CME-1 Capital Market Examination Level 1 — Questions and Answers

Question 1: Which investment approach focuses on selecting undervalued stocks based on fundamental analysis?

Value investing (Correct answer)
Technical analysis
Momentum investing
Passive indexing

Correct answer: Value investing

Value investing, associated with Benjamin Graham and Warren Buffett, seeks stocks trading below their intrinsic value using fundamental analysis of financial statements.

Question 2: What is the purpose of the CMA's 'Market Conduct Regulations'?

Prohibiting and penalising market manipulation, insider trading, and other abusive conduct that undermines market integrity (Correct answer)
Setting IPO pricing rules
Regulating foreign listings only
Establishing capital requirements

Correct answer: Prohibiting and penalising market manipulation, insider trading, and other abusive conduct that undermines market integrity

Market Conduct Regulations define and prohibit conduct that undermines the fairness and integrity of the capital market, including manipulation, insider trading, and false information.

Question 3: What is the concept of 'zakat' and its relevance to Saudi capital market participants?

An obligatory annual wealth tax under Islamic law payable on qualifying assets above the nisab threshold, relevant to company and investor obligations (Correct answer)
A general sales tax
A voluntary charitable donation
A government bond payment

Correct answer: An obligatory annual wealth tax under Islamic law payable on qualifying assets above the nisab threshold, relevant to company and investor obligations

Zakat is an obligatory annual levy at 2.5% on qualifying net wealth above the nisab. Saudi listed companies may have zakat obligations, and compliance is overseen by the Zakat, Tax, and Customs Authority.

Question 4: If an offeror obtains 90% or more of the shares subject to the offer, what right may the offeror exercise under CMA regulations?

The right to merge the company into itself without a shareholder vote
The right to appoint the entire board without an AGM
The right to delist the company immediately without formalities
The compulsory acquisition (squeeze-out) right to acquire remaining shares at the offer price (Correct answer)

Correct answer: The compulsory acquisition (squeeze-out) right to acquire remaining shares at the offer price

When the offeror acquires 90% or more of the offer shares, CMA regulations allow the offeror to compulsorily acquire the remaining minority shares at the offer price.

Question 5: What is the deadline for listed companies to publish annual audited financial statements under CMA rules?

30 days after year-end
3 months after year-end (Correct answer)
6 months after year-end
60 days after year-end

Correct answer: 3 months after year-end

Listed companies must publish CMA-compliant annual audited financial statements within three months of their financial year end.

Question 6: What is the maximum term for an external auditor of a listed company without mandatory rotation under CMA rules?

10 years
3 years
2 years
5 years (Correct answer)

Correct answer: 5 years

CMA Corporate Governance Regulations require external auditor rotation after a maximum of five consecutive years to preserve independence.

Question 7: Which body must approve the appointment of external auditors for CMA-licensed entities?

SAMA
The board alone
CMA under its licensing conditions (Correct answer)
Ministry of Commerce

Correct answer: CMA under its licensing conditions

CMA-licensed entities must comply with CMA rules regarding the qualification, appointment, and rotation of external auditors as part of their licensing conditions.

Question 8: What is the Saudi government's primary fixed-income instrument for domestic borrowing?

Corporate Bonds only
Municipal Bonds
Saudi Government Sukuk and Bonds (Correct answer)
Treasury Bills

Correct answer: Saudi Government Sukuk and Bonds

The Saudi government issues both Sukuk and conventional bonds through the National Debt Management Center (NDMC) to finance budget deficits. These instruments are available in SAR-denominated and USD-denominated formats.

Question 9: What is the minimum capital requirement for a company to list on the Saudi Exchange Main Market?

SAR 300 million (Correct answer)
SAR 50 million
SAR 10 million
SAR 1 billion

Correct answer: SAR 300 million

Companies seeking a listing on the Saudi Exchange Main Market must meet a minimum paid-up capital requirement of SAR 300 million.

Question 10: What is the 'selective disclosure' rule under CMA regulations?

Disclosing information selectively to preferred analysts
A rule applying only to IPOs
Prohibiting companies from disclosing material information to select individuals before announcing it to the public (Correct answer)
Allowing early disclosure to institutional investors

Correct answer: Prohibiting companies from disclosing material information to select individuals before announcing it to the public

Selective disclosure rules prohibit companies from sharing MNPI with selected parties (analysts, institutional investors) before public announcement, ensuring equal information access.

Question 11: Which CMA rule governs margin trading in Saudi Arabia?

Short Selling Regulations
Margin Trading Regulations (Correct answer)
Investment Funds Regulations
Offers of Securities Regulations

Correct answer: Margin Trading Regulations

The CMA Margin Trading Regulations govern the provision of credit by brokers to clients for the purpose of buying securities on margin in the Saudi market.

Question 12: What is a 'derivative instrument' in the context of Saudi capital markets?

A financial contract whose value is derived from an underlying asset such as a stock, index, or commodity (Correct answer)
A government savings bond
An Islamic finance product only
A fixed-income instrument

Correct answer: A financial contract whose value is derived from an underlying asset such as a stock, index, or commodity

Derivatives are financial contracts — such as futures, options, or swaps — whose value depends on the performance of an underlying asset, index, or rate.

Question 13: What is the primary regulation governing corporate governance of listed companies in Saudi Arabia?

Banking Control Law
Corporate Governance Regulations issued by the CMA (Correct answer)
Companies Law alone
Saudi Vision 2030 guidelines

Correct answer: Corporate Governance Regulations issued by the CMA

The Corporate Governance Regulations (CGR) issued by the CMA establish governance requirements for companies listed on Tadawul, covering board composition, committees, disclosure, and shareholder rights.

Question 14: Which of the following best describes the 'no-frustration' principle applicable to target companies during a tender offer period under CMA regulations?

The target board may take any defensive measure provided it discloses this to CMA within 48 hours
The target company must not take actions outside the ordinary course of business that could defeat the offer without shareholder approval (Correct answer)
The target company must recommend acceptance of any offer above the 12-month average share price
The target board is prohibited from communicating with shareholders during the offer period

Correct answer: The target company must not take actions outside the ordinary course of business that could defeat the offer without shareholder approval

The no-frustration principle requires the target company to refrain from actions outside ordinary business that could defeat the offer—such as issuing shares or selling material assets—unless shareholders approve such defensive measures.

