Free CeMAP Module I Questions and Answers 1

Question 1

Building societies and banks carry out a crucial economic purpose by

Accepted Answer

Using short-term deposits to fund long-term loans

Answer

Building societies and banks perform a crucial function of financial intermediation by taking short-term deposits from savers. They then pool this capital to provide longer-term loans, such as mortgages, to borrowers. This process transforms short-term liabilities into long-term assets, facilitating economic activity and investment within the economy.

Question 2

Which organization determines base rates in the United Kingdom?

Accepted Answer

The Bank of England

Answer

The Bank of England is the central bank of the United Kingdom and is solely responsible for setting the official bank rate, commonly known as the base rate. This rate influences interest rates across the entire economy, impacting borrowing and saving costs for individuals and businesses. Its primary objective is to maintain price stability and support the government's economic policy.

Question 3

On a bank account, a taxpayer would always earn a real rate of return when the

Accepted Answer

Interest after tax is less than inflation

Answer

The real rate of return is the nominal interest rate adjusted for inflation and taxes, indicating the actual change in purchasing power. When the interest earned after tax is less than the inflation rate, the real rate of return becomes negative. In this situation, while a nominal return is received, the purchasing power of the investment has diminished, meaning the taxpayer has a real rate of return, albeit a negative one.

Question 4

A portion of the cash in an investment portfolio would be held in reserve to supply

Accepted Answer

A readily accessible source of money

Answer

A portion of an investment portfolio is typically held in cash or highly liquid assets to provide liquidity. This reserve serves as a readily accessible source of money for unexpected expenses, short-term needs, or to take advantage of new investment opportunities without having to sell long-term assets at an inopportune time. It acts as an emergency fund and a strategic buffer within the portfolio.

Question 5

Gilt: what is it?

Accepted Answer

An investment in the form of a loan to the Government

Answer

A Gilt, or Gilt-edged security, is a bond issued by the UK government. Essentially, when an investor buys a Gilt, they are lending money to the government for a specified period in exchange for regular interest payments and the return of the principal at maturity. Gilts are considered very low-risk investments due to the UK government's strong creditworthiness.

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

Free CeMAP Module I Questions and Answers 1