CISI INVESTMENT RISK TAXATION UPDATED
EXAMS TEST PAPER QUESTIONS AND ANSWERS
SURE A+
✔✔Prudential Regulation Authority - ✔✔the part of the Bank of England responsible for
the microprudential regulation and supervision of banks, building societies, credit
unions, insurers and major investment firms
✔✔Financial Conduct Authority (FCA) - ✔✔The organisation that regulates financial
firms providing services to consumers, and maintains the integrity of the UK's financial
markets.
✔✔Federal Reserve - ✔✔The central bank of the United States- comprises 12 regional
Federal Reserve Banks
✔✔European Central Bank (ECB) - ✔✔Located in Frankfurt, the ECB is principally
responsible for setting monetary policy for the entire Eurozone, with the objective of
maintaining internal price stability
✔✔Inflation - ✔✔• Businesses have to continually update prices to keep pace with
inflation. • Employees find the real value of their salaries eroded. • Those on fixed levels
of income, such as pensioners, will suffer as the price increases are not matched by
,increases in income. • Exports may become less competitive. Rising house prices can
contribute to a 'feel-good' factor (although this might contribute to further inflation as
house-owners become more eager to borrow and spend). • Borrowers benefit, because
the value of borrowers' debt falls in real terms - ie, after adjusting for the effect of
inflation. • Inflation also erodes the real value of a country's national debt and can
benefit an economy in difficult times.
✔✔deflation - ✔✔unemployment --> recession --> depression
✔✔CPI - ✔✔ONS calculates inflation is to collect price data on a typical 'shopping
basket' of some 700 items from month to month. To calculate changes in price, the ONS
sets a base year for the total cost of the 'shopping basket' which is then converted into
an index of 100; for CPI and CPIH the base year is 2015.
✔✔Long-run economic growth - ✔✔the process by which rising productivity increases
the average standard of living. In a mature economy, the labour force typically grows at
about 1% pa,
✔✔Balance of payments - ✔✔the difference between the flow of money into and out of
a country
✔✔Visible trade balance - ✔✔A record of the export and import of physical goods.
✔✔Invisible trade balance - ✔✔A record of the trade in services, such as transportation
and financial services.
✔✔Current account - ✔✔The current account is used to calculate the total value of
goods and services that flow into and out of a country. The current account comprises
the trade balance figures for the visibles and invisibles
✔✔Capital Account - ✔✔The capital account records international capital transactions
related to investment in business, real estate, bonds and stocks. eg fdi
✔✔National Debt - ✔✔£2 trillion
✔✔Government Debt - ✔✔essentially this is what the Government owes. The most
widely quoted is public sector net debt.
✔✔Budget deficit - ✔✔Essentially the shortfall between what the Government receives
in tax receipts and what it spends. The most widely quoted is the Public Sector Net
Cash Requirement (PSNCR).
✔✔High unemployment - ✔✔The Government will need to increase social security
payments, and its income will decrease because of the lack of tax revenues from the
unemployed.
, ✔✔Memorandum of Association - ✔✔confirms the subscribers' intention to form a
company under the Companies Act 2006 and that they have agreed to become
members of that company and to take at least one share each
✔✔Articles of Association - ✔✔detail the relationship between the company and one of
its key sources of finance; in other words, its owners
✔✔Private Company - ✔✔A company owned by a person, family, or small group of
investors that does not sell stock to the public. Can have just one shareholder. (ltd).
✔✔Public Company - ✔✔Have a minimum of 2 shareholders and are publicly listed
(shares available to the public).
✔✔AGM (annual general meeting) - ✔✔Held once a year within 6 months of financial
year end. Gives shareholders the opportunity to question the directors about the
company's strategy, planning and goals.
✔✔proxy vote - ✔✔allows to someone to vote (but not speak) on their behalf at the
meeting
✔✔Ordinary resolution - ✔✔decision that needs a simple majority of over 50%
✔✔special resolution - ✔✔resolution on major decisions of a company (such as
changing the company's articles or reducing its share capital) at a general meeting that
must be passed by a certain majority, usually 75%
✔✔Difference between an Ordinary Resolution and a Special Resolution? - ✔✔An
ordinary resolution involves most matters put to the shareholders and requires a simple
majority (51%), whereas a special resolution involves important company decisions so
requires a 75% vote from shareholders.
✔✔Ordinary shares - ✔✔Voting rights, receives dividends based on company profit,
paid last in the event of company being wound up, carry the full risk and reward of
investing.
✔✔Preference shares - ✔✔Hybrid security with elements of debt and equity, no voting
rights, fixed dividend payments paid before ordinary shares, rank higher than ordinary
shares in the event of a company winding up, may be cumulative, non-cumulative,
redeemable and convertible.
✔✔cumulative preference shares - ✔✔Assuming sufficient profits, the cumulative
preference shareholders will have the arrears of dividend paid in the subsequent year.
