NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)

CERTIFICATION EXAM – PRACTICE TEST NO. 4

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TEST DETAILS – The NISM Series XB – Investment Adviser Certification (Level 2) exam is a 100 mark exam with
60% as passing marks. The question paper will consist of 36 multiple choice questions of 1 mark each and 8 Case
Studies having 4 multiple choice questions of 2 marks each ( A total of 36 + 32 = 68 questions). There is 0.25%
negative marking. The time duration is 120 Minutes.

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 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

PRACTICE TEST NO. 4

Question 1 The meaning of 'Uberrimae Fidei' is ___________.

(a) Income replacement need

(b) Information asymmetry

(c) Income protection need

(d) Utmost good faith

Question 2 Which amongst the following would you suggest to an investor who is
looking for capital appreciation ?

(a) PPF

(b) Equity Mutual Funds

(c) Kisan Vikas Patra

(d) Treasury Bills

Correct Answer 1 Utmost good faith

Answer Its the obligation of the insured person to disclose all relevant information
Explanation truthfully. For eg. Family history of medical conditions, habits regarding
smoking and drinking, nature of the profession etc. have implications on risk
perception.

These need to be disclosed by the insured before getting covered by the

insurer. If this is not done, the insured is said to have acted in breach of good
faith.

Correct Answer 2 Equity Mutual Funds

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 3 The financial goals of a person are personal to him and therefore the
Financial Planner have no role in influencing them - State True or False ?

(a) TRUE

(b) FALSE

Question 4 Mr. Swami has invested in an ELSS scheme of a mutual fund a year back.
Now he wishes to invest in an MIP of the same mutual fund. Can it be
held under the same folio?

(a) Will depend upon the particular mutual fund policy

(b) Can be held in either the same folio or different folio

(c) Can be held only under the same folio

(d) No, since the scheme is different

Correct Answer 3 False

Answer The Financial Planner may have to provide inputs on the financial goals,
Explanation especially if the client is financially constrained. Also the Financial Plannert
has to help the client prioritize, so that less critical goals are deferred or even
dropped.
So in such cases and other similar cases, the Financial Planner influences the
financial goals of an individual.

Correct Answer 4 Can be held in either the same folio or different folio
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 5 Theft / Burglary Insurance is an example of ________.

(a) Income replacement need

(b) Income protection need

(c) Asset protection needs

(d) All of the above

Question 6 The Indian derivative foreign exchange market is ____________.

(a) OTC Market

(b) Exchange Traded Market

(c) Both OTC and Exchange Traded

(d) None of the above

Correct Answer 5 Asset protection needs

Answer Asset protection needs is the need to protect assets created. Insurance against
Explanation theft or destruction of goods is an example of insurance product that covers
the risk.

Correct Answer 6 Both OTC and Exchange Traded

Answer The Indian foreign exchange market has an OTC derivatives market as well as
Explanation an exchange traded derivatives market.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 7 In which analysis are the Economic, Industry and Company (EIC) factors
considered ?

(a) Bottom up approach of Technical Analysis

(b) Candle Stick pattern of Technical Analysis

(c) Top Down approach of Fundamental Analysis

(d) Bollinger Band analysis

Question 8 As per the SEBI (Alternate Investment Funds) Regulations, 2012.

Category _______ Alternative Investment Fund does not fall in Category
I and III and does not undertake leverage or borrowing other than to
meet day-today operational requirements and as permitted in these
regulations. Fill in the blanks.

(a) IV

(b) V

(c) II

(d) None of the above

Correct Answer 7 Top Down approach of Fundamental Analysis

Answer Techinal Analysis is more to do with analysing the historic prices and volumes
Explanation in a security.

If the analysis begin from studying the Economy, then Industry and then
Company - Its called Top Down approach.

If the analysis begin from studying the company first and then the industry
and Economy, its called Bottom Up approach.

Correct Answer 8 II
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 9 Which of the following process is most time consuming with respect to
investments in equities ?

(a) Non-discretionary Portfolio Management Services

(b) Discretionary Portfolio Management Services

(c) Mutual Funds

(d) Direct Investing

Question 10 A __________ order is an instruction to buy or sell at the best price

currently available in the market.

(a) market

(b) limit

(c) stop loss

(d) Immediate or cancel (IOC)

Correct Answer Direct Investing

9

Answer Direct investing in equity requires access to information, skills to analyse and
Explanation time to monitor and rebalance the portfolio by continuous evaluation.

Mutual Funds require the least amount of time of an investor..

In a discretionary PMS, the portfolio manager manages the portfolio in

alignment with the investor’s requirement.

In a non-discretionary PMS, the portfolio manager will provide advice

and information to the investor who will themselves take the decisions on
investment choices and timing of the investment.

