CIMA Investment Policy and Process 3

Question 1

In the CIMA investment process, 'capital market expectations' are used primarily to:

Accepted Answer

Provide forward-looking estimates of returns, risks, and correlations for asset classes

Answer

Capital market expectations are forward-looking forecasts of asset class returns, volatilities, and correlations used as inputs to the strategic asset allocation process.

Question 2

A 'tactical asset allocation' (TAA) overlay differs from strategic asset allocation (SAA) in that TAA:

Accepted Answer

Makes short-term deviations from SAA targets to exploit market opportunities

Answer

TAA involves temporarily shifting portfolio weights away from SAA targets to capitalize on perceived short-term market mispricings or changing conditions.

Question 3

Which of the following best describes 'rebalancing' in the context of investment policy?

Accepted Answer

Restoring portfolio weights to target allocations after market movements cause drift

Answer

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.

Question 4

A defined benefit pension plan's investment policy is unique because the portfolio must be managed relative to:

Accepted Answer

The plan's liabilities (future pension obligations)

Answer

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.

Question 5

The concept of 'risk budgeting' in portfolio management refers to:

Accepted Answer

Allocating an acceptable level of risk across asset classes, strategies, or managers

Answer

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.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Investment Policy and Process 3