EXAMS TEST PAPER QUESTIONS AND ANSWERS
SURE A+
✔✔Prudential Regulation Authority - ✔✔the part of the Bank of England responsible for
the microprudential regulation and supervision of banks, building societies, credit
unions, insurers and major investment firms
✔✔Financial Conduct Authority (FCA) - ✔✔The organisation that regulates financial
firms providing services to consumers, and maintains the integrity of the UK's financial
markets.
✔✔Federal Reserve - ✔✔The central bank of the United States- comprises 12 regional
Federal Reserve Banks
✔✔European Central Bank (ECB) - ✔✔Located in Frankfurt, the ECB is principally
responsible for setting monetary policy for the entire Eurozone, with the objective of
maintaining internal price stability
✔✔Inflation - ✔✔• Businesses have to continually update prices to keep pace with
inflation. • Employees find the real value of their salaries eroded. • Those on fixed levels
of income, such as pensioners, will suffer as the price increases are not matched by
,increases in income. • Exports may become less competitive. Rising house prices can
contribute to a 'feel-good' factor (although this might contribute to further inflation as
house-owners become more eager to borrow and spend). • Borrowers benefit, because
the value of borrowers' debt falls in real terms - ie, after adjusting for the effect of
inflation. • Inflation also erodes the real value of a country's national debt and can
benefit an economy in difficult times.
✔✔deflation - ✔✔unemployment --> recession --> depression
✔✔CPI - ✔✔ONS calculates inflation is to collect price data on a typical 'shopping
basket' of some 700 items from month to month. To calculate changes in price, the ONS
sets a base year for the total cost of the 'shopping basket' which is then converted into
an index of 100; for CPI and CPIH the base year is 2015.
✔✔Long-run economic growth - ✔✔the process by which rising productivity increases
the average standard of living. In a mature economy, the labour force typically grows at
about 1% pa,
✔✔Balance of payments - ✔✔the difference between the flow of money into and out of
a country
✔✔Visible trade balance - ✔✔A record of the export and import of physical goods.
✔✔Invisible trade balance - ✔✔A record of the trade in services, such as transportation
and financial services.
✔✔Current account - ✔✔The current account is used to calculate the total value of
goods and services that flow into and out of a country. The current account comprises
the trade balance figures for the visibles and invisibles
✔✔Capital Account - ✔✔The capital account records international capital transactions
related to investment in business, real estate, bonds and stocks. eg fdi
✔✔National Debt - ✔✔£2 trillion
✔✔Government Debt - ✔✔essentially this is what the Government owes. The most
widely quoted is public sector net debt.
✔✔Budget deficit - ✔✔Essentially the shortfall between what the Government receives
in tax receipts and what it spends. The most widely quoted is the Public Sector Net
Cash Requirement (PSNCR).
✔✔High unemployment - ✔✔The Government will need to increase social security
payments, and its income will decrease because of the lack of tax revenues from the
unemployed.
, ✔✔Memorandum of Association - ✔✔confirms the subscribers' intention to form a
company under the Companies Act 2006 and that they have agreed to become
members of that company and to take at least one share each
✔✔Articles of Association - ✔✔detail the relationship between the company and one of
its key sources of finance; in other words, its owners
✔✔Private Company - ✔✔A company owned by a person, family, or small group of
investors that does not sell stock to the public. Can have just one shareholder. (ltd).
✔✔Public Company - ✔✔Have a minimum of 2 shareholders and are publicly listed
(shares available to the public).
✔✔AGM (annual general meeting) - ✔✔Held once a year within 6 months of financial
year end. Gives shareholders the opportunity to question the directors about the
company's strategy, planning and goals.
✔✔proxy vote - ✔✔allows to someone to vote (but not speak) on their behalf at the
meeting
✔✔Ordinary resolution - ✔✔decision that needs a simple majority of over 50%
✔✔special resolution - ✔✔resolution on major decisions of a company (such as
changing the company's articles or reducing its share capital) at a general meeting that
must be passed by a certain majority, usually 75%
✔✔Difference between an Ordinary Resolution and a Special Resolution? - ✔✔An
ordinary resolution involves most matters put to the shareholders and requires a simple
majority (51%), whereas a special resolution involves important company decisions so
requires a 75% vote from shareholders.
✔✔Ordinary shares - ✔✔Voting rights, receives dividends based on company profit,
paid last in the event of company being wound up, carry the full risk and reward of
investing.
✔✔Preference shares - ✔✔Hybrid security with elements of debt and equity, no voting
rights, fixed dividend payments paid before ordinary shares, rank higher than ordinary
shares in the event of a company winding up, may be cumulative, non-cumulative,
redeemable and convertible.
✔✔cumulative preference shares - ✔✔Assuming sufficient profits, the cumulative
preference shareholders will have the arrears of dividend paid in the subsequent year.
