​ ​Examination for Financial Advice

Programme:
​ ​Level 1 - Module 2
9t July 2020
h

COURSE/MODULE NAME OF EXAMINER

Financial Advice Programme Level 1 Module 2 Dr. Mohammad Belgami

EXAMINATION DATE / TIME EXAMINATION DURATION

9th July 2020 2 HOURS

MATERIALS/EQUIPMENT MATERIALS/EQUIPMENT

SUPPLIED BY CENTRE PERMITTED (candidate’s own)

Question Paper Non-programmable calculator

Instructions to candidates
This is a (2) two hours examination
There are (11) pages in the exam paper including cover page and separate answer sheet.

Candidates should answer ALL questions to the best of their knowledge.

NAME: MASHAEL BUARKI

ORGANIZATION: NATIONAL BANK OF BAHRAIN

1. Which of the following contracts is typically used by Islamic banks for the sale of goods,
commodities or tangible property? (D)
a. Mudaraba
b. Ijara
c. Istisna’a
d. None of the above

2. A bank with a very low liquidity may trigger: (D)

a. Increase in interest rate
b. Potential loss of confidence by depositors prompting them to withdraw their deposits
c. Central bank intervention under special circumstances
d. All of the above
3. Calculate the management expense ratio of a fund that has BD 550 million in assets, and
accrued expenses amounting to BD4.5 million. (B)
 a. 0.45%
b. 0.82%
c. 1.80%
d. 1.05%
4. ____________ are liabilities for a bank. (A)
A. Funds with external fund managers
B. Sub-ordinated debt
C. Trade finance loans
D. All the above
5. Which of the following would be liquid assets for a bank? (A)
a. Cash with Central bank
b. Cash with ATMs
c. Cash at HO
d. All of the above
6. A bank’s tally of assets and liabilities includes BHD 100 million worth of deposits, BHD 35
million worth of Treasury bills, BD 50 million investments, BD35 million sub-debt and
BHD 20 million worth in cash reserves. What are the total liabilities of the bank? (B)
a. BHD 120 million
b. BHD 135 million
c. BHD 170 million
d. BHD 185 million

7. If news breaks that a bank has reached a state of very low liquidity, which of the following
could NOT be a reaction? (B)
a. Increase in interest rate
b. Rush to deposit funds with said bank
c. Approaching the lender of last resort
d. Loss of confidence by depositors prompting them to withdraw their deposits

8. __________________has the largest market capitalization of any stock exchange in the world.
(B)
a. LSE
b. NYSE
c. NASDAQ
d. Tawadul

9. The CBB mandates that conventional banks in Bahrain maintain a minimum level of paid-up
capital of ______________ BHD. (D)
a. 500,000
b. 5 million
c. 10 million
d. 20 million

10. Conventional banks in Bahrain are subdivided in which two categories? (D)
a. Large and Small banks
b. Private and Public banks
c. Corporate and Retail banks
d. Wholesale and Retail banks

11. In Bahrain, it is mandated that the activity of providing credit must account for over 20
percent of a (an) ________________ bank’s assets. (B)
a. Conventional wholesale
 b. Conventional retail
c. Islamic wholesale
d. All of the above

12. Which product typically dominates the asset-side of the average bank’s balance sheet? (D)
a. Cash
b. Investments
c. Furniture and fixtures
d. Loans
13. Deposit protection in Bahrain is issued by: (A)
a. The Central Bank of Bahrain
b. The Ministry of Industry and Commerce
c. Bahrain Bourse
d. National Bank of Bahrain

14. A client who prefers returns over safety would prefer which of the following products? (C)
a. Corporate bonds
b. Fixed deposits
c. Equity
d. Derivatives

15. XYZ Bank is appointed as the arranger to ABC Limited’s bond issue of BHD 4 million. XYZ
Bank agrees that if it is unable to place the issue, it will not subscribe to the entire issue
itself. This means that: (B)
a. The issue is entirely underwritten by XYZ Bank
b. The issue is entirely underwritten by ABC Limited on BEST EFFORT basis
c. The issue will be considered null and void
d. The relevant regulatory authority will decide the outcome

16. When a group of banks come together to make a loan to a single borrower, this loan is known
as: (A)
a. Syndicated loan
b. Letter of credit
c. Funded loan
d. Synergy loan

17. A bank’s equity investment in listed entities on the bourse is an example of: (A)
a. Private equity
b. Venture capital
c. Working capital loans
d. IPO/Secondary market

