ICWIM Exam Dumps - International Certificate in Wealth & Investment Management

Stocks with abeta of less than oneare less volatile than the overall market. Including such stocks in a portfolio helps reduce its overall volatility, aligning with the risk-averse nature of the client.

Easier to understand (A): Simplicity is not a factor in beta selection.

Moves in line with the market (B): A beta of less than one means the portfolio moves less than the market.

High-volatility portfolio (D): This would involve stocks with a beta greater than one, contrary to the client’s risk profile.

References:

International Certificate in Wealth & Investment Management: Beta as a measure of systematic risk and its implications for portfolio construction.

CAPM (Capital Asset Pricing Model) principles on beta and risk.

Treasury Bills Defined

Treasury bills (T-bills) are short-term government debt securities issued at a discount and redeemed at face value at maturity.

They are typically issued with maturities of3 months (most common), 6 months, and 1 year.

Why the Answer is B

While T-bills can have shorter or longer maturities,3 monthsis the standard minimum maturity for most markets, including the UK and US.

ICWIM Study Guide, Chapter on Fixed Income Securities: Covers treasury bill characteristics.

Debt Market Literature: Confirms typical T-bill maturities.

References

ROCE (Return on Capital Employed)

Measures the efficiency and profitability of a company relative to the capital invested in the business.

Formula: ROCE=Earnings Before Interest and Tax (EBIT)Capital Employed\text{ROCE} = \frac{\text{Earnings Before Interest and Tax (EBIT)}}{\text{Capital Employed}}ROCE=Capital EmployedEarnings Before Interest and Tax (EBIT)​

Why the Answer is C

ROCE specifically focuses on the returns generated from the capital base, providing insight into how effectively the business is using its resources.

Why Other Options are Incorrect

A. Net profitability: Refers to net profit margins, not ROCE.

B. Borrowing costs: ROCE ignores borrowing costs as it considers EBIT.

D. Net profit in relation to cost of sales: Refers to gross profit margin, not ROCE.

ICWIM Study Guide, Chapter on Financial Ratios: Covers ROCE and its applications.

Corporate Finance Texts: Defines ROCE as a key performance metric.

ReferencesThus, the correct answer isC. Returns generated from capital invested in the business.

The appropriateness test, as outlined in financial regulations like MiFID II, evaluates whether a client has the necessaryknowledge and experienceto understand the risks of a financial product or service. This is particularly applicable when a client is investing in complex or non-advised products.

Age (A): While relevant to certain suitability tests, age is not a determinant of appropriateness.

Qualifications (C): Although qualifications may indicate some level of understanding, they are not a core requirement for the test.

Wealth (D): Wealth does not equate to investment knowledge or experience.

References:

International Certificate in Wealth & Investment Management: Section on MiFID II regulations and appropriateness tests.

Regulatory guidelines for evaluating client risk understanding.

Inflation from the Seller's Perspective:

The Producer Price Index (PPI) measures changes in the prices received by sellers for their goods and services.

It reflects production cost pressures, making it distinct from consumer-focused indices.

Elimination of Other Options:

A & C: Retail Price Index (RPI) and Consumer Price Index (CPI) measure inflation from the buyer's perspective.

D: Inflation Price Index is not a recognized term.

References:

ICWIM Module 1: Explanation of inflation measurement indices.

Private Equity and Growing Companies:

Private equity involves investing in privately-held companies with the goal of increasing their value and exiting through a stock market listing (IPO) or sale.

This investment type targets growth-stage businesses requiring significant capital.

Elimination of Other Options:

A: Convertible bonds are debt instruments, not equity investments.

B: Preference shares provide fixed dividends and are not growth-oriented investments.

D: Structured products are financial instruments tied to underlying assets and not specific to growth financing.

References:

ICWIM Module 3: Coverage of private equity investments and their objectives.

Risk Appetite and Portfolio Composition

A portfolio primarily of bonds and cash indicates a conservative approach, but the inclusion of equities and higher-risk investments suggests some tolerance for risk.

A 15-year time horizon allows for a balanced approach, mitigating risks associated with equities over time.

Why the Answer is B

The mix of low-risk (bonds, cash) and some high-risk exposure (equities) aligns withLow-Mid Risk.

Why Other Options are Incorrect

A. Low Risk: Overlooks the equity and higher-risk components.

C. Mid Risk / D. Mid-High Risk: Overestimate the risk level due to the dominance of bonds and cash.

ICWIM Study Guide, Chapter on Risk Profiling: Explains portfolio risk classification.

References

Bearer shares are physical certificates that grant ownership, and the rights to those shares are with the bearer. If the certificate is lost or stolen, the investment could effectively be unrecoverable since ownership cannot be traced back to the investor.

Not being publicly named (A): This is an advantage of bearer shares, not a disadvantage.

Difficulty in valuation (C): Bearer shares’ value is similar to registered shares based on market conditions.

Impossible to sell part (D): Fractional transactions can still occur with bearer shares.

References:

International Certificate in Wealth & Investment Management: Risks associated with different forms of equity ownership.

Legal frameworks around bearer shares and their potential misuse in financial systems.