Correct Answer 10 market

Answer A ‘market order’ is an instruction to buy or sell at the best price

Explanation currently available in the market.

A ‘limit order’ is where the investor specifies the maximum price at which
they are willing to buy or the minimum price at which they are willing to sell.

An ‘immediate or cancelled’ (IOC) order is executed immediately (fully or

partly) or cancelled if not executed.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 11 If an investor has registered with the Centralised KYC Registration

Agency (KRA), this will be applicable with all _______.

(a) Mutual Funds

(b) Registered Stock Brokers

(c) Depositories

(d) All of the Above

Question 12
In the Indian currency future markets, which amongst the following is the
correct contract size ?

(a) 1000 units of a foreign currency except JPY which is 10000

(b) 1000 units of a foreign currency except JPY which is 100000

(c) 10000 units of a foreign currency except JPY which is 100000

(d) 10000 units of a foreign currency except JPY which is 1000

Correct Answer 11 All of the Above

Answer SEBI has introduced the system of KYC Registration Agency (KRA) to
Explanation enable this.

Intermediaries covered under the uniform KYC norms include mutual funds,
DPs, stock brokers, portfolio managers, venture capital funds and collective
investment schemes.

Correct Answer 12 1000 units of a foreign currency except JPY which is 100000

Answer The contract size in the case of USDINR it is USD 1000; EURINR it is EUR
Explanation 1000; GBPINR it is GBP 1000 and in case of JPYINR it is JPY 100,000.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 13 Investors hold on to some information that may no longer be relevant,

and make their decisions based on that - This is known as _______ bias.

(a) Choice Paralysis

(b) Anchoring

(c) Recency

(d) Familiarity

Question 14 The shares which are listed on a Stock Exchange after an IPO are listed
at ________.

(a) the issue price or at a premium or Discount to the issue price

(b) the issue price only

(c) a premium

(d) a discount

Correct Answer 13 Anchoring

Answer In Anchoring bias, Investors stick to some information that may no longer be
Explanation relevant. New information is labelled as incorrect or irrelevant and ignored in
the decision making process.

For example - Investors may be holding some loss making stocks, but they
still do not sell them expecting the stock to perform well, even though there
are negative news inflow of the company.

Correct Answer 14 the issue price or at a premium or Discount to the issue price

Answer The listing price of the shares is decided by the market forces, and can list at
Explanation any price.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 15 Insurable interest is not of any importance in LIFE insurance contracts -

State True or False ?

(a) TRUE

(b) FALSE

Question 16 Which of the following is NOT considered while calculating Return on

Investments (ROI) ?

(a) Expected dividend

(b) Periodic interest

(c) Unrealized capital appreciation

(d) Realized capital appreciation

Correct Answer 15 False

Answer With regard to a life insurance policy, an insurable interest is based on a
Explanation relationship whereby there is a common interest in another person continuing
to live or a financial loss that would result at that person’s death.

When applying for life insurance coverage, it is typically required that the
beneficiary have an insurable interest in the person who is being insured.

Correct Answer 16 Expected dividend

Answer ROI = Return ie. Profits - Investments / Investments

Explanation
Only those profits are considered which are certain. Expected dividend is an
uncertainty.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 17 _________ have no fixed maturity.

(a) Open Ended Debt Schemes

(b) Fixed Deposits

(c) Debentures

(d) Bonds

Question 18 Does one need to open a new Demat a/c when a minor turns into a major
?

(a) Yes

(b) No

Correct Answer 17 Open Ended Debt Schemes

Answer Open-ended debt schemes have no maturity even though the scheme invests in
Explanation securities with fixed tenors.

The fund manager manages cash flows to earn market returns and provide
liquidity to investors even though the underlying securities are illiquid.

Correct Answer 18 Yes

Answer Since demat accounts of minors can be held only on single-name basis,
Explanation the account opening process has to be redone for a minor-turned-major.
Securities held in the old demat account with minor status are transferred to
the new demat account.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 19 The costs mentioned in today's terms can be translated into the rupee
requirement in future using the formula__________ and the same
formulae can be used for finding out the future value of an amount
invested today.

(a) P X (1 + i) ^n

(b) P X (1 - i) ^n

(c) P / (1 + i) ^n

(d) P + (1 + i)^ n

Question 20 Housing Loan is an example of Mortgage Loan - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 19 P X (1 + i) ^n

Correct Answer 20 True

Answer Mortgage is a debt instrument, secured by a collateral of specified real estate

Explanation property. The loan is secured on the borrowers property.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 21
While constructing a CORE Portfolio, which of these options is not
considered ?

