Investment Policy and Process Flashcards
7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Policy and Process flashcards as text
In the CIMA investment process, 'capital market expectations' are used primarily to:
Answer: Provide forward-looking estimates of returns, risks, and correlations for asset classes
Capital market expectations are forward-looking forecasts of asset class returns, volatilities, and correlations used as inputs to the strategic asset allocation process.
A 'tactical asset allocation' (TAA) overlay differs from strategic asset allocation (SAA) in that TAA:
Answer: Makes short-term deviations from SAA targets to exploit market opportunities
TAA involves temporarily shifting portfolio weights away from SAA targets to capitalize on perceived short-term market mispricings or changing conditions.
Which of the following best describes 'rebalancing' in the context of investment policy?
Answer: Restoring portfolio weights to target allocations after market movements cause drift
Rebalancing is the process of buying and selling assets to return the portfolio to its target strategic asset allocation after market movements cause the actual weights to drift.
A defined benefit pension plan's investment policy is unique because the portfolio must be managed relative to:
Answer: The plan's liabilities (future pension obligations)
Defined benefit plans use liability-relative investing, where the portfolio is managed to fund and hedge future pension payment obligations rather than against a market benchmark alone.
The concept of 'risk budgeting' in portfolio management refers to:
Answer: Allocating an acceptable level of risk across asset classes, strategies, or managers
Risk budgeting allocates a total portfolio risk budget (e.g., tracking error or volatility) across various sources of return to ensure efficient use of risk capacity.
An IPS specifying that no single security can exceed 5% of the portfolio value is an example of a:
Answer: Concentration constraint
A concentration constraint limits exposure to any single security, sector, or issuer to reduce idiosyncratic risk and ensure diversification.
Which of the following is considered an 'endogenous' constraint in an investment policy statement?
Answer: Client's personal ethical objection to tobacco stocks
Endogenous (internal/client-specific) constraints arise from the client's own circumstances, preferences, or values, such as ESG screens or restrictions on specific industries.