CISI Introduction to Investment Practice Test

The CISI Introduction to Investment paper is the cleanest UK-first starting point in this CISI build. It tests the core market vocabulary, financial assets, investment funds, regulation, taxation, wrappers, trusts, and advice basics you need before moving deeper into advice, compliance, operations, or investment-management study. If you are searching for CISI Introduction to Investment sample questions, a practice test, mock exam, or simulator, this is the main Securities Prep page to start on web and continue on iPhone or Android with the same Securities Prep account.

Free diagnostic: Try the 50-question CISI Introduction to Investment full-length practice exam before subscribing. Use it as one UK investments baseline, then return to Securities Prep for timed mocks, topic drills, explanations, and the full Introduction to Investment question bank.

What this page gives you

• a direct route into Securities Prep practice for CISI Introduction to Investment
• 24 sample questions with detailed explanations spread across all current topic areas on the page
• UK-specific practice language, including sterling (£), ISA and trust terminology, product families, wrappers, and first-paper advice context
• free-preview access on web before you subscribe
• the same Securities Prep account across web, iPhone, iPad, macOS, and Android

CISI Introduction to Investment exam snapshot

Topic coverage for CISI Introduction to Investment

Best fit by UK role

Real-paper timing target

CISI Introduction to Investment decision filters

• Asset class first: decide whether the question is about equities, bonds, derivatives, funds, wrappers, tax, advice, or regulation before reading options.
• UK wrapper context: keep ISA-style wrapper, trust, tax, and first-paper advice language separate from generic investment definitions.
• Risk and purpose: identify whether the client or market fact is about income, growth, liquidity, capital protection, volatility, or product structure.
• Pace discipline: answer familiar product and market stems quickly so wrappers, tax, and advice questions have enough time.

When Introduction to Investment practice is enough

If several unseen mixed attempts are above roughly 75% and you can explain the asset class, wrapper, tax, or advice logic behind each answer, you are likely ready. More practice should improve UK investment vocabulary and application, not repeated-stem memory.

Best page to open next

What CISI Introduction to Investment is really testing

• whether you can separate asset classes, markets, and wrapper structures without mixing their purpose
• whether you can connect macro conditions, product risk, and investor needs in plain UK retail-investment language
• whether taxation, trusts, and investment wrappers are being applied in the right context rather than recalled as isolated facts
• whether you can move from product definition to practical advice implications quickly enough for a one-hour paper

How Intro to Investment differs from similar routes

How to use the Intro to Investment simulator efficiently

1. Memorise the product families, wrapper structures, and regulatory vocabulary before you start doing timed sets.
2. Use the topic-weight table below to keep Equities, Bonds, Investment Funds, and Taxation high in your rotation rather than treating the paper as evenly spread.
3. Review every miss by asking what the UK-specific clue was: wrapper, tax treatment, conduct expectation, or product-risk distinction.
4. Finish with short timed bursts so 50 questions in 60 minutes feels automatic rather than rushed.

Free preview vs premium

• Free preview: 24 public sample questions on this page plus the web app entry so you can validate the question style and explanation depth.
• Premium: the full Intro Investment practice bank, focused drills, mixed sets, timed mock exams, detailed explanations, and progress tracking across web and mobile.

Focused sample questions

Use these child pages when you want focused Securities Prep practice before returning to mixed sets and timed mocks.

• Free CISI Intro Full-Length Practice Exam
• CISI Intro: Introduction
• CISI Intro: Economic Environment
• CISI Intro: Financial Assets and Markets
• CISI Intro: Equities
• CISI Intro: Bonds
• CISI Intro: Derivatives
• CISI Intro: Investment Funds
• CISI Intro: Financial Services Regulation
• CISI Intro: Taxation, Investment Wrappers and Trusts
• CISI Intro: Other Financial Products
• CISI Intro: Financial Advice

Free review resources

Use these free SecuritiesMastery.com resources for concept review, then return to this page when you are ready to practice in Securities Prep.