Question 15: What is a Suspicious Transaction Report (STR) and who must file it?

A report filed by financial institutions to the Saudi Financial Intelligence Unit when suspicious activity is detected (Correct answer)
A quarterly report filed by the CMA only
A customer complaint form
An annual audit requirement

Correct answer: A report filed by financial institutions to the Saudi Financial Intelligence Unit when suspicious activity is detected

Financial institutions, including CMA-authorized persons, must file STRs with the Saudi Financial Intelligence Unit (SAFIU) when they suspect or have reasonable grounds to suspect that a transaction involves proceeds of crime or is related to money laundering or terrorism financing.

Question 16: What is 'istisna' and in what context is it used in Islamic project finance?

A spot commodity trade
An Islamic bond type
A manufacturing or construction contract where payment is made in advance or installments for a specified asset to be built and delivered, used in real estate and infrastructure (Correct answer)
An Islamic equity swap

Correct answer: A manufacturing or construction contract where payment is made in advance or installments for a specified asset to be built and delivered, used in real estate and infrastructure

Istisna is a contract for the manufacture or construction of a specified asset; payment can be in installments and delivery at completion, making it ideal for project finance and real estate development.

Question 17: What is the difference between 'primary' and 'secondary' capital markets?

Primary markets involve issuing new securities to raise capital; secondary markets involve trading existing securities between investors (Correct answer)
No difference
Secondary markets are unregulated
Primary is for bonds; secondary is for equities

Correct answer: Primary markets involve issuing new securities to raise capital; secondary markets involve trading existing securities between investors

In the primary market (e.g., IPO), companies sell new securities to raise funds. In the secondary market (e.g., Saudi Exchange), investors trade previously issued securities among themselves.

Question 18: What is the primary function of the Securities Depository Center (Edaa) in Saudi Arabia?

Publishing daily market prices for all listed securities
Setting margin requirements for broker-dealers
Approving new listings on the Saudi Exchange
Maintaining the central registry of securities ownership and handling settlement (Correct answer)

Correct answer: Maintaining the central registry of securities ownership and handling settlement

Edaa (Securities Depository Center) serves as the central securities depository, maintaining ownership records and facilitating the settlement and transfer of securities.

Question 19: Under CMA's Merger and Acquisition Regulations, a mandatory tender offer is triggered when a person acquires shares reaching or exceeding what percentage of voting rights in a listed company?

20%
25%
33%
30% (Correct answer)

Correct answer: 30%

CMA regulations require a mandatory offer when an acquirer reaches 30% or more of voting rights in a listed Saudi company.

Question 20: What is the role of the fund's independent director or board member?

Selecting individual securities for the portfolio
Managing day-to-day fund operations
Marketing the fund to potential investors
Protecting unitholder interests and ensuring proper governance (Correct answer)

Correct answer: Protecting unitholder interests and ensuring proper governance

Independent directors on a fund's board serve as guardians of unitholder interests, providing independent oversight of the fund manager's actions, reviewing conflicts of interest, and ensuring compliance with regulations.

Question 21: What is 'duration' in the context of Saudi fixed-income investments?

A measure of a bond's price sensitivity to interest rate changes (Correct answer)
The length of the coupon payment period
The holding period for capital gains tax purposes
The time until the bond matures

Correct answer: A measure of a bond's price sensitivity to interest rate changes

Duration measures the sensitivity of a bond's or Sukuk's price to changes in interest rates. A higher duration means greater price volatility when rates change, which is critical for risk management in Saudi fixed-income portfolios.

Question 22: What is a Green Sukuk?

Sukuk with the shortest maturity period
Sukuk denominated in foreign currencies
Sukuk issued by agricultural companies
Sukuk whose proceeds are used to finance environmentally sustainable projects (Correct answer)

Correct answer: Sukuk whose proceeds are used to finance environmentally sustainable projects

Green Sukuk are Sharia-compliant financial instruments whose proceeds are exclusively used to finance or refinance green projects such as renewable energy, clean transportation, or sustainable water management, aligning with Saudi Vision 2030 sustainability goals.

Question 23: What fiduciary duties does a fund manager owe to fund investors under CMA regulations?

Duty of care, loyalty, and acting in the best interest of unitholders (Correct answer)
No specific fiduciary duties apply
Only the duty to maximize returns
Only the duty to follow the fund's strategy

Correct answer: Duty of care, loyalty, and acting in the best interest of unitholders

CMA regulations require fund managers to act with duty of care, loyalty, and in the best interest of unitholders. They must avoid conflicts of interest, maintain fair treatment, and ensure adequate risk management.

Question 24: What is the difference between a public fund and a private fund under CMA regulations?

Public funds invest in stocks, private funds invest in bonds
There is no regulatory difference
Public funds are larger than private funds
Public funds are offered to all investors, private funds are restricted to qualified investors (Correct answer)

Correct answer: Public funds are offered to all investors, private funds are restricted to qualified investors

Public investment funds are offered to all investors and subject to stricter CMA regulations including prospectus requirements, while private funds are offered only to qualified or institutional investors with fewer regulatory requirements.

Question 25: What is the IFSB and its relevance to Saudi Islamic finance regulation?

An international standard-setting body for prudential regulation and supervision of Islamic financial services, whose standards influence Saudi practice (Correct answer)
A global credit rating agency
A Saudi government agency
The CMA's enforcement arm

Correct answer: An international standard-setting body for prudential regulation and supervision of Islamic financial services, whose standards influence Saudi practice

The Islamic Financial Services Board (IFSB) issues prudential standards and guidelines for the sound regulation of Islamic banks, insurance, and capital markets globally, influencing Saudi regulatory frameworks.

Question 26: What is an 'investment fund' under CMA Investment Funds Regulations?

A fixed-term bank deposit
A unit of sukuk
A government savings account
A collective investment scheme pooling investor money to invest in a portfolio managed by a licensed fund manager (Correct answer)

Correct answer: A collective investment scheme pooling investor money to invest in a portfolio managed by a licensed fund manager

Investment funds pool money from multiple investors to invest in diversified portfolios managed by CMA-licensed fund managers, allowing access to professional management.

