CISI ICWIM - International Certificate in Wealth & Investment Management

Commercial Paper (CP) is a short-term, unsecured debt instrument issued by large, creditworthy corporations to finance short-term liabilities.

Why is Option B Correct?

CP is negotiable (can be sold on secondary markets).

It is unsecured (not backed by assets).

Maturity ranges from 1 day to 270 days.

Why Not Other Options?

A (Certificates of Deposit) → Issued by banks, not corporations.

C (Bills of Exchange) → Used for trade finance, not corporate funding.

D (Treasury Bills) → Issued by governments, not companies.

📌 Reference: Bank of England (Commercial Paper Market), CISI Wealth & Investment Management.

Factors Shifting Aggregate Demand (AD) Rightward:

Depreciation of the pound makes UK exports cheaper and imports more expensive, increasing net exports.

Higher net exports increase aggregate demand, shifting the curve to the right.

Elimination of Other Options:

A: Lower consumer confidence decreases consumption, shifting AD leftward.

B: Increased expected inflation may reduce real spending.

D: Lower expected inflation discourages spending.

References:

ICWIM Module 1: Macroeconomic factors influencing aggregate demand.

Key Person Protection:

This insurance protects a business against financial loss if a critical employee (e.g., founder, CEO) becomes incapacitated or dies.

It is designed to mitigate reliance on essential individuals whose absence would disrupt operations.

Elimination of Other Options:

B: Size of the business is not the determining factor.

C: Significant customers are protected under other insurance (e.g., credit insurance).

D: Seasonal profits do not relate to key person risk.

References:

ICWIM Module 5: Focus on business risk management and insurance needs.

📌 Reference: CFA Institute, CISI Wealth & Investment Management.

Purpose of the FATF:

Established in 1989, the FATF develops global policies to combat money laundering and terrorist financing.

It promotes international standards to ensure financial systems are not misused for criminal purposes.

Elimination of Other Options:

A: The FATF’s mandate is broader than G7 financial regulation.

B: It provides guidance but does not solely focus on developing financial regulation.

C: Ending safe havens for corrupt funds is part of its mission but secondary to its primary goal of combating money laundering and terrorism.

References:

ICWIM Module 5: Focus on global financial regulation and anti-money laundering efforts.

FATF Mandate (Official Publications): "Standards for combating money laundering, terrorist financing, and proliferation financing."

Enhanced Due Diligence (EDD) is required for high-risk clients, particularly Politically Exposed Persons (PEPs), such as government officials.

Why is Option C Correct?

Government officials (PEPs) are considered higher risk due to their potential exposure to bribery or corruption.

Financial institutions must conduct extra scrutiny on their financial transactions.

EDD Requirements Include:

Detailed background checks.

Source of wealth verification.

Ongoing transaction monitoring.

Why Not Other Options?

A (Company Director) → May require due diligence but not EDD unless a PEP.

B (Corporate Client) → EDD applies if a company is in a high-risk jurisdiction.

D (High-net-worth individual) → Wealth alone does not trigger EDD unless other risk factors exist.

📌 Reference: Financial Action Task Force (FATF) Guidelines, CISI Wealth & Investment Management (AML).

What is an Uncovered Dividend?

An uncovered dividend payment occurs when a company pays a dividend despite having insufficient earnings to support the payout.

The dividend is effectively "uncovered" by profits, meaning the company might be using reserves, taking on debt, or liquidating assets to fund the dividend.

Why Companies Pay Uncovered Dividends

To maintain investor confidence and avoid negative signals to the market.

Investors may interpret a dividend cut as a sign of financial trouble, so companies sometimes prioritize dividends even at a financial strain.

Other Options Explained

A. Ex-dividend payment: Refers to the status of a stock when a dividend has already been declared, and new buyers are not entitled to the dividend.

B. Proxy dividend payment: No such widely recognized term in this context.

C. Scrip dividend payment: A dividend paid in the form of additional shares rather than cash.

Example

A company reports $500,000 in profits but declares a $1,000,000 dividend, funding the shortfall through borrowing. This is an uncovered dividend.

ICWIM Textbook, Chapter on Corporate Actions: Discusses uncovered dividends and their implications.

Corporate Finance Standards: Defines uncovered dividends and contrasts them with scrip and ex-dividends.

References

Challenger banks are newer, digital-first institutions that operate with modern technology, avoiding the legacy issues that traditional banks face.

Why is Option B Correct?

They lack outdated IT systems that traditional banks struggle to upgrade.

They focus on digital banking services, reducing operational inefficiencies.

Examples: Monzo, Starling Bank, Revolut.

Why Not Other Options?

A (Central bank) → Not a commercial bank; deals with monetary policy, not retail banking infrastructure.

C (Online bank) → Some online banks are part of traditional banks, inheriting legacy issues.

D (Retail bank) → Large banks have aging IT systems, regulatory burdens, and high costs.

📌 Reference: UK Financial Conduct Authority (FCA) - Challenger Banks Report, CISI Wealth & Investment Management.

Offshore Foundations

These legal entities are typically used for wealth preservation, estate planning, or philanthropic purposes.

Foundations are managed by a council, which is responsible for operational decisions and ensuring the foundation’s goals are met.

Why the Answer is C

The council acts similarly to a board of directors but focuses specifically on the foundation’s assets and objectives.

Why Other Options are Incorrect

A. Board of directors: Applies to companies, not foundations.

B. Trustees: Apply to trusts, not foundations.

D. Beneficiaries: Beneficiaries do not have decision-making authority.

ICWIM Study Guide, Chapter on Trusts and Foundations: Discusses the governance of offshore foundations.

Legal Principles of Foundations: Confirms the role of the council.

ReferencesThus, the correct answer is C. The council.

Economic Value Added (EVA) measures a company’s true economic profit by assessing whether it generates returns above its cost of capital.

EVA=Net Operating Profit After Tax (NOPAT)−(Capital Employed×Cost of Capital)EVA = \text{Net Operating Profit After Tax (NOPAT)} - (\text{Capital Employed} \times \text{Cost of Capital})EVA=Net Operating Profit After Tax (NOPAT)−(Capital Employed×Cost of Capital)

Why is Option B Correct?

A negative EVA means the firm’s returns are lower than its cost of capital, leading to value destruction.

Why Not Other Options?

A (Slowing growth rate) → EVA measures profitability, not growth rate.

C (Below sector average) → EVA is firm-specific, not a comparative measure.

D (Value is nil) → A company may still be profitable, but inefficient.

📌 Reference: CFA Institute (EVA Analysis), CISI Wealth & Investment Management.