IMC Unit 1

Mock Examination 1

1. Objectives of the FCA as provided in FSMA 2000:

- Securing an appropriate degree of protection for consumers.
- Ensuring that the relevant markets function well.
- Promoting effective competition in the market for regulated financial services.

Ensuring stable prices and confidence in the currency is part of the task of the
BANK OF ENGLAND!!!
Answer: C

2. Standard settlement term on shares (EQUITIES) traded through the LSE is T+2
Answer: B

3. Asset allocation is influenced by a client’s objectives and constraints, it’s designed to

achieve better risk/return outcomes than from just investing in one asset class, it
would include consideration of investing in cash. BUT it is NOT the final stage of the
investment management process. The final stage of the process is FUND SELECTION.
Answer: B

4. Typical risk of investing in cash is INTEREST RATE RISK (interest falls/rises…), there is
no capital risk for cash investing.
Answer: B

5. The main reason of holding equities by a pension fund is: because the fund manager
believes that the return will match the fund’s future liabilities.
Answer: C

6.

Higher taxpayer – 40% PA – 2000 for all taxpayers

Dividend - 1750 not ISA Dividend tax rate – 33.75%
PA covers all.
Answer: 0.00

7. The last stage of the process of investing a retail client’s funds is FUND SELECTION.
Answer: C

8. This year’s losses can be offset for corporation tax purposes against this, last, future
years.
Answer: D

9. Conduct Rules 1 Tier (for individuals, for everyone)

Conduct Rules 2 Tier (for senior managers)
Answer: B
10. Eurobonds are normally traded in the secondary market over the counter (OTC)
Answer: A

11. A general proxy involves appointing a person to vote as they think fit, bearing in
mind what is said at the meeting.
A special proxy (two-way) involves appointing a person to vote for or against a
particular resolution.
The proxy form must state that the member gives consent for the proxy to vote on
their behalf.
BUT the proxy must not be able to vote in two ways on each issue and the proxy
form must not state in which direction the proxy must vote.
Answer: A

12. Under the CFA Institute Code and Principles if the employee leaving his current firm
and joining a rival, the employee mat take only knowledge gained from attending a
training course whilst employed at his current firm but no other things!!!!
Answer: D

13. Under the CFA Institute Code and Principles an example of market manipulation is
buying shares in a company on behalf of clients to push the share price up before
selling personal holding of shares.
Answer: C

14. Financial promotion means invitation and inducement.

Answer: C

15. Under the CFA Institute Code and Principles if the advisor is about to recommend
buying shares which the adviser holds herself, she should disclose to her clients that
she owns shares herself.
Answer: C

16. A lasting power of attorney (LPA) is required to be registered with The Office of the
Public Guardian.
Answer: D

17. Protection of client assets, communication of relevant information to clients, skill,

care, and diligence are covered by the FCA’s Principles of Businesses.
Answer: D

18. Answer: A
19. A financial promotion made to sophisticated investor (which includes business
angels) is not covered by the financial promotions order rules.
A certified sophisticated investor as a person who has a certificate in the required
form confirming that they have been assessed by a firm as being sufficiently
knowledgeable to understand the risk of a particular investment.
 In addition, a retail investor can be a self-certified sophisticated investor if they can
state that they are a member of a network or syndicate of business angels and have
been so far at least 6 months prior to the signature date.
Answer: B

20. - The firm’s business model;

- The applicant’s fitness and propriety;
- Close links that the applicant has to other firms;
- Suitability;
- Effective supervision
are all considered by the FCA in relation to a firm’s application for authorisation.
Answer: D

21. If a foreign firm (investment firm) wants to open up a branch in the UK, it has to
obtain the necessary regulatory approval, especially to apply for Part 4A permission
from the FCA.
Answer: B

22. A simulated (or hypothetical) portfolio’s performance can be included if clients are
made aware that this is simulated performance and was not actually achieved.
Answer: C

23. Churning – overtrading too frequently.

Switching – overtrading within and between packaged products
Answer: A

24. Max jail sentence for insider dealing offences is 7 YEARS under the Criminal Justice
Act 1993 (CJA 1993)
Answer: C

25. Antique jewellery normally generates a capital gain tax liability on disposal.
Exemptions from CGT: main home, gilts (bonds), car.
Answer: C

26. There are no specific regulatory requirements with regard to a fact find.
Answer: D

27. Answer: A
28. International financial reporting standards require derivatives to be valued on the
company’s balance sheet at FAIR VALUE under The International Financial Reporting
Standard (IFRS 9 for derivatives).
Answer: C

29. Variation margin is additional margin that must be paid to cover the previous day’s
trading losses. This is in addition to the initial margin payment.
Answer: C
30. The person who gains from the performance of the assets held in a discretionary
trust is the beneficiary.
Answer: C

31. Banks, other investment institutions (building societies, an investment trust

company), a defined benefit pension scheme are all the examples of financial
intermediary.
Answer: D

32. For non-MiFID business:

- A corporate body that has called up share capital of at least £5m;
- A large undertaking meeting at least 2 of the following tests:
 A balance sheet total of 12.5m EUR,
 A net turnover of 25m EUR;
 An average number of employees during the year of 250.

