CISI IOI Study Guide 2026

Systematic (market) risk affects the whole market and cannot be diversified away. Examples include macroeconomic shocks, interest rate changes, and recessions. In contrast, unsystematic (specific) risk relates to individual companies and can be reduced through diversification.

Gearing (leverage) in derivatives means that an investor can gain a large exposure to the price movements of an underlying asset by committing only a fraction of its full value (e.g., a margin deposit or option premium). This amplifies both potential gains and losses.

Volatility measures how much an investment's price moves up and down over time. It is commonly measured by the standard deviation of historical returns — the higher the standard deviation, the greater the volatility and the higher the risk.

The maximum sentence for the principal money laundering offences under POCA 2002 is 14 years' imprisonment, reflecting the severity with which the UK treats financial crime.

Passive (index-tracking) management aims to replicate the returns of a specific benchmark index (e.g., FTSE 100) by holding the same securities in similar proportions. This approach has lower costs than active management because it requires minimal research and trading.

Hedging uses derivatives to protect an existing position against adverse price movements. For example, a fund manager holding UK equities might buy put options or sell futures to protect against a market fall. The hedge reduces potential losses but may also limit potential gains.