• CISI Introduction to Investment Cheat Sheet
• CISI Introduction to Investment Study Guide

Free samples and full practice

• Live now: this practice route is available in Securities Prep on web, iOS, and Android.
• On-page sample set: this page includes 24 public sample questions for this route.
• Full practice: open the Securities Prep web app or mobile app for mixed sets, topic drills, and timed mocks.

Good next pages after Intro to Investment

• UK Regulation & Professional Integrity if you want the UK conduct and regulation follow-on
• Investment, Risk and Taxation if your route is UK advice, suitability, and taxation
• International Introduction to Investment if you want the broader cross-border foundation comparison
• UK securities roadmap if you want the whole CISI sequence before specialising

24 Intro to Investment sample questions with detailed explanations

These are original Securities Prep practice questions aligned to the live CISI Introduction to Investment route and the main blueprint areas shown above. Use them to test readiness here, then continue in Securities Prep with mixed sets, topic drills, and timed mocks.

Question 1

Topic: Financial Advice

Advice on arranging cover so a client’s family would receive money if the client died unexpectedly is primarily which area of financial advice?

• A. Protection planning
• B. Retirement planning
• C. Investment management
• D. Tax planning

Best answer: A

Explanation: The main client need here is financial protection against the risk of death. That places the issue in protection planning, rather than retirement, investing, or tax structuring. This question tests whether you can match a client objective to the correct advice area. When the key need is to make sure dependants receive money if the client dies, the advice area is protection planning. At an introductory level, this includes solutions such as life assurance and other policies designed to protect against major financial risks.

Retirement planning is mainly about building and using income or capital for later life. Investment management is about growing or managing assets and risk. Tax planning may affect how arrangements are structured, but it is not the primary advice area when the core objective is protection against death.

The safest way to answer is to identify the client’s main risk, not a secondary feature.

---

Question 2

Topic: Equities

An ordinary share has paid an interim dividend of 6p and is expected to pay a final dividend of 9p for the year. If the current market price is 250p per share, which figure matches its dividend yield?

• A. 9%
• B. 4%
• C. 6%
• D. 15%

Best answer: C

Explanation: Dividend yield compares the total annual dividend with the current share price. Here, the annual dividend is 15p in total, and 15p divided by 250p gives 6%. The core concept is that share dividend yield is calculated using the total dividend for the year, not just one payment, divided by the current market price. In this question, the interim dividend of 6p and final dividend of 9p must be added first, giving a total annual dividend of 15p.

\[ \begin{aligned} \text{Dividend yield} &= \frac{15p}{250p} \times 100 \\ &= 6\% \end{aligned} \]

A common mistake is to use only the final dividend or to confuse the dividend amount in pence with a percentage return.

---

Question 3

Topic: Taxation, Investment Wrappers and Trusts

An employer establishes a pension arrangement for its staff, with trustees overseeing the scheme and contributions paid by the employer and employees. Which broad type of pension arrangement does this describe?

• A. Occupational pension scheme
• B. Annuity
• C. Personal pension
• D. State Pension Scheme

Best answer: A

Explanation: This describes an occupational pension scheme because it is set up by an employer for employees and overseen by trustees. Those features distinguish it from the State Pension and from a personal pension arranged directly by an individual. The key distinction is who sets up and governs the arrangement. An occupational pension scheme is established by an employer for its workforce, and trustee oversight is a common feature of this type of scheme. By contrast, the State Pension is provided by the government and depends broadly on an individual’s National Insurance record, not on an employer setting up a scheme. A personal pension is arranged by the individual with a pension provider, rather than being established for employees by the employer. An annuity is different again because it is a product used to provide retirement income, not the underlying pension scheme.

The employer sponsorship and trustee governance point clearly to an occupational pension scheme.

---

Question 4

Topic: Bonds

Which statement best describes a zero-coupon bond compared with a coupon-paying bond?

• A. It pays a variable coupon linked to interest rates and is usually issued at par.
• B. It pays no coupons, so its market price is not affected by yield changes.
• C. It pays no periodic coupons and is usually priced below redemption value.
• D. It pays half-yearly interest but no principal at maturity.