For MiFID business:

- A balance sheet total of 20m EUR,
- A net turnover of 40m EUR,
- Own funds of 2m EUR.

Answer: C

33. The BoE has responsibility for the supervision of clearing houses (RCHs): ICE Clear
Europe, LME Clear, LCH Ltd, CME Clearing Europe.
The FCA has responsibility for the supervision of exchanges (RIEs): the LSE, the Aquis
Stock Exchange, the London Metal Exchange, and ICE Futures Europe.

Answer: A

34. The UK Prospectus regulations require publication of a prospectus where:

- Securities are admitted to trading on a regulated market in the UK or admitted to
listing in the UK, or
- A firm is making a public offer in the UK
- Must be approved by UKLA and the LSE and the FCA
Answer: A

35. A firm cannot engage in stock lending using a client’s assets unless that client has
given express prior consent for their assets to be used in this way.
Answer: C

36. A home reversion plan will require an equity release qualification.

Answer: B

37. The rate of income tax payable by a higher taxpayer on dividend income that is not
covered by any allowances is 33.75%.
Answer: C
38. Estate on death – 520 000
Husband’s inheritance tax NRB = 50% unused 5 years ago
Current level of NRB = 325 000
IHT = ?
325 000 / 2 = 162 500 + 325 000 = 487 500
520 000 – 487 500 = 32 500*40%= 13,000

Answer: 13,000

39. You must disclose appropriately any information of which the FCA or PRA would
reasonably expect notice – A SECOND-TIER Senior Management Conduct Rule.
Answer: C

40. Answer: B
41. Answer: D
42. A liability-driven investment (LDI) strategy involves taking future liabilities as given
and building a portfolio of assets that are required to meet those future liabilities.
E.G mortgage and school fees
Answer: A

43. Answer: A
44. Answer: A
45. Answer: D
46. The Foreign Account Tax Compliance Act (FATCA) legislation came into US law in 2010
and include the requirement for:
- Foreign financial institution to provide information about accounts held by US
citizens to the US tax authorities.
- US payers making payments to non-compliant foreign financial institutions to
withhold 30% of gross payments.
Answer: C

47. Features of retirement savings account held with the NEST (National Employment
Savings Trust):
- Auto-enrolment for eligible jobholders if an employer selects NEST as the
qualifying scheme for employees.
- Required employer contributions.
- Minimum annual contribution levels.
The UK Government set up the NEST, so that all employers can have access to a
suitable pension scheme if they do not have a quality scheme in place. All eligible
jobholders (those between age 22 and. State pension age with annual earning
over 10 000£) to be enrolled into a qualifying scheme.
TRANSFERS IN AND OUT OF NEST ARE NOT ALLOWED EXCEPT IN SPECIFIC
LIMITED CIRCUMSTANCES!!!
Answer: A

48. If a financial services provider holds or controls client money or assets, then they
must follow the rules set out in the FCA’s Client Asset Sourcebook (CASS). These
 CASS rules have been created to ensure that client assets are safeguarded in the
event of a firm’s insolvency.
CASS 6 – for custody assets
CASS 7 – for client money
A firm must notify the FCA once a year what type of CASS classification the firm falls
into:
Firm type Highest amount of client Highest amount of safe
money held over last year custody assets held over
(or projected to hold over last year (or projected to
next year) hold over next year)
CASS Large Firm More than 1bn £ More than 100 bn £
CASS Medium Firm Equal to or greater than Equal to or greater than
£1 million and less than £10 million and less than
or equal to £1 billion or equal to £100 billion
CASS Small Firm Less than 1m £ Less than 10m £

- The records should be retained for 5 years – the usual MiFID record-keeping
requirement.
Answer: C

49. The least important consideration when recommending a collective investment

scheme for a retail client is whether the fund is structured as a Unit Trust or an OEIC.
Answer: C