(a) Blue Chip Stocks

(b) Small Cap Stocks

(c) Long term goals of the investor

(d) Strategic needs of the investor

Question 22 _________ Ratio is an indication of indebtedness.

(a) Solvency Ratio

(b) Expenses Ratio

(c) P/E Ratio

(d) Leverage Ratio

Correct Answer 21 Small Cap Stocks

Answer The core portfolio is constructed to meet the long-term goals and strategic
Explanation needs of an investor. It usually consists of Large Cap and Blue Chip stocks.

Changes in the core portfolio are rarely made, only when there is a change in
investor needs, objectives or life stage.

Correct Answer 22 Leverage Ratio

Answer Leverage Ratio measure of the role of debt in the asset build-up of the
Explanation investor. Higher the leverage, more risky it is for the individual’s financial
situation.

It is calculated as Total Liabilities / Total Assets.

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 23 Which bias prevents an investor from benefiting from market

corrections?

(a) Recency Bias

(b) Familiarity Bias

(c) Confidence Bias

(d) Herd Mentality Bias

Question 24 __________ is the decision that comes out of calls on the likely behaviour
of the market.

(a) Strategic asset allocation

(b) Tactical asset allocation

(c) Investor risk profile

(d) None of the above

Correct Answer 23 Herd Mentality Bias

Answer Herd mentality is characterized by a lack of individual decision-making or

Explanation thoughtfulness, causing people to think and act in the same way as the
majority of those around them.

Small investors keep watching other participants for confirmation and then
end up entering when the markets are over heated and poised for correction.

Correct Answer 24 Tactical asset allocation

Answer Tactical Asset Allocation is the decision that comes out of calls on the likely
Explanation behaviour of the market.

Strategic Asset Allocation is the ideal that comes out of the risk profile of the
individual.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 25 If the real rate of interest is 5% and rate of inflation is 3%, what is the
nominal rate of return?

(a) 8%

(b) 8.15%

(c) 2%

(d) 2.74%

Question 26 Stocks which have a beta greater than one are likely to be ______ riskier
than the market.

(a) more

(b) less

(c) equally

(d) no effect

Correct Answer 25 8.15%

Answer The Formula is : ( 1+Nominal Rate)= (1+Real Rate)*(1+Inflation Rate)

Explanation
Therefore ( 1+Nominal Rate) = (1+.05) * (1+.03)

( 1+Nominal Rate) = 1.05 x 1.03

( 1+Nominal Rate) = 1.0815

Nominal Rate = 1.0815 - 1 = .0815 = 8.15%

Correct Answer 26 more

Answer Beta measures the systematic risk in a stock by measuring the volatility in the
Explanation price of a stock relative to the overall market.

The market index is assumed to have a beta of 1. Stocks with a beta greater
than one are likely to be riskier than the market. Stocks with beta less than one
are less risky than the market.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 27 Of the various factors affecting risk appetite of an individual, which of

the below mentioned factors does NOT have a negative relationship with
risk appetite ?

(a) Age of the individual

(b) Number of dependents

(c) Life Expectancy

(d) Both Life Expectancy and Age

Question 28 A company declares 50% dividend. On which value is this payable ?

(a) Market Price of the company's share

(b) Face Value of the company's share

(c) Either Face or Market value, which ever is lower

(d) Either Face or Market value, which ever is higher

Correct Answer 27 Life Expectancy

Answer Age - Lower the age, higher the risk that can be taken (negative relationship)
Explanation
No. of Dependents - Risk appetite decreases as the number of dependent
members increases (negative relationship)

Life Expectancy - Risk appetite is higher when life expectancy is longer

(positive relationship)

Correct Answer 28 Face Value of the company's share

Answer Dividend is always payable on Face Value. So if a company declares 50%

Explanation dividend and the face value of its share is Rs 10, then Rs 5 ( 50% of Rs 10) is
the dividend payable per share.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 29 In the SEBI (Alternate Investment Funds) Regulations, 2012, the funds
that employs diverse or complex trading strategies are classified as
________.

(a) Category I Alternative Investment Fund

(b) Category II Alternative Investment Fund

(c) Category III Alternative Investment Fund

(d) Sector Funds

Question 30 The Gross Domestic Product - GDP calculations are done on the value of
goods and services at their _________ prices.

(a) Cost

(b) Market

(c) Notional

(d) Cost or Market -which ever is higher

Correct Answer 29 Category III Alternative Investment Fund

Answer Category I Alternative Investment Fund invests in start-up or early stage

Explanation ventures etc.

Category II Alternative Investment Fund does not fall in Category I and III
etc.

Category III Alternative Investment Fund employs diverse or complex trading

strategies etc.

Correct Answer 30
Market

Answer GDP computation values goods and services at their market prices and not
Explanation cost.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

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NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4