CISI Level Certificate in Investment Management Exam
Question 1: What is the primary role of investment management?
A. To maximize shareholder wealth
B. To manage client portfolios and allocate assets
C. To conduct academic research on markets
D. To advise governments on fiscal policy
Correct Answer: B
Explanation: Investment management is primarily about managing client portfolios and making asset
allocation decisions that align with client risk and return objectives.
Question 2: Which of the following best describes investment management?
A. The administration of personal bank accounts
B. The process of investing funds in various assets on behalf of others
C. The regulation of financial markets
D. The trading of securities for speculative purposes
Correct Answer: B
Explanation: Investment management involves managing investment portfolios on behalf of clients,
focusing on long-term wealth creation.
Question 3: When did modern investment management practices begin to evolve significantly?
A. During the Renaissance
B. After World War II
C. In the early 19th century
D. With the dot-com boom
Correct Answer: B
Explanation: Modern investment management practices saw significant evolution after World War II
with the rise of institutional investors and mutual funds.
Question 4: Which entity is typically NOT considered a key player in the investment management
industry?
A. Asset managers
B. Institutional investors
C. Retail investors
D. Fast-food franchises
Correct Answer: D
Explanation: Fast-food franchises are not involved in investment management; key players include asset
managers, institutional and retail investors.
Question 5: Investment management primarily involves which of the following activities?
A. Creating government policies
B. Allocating assets and managing risks
C. Designing marketing campaigns
D. Manufacturing financial instruments
Correct Answer: B
,Explanation: Investment management focuses on asset allocation, risk management, and portfolio
construction for achieving desired investment returns.
Question 6: How does the evolution of investment management reflect changes in market dynamics?
A. It has remained static over the years
B. It evolved to meet the growing demand for specialized portfolio management
C. It became less complex over time
D. It shifted focus entirely to retail banking
Correct Answer: B
Explanation: As market dynamics grew more complex, investment management evolved to offer
specialized services addressing diverse client needs.
Question 7: Who among the following typically engages investment managers?
A. Retail investors
B. Institutional investors
C. High net-worth individuals
D. All of the above
Correct Answer: D
Explanation: Investment managers serve a wide range of clients including retail investors, institutional
investors, and high net-worth individuals.
Question 8: Which of the following best captures the essence of asset allocation in investment
management?
A. Selecting a single asset class to invest in
B. Distributing investments across various asset classes to manage risk
C. Focusing only on high-risk securities
D. Investing exclusively in government bonds
Correct Answer: B
Explanation: Asset allocation involves spreading investments across different asset classes to mitigate
risk and enhance returns.
Question 9: The history of investment management is characterized by:
A. A sudden shift in the 18th century
B. Gradual evolution and increasing complexity
C. A return to traditional savings methods
D. Isolation from technological advances
Correct Answer: B
Explanation: Investment management has gradually evolved with increasing complexity and
sophistication as financial markets developed.
Question 10: In investment management, diversification is important because it:
A. Guarantees high returns
B. Reduces the overall portfolio risk
C. Eliminates all investment risk
D. Focuses on one type of asset exclusively
Correct Answer: B
,Explanation: Diversification helps to spread and reduce risk, though it does not guarantee high returns
or completely eliminate risk.
Question 11: What is the significance of understanding risk in investment management?
A. It helps in ignoring market volatility
B. It enables the development of strategies to mitigate potential losses
C. It allows for over-concentration in a single asset
D. It is only relevant for hedge funds
Correct Answer: B
Explanation: Understanding risk is crucial for developing strategies that mitigate potential losses and
align with an investor’s risk tolerance.
Question 12: Which of the following risks is most associated with market-wide events?
A. Unsystematic risk
B. Systematic risk
C. Credit risk
D. Operational risk
Correct Answer: B
Explanation: Systematic risk affects the entire market and cannot be diversified away, unlike
unsystematic risk which is asset-specific.
Question 13: What does the term “risk-return trade-off” refer to in investment management?
A. Higher risk always leads to lower returns
B. The balance between the potential risk and expected reward
C. The elimination of risk through diversification
D. A trade of assets between portfolios
Correct Answer: B
Explanation: The risk-return trade-off represents the balance between risk and the potential for higher
returns, implying that higher risks generally come with higher expected returns.
Question 14: Which concept is essential to portfolio construction in investment management?
