Portfolio Management - Assorted Topics

Which of the following is least important as a reason for a written investment

policy statement (IPS)?

• The IPS may be required by regulation.

• Having a written IPS is part of best practice for a portfolio manager.

• Having a written IPS ensures the client’s risk and return objectives can be

  achieved.

Which of the following is least likely to be placed in the appendices to an

investment policy statement (IPS)?

• Rebalancing Policy.

• Strategic Asset Allocation.

• Statement of Duties and Responsibilities.

After interviewing a client in order to prepare a written investment policy statement (IPS), you have established the following:

● The client has earnings that vary dramatically between £30,000 and £70,000 (pre-tax) depending on weather patterns in Britain.

● In three of the previous five years, the after-tax income of the client has been less than £20,000.

● The client’s mother is dependent on her son (the client) for approximately £9,000 per year support.

● The client’s own subsistence needs are approximately £12,000 per year.

● The client has more than 10 years’ experience trading investments including commodity futures, stock options, and selling stock short.

● The client’s responses to a standard risk assessment questionnaire suggest he has above average risk tolerance.

The client is best described as having a:

• low ability to take risk, but a high willingness to take risk.

• high ability to take risk, but a low willingness to take risk.

• high ability to take risk and a high willingness to take risk.

Tactical asset allocation is best described as:

• attempts to exploit arbitrage possibilities among asset classes.

• the decision to deliberately deviate from the policy portfolio.

• selecting asset classes with the desired exposures to sources of systematic risk in an investment portfolio.

Which of the following is the correct sequence of events for risk governance

and management that focuses on the entire enterprise? Establishing:

• risk tolerance, then risk budgeting, and then risk exposures.

• risk exposures, then risk tolerance, and then risk budgeting.

• risk budgeting, then risk exposures, and then risk tolerance.

Effective risk governance in an enterprise provides guidance on all of the following except:

• unacceptable risks.

• worst losses that may be tolerated.

• specific methods to mitigate risk for each subsidiary in the enterprise.

Which of the following risks is best described as a financial risk?

• Credit

• Solvency

• Operational

If a company has a one-day 5% Value at Risk of $1 million, this means:

• 5% of the time the firm is expected to lose at least $1 million in one day.

• 95% of the time the firm is expected to lose at least $1 million in one day.

• 5% of the time the firm is expected to lose no more than $1 million in one

  day.

Why is technical analysis especially useful in the analysis of commodities and

currencies?

• Valuation models cannot be used to determine fundamental intrinsic value for these securities.

• Government regulators are more likely to intervene in these markets.

• These types of securities display clearer trends than equities and bonds do.

A candlestick chart is similar to a bar chart except that the candlestick chart:

• represents upward movements in price with X’s.

• also graphically shows the range of the period’s highs and lows.

• has a body that is light or dark depending on whether the security closed higher or lower than its open.