CIMA Investment Policy & Portfolio Construction

Question 1

What is the primary purpose of an Investment Policy Statement (IPS)?

Accepted Answer

To communicate portfolio objectives and constraints

Answer

To track market trends

Answer

To dictate legal trading rules

Answer

To determine benchmark interest rates

Question 2

Which factor is most relevant when determining a client's risk tolerance?

Accepted Answer

Client's financial capacity and emotional attitude

Answer

Expected return

Answer

Market index volatility

Answer

Duration of investment

Question 3

What is strategic asset allocation primarily based on?

Accepted Answer

Long-term investor goals and risk profile

Answer

Short-term market conditions

Answer

Investor's past returns

Answer

Monthly earnings reports

Question 4

Which of the following best describes tactical asset allocation?

Accepted Answer

Short-term adjustments to take advantage of market conditions

Answer

Following a fixed asset mix

Answer

Making no changes regardless of market conditions

Answer

Rebalancing only when the market crashes

Question 5

What is the main objective of portfolio diversification?

Accepted Answer

Reducing unsystematic risk

Answer

Maximizing tax deferral

Answer

Concentrating investments in top-performing sectors

Answer

Increasing trading frequency

Question 6

In portfolio construction, which metric measures the return relative to the risk taken?

Accepted Answer

Sharpe ratio

Answer

Alpha

Answer

Beta

Answer

Standard deviation