CME-1A: International Introduction to Securities & Investment Sample Paper

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Q: What is the pass mark for the CME-1A: International Introduction to Securities & Investment certification?

While the pass mark can vary slightly by specific exam versions, most CISI exams require a score of 70% to pass. We recommend consistently scoring 80% or higher on our practice question bank before sitting for your real test in international markets.

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Question 1

A trader deliberately enters numerous large buy orders for a share with no intention of executing them, simply to create a false impression of high demand and drive the price up. What offence is this?

Accepted Answer

Market manipulation

Answer

Insider dealing

Answer

Terrorist financing

Answer

Money laundering

Question 2

What is the primary characteristic of cumulative preference shares?

Accepted Answer

Unpaid dividends accumulate and must be paid before any dividends can be paid to ordinary shareholders.

Answer

They provide shareholders with extra voting rights at annual general meetings.

Answer

They receive additional dividends beyond the fixed rate if company profits exceed a certain threshold.

Answer

They can be converted into ordinary shares at a pre-determined price.

Question 3

What happens to an individual's estate if they die intestate?

Accepted Answer

The estate is distributed according to strict intestacy rules laid down by law, which may not reflect the deceased's wishes.

Answer

The assets are held in trust until a beneficiary comes forward to claim them.

Answer

The estate is distributed according to verbal instructions given to the executor before death.

Answer

All of their assets are automatically transferred to the government.

Question 4

In the context of derivatives, what does it mean if an option is 'American-style'?

Accepted Answer

It can be exercised at any time up to and including the expiry date.

Answer

It can only be traded on US-based exchanges like the CME.

Answer

It is priced exclusively in US Dollars regardless of the underlying asset.

Answer

It can only be exercised on the specific expiry date.

Question 5

Which of the following is a primary function of custodian banks?

Accepted Answer

Safekeeping assets and settling trades

Answer

Matching buyers and sellers directly

Answer

Providing everyday services like deposits and mortgages

Answer

Underwriting new securities issues

Question 6

In a Defined Contribution (DC) pension scheme, who bears the primary risk regarding the final value of the retirement pot?

Accepted Answer

The employee, as the final value depends entirely on contributions made and investment performance.

Answer

The government, as they are obligated to top up the pension if investment returns are poor.

Answer

The employer, as they guarantee a specific income based on final salary and years of service.

Answer

The fund manager, as they must cover any shortfall if the fund underperforms the benchmark.

Question 7

Which of the following statements about terrorist financing, as compared to money laundering, is true?

Accepted Answer

Terrorist financing often involves small sums of money and may use entirely legitimate funds, making it harder to detect.

Answer

Terrorist financing exclusively utilizes cryptocurrencies, whereas money laundering relies on the traditional banking system.

Answer

Terrorist financing always starts with the placement of large amounts of illicit cash from organized crime.

Answer

Terrorist financing is primarily concerned with evading income taxes, whereas money laundering is focused on drug trafficking.

Question 8

Which of the following accurately describes the position of the seller (writer) of a call option?

Accepted Answer

They have an obligation to sell the underlying asset if the buyer exercises the option.

Answer

They have an obligation to buy the underlying asset if the buyer exercises the option.

Answer

They have the right to buy the underlying asset if they choose to do so.

Answer

They have the right to sell the underlying asset at any time before expiry.

Question 9

If a company pays an annual dividend of $2 per share and its current share price is $50, what is the dividend yield?

Accepted Answer

4.0%

Answer

2.0%

Answer

5.0%

Answer

25.0%

Question 10

According to global fund market data, which country accounts for the largest share of the global mutual fund market?

Accepted Answer

The United States

Answer

The United Kingdom

Answer

Germany

Answer

Japan

Question 11

A consumer takes out a loan with a quoted interest rate of 12% that is compounded quarterly. Using the Effective Annual Rate (EAR) formula, what is the true annual cost of borrowing?

Accepted Answer

12.55%

Answer

14.40%

Answer

11.45%

Answer

12.00%

Question 12

What is a key feature of a Treasury bill (T-bill)?

Accepted Answer

It is a short-term zero-coupon instrument issued at a discount and redeemed at par.

Answer

Its principal adjusts upwards with inflation.

Answer

It pays a fixed semi-annual coupon over a 10-year period.

Answer

It is a corporate debt instrument issued to raise long-term capital.

Question 13

How is tax mitigation conceptually different from tax evasion?

Accepted Answer

Tax mitigation uses legislation as expressly intended by the government to reduce tax (legal and acceptable), whereas tax evasion is illegal.

Answer

Both are illegal, but tax mitigation carries lesser penalties.

Answer

Tax mitigation exploits legal loopholes against the spirit of the law, while tax evasion is completely legal.

Answer

Tax mitigation only applies to corporate entities, while tax evasion applies to individuals.

Question 14

According to the rules on insider dealing, which of the following financial instruments is generally EXCLUDED from the scope of the legislation?

Accepted Answer

Commodity derivatives

Answer

Corporate bonds

Answer

Ordinary shares

Answer

Exchange-traded options

Question 15

Under market abuse regulations, inside information must meet three specific criteria. Which of the following correctly identifies these criteria?

Accepted Answer

It must be specific, non-public, and price-sensitive.

Answer

It must be general, already published, and related to a corporate bond.

Answer

It must be related to an IPO, documented in writing, and approved by the regulator.

Answer

It must be verbal, confidential, and obtained directly from a company director.

Question 16

Which technological development in the financial services sector removes the need for third-party intermediaries in maintaining transaction records?