Question 27: What is 'rebalancing' in portfolio management?

Periodically adjusting portfolio weights back to target allocations after market movements (Correct answer)
Changing investment strategy annually
Selling all assets and restarting
Increasing leverage in a rising market

Correct answer: Periodically adjusting portfolio weights back to target allocations after market movements

Rebalancing restores the portfolio to its target asset allocation by selling overweight assets and buying underweight ones, maintaining the intended risk profile.

Question 28: What is SAIBOR and how does it relate to fixed-income instruments in Saudi Arabia?

The Saudi Arabian Interbank Offered Rate used as a benchmark for floating-rate instruments (Correct answer)
A stock market index
A type of government bond
The Saudi arbitration board for disputes

Correct answer: The Saudi Arabian Interbank Offered Rate used as a benchmark for floating-rate instruments

SAIBOR (Saudi Arabian Interbank Offered Rate) is the benchmark interest rate at which Saudi banks lend to each other. It serves as a reference rate for floating-rate bonds, Sukuk, and other financial instruments.

Question 29: What is the main stock exchange in Saudi Arabia?

Bahrain Bourse
Abu Dhabi Securities Exchange
Saudi Exchange (Tadawul) (Correct answer)
Dubai Financial Market

Correct answer: Saudi Exchange (Tadawul)

The Saudi Exchange (Tadawul) is the sole authorized stock exchange in Saudi Arabia. It was formally established as a joint-stock company in 2007 and is one of the largest exchanges in the Middle East by market capitalization.

Question 30: Which CMA regulation primarily governs tender offers and merger activity involving listed companies in Saudi Arabia?

Capital Market Law (CML)
Merger and Acquisition Regulations (Correct answer)
Corporate Governance Regulations
Rules on the Offer of Securities and Continuing Obligations

Correct answer: Merger and Acquisition Regulations

The CMA's Merger and Acquisition Regulations specifically govern tender offers, mandatory bids, and business combinations involving listed companies.

Question 31: What is the maximum management fee that a public fund can charge without CMA pre-approval?

0.5% annually
2% annually
1% annually
There is no cap; it must be disclosed in the Terms and Conditions (Correct answer)

Correct answer: There is no cap; it must be disclosed in the Terms and Conditions

CMA regulations do not impose a specific cap on management fees for public funds. However, all fees must be clearly disclosed in the fund's Terms and Conditions document and approved by the fund board.

Question 32: What is the maximum term for a board member of a Saudi-listed company?

3 years, renewable (Correct answer)
5 years
No maximum term
2 years

Correct answer: 3 years, renewable

Board members of Saudi-listed companies are appointed for a maximum term of 3 years, which can be renewed. This ensures regular board refreshment while allowing continuity of experienced directors.

Question 33: What constitutes market manipulation under Saudi securities law?

Creating a false or misleading impression of trading activity (Correct answer)
Buying stocks at market price
Holding stocks for long-term investment
Selling stocks after a profit

Correct answer: Creating a false or misleading impression of trading activity

Market manipulation includes any action designed to create a false or misleading impression of trading activity, supply, demand, or price of securities. This includes wash trading, painting the tape, and spoofing.

Question 34: What must a licensed CMA firm do if it suspects a client is engaged in money laundering?

Contact the client directly about suspicions
Continue service normally
Refuse service without reporting
File a Suspicious Activity Report (SAR) with the relevant authority (Correct answer)

Correct answer: File a Suspicious Activity Report (SAR) with the relevant authority

CMA-licensed firms are obligated to file a Suspicious Activity Report (SAR) with the relevant anti-money laundering authority and must not tip off the client (tipping-off offence).

Question 35: Under CMA Merger and Acquisition Regulations, which of the following correctly describes a 'partial offer'?

An offer to acquire less than 100% of shares, typically to gain a controlling interest (Correct answer)
An offer made only to institutional shareholders excluding retail investors
An offer for all shares in the target company
An offer restricted to one class of shares when multiple classes exist

Correct answer: An offer to acquire less than 100% of shares, typically to gain a controlling interest

A partial offer seeks to acquire less than 100% of the target's shares, typically enough to obtain control, and requires CMA approval if it would result in the offeror holding 30% or more of voting rights.

Question 36: What is the role of a 'market maker' in a securities market?

To continuously provide buy and sell quotes for a security to ensure liquidity (Correct answer)
To approve new securities for listing on behalf of the CMA
To set the official closing price of all listed securities
To manage the investment portfolios of retail investors

Correct answer: To continuously provide buy and sell quotes for a security to ensure liquidity

A market maker stands ready to buy and sell a security at publicly quoted prices, providing continuous liquidity and facilitating price discovery in the market.

Question 37: What is the yield to maturity (YTM) of a bond?

The current dividend yield
The coupon rate only
The total return anticipated if the bond is held until maturity, accounting for price, coupon payments, and reinvestment (Correct answer)
The interest rate set by SAMA

Correct answer: The total return anticipated if the bond is held until maturity, accounting for price, coupon payments, and reinvestment

YTM is the internal rate of return that equates the present value of all future cash flows (coupons + principal) to the current market price of the bond.

Question 38: What distinguishes 'ijara sukuk' from 'murabaha sukuk'?

Ijara sukuk are only for government issuers
Murabaha sukuk are equity instruments
Ijara sukuk are lease-based with periodic rental payments; murabaha sukuk are cost-plus sale based with a lump-sum return (Correct answer)
No meaningful difference

Correct answer: Ijara sukuk are lease-based with periodic rental payments; murabaha sukuk are cost-plus sale based with a lump-sum return

Ijara sukuk generate returns from periodic lease rentals on underlying assets; murabaha sukuk generate returns from the profit margin in a cost-plus sale, typically resulting in a bullet payment.

Question 39: What is 'mudaraba' in Islamic finance?

A secured loan
A commodity swap
A profit-sharing arrangement where one party provides capital (rabb ul mal) and another provides labour/management (mudarib), sharing profit but with losses borne by the capital provider (Correct answer)
An Islamic forward contract

Correct answer: A profit-sharing arrangement where one party provides capital (rabb ul mal) and another provides labour/management (mudarib), sharing profit but with losses borne by the capital provider

Mudaraba is a trust-based arrangement: the capital provider funds the venture, the manager operates it, profits are shared per agreement, and financial losses fall on the capital provider only.