A. Inflation indexing
B. Risk diversification
C. Corporate governance
D. Fiscal policy analysis
Correct Answer: B
Explanation: Diversification is fundamental to portfolio construction as it spreads risk across various
investments.
Question 15: The primary purpose of portfolio construction is to:
A. Maximize taxes
B. Balance risk and return to meet investment objectives
C. Create a single large position in one asset
D. Minimize paperwork
Correct Answer: B
Explanation: Portfolio construction aims to balance risk and return, ensuring that the investment
objectives of the client are met while managing overall risk.
, Question 16: Investment management differs from personal finance in that it:
A. Deals exclusively with savings accounts
B. Involves managing assets on behalf of multiple clients
C. Is only for wealthy individuals
D. Avoids any form of risk
Correct Answer: B
Explanation: Investment management involves managing a diverse portfolio of assets on behalf of many
clients, unlike personal finance which is more individual-centric.
Question 17: A well-constructed portfolio should ideally be:
A. Highly concentrated in one asset
B. Diversified across different asset classes
C. Focused solely on domestic markets
D. Rebalanced annually regardless of market conditions
Correct Answer: B
Explanation: Diversification across asset classes helps reduce risk and improves the potential for stable
returns.
Question 18: The evolution of investment management is largely driven by:
A. Changes in agricultural practices
B. Technological advances and market innovations
C. The decline in global trade
D. Static investment strategies
Correct Answer: B
Explanation: Technological advances and continuous market innovations have played key roles in the
evolution and sophistication of investment management.
Question 19: Which of the following is NOT a typical objective of investment management?
A. Preserving capital
B. Generating long-term growth
C. Enhancing portfolio liquidity
D. Creating political policies
Correct Answer: D
Explanation: Investment management aims to preserve capital, generate growth, and manage liquidity,
not to create political policies.
Question 20: The role of an investment manager includes all EXCEPT:
A. Portfolio construction
B. Asset allocation
C. Directing company management
D. Risk assessment
Correct Answer: C
Explanation: Investment managers do not direct the management of companies in which they invest;
they focus on portfolio management and risk assessment.
Question 21: Which term best defines the systematic approach to managing investments for others?
A. Portfolio management
Question 1: What is the primary role of investment management?
A. To maximize shareholder wealth
B. To manage client portfolios and allocate assets
C. To conduct academic research on markets
D. To advise governments on fiscal policy
Correct Answer: B
Explanation: Investment management is primarily about managing client portfolios and making asset
allocation decisions that align with client risk and return objectives.
Question 2: Which of the following best describes investment management?
A. The administration of personal bank accounts
B. The process of investing funds in various assets on behalf of others
C. The regulation of financial markets
D. The trading of securities for speculative purposes
Correct Answer: B
Explanation: Investment management involves managing investment portfolios on behalf of clients,
focusing on long-term wealth creation.
Question 3: When did modern investment management practices begin to evolve significantly?
A. During the Renaissance
B. After World War II
C. In the early 19th century
D. With the dot-com boom
Correct Answer: B
Explanation: Modern investment management practices saw significant evolution after World War II
with the rise of institutional investors and mutual funds.
Question 4: Which entity is typically NOT considered a key player in the investment management
industry?
A. Asset managers
B. Institutional investors
C. Retail investors
D. Fast-food franchises
Correct Answer: D
Explanation: Fast-food franchises are not involved in investment management; key players include asset
managers, institutional and retail investors.
Question 5: Investment management primarily involves which of the following activities?
A. Creating government policies
B. Allocating assets and managing risks
C. Designing marketing campaigns
D. Manufacturing financial instruments
Correct Answer: B
,Explanation: Investment management focuses on asset allocation, risk management, and portfolio
construction for achieving desired investment returns.
Question 6: How does the evolution of investment management reflect changes in market dynamics?
A. It has remained static over the years
B. It evolved to meet the growing demand for specialized portfolio management
C. It became less complex over time
D. It shifted focus entirely to retail banking
Correct Answer: B
Explanation: As market dynamics grew more complex, investment management evolved to offer
specialized services addressing diverse client needs.
Question 7: Who among the following typically engages investment managers?
A. Retail investors
B. Institutional investors
C. High net-worth individuals
D. All of the above
Correct Answer: D
Explanation: Investment managers serve a wide range of clients including retail investors, institutional
investors, and high net-worth individuals.
