Free NISM Series-X-A: Investment Adviser (Level 1) Question and Answers

Question 1

Let's assume Jay has purchased a pure risk cover product, which means he has purchased ___________.

Accepted Answer

Term insurance policy

Answer

A pure risk cover product, also known as pure protection, focuses solely on providing financial protection against a specific risk without any savings or investment component. Term insurance policies fit this description perfectly. They provide coverage for a defined period, paying a death benefit only if the insured dies within that term, and do not accumulate cash value.

Question 2

Which of the following categories of risk applies to an investment in a government security issued with a set interest rate?

Accepted Answer

Interest rate risk

Answer

Interest rate risk is the potential for an investment's value to decline due to changes in prevailing interest rates. For a government security issued with a set interest rate (like a bond), if market interest rates rise, newly issued bonds will offer higher yields. This makes the existing bond with its lower fixed rate less attractive, causing its market value to fall.

Question 3

Insurance typically represents _________.

Accepted Answer

Risk transfer

Answer

Insurance is a mechanism where an individual or entity (the insured) pays a premium to an insurance company (the insurer) to transfer the financial burden of potential future losses. In exchange for the premium, the insurer agrees to compensate the insured for specified losses, effectively shifting the risk from the insured to the insurer. This allows the insured to protect themselves from significant financial impact due to unforeseen events.

Question 4

Which of the following is impacted by financial market activity?

Accepted Answer

All of the above

Answer

Financial market activity, such as changes in interest rates, stock prices, or bond yields, significantly influences various aspects of the economy. It affects individuals' and businesses' spending decisions by altering borrowing costs and investment returns. Furthermore, financial markets play a crucial role in determining the economy's position within the business cycle and directly impact personal wealth through changes in investment values.

Question 5

Which one of the following is not a component of personal financial planning?

Accepted Answer

Churning investment portfolio often to achieve best returns

Answer

Churning an investment portfolio, which involves excessive buying and selling of securities, is generally detrimental to a client's financial well-being due to high transaction costs and potential tax implications. A core principle of personal financial planning is to create a well-defined, long-term strategy, including appropriate asset allocation and risk profiling, and then monitor it periodically, rather than engaging in frequent, speculative trading. Churning is often associated with unethical practices by advisors seeking to generate commissions.

Investment Advisor Practice Test

Investment Advisor Practice Test

Free NISM Series-X-A: Investment Adviser (Level 1) Question and Answers