Question 40: What does 'Know Your Customer' (KYC) require authorized persons to do?

Only collect copies of national IDs
Report all customers to the CMA
Memorize customer names
Verify customer identity, assess risk, and maintain updated records (Correct answer)

Correct answer: Verify customer identity, assess risk, and maintain updated records

KYC requires authorized persons to verify customer identity using reliable documents, assess the customer's risk profile, understand the nature and purpose of the business relationship, and maintain updated records.

Question 41: What is 'maysir' and how does it relate to Islamic capital market regulations?

An investment grade rating
Gambling or speculative activity, prohibited under Islamic law; regulators apply this to exclude highly speculative derivative structures (Correct answer)
An Islamic partnership
A type of Shariah audit

Correct answer: Gambling or speculative activity, prohibited under Islamic law; regulators apply this to exclude highly speculative derivative structures

Maysir refers to gambling or pure speculation where one party gains at another's expense without legitimate economic activity, which Islamic finance principles prohibit.

Question 42: What is the Saudi Exchange's pre-opening session used for?

Processing dividend payments
Allowing only institutional investors to trade
Executing market orders at any price
Collecting orders to determine the opening price through an auction mechanism (Correct answer)

Correct answer: Collecting orders to determine the opening price through an auction mechanism

The pre-opening session (8:00-10:00 AM) collects buy and sell orders to determine the opening price through a call auction mechanism. This helps establish a fair opening price based on supply and demand.

Question 43: Under Saudi corporate governance, what disclosure obligations apply to board members regarding conflicts of interest?

Board members must disclose any direct or indirect interest in transactions with the company (Correct answer)
Disclosure is only required for amounts above SAR 1 million
No disclosure is required
Only the chairman must disclose conflicts

Correct answer: Board members must disclose any direct or indirect interest in transactions with the company

Board members must disclose any direct or indirect interest in contracts or transactions with the company. The interested director must not participate in voting on such matters, and these transactions require shareholder approval.

Question 44: What is 'gharar' and why is it prohibited in Islamic finance?

A type of Islamic equity
A bond structure
Excessive uncertainty or ambiguity in a contract's terms that could lead to dispute, prohibited as it is unjust (Correct answer)
A form of profit-sharing

Correct answer: Excessive uncertainty or ambiguity in a contract's terms that could lead to dispute, prohibited as it is unjust

Gharar refers to contracts with excessive ambiguity, uncertainty, or speculative elements in key terms (price, subject matter, timing), making them potentially unjust or exploitative.

Question 45: Under CMA Merger and Acquisition Regulations, if the offeror acquires target shares at a price higher than the offer price during the offer period, what must happen?

CMA must pre-approve each additional acquisition separately
The offeror must disclose but no price adjustment is required
The offer price must be revised upward to match the higher acquisition price (Correct answer)
Such acquisitions are prohibited during the offer period

Correct answer: The offer price must be revised upward to match the higher acquisition price

If the offeror purchases shares during the offer period at a price exceeding the offer price, the offer price must be revised upward to match, ensuring equal treatment of all shareholders.

Question 46: What is 'front running' in securities markets?

A broker trading for its own account ahead of a large client order, profiting from the anticipated price movement (Correct answer)
Placing orders ahead of market open
Submitting research before public release
Speed trading by algorithms

Correct answer: A broker trading for its own account ahead of a large client order, profiting from the anticipated price movement

Front running occurs when a broker or trader executes trades in their own account ahead of a client's order they know will move the price, violating their duty to the client.

Question 47: What is Enhanced Due Diligence (EDD) and when must it be applied?

Standard identity verification for all customers
Only required for foreign customers
A one-time check during account opening
Additional verification measures applied to high-risk customers, PEPs, and complex transactions (Correct answer)

Correct answer: Additional verification measures applied to high-risk customers, PEPs, and complex transactions

EDD requires additional verification measures beyond standard CDD for high-risk situations, including dealings with Politically Exposed Persons (PEPs), complex or unusual transactions, and customers from high-risk jurisdictions.

Question 48: What is a Rights Issue (Haq Al-Awalawiya) in the Saudi capital market?

A new listing on Tadawul
An offering of new shares to existing shareholders at a discounted price (Correct answer)
A share buyback program
A government bond issuance

Correct answer: An offering of new shares to existing shareholders at a discounted price

A Rights Issue allows existing shareholders to purchase additional shares proportional to their current holdings at a discounted price. In Saudi Arabia, these rights are tradeable on Tadawul during the subscription period.

Question 49: Under CMA regulations, an offeror who withdraws a completed tender offer announcement faces which consequences?

Compensation to the target company for advisory expenses only
A simple announcement of withdrawal with no further regulatory obligations
Requirement to obtain CMA consent and generally being prohibited from making another offer for 12 months (Correct answer)
Payment of a penalty to the CMA equal to 1% of the announced offer value

Correct answer: Requirement to obtain CMA consent and generally being prohibited from making another offer for 12 months

An offeror who withdraws an offer must obtain CMA's consent and is typically prohibited from making another offer for the same target for a 12-month cooling-off period, discouraging frivolous announcements.

Question 50: What is the Price-to-Earnings (P/E) ratio used for in equity analysis?

Assessing debt levels
Measuring dividend yield
Comparing market price to earnings per share to assess relative valuation (Correct answer)
Calculating return on equity

Correct answer: Comparing market price to earnings per share to assess relative valuation

The P/E ratio = Market Price ÷ Earnings Per Share. A higher P/E may indicate growth expectations or overvaluation; a lower P/E may signal value or declining prospects.

Question 51: How long must financial institutions in Saudi Arabia retain customer records and transaction data?

3 years
Indefinitely
10 years after the end of the business relationship (Correct answer)
5 years

Correct answer: 10 years after the end of the business relationship

Saudi AML regulations require financial institutions to retain all customer identification data, account files, and business correspondence for at least 10 years after the end of the business relationship or the date of the transaction.