Best answer: C

Explanation: A zero-coupon bond does not make regular interest payments. Instead, it is typically bought at a discount and the investor’s return comes as the bond moves towards its redemption value by maturity, unlike a coupon-paying bond that provides periodic income. The key distinction is cash-flow timing. A coupon-paying bond pays interest during its life and then repays principal at maturity. A zero-coupon bond pays no interim coupons, so investors usually buy it below its redemption value and receive a single cash flow at maturity. The discount represents the investor’s return, which means the income profile is not regular cash income but capital accretion over time. Its price still moves when market yields change, and because there are no interim coupon payments, that price can be especially sensitive to yield movements. The defining features are no periodic coupons and discount-to-redemption pricing.

---

Question 5

Topic: Introduction

A UK retail client logs onto an investment platform and buys units in a UK equity OEIC she has chosen herself. The firm gives no personal recommendation, does not assess suitability, and simply carries out her instruction for a dealing fee. Which service role is the firm mainly performing?

• A. Discretionary portfolio management
• B. Investment advice
• C. Market making in equities
• D. Execution-only dealing

Best answer: D

Explanation: The decisive facts are that the client chose the OEIC herself and the firm only carried out her order. That makes this an execution-only service, which is a service role of the firm rather than a feature of the investment product. Execution-only means the firm transacts on the client’s instruction without giving a personal recommendation or making the investment decision for them. In this scenario, the underlying product is a UK equity OEIC, but the question is really testing the role the firm is performing. Because the client selected the fund herself, and the firm simply processed the deal for a fee, the correct classification is execution-only dealing.

If the firm had recommended the OEIC to this client, that would point to investment advice. If it had authority to choose and trade investments on the client’s behalf, that would be discretionary portfolio management. The key takeaway is to separate the product being bought from the service being provided.

---

Question 6

Topic: Financial Assets and Markets

A UK investor will need £30,000 in three months for a property deposit. She wants low volatility and quick access to her money, and she accepts that returns may be modest. Which statement best explains why money-market instruments may suit her?

• A. They are suitable because short-term debt usually offers the highest capital growth over three months.
• B. They are usually liquid and relatively low volatility, but with limited return potential.
• C. They are suitable because short maturity removes both credit risk and inflation risk.
• D. They are suitable because investors are rewarded with higher yields for giving up liquidity.

Best answer: B

Explanation: Money-market instruments are short-term debt investments used mainly for liquidity and capital preservation. For someone needing funds again in three months, their lower price volatility and ready access are attractive, but the trade-off is usually a lower return than riskier assets. The core feature of money-market instruments is that they are short-dated debt securities, such as Treasury bills, commercial paper, and certificates of deposit. Because the time to maturity is short, their prices usually move less than those of longer-dated bonds or shares, so they are commonly used when an investor needs cash back soon and wants to limit risk to capital. They also tend to be relatively liquid.

The main disadvantage is that this lower risk and higher liquidity usually come with lower return potential. They are not designed to deliver strong capital growth, and they may not keep pace with inflation over time. For a near-term property deposit, preserving access and stability matters more than seeking higher but less certain returns.

Short maturity reduces some risks, but it does not eliminate all risk or guarantee a real return.

---

Question 7

Topic: Investment Funds

A UK OEIC has a valuation point at 12 noon. An investor submits a buy order at 10:30 am and will receive units at the price calculated at 12 noon, even though that price is not yet known. Which dealing concept does this describe?

• A. Forward pricing
• B. Dual pricing
• C. Settlement date
• D. Historic pricing

Best answer: A

Explanation: This is forward pricing. The investor commits to the purchase before the noon valuation point and receives the next price struck by the fund, rather than a price that was already available when the order was placed. Forward pricing means fund orders are dealt at the next available price calculated after the order is accepted, usually at the next valuation point and subject to the cut-off time. In this case, the investor places the order at 10:30 am and the OEIC values at 12 noon, so the trade is executed at the 12 noon price even though that price was unknown when the order was submitted. Historic pricing would use a previously calculated price instead. Dual pricing refers to separate buying and selling prices, not the timing of when the price becomes known. Settlement date is about when cash and units are exchanged after the trade. The key clue is that the price is set after the order is placed.

