HKSI Licensing Examination Paper 8 (Securities)

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Sample HKSI Licensing Examination Paper 8 (Securities) questions

A few real questions from the bank, each with the correct answer and a written explanation. Every question is free — no signup to start.

1. Overview of Securities Investments

   1. The best-known benchmark index of the largest companies listed on the Stock Exchange of Hong Kong is:

   • a.The S&P 500
   • b.The Hang Seng IndexCorrect
   • c.The FTSE 100
   • d.The Nikkei 225

   Why: The Hang Seng Index (HSI) is the principal benchmark tracking the largest and most liquid companies listed on SEHK. The S&P 500, Nikkei 225 and FTSE 100 are the US, Japanese and UK benchmark indices.

2. Overview of Securities Investments

   2. Which macroeconomic change would most directly tend to reduce equity valuations, all else being equal?

   • a.A sharp rise in market interest ratesCorrect
   • b.A fall in market interest rates
   • c.Lower inflation expectations
   • d.Stronger corporate earnings

   Why: Rising interest rates increase the discount rate applied to future cash flows and raise the cost of capital, tending to lower equity valuations. Falling rates, lower inflation and stronger earnings are generally supportive. Interest rates, inflation and economic cycles are the key market drivers in Topic 1.

3. Overview of Securities Investments

   3. An ordinary share differs from a corporate bond in that the ordinary share:

   • a.Pays a fixed coupon set at issue
   • b.Represents an ownership interest with no fixed maturity or guaranteed incomeCorrect
   • c.Ranks ahead of all of the company's creditors and lenders in the event of a winding up or liquidation
   • d.Must be repaid by the company on a set date

   Why: An ordinary share is an equity interest conferring ownership, voting rights and variable dividends with no maturity date, and it ranks last on a winding up. A bond is debt with a fixed coupon and redemption date that ranks ahead of shareholders.

4. Overview of Securities Investments

   4. Which instrument would normally trade in the money market rather than the capital market?

   • a.A 3-month certificate of depositCorrect
   • b.A 10-year government bond
   • c.A 20-year corporate debenture
   • d.An ordinary share

   Why: The money market deals in short-term instruments (typically maturing within one year), such as certificates of deposit, commercial paper and Exchange Fund Bills. Long-dated bonds and equities are capital-market instruments.

5. Overview of Securities Investments

   5. In Hong Kong, GEM (formerly the Growth Enterprise Market) is best described as:

   • a.A derivatives clearing house that settles the futures and options traded on the Hong Kong Futures Exchange each day
   • b.The bond-trading platform of HKEX
   • c.A market board for smaller and emerging companies with lower entry requirements than the Main BoardCorrect
   • d.A regulator of listed companies

   Why: GEM is a board of SEHK designed for smaller or emerging companies that do not yet meet Main Board requirements; it applies lower entry thresholds and carries higher risk. It is a market segment, not a clearing house or regulator.

6. Primary and Secondary Markets

   6. When a company raises new money by selling shares to the public for the first time, the transaction takes place in the:

   • a.Secondary market
   • b.Primary marketCorrect
   • c.Derivatives market
   • d.Money market

   Why: A primary-market transaction is one in which the issuer itself receives the proceeds, such as an initial public offering (IPO). Once the shares subsequently trade between investors, that trading occurs in the secondary market.