CMFAS Futures and Derivatives M4 3

Question 1

Under MAS Notice SFA 02-N02, what is required before a futures broker can execute transactions for a client?

Accepted Answer

The client must have a properly completed account opening form and signed risk disclosure documents

Answer

The client must deposit a minimum of SGD 100,000 as initial capital

Answer

The client must hold a relevant financial qualification

Answer

The client must obtain approval from MAS before trading

Question 2

What is the difference between cash settlement and physical delivery in futures contracts?

Accepted Answer

Cash settlement involves a monetary payment of the price difference at expiry, while physical delivery requires transfer of the actual underlying asset

Answer

Cash settlement occurs before expiry while physical delivery always occurs at expiry

Answer

Cash settlement applies only to equity futures while physical delivery applies to commodity futures only

Answer

Cash settlement requires approval from MAS while physical delivery does not

Question 3

A futures broker in Singapore has a duty to segregate client funds. What is the primary purpose of this requirement?

Accepted Answer

To protect client assets from the firm's creditors in the event of the broker's insolvency

Answer

To ensure clients earn interest on their deposits

Answer

To allow MAS to monitor trading activity more easily

Answer

To prevent clients from withdrawing funds during volatile markets

Question 4

What is a 'position limit' in futures markets and who sets it in Singapore?

Accepted Answer

A cap on the maximum number of futures contracts a person may hold, set by MAS or the exchange to prevent market manipulation

Answer

The minimum number of contracts required to qualify for a discount on commissions

Answer

A limit on the profit a trader can realise from a single contract

Answer

The maximum margin a broker may charge on a futures position

Question 5

Which of the following transactions would offset (close out) an existing long position in SGX Nifty 50 Index futures?

Accepted Answer

Selling the same number of SGX Nifty 50 Index futures contracts for the same delivery month

Answer

Buying additional SGX Nifty 50 Index futures contracts

Answer

Entering into an OTC forward agreement on the Nifty 50 Index

Answer

Purchasing Nifty 50 Index ETF units on the Singapore Exchange

Question 6

Under the SFA, the offence of 'insider trading' in the context of futures markets refers to:

Accepted Answer

Trading futures contracts based on material, non-public information that would, if known, likely affect the futures price

Answer

Executing trades before market open using pre-market information

Answer

Trading larger volumes than permitted under position limits

Answer

Placing orders through an overseas broker without MAS approval

Question 7

What obligation does a Futures Trading Representative in Singapore have when a client's investment objectives do not align with a futures trading recommendation?

Accepted Answer

Disclose the mismatch to the client and ensure the client acknowledges the risks before proceeding

Answer

Refuse to execute the trade and report the client to MAS

Answer

Proceed with the trade if the client insists, without any further disclosure

Answer

Transfer the client account to a more suitable broker