---

Question 8

Topic: Economic Environment

A UK client has a five-year fixed-rate mortgage at 3% and £15,000 in an easy-access cash ISA paying 2%. CPI inflation rises to 5% and is expected to stay high. Which outcome is most likely for the client over the next year?

• A. Fixed-rate borrowing gets more expensive in real terms, but the ISA protects cash.
• B. Neither is affected because both interest rates are fixed.
• C. Fixed-rate borrowing gets cheaper in real terms, and cash gains purchasing power.
• D. Fixed-rate borrowing gets cheaper in real terms, while cash loses purchasing power.

Best answer: D

Explanation: Inflation reduces the real value of money. With inflation at 5%, a fixed-rate mortgage at 3% becomes less burdensome in real terms, but cash in an ISA earning 2% still fails to keep up with rising prices, so its purchasing power falls. The key concept is the difference between nominal amounts and real value. A fixed-rate borrower can benefit from higher inflation because future mortgage payments are made with money that is worth less in purchasing-power terms. By contrast, a saver is worse off if the interest earned on cash is below inflation, because prices rise faster than the savings balance grows.

In this scenario:

• mortgage rate = 3%
• cash ISA rate = 2%
• inflation = 5%

So the mortgage is effectively cheaper in real terms, while the ISA balance still loses real value even though it may increase in pounds. The ISA wrapper may shelter interest from tax, but it does not protect against inflation.

---

Question 9

Topic: Financial Services Regulation

A UK investment firm finds that many customers are switching from a low-cost ISA portfolio into a higher-fee model after outbound sales calls, even when the switch offers no clear benefit. Which response best reflects the FCA’s approach to managing conduct risk?

• A. Judge success mainly by extra fee income generated.
• B. Review scripts, incentives and monitoring, and remediate affected customers.
• C. Keep the process because customers consented during recorded calls.
• D. Add a stronger disclaimer but leave sales targets unchanged.

Best answer: B

Explanation: The FCA expects firms to identify and prevent foreseeable customer harm by examining the causes of poor outcomes, such as incentives, scripts and weak controls. Where harm may already have occurred, the firm should also consider remediation rather than relying on consent or extra disclosure alone. The core conduct-risk principle is that firms should deliver good customer outcomes through their culture, governance, incentives, communications and controls. In this scenario, repeated switching into a higher-fee model with no clear customer benefit is a warning sign of possible customer detriment. The best response is to investigate the sales process, change any incentives or scripts that are driving poor behaviour, strengthen monitoring, and contact affected customers where appropriate.

Customer agreement on a recorded call does not make the outcome acceptable if the process itself steered customers towards poor-value decisions. Likewise, a longer disclaimer may improve wording but does not fix the underlying conduct issue. The FCA focuses on whether firm behaviour produces fair outcomes, not on whether the firm increased fee income.

---

Question 10

Topic: Other Financial Products

A loan is quoted at a nominal annual rate of 12%, with interest charged monthly. What is the effective annual borrowing rate, rounded to two decimal places?

• A. 12.36%
• B. 12.68%
• C. 13.20%
• D. 12.00%

Best answer: B

Explanation: The effective annual rate is higher than the quoted 12% because interest is charged monthly, so compounding occurs during the year. Using the nominal rate divided by 12 and compounding for 12 months gives about 12.68%. The core concept is compounding. A nominal annual borrowing rate of 12% charged monthly does not cost exactly 12% over a full year, because each month’s interest becomes part of the balance on which later interest is charged.

\[ \begin{aligned} \text{Effective annual rate} &= \left(1+\frac{0.12}{12}\right)^{12}-1 \\ &= (1.01)^{12}-1 \\ &\approx 0.1268 = 12.68\% \end{aligned} \]

So the effective annual borrowing rate is 12.68%, not the nominal 12.00%. The key takeaway is that more frequent charging increases the true annual cost.

---

Question 11

Topic: Derivatives

A trader takes a derivative exposure that will profit if the price of the underlying asset falls and will lose if the price rises. Which term best matches the trader’s market position?

