Exam 1 – Certified Investment Analyst Professional™

The exam you are about to take will test your knowledge in three key areas: risk management, forecasting, regulatory framework and interest rates. These topics are fundamental to understanding and navigating the complexities of financial markets. The exam consists of 10 questions, each designed to assess your grasp of these critical concepts. To successfully pass, you will need to achieve a score of 80% or higher.

1. What is the minimum Tier 1 capital ratio under Basel III?

Under Basel III, banks are required to hold a minimum of 6% of their risk-weighted assets in Tier 1 capital, up from the 4% required under Basel II.

Under Basel III, banks are required to hold a minimum of 9% of their risk-weighted assets in Tier 1 capital, up from the 6% required under Basel II.

Under Basel III, banks are required to hold a minimum of 3% of their risk-weighted assets in Tier 1 capital, up from the 1% required under Basel II.

Under Basel III, banks are required to hold a minimum of 2% of their risk-weighted assets in Tier 1 capital, up from the 1% required under Basel II.

2. Which of the following correctly defines Market Risk?

It is the potential for an investor to experience losses due to factors that affect the overall performance of financial systems.

It is the potential for an investor to experience losses due to specific risks tied to individual investments or companies.

It is the risk of loss due to a borrower’s failure to repay a loan or meet contractual obligations.

It is the risk that a company will not be able to meet its short-term financial obligations due to an inability to convert assets into cash without significant loss of value.

3. Which of the following is NOT a key function of the Consumer Financial Protection Bureau (CFPB)?

The CFPB offers a platform for consumers to file complaints about financial products and services, which the bureau investigates and seeks to resolve.

The CFPB provides information and resources to help consumers make informed financial decisions and understand their rights.

The bureau enforces laws related to financial products and services, such as credit cards, mortgages, and student loans, to prevent deceptive or unfair practices.

The bureau controls the financial terms set by lenders, such as interest rates on loans, credit cards, or mortgages.

4. Why does the Federal Reserve’s interest rate decisions have a significant impact on global markets?

The Fed has an invisible economic leash that tugs on other countries’ economies whenever it raises or lowers interest rates, causing markets to follow along.

The Fed uses precious metals to set interest rates. When the dollar is strong, precious metals are strong and the appetite for lending fluctuates.

The U.S. dollar is the world’s primary reserve currency, meaning many countries hold large amounts of their reserves in dollars. When the Fed raises interest rates, it often strengthens the dollar because higher rates attract foreign investment into U.S. assets like bonds. A stronger dollar can make it more expensive for other countries to repay dollar-denominated debt, affecting their economies and financial markets.

The Fed’s interest rate changes are actually part of a secret global agreement known as the Global Liquidity Synchronization Theory (GLST). According to this theory, the world’s major central banks have a synchronized system where the Fed’s interest rate acts as a master switch.

5. How can macroeconomics assist investors in making informed decisions during challenging economic conditions?

By providing insights into broader economic trends and indicators, such as inflation rates and GDP growth, which can help predict market movements and adjust investment strategies accordingly.

By examining the impact of central bank policies on sector-specific growth, which may offer clues about the relative strength of different industries.

By analyzing long-term historical economic cycles to understand potential future trends and their implications for investment strategies.

By relying on social media trends and investor sentiment, which can provide insights into broader market behaviors and emotional responses.

6. Why are Credit Default Swaps (CDS) risky?

Market risk, due to fluctuations in underlying asset values affecting the CDS premiums.

Complexity issues, as the interconnected nature of CDS can obscure the true level of risk and potential exposure.

Default by the protection buyer, who might fail to make premium payments, impacting the stability of the CDS contract.

Regulatory changes, which can alter the terms and conditions of CDS contracts unpredictably.

7. Diversification is a risk management strategy. Which of the following companies is diversified?

Costa Coffee — They brew and sell coffee to the local people.

McDonalds — They sell burgers, fries, milkshakes, ice-cream, and they own real estate in many places around the world.

Acer Laptops — They sell 24′ laptops 24 hours a day.

Ben’s Pottery Company — They sell pots to numerous companies across the country.

8. Which of the following answers most accurately defines ‘Stress Testing’?

Stress testing involves assessing an investor’s capacity to effectively respond to high-pressure situations in a volatile market environment.

Stress testing is the process of evaluating a company’s ability to withstand extreme economic conditions or financial shocks by simulating various adverse scenarios.

Stress testing refers to the regular review of a company’s financial statements to ensure accuracy and compliance with accounting standards.

Stress testing is a technique used to measure the impact of interest rate fluctuations on a company’s stock price over a short-term period.

9. What is the name of the financial arrangement in which an individual or entity pays premiums to an insurance company in exchange for protection against specific risks or losses?

Insurance

Fraud Protection

Hedging

The Dodd-Frank Act

10. Which of the following statements about interest rates is true?

Interest rates are solely determined by the central bank’s monetary policy and have no influence from market forces.

An increase in interest rates typically leads to an increase in borrowing and a decrease in saving.

Interest rates affect the value of currencies, as higher rates tend to strengthen a currency relative to others.

Interest rates are irrelevant to investment decisions, as they do not affect the cost of capital.

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