Question 52: What is a 'beneficial owner' under Saudi AML regulations?

The natural person who ultimately owns or controls a customer or on whose behalf a transaction is conducted (Correct answer)
The person whose name is on the account
The bank branch manager
The fund manager of an investment fund

Correct answer: The natural person who ultimately owns or controls a customer or on whose behalf a transaction is conducted

The beneficial owner is the natural person who ultimately owns or controls a legal entity customer, or the person on whose behalf a transaction is being conducted. Identifying beneficial owners helps prevent use of shell companies for money laundering.

Question 53: What is 'Nomu' in the context of the Saudi capital market?

A foreign exchange platform
A type of Islamic bond
The CMA's enforcement department
The parallel equity market for smaller companies (Correct answer)

Correct answer: The parallel equity market for smaller companies

Nomu is the parallel equity market of the Saudi Exchange designed for smaller and emerging companies, with lighter listing requirements than the Main Market.

Question 54: In a mandatory tender offer under Saudi CMA regulations, the offer price must be at least:

The highest price paid by the offeror for shares in the preceding 12 months (Correct answer)
The net asset value per share as certified by an auditor
The current market price on the announcement date
The weighted average trading price over the preceding 90 days

Correct answer: The highest price paid by the offeror for shares in the preceding 12 months

The mandatory offer price must not be lower than the highest price paid by the offeror for shares of the same class in the 12 months prior to the announcement, protecting minority shareholders.

Question 55: What is cumulative voting and why is it important for shareholders?

A method where shareholders can concentrate all their votes on fewer candidates, helping minority representation (Correct answer)
A method where each share gets one vote per candidate, favoring large shareholders
A method only used for voting on dividends
A government-mandated voting system for all elections

Correct answer: A method where shareholders can concentrate all their votes on fewer candidates, helping minority representation

Cumulative voting allows shareholders to multiply their votes by the number of board seats and allocate them across candidates as they choose. This enables minority shareholders to concentrate votes and gain board representation.

Question 56: What are the three stages of money laundering?

Earning, hiding, spending
Deposit, transfer, withdrawal
Placement, layering, integration (Correct answer)
Collection, distribution, investment

Correct answer: Placement, layering, integration

Money laundering occurs in three stages: Placement (introducing illegal funds into the financial system), Layering (creating complex transactions to obscure the source), and Integration (making the laundered funds appear legitimate).

Question 57: A CMA-licensed investment fund manager must ensure client assets are held by which entity?

The fund manager's own account
Any commercial bank branch
An independent custodian (Correct answer)
The client's personal bank account

Correct answer: An independent custodian

CMA regulations require that client assets be held by an independent custodian to ensure asset segregation and protect investors from potential misuse or commingling of funds by the fund manager.

Question 58: What is the role of the Saudi Financial Intelligence Unit (SAFIU)?

Receiving, analyzing, and disseminating financial intelligence related to money laundering and terrorism financing (Correct answer)
Issuing banking licenses
Prosecuting money laundering cases
Setting monetary policy

Correct answer: Receiving, analyzing, and disseminating financial intelligence related to money laundering and terrorism financing

SAFIU receives STRs from reporting entities, analyzes financial intelligence, and disseminates information to relevant law enforcement and regulatory agencies. It serves as the central hub for financial crime intelligence.

Question 59: What is the significance of 'trading volume' as a market indicator?

It indicates the percentage change in a security's price over the day
It shows the number of new investor accounts opened in a period
It represents the number of shares or value of securities traded during a specific period (Correct answer)
It measures the total number of companies listed on the exchange

Correct answer: It represents the number of shares or value of securities traded during a specific period

Trading volume measures the total quantity of shares or the monetary value of securities exchanged during a given timeframe, indicating market activity and liquidity levels.

Question 60: What is a 'Shariah Supervisory Board' in the context of Islamic financial institutions?

A government regulatory body
An internal audit committee
A CMA inspection team
An independent body of Islamic scholars that reviews and certifies a firm's products and activities as Shariah-compliant (Correct answer)

Correct answer: An independent body of Islamic scholars that reviews and certifies a firm's products and activities as Shariah-compliant

A Shariah Supervisory Board consists of qualified Islamic scholars who provide fatwas (religious rulings) certifying that products, contracts, and activities comply with Islamic law.

Question 61: A 'white knight' in a takeover context refers to:

A friendly acquirer invited by target management to counter a hostile bid (Correct answer)
A regulatory body that intervenes to block hostile takeovers
A financial adviser appointed by CMA to oversee the offer
A minority shareholder who supports the hostile bidder's offer

Correct answer: A friendly acquirer invited by target management to counter a hostile bid

A white knight is a friendly company that acquires or merges with a target at the target management's invitation to prevent a hostile takeover.

Question 62: What does 'Shariah compliance' mean for a Saudi capital market product?

Listed on the Saudi Exchange
Denominated in Saudi Riyals
Approved by the Saudi government
Structured to comply with Islamic law principles: no riba, gharar, maysir, and backed by permissible activities (Correct answer)

Correct answer: Structured to comply with Islamic law principles: no riba, gharar, maysir, and backed by permissible activities

Shariah compliance requires that financial products avoid interest (riba), excessive uncertainty (gharar), gambling (maysir), and must be backed by permissible (halal) underlying assets or activities.

Question 63: Under Saudi Exchange rules, which of the following describes a 'block trade'?

A series of small trades designed to accumulate a large position covertly
A trade involving shares of companies in a specific economic sector
A large-volume transaction executed outside the normal order book at a negotiated price (Correct answer)
A trade that is blocked by the regulator pending investigation

Correct answer: A large-volume transaction executed outside the normal order book at a negotiated price

A block trade is a privately negotiated, large-volume transaction conducted outside the public order book, typically between institutional counterparties, subject to exchange reporting requirements.

Question 64: What is the purpose of the 'Shariah fatwa' in structuring Islamic capital market products?

A formal religious ruling from qualified scholars certifying that a financial product's structure complies with Islamic law (Correct answer)
A rating agency opinion
A CMA compliance certificate
A government bond guarantee

Correct answer: A formal religious ruling from qualified scholars certifying that a financial product's structure complies with Islamic law

A Shariah fatwa is a formal legal opinion from qualified Islamic scholars confirming that a product's structure, contracts, and intended use comply with Islamic jurisprudence.

