CISI Updated ICWIM Exam Questions and Answers by rumaysa

Understanding Modal Rate of Return:

The mode is the most frequently occurring value in a dataset.

Portfolio A’s monthly returns:7%, 5%, -3%, 5%, 9%, 0%, 3%, 6%, -7%, -8%, 5%, 1%.

5%appearsthree times, more than any other value.

Elimination of Other Options:

No other return appears more than once.

References:

ICWIM Module 3: Statistical measures in portfolio performance.

Defined Benefit Pension Scheme:

This scheme provides a fixed, pre-determined income in retirement based on factors like years of service and final salary.

The employer assumes the investment and longevity risks, ensuring predictability for the employee.

Elimination of Other Options:

A: Contributions may be required from the employee, depending on the plan.

B: Index-linking to inflation is a feature of some schemes but not universal.

D: Investment performance is not guaranteed but managed by the employer.

References:

ICWIM Module 5: Discussion on pension types and benefits.

Purpose of the FATF:

Established in 1989, the FATF develops global policies to combat money laundering and terrorist financing.

It promotes international standards to ensure financial systems are not misused for criminal purposes.

Elimination of Other Options:

A: The FATF’s mandate is broader than G7 financial regulation.

B: It provides guidance but does not solely focus on developing financial regulation.

C: Ending safe havens for corrupt funds is part of its mission but secondary to its primary goal of combating money laundering and terrorism.

References:

ICWIM Module 5: Focus on global financial regulation and anti-money laundering efforts.

FATF Mandate (Official Publications): "Standards for combating money laundering, terrorist financing, and proliferation financing."

Sharpe Ratio Defined

The Sharpe ratio measuresrisk-adjusted return, specifically the excess return over the risk-free rate per unit of volatility.

Formula: Sharpe Ratio=Portfolio Return - Risk-Free RateStandard Deviation of Portfolio Returns\text{Sharpe Ratio} = \frac{\text{Portfolio Return - Risk-Free Rate}}{\text{Standard Deviation of Portfolio Returns}}Sharpe Ratio=Standard Deviation of Portfolio ReturnsPortfolio Return - Risk-Free Rate​

Why the Answer is B

The ratio quantifies the return generated for each unit of risk taken, relative to the risk-free rate.

Why Other Options are Incorrect

A. Benchmark performance: The Sharpe ratio does not measure performance relative to a benchmark.

C. Annual charge effect: Unrelated to fund expenses.

D. Manager ability: Focuses on risk-adjusted returns, not managerial skill.

ICWIM Study Guide, Chapter on Risk-Adjusted Metrics: Explains the Sharpe ratio.

Portfolio Management Literature: Highlights its use in assessing performance.

ReferencesThus, the correct answer isB. Return above a risk-free rate.