B. A fund designed primarily to track the performance of a specified market index or benchmark.
C. The value of a fund's assets minus liabilities, commonly expressed per unit or share.
D. A pooled investment vehicle that generally issues and redeems units or shares based on net asset value under its governing
rules.
Correct Answer: C. The value of a fund's assets minus liabilities, commonly expressed per unit or share.
Explanation: Net asset value is best understood as the value of a fund's assets minus liabilities, commonly expressed per unit or
share. This interpretation is consistent with the way the concept is applied in professional securities and investment practice,
including activity overseen by Capital Market Authority (CMA). The other choices describe different concepts or would lead to a
materially different risk, trading, valuation, or compliance conclusion.
Question 14. A candidate preparing for Saudi Capital Markets Exams (CME) encounters the following description:
“An offering that gives existing shareholders rights to subscribe for new shares, commonly in proportion to
existing holdings.” Which term is most directly associated with this description?
A. Underwriting
B. Internal rate of return
C. Free cash flow
D. Rights issue
Correct Answer: D. Rights issue
Explanation: Rights issue is best understood as an offering that gives existing shareholders rights to subscribe for new shares,
commonly in proportion to existing holdings. This interpretation is consistent with the way the concept is applied in professional
securities and investment practice, including activity overseen by Capital Market Authority (CMA). The other choices describe
different concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 15. Currency A is quoted at 0.8673 units of Currency B per A, and Currency B is quoted at 163.68 units of
Currency C per B. What is the implied Currency C per Currency A cross rate?
A. 164.55 units of Currency C per Currency A
B. 141.96 units of Currency C per Currency A
C. 0.0053 units of Currency C per Currency A
D. 188.72 units of Currency C per Currency A
Correct Answer: B. 141.96 units of Currency C per Currency A
Explanation: When the quotation units align, multiply the two exchange rates so that Currency B cancels. 0.8673 B/A × 163.68 C/B
= 141.96 C/A. Dividing instead of multiplying would leave the unit conversion inconsistent with the requested quotation.
Question 16. A bond has a face value of SAR100.00, an annual coupon rate of 4.0%, and a market price of
SAR88.00. What is its current yield?
A. 4.00%
B. 4.55%
C. 13.64%
D. 5.00%
Correct Answer: B. 4.55%
Explanation: Current yield equals annual coupon cash flow divided by current market price, so the numerator is SAR4.00. Dividing
by SAR88.00 gives 4.55%. Current yield is not the coupon rate and it is not yield to maturity because it ignores the timing and
amount of the redemption cash flow.
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