18. What is Vulture investing? (D)

a. A specialised hedge fund investing in emerging market bonds
b. A specialised hedge fund investing in only equities
c. A specialised hedge fund investing in mutual funds
d. None of the above
19. As per CBB rules, Islamic banking services consist of three determinant activities. Which of
the following is included? (D)
a. Accepting Shari’a compliant deposits
b. Managing Shari’a compliant profit-sharing investments
 c. Offering Shari’a compliant financing contracts
d. All of the above

20. IFRS accounting standards apply to: (A)

a. All banks in Bahrain
b. All Islamic banks in Bahrain
c. All retail banks
d. All conventional banks

21. The technique of financing projects by using a partnership structure between the bank and the
customer is known as: (D)
a. Murabaha
b. Mudaraba
c. Istisna’a
d. Musharaka

22. The face value of a bond is USD 1,000. The coupon rate is 7.25%. The bond is currently
trading at USD 1000 with a residual maturity of 3 years. What is the YTM of the bond? (C)
a. 8.56%
b. 5.3%
c. 7.25%
​d. 9.60%
23. In a Musharaka contract, any losses incurred will be borne by: (C)
a. The bank
b. The investor
c. A pool of the bank’s customers
d. None of the above
24. The amount of money that the issuer pays the holder of the bond when the bond matures is
known as the: (C)
a. Yield to maturity
b. Discount value
c. Principal Value
d. Coupon cash flow
25. Aisha approaches XYZ Islamic Bank to finance the purchase of a car with the promise that
she will buy the car from the bank. The bank buys the car and resells the car to Aisha at the
purchase price plus a mark-up. This transaction is an example of: (A)
a. Murabaha
b. Mudaraba
c. Musharaka
d. Istisna’a

26. XYZ Islamic Bank purchases a commercial tower in the Diplomatic Area at the request of
Sameer and leases it out to Sameer. This is an example of: (C)
a. Murabaha
b. Mudaraba
c. Ijara
d. Istisna’a

27. The value of each unit held by an investor in a mutual fund is calculated by: (A)

a. (Total assets – liabilities)/Number of units

 b. Total assets/Number of units
c. (Total assets – Operating expenses)/ number of units
d. None of the above

28. Which of the following is an example of an alternative asset? (D)

a. Equities listed on stock exchange
b. Investment grade bonds
c. Hedge Funds
d. All of the above
29. The number of years remaining until a bond reaches maturity is known as: (C)
a. Life of the bond
b. Original Maturity
c. Residual maturity
d. All of the above are synonyms

30. The face value of a bond is USD 1,000. Ahmed purchases the bond at USD 950. It can be
said that Ahmed has purchased the bond at: (C)
a. Premium
b. Par
c. Discount
d. None of the above
31. A callable bond is when an issuer has the option to redeem its bonds prior to the maturity
date. The call price of these bonds at redemption is usually at a: (A)
a. Premium
b. Par
c. Discount
d. The price is negotiable
32. When a company distributes a portion of its earnings to shareholders in the form of free
shares, this is known as: (A)
a. Stock dividends
b. Dividends
c. Stock options
d. Warrants

33. The face value of a bond is USD 1,000. The coupon rate is 8.25%. The bond is currently
trading at USD 1080. What is the current yield of the bond? (D)
a. 8.16%
b. 8.42%
c. 8.25%
d. 7.60%

34. Which of the following is NOT an effect of a stock split? (B)

a. The face value of an existing stock is lowered
b. The book value of the stock is lowered
c. The number of shares is increased
d. Liquidity is increased
35. Hamad has 4 share value at BHD 50 in XYZ Company. XYZ Company announces a 4:1
split. How many shares would Hamad have after the split and what would the value of each
be?
a. 20 shares at BHD 5 each
b. 100 shares at BHD 1 each
c. 4 shares at BHD 25 each
d. 16 shares at BHD 12.50 each (D)
36. Which of the following characterizes the difference between equity and a bond? (A)
a. Shares represent the ownership of a company while bonds are acknowledgement
of debt by a company
b. Bonds are generally secured while shares are partially secured
c. Shares are generally secured while bonds are not secured
d. Bonds represent the ownership of a company while shares are acknowledgement of
debt by a company