Question 65: Which type of Sukuk structure involves a sale and leaseback arrangement?

Sukuk Al-Musharaka
Sukuk Al-Ijara (Correct answer)
Sukuk Al-Istisna
Sukuk Al-Murabaha

Correct answer: Sukuk Al-Ijara

Sukuk Al-Ijara involves the originator selling an asset to the SPV, which then leases it back. Investors receive rental income as returns. This is one of the most common Sukuk structures used in Saudi Arabia.

Question 66: What happens when a fund manager wants to make material changes to a public fund's Terms and Conditions?

They must notify unitholders and obtain CMA approval before implementation (Correct answer)
Only the fund board needs to approve
Changes are prohibited once a fund is launched
They can make changes immediately

Correct answer: They must notify unitholders and obtain CMA approval before implementation

Material changes to a public fund's Terms and Conditions require prior CMA approval and adequate notice to unitholders. Investors must be given sufficient time to redeem their units if they disagree with the changes.

Question 67: Under the Qualified Foreign Investor (QFI) program, what is the maximum ownership limit for a single foreign investor in a listed Saudi company?

5% of the company's shares
49% of the company's shares
10% of the company's shares (Correct answer)
No limit for QFIs

Correct answer: 10% of the company's shares

A single QFI can own up to 10% of a listed company's shares. The total foreign ownership limit (including swap agreements and QFIs) is 49% unless the company's articles specify a lower limit.

Question 68: What is 'wash trading' and why is it prohibited?

Simultaneously buying and selling the same security to create artificial volume, misleading the market (Correct answer)
Settling trades through clearing
Trading in foreign currencies
Cleaning broker accounts annually

Correct answer: Simultaneously buying and selling the same security to create artificial volume, misleading the market

Wash trading creates the false impression of market activity by buying and selling the same instrument without genuine change of ownership, artificially inflating volume figures.

Question 69: What is 'murabaha' in Islamic finance?

A profit-sharing partnership
A donation structure
An Islamic lease
A cost-plus-profit sale where the seller discloses the cost and an agreed profit margin to the buyer (Correct answer)

Correct answer: A cost-plus-profit sale where the seller discloses the cost and an agreed profit margin to the buyer

Murabaha is a sale where the seller discloses the original cost and adds an agreed profit margin; widely used in trade finance and asset financing as a Shariah-compliant alternative to loans.

Question 70: What rights do minority shareholders have under Saudi corporate governance regulations?

No special rights beyond voting
Rights are limited to dividends only
Rights to cumulative voting, access to information, and bringing derivative actions (Correct answer)
Only the right to attend annual meetings

Correct answer: Rights to cumulative voting, access to information, and bringing derivative actions

Minority shareholders have several protections including cumulative voting for board elections, the right to access company information, the ability to bring derivative actions, and protection against related-party transactions that harm their interests.

Question 71: During a trading halt called by the exchange, which of the following is TRUE?

Trading continues but at reduced volumes
All trading in the affected security is temporarily suspended (Correct answer)
Only sell orders are suspended
Only block trades are prohibited

Correct answer: All trading in the affected security is temporarily suspended

A trading halt suspends all buying and selling activity in the affected security until the exchange lifts the halt, typically to allow dissemination of material information.

Question 72: What obligation does a CMA-licensed research analyst have regarding personal trading in covered securities?

May trade freely if disclosed to employer only
Must comply with restricted period rules and disclose personal holdings to prevent conflicts of interest (Correct answer)
Must never hold any securities
No restrictions apply

Correct answer: Must comply with restricted period rules and disclose personal holdings to prevent conflicts of interest

Research analysts must observe blackout periods around report publication, disclose personal holdings in covered companies, and manage conflicts of interest in their recommendations.

Question 73: Under CMA regulations, the 'sell-out right' (also called the right of minority squeeze-in) refers to:

The offeror's right to compulsorily acquire minority shares after reaching 90%
The target board's right to reject any offer below independently assessed fair value
The right of remaining minority shareholders to require the 90%+ offeror to buy their shares (Correct answer)
The CMA's power to force a full merger between two listed companies

Correct answer: The right of remaining minority shareholders to require the 90%+ offeror to buy their shares

The sell-out right allows minority shareholders who did not accept the offer to require the offeror (who has reached 90%+) to purchase their shares at the offer price, the mirror image of the squeeze-out right.

Question 74: How frequently must a public investment fund publish its Net Asset Value (NAV)?

Monthly
At least daily for open-end funds (Correct answer)
Quarterly
Weekly

Correct answer: At least daily for open-end funds

Public open-end funds must calculate and publish their NAV at least on each dealing day. For most public funds, this means daily NAV publication to ensure investors can make informed subscription and redemption decisions.

Question 75: What type of risk does a callable bond present to the investor?

Reinvestment risk: if the issuer calls the bond when rates fall, the investor must reinvest at lower yields (Correct answer)
No additional risk
Currency risk
Liquidity risk only

Correct answer: Reinvestment risk: if the issuer calls the bond when rates fall, the investor must reinvest at lower yields

A callable bond allows the issuer to repay principal early, typically when interest rates fall. This creates reinvestment risk for the investor who must then reinvest at lower market rates.

Question 76: Which of the following transactions generally does NOT trigger a mandatory tender offer obligation under CMA Merger and Acquisition Regulations?

Buying shares from a major shareholder that bring the total to 35% of voting rights
Inheriting shares that bring a total holding to 30% of voting rights (Correct answer)
Acquiring 30% of voting rights through a private placement of new shares
Acquiring 30% of voting rights through open market purchases on Tadawul

Correct answer: Inheriting shares that bring a total holding to 30% of voting rights

Involuntary acquisitions such as inheritance, where shares are received without a deliberate purchase decision to acquire control, are generally exempt from triggering mandatory offer obligations.

Question 77: In the context of Saudi market operations, what is 'delivery versus payment' (DVP)?