50. Answer: A
51. Answer: B
52. Under the FCA’s disclosure rules and transparency rules (DTR) all persons discharging
managerial responsibilities (PDMRs) and their connected persons must report their
own transactions in shares of the company of which they are the director: any
purchase or sale of shares within 4 business days of the transaction.
Answer: A

53. Bribery Act 2010 (BA 2010)

The regulator is not responsible for enforcement under BA 2010. Where the FCA
finds evidence of criminal matters, it will refer them to the SERIOUS FRAUD OFFICE,
who are the UK lead agency for criminal prosecutions for corruption.
Answer: C

54. Answer: C
55. Answer: C

56. Kim is a basic taxpayer / Rupert is a higher taxpayer.

If Rupert transfers his gilts from inside his ISA to outside his ISA he will pay a high rate
tax on gilts.
Answer: B
57. A pension fund’s Statement of Investment Principles (SIPs) is the responsibility of the
TRUSTEES.
Answer: B

58. Answer: C
59. When an investor is exposed to if they are concerned that the value of their
investment will not grow to a suitable amount to meet the liability is SHORTFALL
RISK.
Answer: A

60. Life insurance companies often have a significant amount of their assets invested in
long-term bonds because long-term bons provide matching cashflows for annuity
liabilities.
Answer: C

61. Answer: D
62. Answer: B
63. A listed company would be required to make a public announcement if 3% of voting
rights held by one shareholder.
Answer: 3.0

64.

499 200£ when INRB=312 000

Children Wife
499 200/2=249600 499 200/2=249600
IHT = ? Died/ 695 000 when INRB=325 000

312 000 – 249600 = 62 400

62400*100/312000 = 20%
325 000 *120%= 390 000
695000-390000=305000*40%=122 000

Answer: 122,000

65. Jump plc has got non-MiFID business:

A balance sheet total = 15 000 000 EUR (more 12.5)
Full-time employees = 150 (less 250)
Turnover = 20 000 000 EUR (less 25 000 000)

Answer: B

66. While it is likely that the client satisfies the qualitative test, we are unable to show
that they satisfy two of the three criteria for the qualitative test, which are:
- The client has carried out at least 10 significant transactions per quarter on the
relevant market, over the last 4 quarters.
- The client’s portfolio, including cash deposits, exceeds 500 000 EUR.
 - The client has knowledge of the transactions envisaged from at least one year’s
professional work in the financial service.
So, B&B should treat Patrick as a retail client.

Answer: A

67. A record of the client agreement should be kept for 5 years.

For pension transfers, opt-outs, FSAVCs – INDEFINETLY.
Answer: D

68. Answer: C
69. Section 3: Composition, Succession and Evaluation of the UK Corporate Governance
Code highlights the importance of promoting diversity of gender, social and ethnic
backgrounds, as well as cognitive and personal strengths when considering the
composition of the board. This section of the Code suggest that the board and its
committees should have a combination of skills, experience, and knowledge. Annual
evaluation of the board should consider its composition, diversity and how effectively
members work together to achieve objectives.
Answer: C

70. The max penalty would be a prison sentence together with a fine. However, if the
directors of an institution which fails to implement internal reporting procedures in
respect of money laundering the max penalty in this case is 2 years’ imprisonment
and an unlimited fine.
Answer: C

71. Answer: A
72. For young clients base – equities
For mature clients base – bonds
Answer: B

73. Initially to the authorised firm -> FOS (The Financial Ombudsman Service)
Answer: D

74. The trustee is responsible for preparing the Statement of Funding Principles with
respect to a defined benefit pension fund.
Answer: B

75. Answer: D
76. Additional taxpayer – S:45% (PA 12570) / I:45% / D:39.35% (PA 2000)
Saving income – 780
780*45% = 351

Answer: 351.00
77. Money Laundering Stages:
- Placement
- Layering
- Integration
The investment manager typically used for the stages of layering and integration.
Placement – deposit taking institution (bank, building society)

78. APRIL:
A – APPOINTED REPRESENTETIVES
P – PROFESSIONS (accountant, solicitor)
R – RECOGNISED INSTITUTIONS (RIEs / RCHs)
I-INSTITUTIONS
L- LLOYDS MEMBERS

Answer: A

79. A firm must send a written acknowledgment of a complaint promptly.

Answer: A

80. 40 working days the CMA must reach an initial Phase I decision about a takeover.
Answer: A

81. Answer: C
82. JMLSG (Joint money laundering steering group) receives approval from HM Treasury.
Answer: C

83. Suitability rule is required for the firms providing advisory or discretionary portfolio
management services for all retail clients. And professional clients.
Answer: C

84. A firm must report to the FCA with reference to complaint received twice a year.
Answer: C

85. Answer: C