CMFAS Securities Products M2 3 — Questions and Answers
Question 1: What is a Singapore Government Security (SGS)?
- A type of corporate bond
- A debt instrument issued by the Singapore Government (Correct answer)
- A private equity fund
- A type of insurance
Correct answer: A debt instrument issued by the Singapore Government
SGS are bonds issued by the Singapore Government, considered among the safest investments as they are backed by the government's full faith and credit.
Question 2: What is the difference between a secured and unsecured bond?
- They are identical
- Secured bonds are backed by specific assets; unsecured bonds have no asset backing (Correct answer)
- Unsecured bonds always pay higher interest
- Secured bonds cannot be traded
Correct answer: Secured bonds are backed by specific assets; unsecured bonds have no asset backing
Secured bonds are backed by specific collateral (assets), giving bondholders a claim on those assets. Unsecured bonds rely solely on the issuer's creditworthiness.
Question 3: What is a Real Estate Investment Trust (REIT)?
- A real estate agency
- A listed trust that invests in income-generating real estate (Correct answer)
- A type of home loan
- A construction company
Correct answer: A listed trust that invests in income-generating real estate
A REIT is a trust listed on the stock exchange that owns and manages income-generating real estate, distributing most of its rental income to unitholders.
Question 4: What is an Exchange-Traded Fund (ETF)?
- A savings account at an exchange
- A fund traded on the stock exchange that tracks an index or basket of assets (Correct answer)
- A private investment club
- A type of insurance policy
Correct answer: A fund traded on the stock exchange that tracks an index or basket of assets
An ETF is a fund that trades on a stock exchange like a share and typically tracks a market index, commodity, or basket of assets.
Question 5: What does 'ex-dividend' mean?
- Extra dividend payment
- The stock trades without entitlement to the declared dividend (Correct answer)
- Exceptional dividend
- Exclusive dividend for large investors
Correct answer: The stock trades without entitlement to the declared dividend
When a stock goes ex-dividend, buyers after that date will not receive the declared dividend. The dividend goes to whoever held the shares before the ex-date.
Question 6: What is a convertible bond?
- A bond that can only be bought once
- A bond that can be converted into a specified number of shares (Correct answer)
- A bond with a variable interest rate
- A bond that matures in one year
Correct answer: A bond that can be converted into a specified number of shares
A convertible bond gives the holder the right to convert the bond into a predetermined number of shares of the issuing company.
CMFAS Securities Products M2 3
What is a Singapore Government Security (SGS)?