Accepted Answer

Blockchain and distributed ledger technology (DLT)

Answer

Multilateral trading facilities (MTFs)

Answer

Real-Time Gross Settlement (RTGS)

Answer

Central securities depositories (CSDs)

Question 17

What is the defining characteristic of a passive investment management strategy?

Accepted Answer

It aims to replicate the performance of a specific benchmark index and does not attempt to outperform it.

Answer

It exclusively uses alternative assets such as hedge funds and private equity.

Answer

It seeks to outperform a benchmark index through individual stock selection.

Answer

It relies on top-down macroeconomic analysis to time the market.

Question 18

Which type of mortgage involves monthly payments that only cover the borrowing cost, requiring the borrower to use a separate investment vehicle to build up the capital needed to repay the loan at the end of the term?

Accepted Answer

Interest-only mortgage

Answer

Diminishing Musharaka

Answer

Repayment mortgage

Answer

Offset mortgage

Question 19

If an investor believes the price of a specific stock will fall significantly over the next month, which options strategy would allow them to profit from this decline while limiting their potential loss to the premium paid?

Accepted Answer

Buying a put option on the stock

Answer

Buying a call option on the stock

Answer

Selling a put option on the stock

Answer

Selling a call option on the stock

Question 20

What distinguishes an Ordinary Power of Attorney (OPA) from a Lasting Power of Attorney (LPA)?

Accepted Answer

An OPA automatically ceases to be valid if the donor loses mental capacity, whereas an LPA continues to be effective.

Answer

An OPA allows the attorney to rewrite the donor's will, whereas an LPA does not.

Answer

An OPA must be registered with the court before it can be used, whereas an LPA requires no registration.

Answer

An OPA is used exclusively for healthcare decisions, while an LPA is used for financial affairs.

Question 21

Which principle is fundamental to Islamic finance?

Accepted Answer

The strict prohibition of riba (interest) and gharar (excessive uncertainty)

Answer

The maximization of leverage through synthetic derivatives

Answer

The payment of fixed interest rates on all savings accounts

Answer

The exclusive use of unsecured overdrafts for business financing

Question 22

Which global stock market index represents 30 blue-chip industrial stocks in the United States?

Accepted Answer

Dow Jones Industrial Average

Answer

Nikkei 225

Answer

S&P 500

Answer

NASDAQ Composite

Question 23

The central bank of a country has decided to increase short-term interest rates. What is the most likely primary objective of this monetary policy action?

Accepted Answer

To combat rising inflation and cool spending

Answer

To stimulate economic growth and reduce unemployment

Answer

To increase the level of public spending

Answer

To encourage businesses to take out more loans

Question 24

In the context of hedge funds, what is the purpose of a 'high water mark' when calculating performance fees?

Accepted Answer

It ensures that performance fees are only charged on net new gains above the fund's previous peak value, preventing fees from being charged on the recovery of past losses.

Answer

It sets a limit on the maximum amount of leverage the fund can use during volatile market conditions.

Answer

It mandates that the fund must outperform the S&P 500 before any fees can be charged.

Answer

It guarantees that investors will receive a minimum positive return each year.

Question 25

What distinguishes exchange-traded futures from OTC forward contracts regarding risk management?

Accepted Answer

Futures require margin deposits (initial and variation) and are cleared through a central counterparty, eliminating counterparty risk.

Answer

Futures contracts do not require any upfront payments, whereas forwards require full payment on the trade date.

Answer

Futures can only be used for speculation, whereas forwards are exclusively used for hedging.

Answer

Futures carry high counterparty risk, whereas forwards are guaranteed by a clearing house.

Question 26

Which of the following accurately describes a difference between an open-ended unit trust and a closed-ended investment trust?

Accepted Answer

Investment trusts issue a fixed number of shares and can trade at a premium or discount to NAV, whereas unit trusts issue/redeem units on demand at NAV.

Answer

Unit trusts trade on a stock exchange based on supply and demand, whereas investment trusts are priced at Net Asset Value (NAV).

Answer

Unit trusts can use gearing to amplify returns, whereas investment trusts cannot borrow money.

Answer

The manager of a unit trust is the legal owner of its assets, whereas shareholders legally own an investment trust's assets.

Question 27

What is the primary role of the depositary in an Open-Ended Investment Company (OEIC)?

Accepted Answer

To hold and safeguard the fund's assets on behalf of the investors

Answer

To calculate the fund's performance fees based on the high water mark

Answer

To determine the total number of shares to be issued in the primary market

Answer

To make day-to-day investment decisions and select stocks for the portfolio

Question 28

Which phase of the economic cycle is characterised by declining GDP and rising unemployment?

Accepted Answer

Contraction

Answer

Peak

Answer

Expansion

Answer

Trough

Question 29

In the foreign exchange market, what is the standard settlement timeframe for a spot trade?

Accepted Answer

T+2 (Trade date plus two business days)

Answer

Immediate settlement on the trade date

Answer

T+1 (Trade date plus one business day)

Answer

T+3 (Trade date plus three business days)

Question 30

A corporate bond pays an annual coupon of 6% and is currently trading in the market at a price of $120. What is the flat yield of this bond?

Accepted Answer

5.0%

Answer

4.5%

Answer

6.0%

Answer

7.2%

CME-1A: International Introduction to Securities & Investment Free Sample Paper & Question Bank

A trader deliberately enters numerous large buy orders for a share with no intention of executing them, simply to create a false impression of high demand and drive the price up. What offence is this?

CME-1A: International Introduction to Securities & Investment

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