• A. Long position
• B. Option contract
• C. Short position
• D. Futures contract

Best answer: C

Explanation: This question is about market direction, not the instrument name. If the trader benefits from a fall in the underlying price, the exposure is short; a long position would benefit from a rise instead. The core concept is position direction. A short position is exposure that profits when the underlying asset falls in price and loses when it rises. That directional label is separate from the derivative type: the exposure could be created using different instruments, but the stem only tells you how the payoff moves with the underlying. A long position is the opposite, benefiting from rising prices. Generic labels such as futures contract or option contract describe the form of the derivative, not whether the trader is positioned for a rise or a fall. The key clue is the profit-from-a-fall payoff pattern.

---

Question 12

Topic: Financial Advice

A client asks her adviser to move £30,000 from her portfolio into an overseas investment she found on social media. The advert promises a fixed 12% return, says the offer closes today, and asks for payment to a personal bank account. What is the MOST appropriate response by the adviser?

• A. Send a small amount first to test whether it is genuine
• B. Pause the transfer, explain the warning signs, verify the investment independently, and follow the firm’s escalation procedures
• C. Complete the transfer once the client signs a disclaimer
• D. Treat it as execution-only because the client selected the investment

Best answer: B

Explanation: The facts show multiple scam indicators: guaranteed high returns, urgency, an overseas investment, and payment to a personal bank account. The adviser should pause the transaction, warn the client, carry out independent checks, and follow the firm’s internal escalation process rather than simply processing the instruction. The key principle is acting in the client’s best interests with due skill, care, and diligence when scam indicators appear. In this scenario, the promise of a fixed 12% return, time pressure, social media promotion, and payment to a personal bank account are all strong warning signs. An adviser should not rely on the client’s enthusiasm or try to sidestep responsibility. The appropriate response is to stop the transfer for the moment, discuss the risks and red flags with the client, verify the investment independently, and escalate the matter under the firm’s anti-scam or financial-crime procedures. If concerns remain unresolved, the adviser should not help the client proceed. A signed disclaimer or an execution-only label does not make a suspicious transaction acceptable.

---

Question 13

Topic: Equities

A UK retail investor wants current income from ordinary shares. Northgate plc shares are trading at 275p. The company paid an interim dividend of 4p and a final dividend of 7p per share for the last year. What is the best estimate of the historic dividend yield?

• A. 7.00%
• B. 2.55%
• C. 11.00%
• D. 4.00%

Best answer: D

Explanation: Dividend yield measures the cash dividend as a percentage of the current share price. Here the total dividend for the year is 11p per share and the market price is 275p, so 11 ÷ 275 = 0.04, which is a historic yield of 4.00%. Dividend yield is the annual dividend per share divided by the current market price per share. In this scenario, the investor wants current income, so the relevant figure is the total dividend for the last year, not just one of the dividend payments. Add the interim 4p and final 7p to get 11p, then divide by the share price of 275p.

• Total annual dividend = 4p + 7p = 11p
• Dividend yield = 11p / 275p = 0.04
• Convert to a percentage = 4.00%

Using pence for both figures is fine because the units cancel out. The key trap is forgetting to include both dividends before calculating the yield.

---

Question 14

Topic: Taxation, Investment Wrappers and Trusts

Which retirement arrangement is set up by an individual with a pension provider, rather than by an employer, and normally remains in place when that person changes jobs?

• A. Annuity
• B. State Pension Scheme
• C. Occupational pension scheme
• D. Personal pension

Best answer: D

Explanation: A personal pension is an individual contract with a pension provider. It is different from an occupational pension, which is employer-sponsored, and from the State Pension, which is provided by the government based broadly on National Insurance history. The key distinction here is who sets up the pension arrangement. A personal pension is opened by the individual with a pension provider, so the plan belongs to that person rather than to an employer. Because of that, it will usually remain in place if the individual changes jobs.

An occupational pension scheme is established through employment and is sponsored by an employer for its workforce, often with employer contributions. The State Pension Scheme is different again: it is a government-provided benefit linked broadly to a person’s National Insurance record. An annuity is not a pension scheme for building up savings; it is a product used to turn pension savings into an income. The deciding clue is that the arrangement is individually set up and portable between employments.