37. Mariam held 500 shares in ABC Company listed in the Bahrain Bourse, each valued at BD
0.300 ABC Company announced a reverse stock split in the ratio of 1:5. After the reverse
split, Mariam would receive ____________ shares, each at a value of ______________.
(C)
a. 100, BD 0.300
b. 500, BD3
c. 100, BD 1.5
d. 500, BD1.5
38. An instrument that is primarily used as a risk management tool and derives its value from
another asset or from an underlying asset is known as: (B)
a. Commodities
b. Derivatives
c. Debentures
d. Bonds
39. An agreement to buy or sell a set number of commodities at a predetermined price and date
in the future is a: (A)
a. Futures contract
b. Warrant
c. Sale Agreement
d. Asset-backed securitization
40. Which of the following is NOT a form of real estate investment? (B)
a. Free-hold ownership
b. SPV
c. Leveraged equity
d. Mortgages
41. Which of the following statements about financial products in the alternative asset class is
false? (D)
1. Alternative asset class products are high risk
2. Alternative asset class products may give significant returns
3. Alternative asset class products are generally suitable for beginner investors
4. Alternative asset class products include options, forwards and futures

a. 1, 2 only
b. 1 and 3 only
c. 1 2 and 4 only
d. All the above
42. Which of the following is the most liquid investment? (B)
a. Interest rate swap
b. Treasury bills
c. Corporate bonds
 d. Shares in a listed company

43. A successful “client – financial adviser” relationship is based on: ​(C) ​ ​

a. Family recommendation
b. Investment history
c. Trust
d. Return on investment

44. The face value of a bond is USD 1,000. The coupon rate is 8.25%. The bond is currently
trading at USD 1080 with a residual maturity of 3 years. What is the YTM of the bond? (B)
a. 8.56%
b. 5.3%
c. 8.25%
d. 9.60%

45. The scheme through which individuals drive up the price of a company’s stock by issuing
false and misleading statements is known as: (B)
a. Speculative scheme
b. Pump and dump scheme
c. Tipping
d. Insider trading
46. A scheme to defraud investors by paying old investors with cash brought in by new investors,
mostly without an underlying business activity is known as: (A)
a. Ponzi scheme
b. Pump and Dump scheme
c. Strawman Fraud
d. Prime bank scheme

47. The value of each unit held by an investor in a mutual fund is represented by: (A)
a. Interest paid
b. Net asset value
c. Return on investment
d. Dividend earned

48. Mutual funds are very popular among investors. Which of the following is NOT a reason
investors choose mutual funds? (D)
a. Mutual funds are well regulated
b. Mutual funds are diversified
c. Mutual funds are managed by professional managers
d. Mutual funds are impervious to market swings

49. Which of the following funds is considered to be highly liquid: (A)

a. Money market funds
b. Bond funds
c. Mortgage funds
d. Balanced funds

50. Ali wants to invest in a mutual fund. He is looking for steady income and is satisfied with
limited capital appreciation. As a financial adviser, which of the following types of mutual
fund would you recommend to Peter? (B)
a. Equity funds
b. Fixed income funds
 c. Money market funds
d. Mortgage funds
51. Which of the following funds tend to invest in debt securities with very short maturities?
a. Fixed income funds
b. Money market funds (B)
c. Equity funds
d. Balanced funds
52. The Bahrain Growth Fund has BHD 50 million in assets, BHD 10 million in liabilities and
100 million units outstanding. The offering price would be: (A)
a. BHD 1.500 per unit
b. BHD 1 per unit
c. BHD 0.500 per unit
d. BHD 1,500 per unit
53. XYZ Mutual Fund has a front-end load of 4%. Mohammed wants to invest BHD 10,000.
How much of the BHD 10,000 would actually be invested? (C)
a. BHD 400
b. BHD 9,400
c. BHD 9, 600
d. BHD 10,000

54. An investor who is looking for capital growth only will be advised to invest in: (A)
a. Equity growth fund
b. Fixed Income fund
c. Mortgage fund
d. Balanced fund

55. Providing capital to a firm in the form of equity investments at various stages of a business
development or cycle is known as: (A)
a. Venture capital
b. Lease financing
c. Loan
d. Vulture investing
56. Private equity is also known as: (A)
a. Direct financing
b. Investing in shares of a listed company
c. Investment in units of a mutual fund
d. Lease financing

57. The stage in a venture capital investment wherein the investment is to support research and
development cost is known as: (B)
a. Early stage
b. Seed stage
c. Later stage
d. Market stage
58. Which of the following functions are performed only by retail banks and not investment
banks? (C)
I. Accept deposits from public
II. Lend to public
III. Merchant banking
IV. Advisory Services

a. I Only
b. II & IV only
c. I & II only
d. All of the above

59. Why are Hedge funds less regulated in comparison to other investment vehicles? (A)
a. They are complicated instruments offering high returns targeted to only
sophisticated investors
b. They are simple financial instruments offering high returns targeted to only
sophisticated investors
c. They are complicated instruments offering low returns targeted to all investors
d. None of the above

60. Which of the below is a non-funded facility? (A)

a. Standby lines of credit
b. Trade finance loans
c. Sukuks
d. Term loans