Question 8: Which of the following best captures the essence of asset allocation in investment
management?
A. Selecting a single asset class to invest in
B. Distributing investments across various asset classes to manage risk
C. Focusing only on high-risk securities
D. Investing exclusively in government bonds
Correct Answer: B
Explanation: Asset allocation involves spreading investments across different asset classes to mitigate
risk and enhance returns.
Question 9: The history of investment management is characterized by:
A. A sudden shift in the 18th century
B. Gradual evolution and increasing complexity
C. A return to traditional savings methods
D. Isolation from technological advances
Correct Answer: B
Explanation: Investment management has gradually evolved with increasing complexity and
sophistication as financial markets developed.
Question 10: In investment management, diversification is important because it:
A. Guarantees high returns
B. Reduces the overall portfolio risk
C. Eliminates all investment risk
D. Focuses on one type of asset exclusively
Correct Answer: B
,Explanation: Diversification helps to spread and reduce risk, though it does not guarantee high returns
or completely eliminate risk.
Question 11: What is the significance of understanding risk in investment management?
A. It helps in ignoring market volatility
B. It enables the development of strategies to mitigate potential losses
C. It allows for over-concentration in a single asset
D. It is only relevant for hedge funds
Correct Answer: B
Explanation: Understanding risk is crucial for developing strategies that mitigate potential losses and
align with an investor’s risk tolerance.
Question 12: Which of the following risks is most associated with market-wide events?
A. Unsystematic risk
B. Systematic risk
C. Credit risk
D. Operational risk
Correct Answer: B
Explanation: Systematic risk affects the entire market and cannot be diversified away, unlike
unsystematic risk which is asset-specific.
Question 13: What does the term “risk-return trade-off” refer to in investment management?
A. Higher risk always leads to lower returns
B. The balance between the potential risk and expected reward
C. The elimination of risk through diversification
D. A trade of assets between portfolios
Correct Answer: B
Explanation: The risk-return trade-off represents the balance between risk and the potential for higher
returns, implying that higher risks generally come with higher expected returns.
Question 14: Which concept is essential to portfolio construction in investment management?
A. Inflation indexing
B. Risk diversification
C. Corporate governance
D. Fiscal policy analysis
Correct Answer: B
Explanation: Diversification is fundamental to portfolio construction as it spreads risk across various
investments.
Question 15: The primary purpose of portfolio construction is to:
A. Maximize taxes
B. Balance risk and return to meet investment objectives
C. Create a single large position in one asset
D. Minimize paperwork
Correct Answer: B
Explanation: Portfolio construction aims to balance risk and return, ensuring that the investment
objectives of the client are met while managing overall risk.
, Question 16: Investment management differs from personal finance in that it:
A. Deals exclusively with savings accounts
B. Involves managing assets on behalf of multiple clients
C. Is only for wealthy individuals
D. Avoids any form of risk
Correct Answer: B
Explanation: Investment management involves managing a diverse portfolio of assets on behalf of many
clients, unlike personal finance which is more individual-centric.
Question 17: A well-constructed portfolio should ideally be:
A. Highly concentrated in one asset
B. Diversified across different asset classes
C. Focused solely on domestic markets
D. Rebalanced annually regardless of market conditions
Correct Answer: B
Explanation: Diversification across asset classes helps reduce risk and improves the potential for stable
returns.
Question 18: The evolution of investment management is largely driven by:
A. Changes in agricultural practices
B. Technological advances and market innovations
C. The decline in global trade
D. Static investment strategies
Correct Answer: B
Explanation: Technological advances and continuous market innovations have played key roles in the
evolution and sophistication of investment management.
Question 19: Which of the following is NOT a typical objective of investment management?
A. Preserving capital
B. Generating long-term growth
C. Enhancing portfolio liquidity
D. Creating political policies
Correct Answer: D
Explanation: Investment management aims to preserve capital, generate growth, and manage liquidity,
not to create political policies.
Question 20: The role of an investment manager includes all EXCEPT:
A. Portfolio construction
B. Asset allocation
C. Directing company management
D. Risk assessment
Correct Answer: C
Explanation: Investment managers do not direct the management of companies in which they invest;
they focus on portfolio management and risk assessment.
Question 21: Which term best defines the systematic approach to managing investments for others?
A. Portfolio management