---

Question 15

Topic: Bonds

A UK retail investor wants to compare the income return on a fixed-rate corporate bond with a savings account. The bond has a £100 nominal value, pays a 6% annual coupon, and is trading at £96. Ignoring redemption gains or losses, what is its flat yield?

• A. 4.17%
• B. 5.76%
• C. 6.00%
• D. 6.25%

Best answer: D

Explanation: Flat yield measures the annual coupon as a percentage of the bond’s current market price. This bond pays £6 a year on £100 nominal, and at a price of £96 the flat yield is 6.25%. Flat yield is a simple bond income measure. It uses the annual coupon amount and the current market price paid for the bond, while ignoring any capital gain or loss on redemption. Here, a 6% coupon on £100 nominal means annual income of £6.

• Annual coupon = £6
• Market price = £96
• Flat yield = £6 ÷ £96 × 100 = 6.25%

Because the bond is bought below par, the flat yield is slightly higher than the 6% coupon rate. A figure based only on nominal value is therefore too low, and a figure based on the £4 discount is measuring capital difference rather than income yield.

---

Question 16

Topic: Introduction

Which term describes a service where a customer selects and buys an investment without receiving a personal recommendation from the firm?

• A. Execution-only service
• B. Robo-advice
• C. Restricted advice
• D. Independent advice

Best answer: A

Explanation: An execution-only service simply carries out the customer’s instruction. It does not include a personal recommendation, so the client decides what to buy. Independent and restricted advice both involve advice, and robo-advice uses automation to provide it. The core distinction is whether the firm gives a personal recommendation. In an execution-only service, the customer chooses the investment and the firm only executes the order. By contrast, independent advice and restricted advice both involve recommending a suitable investment, with the difference being the breadth of products considered. Robo-advice is still advice: the recommendation is generated mainly through online questions and algorithms rather than a traditional adviser meeting. The key takeaway is that execution-only means no personal recommendation at all.

---

Question 17

Topic: Financial Assets and Markets

An investor buys shares in a London-listed company whose business is owning and renting out office buildings. She can sell the shares on the stock market, but she does not own any building directly. This is best described as:

• A. A fixed-interest loan secured on property
• B. Direct ownership of commercial property
• C. Indirect exposure through a pooled property fund
• D. Indirect exposure through a listed vehicle

Best answer: D

Explanation: The investor owns shares in a listed company, not the underlying buildings, so the exposure to property is indirect. Because the shares trade on the stock market, the vehicle is listed rather than a pooled property fund. Direct property investment means owning the property itself, such as a shop, office, or warehouse. In the stem, the investor instead buys shares in a listed company that owns property. Her return therefore comes from the performance of that company, including its share price and any dividends, so the exposure is indirect.

This is also different from a pooled property fund. A pooled fund combines money from many investors into a collective vehicle, whereas here the investment is specifically in a stock market listed company. The key distinction is that the investor owns securities issued by a vehicle, not the physical property itself.

---

Question 18

Topic: Investment Funds

A UK authorised fund manager wants a fund aimed at retail investors, but with wider investment powers than a UCITS, including direct property holdings. Which fund type best fits this pattern?

• A. Non-UCITS retail scheme (NURS)
• B. UCITS scheme
• C. Unregulated collective investment scheme
• D. Investment trust

Best answer: A

Explanation: A NURS is an FCA-authorised retail collective investment scheme with broader permitted investment powers than a UCITS. The key pattern is retail use with wider flexibility, which fits the need for direct property holdings. The core concept is the difference in permitted investment powers. UCITS are authorised retail funds built around a more standardised framework for eligible assets, liquidity and diversification. A NURS is also an authorised fund for retail investors, but it can use a wider range of permitted investments and structures under UK rules.

In the question, the need for direct property holdings points away from UCITS and toward a NURS. The important foundation-level distinction is not that one is retail and the other is not; both can be used in the retail market. The difference is that NURS generally has broader flexibility, whereas UCITS follows a tighter, more standardised regime.