A system where brokers deliver trade confirmations before receiving payment
A regulatory requirement for foreign investors to pre-fund accounts
A payment method for IPO subscriptions using installments
A settlement mechanism ensuring securities are transferred only when corresponding payment is made simultaneously (Correct answer)

Correct answer: A settlement mechanism ensuring securities are transferred only when corresponding payment is made simultaneously

DVP is a settlement principle that links the transfer of securities to the simultaneous transfer of funds, eliminating principal risk by ensuring neither party delivers without receiving their consideration.

Question 78: What are 'Continuing Obligations' for listed companies under CMA rules?

Capital maintenance rules only
Ongoing duties to disclose material information, publish financial statements, and comply with governance standards (Correct answer)
One-time IPO disclosure requirements
Requirements to maintain CMA approval for all decisions

Correct answer: Ongoing duties to disclose material information, publish financial statements, and comply with governance standards

Continuing Obligations require listed companies to continuously disclose material events, publish audited financials, comply with corporate governance, and maintain listing standards.

Question 79: What is 'musharaka' in Islamic finance?

A lease agreement
A deferred sale
A joint venture or partnership where all parties contribute capital and share profit and loss proportionally (Correct answer)
A pure loan structure

Correct answer: A joint venture or partnership where all parties contribute capital and share profit and loss proportionally

Musharaka is a partnership where all partners contribute capital, share in profits according to agreed ratios, and bear losses proportional to their capital contribution.

Question 80: What is a 'rights issue' in the Saudi equity market?

An offering of new shares to existing shareholders proportional to their current holdings at a discount (Correct answer)
A share buyback programme
An offering of new shares to the public at large
A bonus share distribution

Correct answer: An offering of new shares to existing shareholders proportional to their current holdings at a discount

In a rights issue, a listed company offers new shares to existing shareholders in proportion to their current holdings, usually at a discount to the market price, to raise capital.

Question 81: What is 'riba' and why is it prohibited in Islamic finance?

A form of market manipulation
A type of equity instrument
A government guarantee
Interest or any predetermined return on a loan, prohibited as it is considered exploitative and unjust in Islamic law (Correct answer)

Correct answer: Interest or any predetermined return on a loan, prohibited as it is considered exploitative and unjust in Islamic law

Riba refers to interest or any unjust increase in exchange, prohibited in Islamic law because it creates guaranteed returns for the lender without sharing in genuine economic risk.

Question 82: What is 'tipping' in the context of insider trading regulations?

Disclosing information to the CMA
Paying a broker commission
Publishing a research report
Passing material non-public information to another person who then trades on it (Correct answer)

Correct answer: Passing material non-public information to another person who then trades on it

Tipping is the act of passing MNPI to a third party (tippee) who subsequently trades on the basis of that information; both the tipper and tippee may be liable.

Question 83: What constitutes 'insider trading' under the Saudi Capital Market Law?

Purchasing shares of a competitor
Trading based on publicly available information
Trading in securities based on material, non-public information obtained through a privileged position (Correct answer)
Trading during market hours

Correct answer: Trading in securities based on material, non-public information obtained through a privileged position

Insider trading is the buying or selling of securities based on material, non-public information (MNPI) by persons who owe a duty of confidentiality to the company.

Question 84: What is the primary regulation governing investment funds in Saudi Arabia?

Banking Control Law
Companies Law
Zakat and Income Tax Law
Investment Funds Regulations issued by the CMA (Correct answer)

Correct answer: Investment Funds Regulations issued by the CMA

The Investment Funds Regulations (IFR) issued by the CMA govern the establishment, management, and operation of investment funds in Saudi Arabia. These regulations cover both public and private funds.

Question 85: What is the key difference between conventional bonds and Sukuk in Saudi Arabia?

Sukuk represent ownership in underlying assets rather than debt obligations (Correct answer)
There is no practical difference
Bonds cannot be traded on Tadawul
Sukuk pay higher returns

Correct answer: Sukuk represent ownership in underlying assets rather than debt obligations

Sukuk represent ownership shares in underlying tangible assets, usufruct, or services, while conventional bonds represent a debt obligation. This distinction ensures Sukuk compliance with Sharia law, which prohibits interest-based lending.

Question 86: What is Sharia compliance in the context of Saudi investment funds?

A government mandate for all funds
A marketing label with no regulatory significance
Investing only in Saudi-listed companies
Ensuring investments adhere to Islamic law principles, including avoiding riba and haram activities (Correct answer)

Correct answer: Ensuring investments adhere to Islamic law principles, including avoiding riba and haram activities

Sharia-compliant funds follow Islamic law principles by avoiding interest (riba), excessive uncertainty (gharar), and investments in prohibited activities (haram) such as alcohol, gambling, or conventional banking.

Question 87: What is the CMA's enforcement power when it detects a securities law violation?

Issue fines, suspend licenses, refer for criminal prosecution, and seek disgorgement of profits (Correct answer)
Only refer matters to courts
Only issue warnings
Block trading accounts only

Correct answer: Issue fines, suspend licenses, refer for criminal prosecution, and seek disgorgement of profits

The CMA has broad enforcement powers including issuing fines, suspending or cancelling licenses, banning individuals from the market, and referring criminal cases for prosecution.

Question 88: What is the role of the Securities Dispute Resolution Committee (SDRC) in Saudi Arabia?

Setting listing requirements
Adjudicating disputes arising from CMA regulations and violations (Correct answer)
Conducting market surveillance
Issuing new securities licenses

Correct answer: Adjudicating disputes arising from CMA regulations and violations

The SDRC is the specialist judicial body that hears and resolves disputes related to CMA regulations, securities violations, and investor complaints.

Question 89: What role does AAOIFI play in Islamic capital markets?

Issues CMA licenses
Sets monetary policy
Manages the Saudi Exchange
Sets Shariah and accounting standards for Islamic financial institutions adopted widely including in Saudi Arabia (Correct answer)

Correct answer: Sets Shariah and accounting standards for Islamic financial institutions adopted widely including in Saudi Arabia

AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) issues internationally recognised Shariah standards, accounting standards, and governance standards for Islamic finance.

Question 90: What is an 'Exchange Traded Fund' (ETF) listed on the Saudi Exchange?

