CIMA Investment Policy and Process 2

Question 1

An Investment Policy Statement (IPS) should be reviewed and updated at minimum:

Accepted Answer

Whenever significant changes occur in client circumstances or market conditions

Answer

An IPS should be reviewed whenever there are material changes in the client's financial situation, goals, risk tolerance, or significant market/regulatory changes.

Question 2

Which element of the investment policy process involves translating client objectives into specific asset class targets?

Accepted Answer

Strategic asset allocation

Answer

Strategic asset allocation converts the client's return objectives and risk tolerance into long-term target weights across asset classes.

Question 3

A client's 'required return' in the IPS context is best described as:

Accepted Answer

The minimum return needed to meet essential financial objectives

Answer

Required return is the minimum return necessary to meet the client's essential needs and obligations, distinct from desired or aspirational returns.

Question 4

When constructing an IPS for an institutional client, 'time horizon' considerations differ from individual clients primarily because:

Accepted Answer

Institutions may have perpetual or indefinitely long time horizons

Answer

Many institutions such as endowments and foundations have perpetual time horizons, allowing for higher illiquidity tolerance and different risk parameters than individual investors.

Question 5

The 'prudent investor' standard in investment management primarily requires fiduciaries to:

Accepted Answer

Act with care, skill, and diligence while diversifying appropriately

Answer

The prudent investor standard requires fiduciaries to exercise care, skill, and caution in the context of the overall portfolio, emphasizing diversification and reasonable risk management.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Investment Policy and Process 2