If a retail fund needs wider powers than UCITS, NURS is usually the best fit.

---

Question 19

Topic: Economic Environment

Amira wants to preserve the purchasing power of her £10,000 over the next year. She is considering a one-year deposit account paying 3% interest, and inflation is expected to average 5% over the same period. Which statement best applies the main principle in this situation?

• A. The account should meet her goal, because any positive interest rate preserves purchasing power.
• B. The main risk is daily market volatility, because fixed-rate deposits move with equity markets.
• C. The account exposes her mainly to inflation risk, because the cash may grow nominally but lose real spending power.
• D. A fixed rate removes inflation risk, because the return is known in advance.

Best answer: C

Explanation: Amira’s objective is to maintain purchasing power, so the key comparison is between the deposit rate and inflation. With 3% interest and 5% inflation, the balance rises in nominal terms, but its real value is likely to fall. This scenario is mainly about inflation risk, which is the risk that money loses purchasing power over time. A one-year deposit at 3% provides a known nominal return, but expected inflation of 5% means prices are rising faster than the savings rate. So even though Amira may end the year with more pounds, those pounds are likely to buy less than they do today.

A simple way to think about it is:

• nominal return: what the account pays
• real return: nominal return adjusted for inflation
• here, the real return is roughly negative

A guaranteed rate can reduce uncertainty about the cash amount received, but it does not protect against inflation outpacing that return.

---

Question 20

Topic: Financial Services Regulation

Which regulator matches this description: the main US body overseeing securities markets and requiring public companies to disclose information to investors?

• A. Securities and Exchange Commission (SEC)
• B. Prudential Regulation Authority (PRA)
• C. Financial Conduct Authority (FCA)
• D. European Securities and Markets Authority (ESMA)

Best answer: A

Explanation: The Securities and Exchange Commission is the principal US securities regulator. It oversees securities markets and issuer disclosure, while the FCA and PRA are UK regulators and ESMA is a European authority. This is a function-and-jurisdiction match. The Securities and Exchange Commission (SEC) is the main US regulator for securities markets, market participants, and disclosure by public companies, helping protect investors and support fair, orderly markets. By contrast, the Financial Conduct Authority and Prudential Regulation Authority are UK regulators with conduct and prudential roles respectively, and ESMA operates at the European level for securities markets. The deciding clue is the combination of US securities oversight and investor disclosure requirements.

---

Question 21

Topic: Other Financial Products

A UK borrower has £40,000 in an easy-access savings account. They want to keep the cash available for emergencies but also reduce the interest charged on a new mortgage. Which mortgage type best fits this need?

• A. Tracker mortgage
• B. Interest-only mortgage
• C. Offset mortgage
• D. Fixed-rate mortgage

Best answer: C

Explanation: An offset mortgage is designed for borrowers who hold cash savings but do not want to use them to repay the loan permanently. The savings are offset against the mortgage balance for interest calculation, reducing interest while keeping the money available. The core pattern here is matching a mortgage to a borrower who wants both flexibility and lower interest. An offset mortgage allows savings held with the lender to be set against the mortgage balance when calculating interest. That means the borrower pays interest on less than the full loan amount, but the savings are still accessible if needed for emergencies.

A fixed-rate or tracker mortgage describes how the interest rate behaves, not how savings are used. An interest-only mortgage changes the repayment pattern, but it does not use linked savings to reduce the interest charged in this way.

The best fit is the mortgage type that combines access to cash with interest reduction.

---

Question 22

Topic: Derivatives

A fund manager wants protection against a corporate issuer defaulting while continuing to hold the issuer’s bond. Which derivative is designed for this purpose?

• A. Future
• B. Credit default swap
• C. Option
• D. Swap

Best answer: B

Explanation: A credit default swap is specifically designed to transfer default risk on a bond or loan from one party to another. It protects against a defined credit event, such as issuer default, without requiring the investor to sell the underlying bond. The key concept is the function of the derivative. A credit default swap isolates and transfers credit risk: the protection buyer pays a premium, and the protection seller compensates them if a specified credit event occurs on the referenced issuer or debt. That makes it the instrument that matches protection against issuer default while still holding the bond.