A money market fund
An open-ended fund whose units trade on the exchange like shares, tracking an index or basket of assets (Correct answer)
A closed-end fund requiring CMA approval for each trade
A private equity fund

Correct answer: An open-ended fund whose units trade on the exchange like shares, tracking an index or basket of assets

ETFs are open-ended investment funds listed on the Saudi Exchange that track an index or asset basket, offering intraday tradability and typically lower fees than active funds.

Question 91: What is the CMA's stance on Shariah compliance screening for investment funds marketed as 'Islamic'?

Funds marketed as Shariah-compliant must have a Shariah supervisory board and invest only in CMA-approved Shariah-compliant securities (Correct answer)
Islamic funds are exempt from CMA regulation
Only SAMA regulates Islamic funds
No regulation of Islamic fund claims

Correct answer: Funds marketed as Shariah-compliant must have a Shariah supervisory board and invest only in CMA-approved Shariah-compliant securities

The CMA requires that funds claiming Shariah compliance must have oversight from qualified Shariah scholars and must restrict investments to permissible securities per their Shariah mandate.

Question 92: What is a 'wakala' structure in Islamic finance?

A deferred payment sale
A charitable endowment
An agency agreement where one party (agent/wakeel) acts on behalf of another (principal) for a fee, used in sukuk and fund management (Correct answer)
A profit-sharing arrangement

Correct answer: An agency agreement where one party (agent/wakeel) acts on behalf of another (principal) for a fee, used in sukuk and fund management

Wakala is an Islamic agency contract where the wakeel (agent) manages assets or funds on behalf of the principal for an agreed management fee, used in sukuk structuring and investment management.

Question 93: What is a Real Estate Investment Trust (REIT) in Saudi Arabia?

A private real estate development company
A bank mortgage product
A publicly traded closed-end fund that invests in income-generating real estate (Correct answer)
A government housing program

Correct answer: A publicly traded closed-end fund that invests in income-generating real estate

Saudi REITs are closed-end investment funds listed on Tadawul that invest at least 75% of assets in income-generating real estate. They must distribute at least 90% of net income as dividends to unitholders annually.

Question 94: What is the minimum denomination for Saudi government Sukuk typically available to retail investors?

SAR 10,000
SAR 1,000,000
SAR 100
SAR 1,000 (Correct answer)

Correct answer: SAR 1,000

Saudi government Sukuk for retail investors are typically available in denominations starting from SAR 1,000, making them accessible to individual investors seeking Sharia-compliant fixed-income investments.

Question 95: What is a 'takaful' product in Islamic finance?

A profit-sharing deposit
A sovereign sukuk
An Islamic cooperative insurance model based on mutual contribution and solidarity rather than conventional risk transfer (Correct answer)
A conventional insurance policy

Correct answer: An Islamic cooperative insurance model based on mutual contribution and solidarity rather than conventional risk transfer

Takaful is an Islamic insurance model where participants contribute to a mutual fund; claims are paid from the fund and any surplus may be returned to participants, avoiding conventional insurance's riba and gharar.

Question 96: What is the CMA requirement for a 'Know Your Customer' (KYC) process?

Required only for institutional clients
Optional best practice
Mandatory obligation for authorized persons to identify and verify client identity and suitability (Correct answer)
Required only for foreign investors

Correct answer: Mandatory obligation for authorized persons to identify and verify client identity and suitability

KYC is a mandatory obligation under CMA Anti-Money Laundering and client protection rules for all authorized persons before onboarding clients.

Question 97: What is the minimum subscription amount for a private placement fund in Saudi Arabia?

SAR 1,000
SAR 50,000 (Correct answer)
SAR 10,000
No minimum if investor qualifies

Correct answer: SAR 50,000

Private placement funds in Saudi Arabia typically require a minimum subscription of SAR 50,000 or its equivalent. Investors must also meet the CMA's definition of a sophisticated or qualified investor.

Question 98: What is an Exchange Traded Fund (ETF) and are they available on Tadawul?

A fund that only invests in real estate; limited availability
A fund traded only after market hours; not available
A futures contract on the exchange; not yet introduced
A fund that tracks an index and trades on the exchange like a stock; yes, available (Correct answer)

Correct answer: A fund that tracks an index and trades on the exchange like a stock; yes, available

ETFs are investment funds that trade on Tadawul like stocks and typically track a specific index. Several ETFs are listed on Tadawul, including the Falcom Saudi Equity ETF and iShares MSCI Saudi Arabia ETF.

Question 99: If the offeror revises (increases) the offer price during the offer period, who benefits from the higher price?

All shareholders who accept the offer, including those who already tendered at the lower price (Correct answer)
Only institutional shareholders holding more than 1% of the target
Only shareholders who accept after the revision is announced
Only shareholders who reject the original price and then re-tender their shares

Correct answer: All shareholders who accept the offer, including those who already tendered at the lower price

When the offer price is revised upward, all accepting shareholders—including those who tendered before the revision—receive the improved price under CMA's equal treatment principle.

Question 100: How does a 'diminishing musharaka' work in property financing?

The bank reduces fees over time
It is a bond structure
The bank and customer co-own the property; the customer gradually buys out the bank's share while paying rent on the bank's portion (Correct answer)
The customer reduces payments annually

Correct answer: The bank and customer co-own the property; the customer gradually buys out the bank's share while paying rent on the bank's portion

In diminishing musharaka, the bank and customer jointly own an asset; over time the customer purchases the bank's share in installments, and rent on the bank's remaining share decreases accordingly.

CME-1 Capital Market Examination Level 1

The CME-1 is Saudi Arabia's mandatory licensing exam for capital market professionals, administered by the Financial Academy on behalf of the Capital Market Authority (CMA), covering securities regulations, market conduct rules, AML compliance, and investment instruments.

100

Questions

120 min

Time Limit

70%

To Pass

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These practice questions were written with AI tools. They are not real exam questions. Exam facts are checked against the official sources listed below. Not reviewed by a subject-matter expert. Editorial policy

Sources & references

Exam facts on this page (fees, format, dates, passing scores) are checked against these official sources; the date is our last check. Editorial policy

fa.gov.sa — Retake policy, eligibility, passing score, time limit · verified Oct 2026
cisi.org — Test delivery, exam format · verified Oct 2026