A standard swap usually exchanges one set of cash flows for another, such as fixed interest payments for floating ones. A future is mainly used to lock in a price for a later date. An option gives a right, but not an obligation, to buy or sell an asset at a set price. The decisive feature here is protection against default itself, which points to a credit default swap.

---

Question 23

Topic: Financial Advice

During a fact-find, Priya says she is comfortable with significant market falls if they may improve long-term growth. She wants to invest £600 a month into a stocks and shares ISA, but after essential household bills she normally has about £150 left each month. She is saving for a house deposit in two years.

Which adviser response best applies the correct advice principle?

• A. The ISA wrapper makes the recommendation suitable despite the short time horizon.
• B. Affordability matters only for borrowing, not for investment recommendations.
• C. Her willingness to take risk is only one factor; £600 must be affordable and the two-year goal must also be considered for suitability.
• D. Her adventurous attitude to risk is enough to justify an equity recommendation.

Best answer: C

Explanation: The correct principle is that attitude to risk is separate from affordability and from overall suitability. Priya may be willing to accept volatility, but £600 a month appears unaffordable from her budget, and a two-year house-deposit goal may make a volatile investment unsuitable. In investment advice, attitude to risk is the client’s willingness to accept uncertainty and market falls. Affordability is about whether the client can realistically commit the money, or bear losses, without harming essential spending or financial resilience. Suitability is wider still: it considers objectives, time horizon, financial situation, and risk factors together.

Here, Priya has only about £150 left after essential bills, so a £600 monthly contribution is not affordable on the stated facts. Also, saving for a house deposit in two years points to a short time horizon, so a volatile growth-focused investment may not be suitable even if she says she is comfortable with risk. A tax wrapper like an ISA can be useful, but it does not make an unaffordable or unsuitable investment appropriate.

---

Question 24

Topic: Equities

A stock exchange admits a company’s shares to the market when they are first offered to investors. It then matches buyers and sellers of those existing shares, and the share price changes as new orders arrive. Which functions are illustrated by this later stage?

• A. Custody and settlement
• B. Secondary-market trading and price discovery
• C. Primary issuance and underwriting
• D. Dividend payment and shareholder voting

Best answer: B

Explanation: The later stage describes investors trading shares that already exist, so it is a secondary-market activity. Because prices adjust as buy and sell orders arrive, the exchange is also helping with price discovery. A stock exchange has different functions at different stages. When shares are first admitted to the market, that relates to listing and access to the primary market. After that, when investors trade those already-issued shares with each other, the exchange is performing a secondary-market role. By bringing together buy and sell orders, it supports trading, and the interaction of those orders helps establish the current market price, which is price discovery.

This is different from functions such as underwriting a new issue, paying dividends, or holding assets in custody. The key clue is that the shares already exist and the price is moving as orders come in.

In this section

• CISI Intro: Introduction
  Try 10 focused CISI Intro questions on Introduction, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Economic Environment
  Try 10 focused CISI Intro questions on Economic Environment, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Financial Assets and Markets
  Try 10 focused CISI Intro questions on Financial Assets and Markets, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Equities
  Try 10 focused CISI Intro questions on Equities, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Bonds
  Try 10 focused CISI Intro questions on Bonds, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Derivatives
  Try 10 focused CISI Intro questions on Derivatives, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Investment Funds
  Try 10 focused CISI Intro questions on Investment Funds, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Financial Services Regulation
  Try 10 focused CISI Intro questions on Financial Services Regulation, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Taxation, Investment Wrappers and Trusts
  Try 10 focused CISI Intro questions on Taxation, Investment Wrappers and Trusts, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Other Financial Products
  Try 10 focused CISI Intro questions on Other Financial Products, with answers and explanations, then continue with Securities Prep.
• CISI Intro: Financial Advice
  Try 10 focused CISI Intro questions on Financial Advice, with answers and explanations, then continue with Securities Prep.
• Free CISI Intro Full-Length Practice Exam: 50 Questions
  Try 50 free CISI Intro questions across the exam domains, with answers and explanations, then continue in Securities Prep.