229. Money Laundering means: Page 51 (a) Conversion of illegal money into legitimate money (b) Conversion of cash into gold to make it legitimate (c) Conversion of assets into cash to make them legitimate (d) Conversion of assets to invest in Laundromat 230. KYC is ____ (a) A onetime project (b) To be carried out every 6 months (c) To be carried out every 2 years (d) An ongoing process 231. Objective of KYC guidelines issued by RBI is to control ____ (a) Money laundering (b) Financial frauds (c) Combating financial terrorism (d) All of the above (e) None of the above 232. PEP in the context of PMLA stands for ____ (a) Politically experienced persons (b) Politically empowered person (c) Politically exposed persons (d) None of the above 233. Is India a member of FATF? (a) True (b) False (c) Can’t say CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook
234. Under KYC, accounts cannot be categorised as ____ (a) Low Risk (b) Medium Risk (c) High risk (d) Very high risk 235. Which of the following refers to the separation of illicit proceeds from their source by creating Complex layers of financial transactions? (a) Placement (b) Layering (c) Integration (d) Smurfing 236. Strict adherence to KYC norms is achieved through ____ (a) Identification of customers with appropriate documents (b) Following the statutory authority guidelines (c) Strict implementation of the banks systems and procedures while opening the accounts (d) All of the above 237. STR in the context of PMLA stands for ____ (a) Suspicious Tax Reports (b) Suspicious Transfer Reports (c) Suspicious Transaction Reports (d) Suspicious Transaction Results 238. Due Diligence is conducted because of the following reasons: (a) Confirming that the business is what it appears to be (b) Gaining information that will be useful for valuing assets, defining representations and warranties, and/or negotiating price concessions (c) Verification that the transaction complies with investment or acquisition criteria. (d) Public Issue of Securities (e) Good Corporate Governance (f) All of the above CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 52
239. The principles in FPSB’s code of ethics and professional responsibility that guide financial advisors in the areas of conflicts of interests and disclosure are: (a) Integrity and Fairness (b) Integrity and Objectivity (c) Integrity, fairness and Objectivity (d) Integrity, Professionalism and Competence 240. Which of the following economists is regarded as having developed the theory of comparative advantage? (a) Adam Smith (b) David Ricardo (c) Joseph Stiglitz (d) Amartya Sen 241. The theory of 'absolute advantage': (a) Best describes a situation where there are two countries, A and B, and potentially two goods which can be traded, X and Y. A is absolutely better at producing X and B is absolutely better at producing Y, and so if A specializes in producing X and B in Y, and they trade together, then both countries will gain (b) Best describes the global strategy of businesses who always seek to gain an absolute advantage over their rivals (c) Explains why developed countries have a competitive advantage over poorer countries (d) Best describes a situation where there are two countries, A and B, and potentially two goods which can be traded, X and Y. If A was absolutely better at producing both X and Y compared to B then there would be no advantage in A trading with B 242. In one month, France can produce 14 planes while US can churn out 45 of comparable quality. Which country has the absolute advantage? (a) USA (b) France (c) None of the above CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 53
243. Which of the following economists is regarded as having developed the theory of absolute advantage? (a) Adam Smith (b) David Ricardo (c) Joseph Stiglitz (d) Amartya Sen 244. A country should export a product that it can produce at a lower cost than other nations can. This is the principle of: (a) absolute advantage (b) comparative advantage (c) relative advantage (d) factor endowment 245. According to the principle of absolute advantage, a country should ________ a commodity that can be produced at a lower cost than can other nations? (a) export (b) import (c) both export and import (d) neither export nor import 246. According to the principle of absolute advantage, a country should import a commodity that can be only produced at a ________ cost than can other nations. (a) higher (b) lower (c) same (d) cost is irrelevant 247. On any certain day, the United States can produce 20 items of product A and 30 items of product B, while Australia produces 10 of A and 20 of B. Which product should Australia specialize in? (a) A Page 54 (b) B (c) none of the above CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook
(d) A and B equally 248. Comparative advantage is: (a) static (b) semi-static (c) dynamic (d) semi-dynamic 249. In which of the following circumstances might a business be experiencing economies of scale? (a) Output falling and unit costs falling (b) Output rising and unit costs rising (c) Output rising and unit costs falling (d) Output falling and unit costs rising 250. The concept that occurs when some activity is being performed outside of a firm but within an industry is known to be as: (a) Economies of scale (b) Internal economies of scale (c) External economies of scale (d) Diseconomies of scale 251. Which of the intra-territorial activities have an impact on a territory’s economic environment are? (a) Social welfare policy (b) Taxation policy (c) Retirement policy (d) All of the above 252. The difference between before taxes pay and after taxes pay is called: Page 55 (a) Tax planning (b) Tax Avoidance (c) Tax Wedge (d) Tax Evasion CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook
253. A company is affected by two broad set of factors are _________________ (a) Local and Regional (b) Regional and National (c) Internal and External (d) Financial and Non-Financial 254. Economic Environment refers to all forces which have a _______impact on business (a) political (b) natural (c) economic (d) social 255. ________________ environment can be defined as that part of the environment that is concerned with the entire social system. (a) general environment (b) operating environment (c) Social environment (d) political environment 256. Which of the following is a free trade area? (a) Mercosur (b) Ecowas (c) NAFTA (d) The EU 257. Which of the following is / are the goals of the European Union? (a) Establish an economic and monetary union whose currency is the EURO (b) Promote peace, its values and the well-being of its citizens (c) Offer freedom, security and justice without internal borders (d) Combat social exclusion and discrimination (e) All of the above CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 56
258. ASEAN was established in _______with the signing of the ASEAN Declaration (Bangkok Declaration) by its founding fathers (a) 1967 (b) 1970 (c) 1975 (d) 1977 259. Which one is not the Founding Fathers of ASEAN: (a) Indonesia (b) Malaysia (c) India (d) Singapore 260. The main objectives of ASEAN Free Trade Area are: (a) To accelerate economic growth, social progress and cultural development for a prosperous and peaceful community of Southeast Asian Nations (b) To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields (c) To promote Southeast Asian studies (d) To maintain close and beneficial cooperation with existing international and regional organisations (e) All of the above 261. During business cycles the opposite of a trough is... (a) inflation (b) hyperinflation (c) trend (d) peak 262. Which of the following describes the phase of a business cycle that occurs after a trough and before a peak? (a) Lag Page 57 (b) Consolidation (c) Contraction CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook
(d) Expansion 263. Which of the following marks the beginning of a contraction in the business cycle? (a) Recession (b) Peak (c) Trough (d) Expansion 264. According to ________ trade cycles occur due to onset of innovations (a) Adam Smith (b) J M Keynes (c) Joseph Schumpeter (d) Hawtrey 265. The term business cycle refers to: (a) fluctuations in aggregate economic activity over time (b) ups and down in the production of goods (c) increasing unemployment (d) declining savings 266. The economy is said to be overheated at the ______ phase of business cycle? (a) Expansion (b) Peak (c) Contraction (d) Depression 267. A recession exits after at least ______ consecutive quarters of economic contraction. (a) 2 (b) 3 (c) 4 (d) None of the above CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 58
268. Fall in the level of investments, fall in the production, fall in employment, fall in stock prices etc. are found during _________ phase of business cycle. (a) expansion (b) boom (c) peak (d) contraction 269. ________________ is the form of recession with lowest level of economic activity. (a) Upswing (b) Depression (c) Downswing (d) Peak 270. During upswing, unemployment rate and output ______ (a) rises, falls (b) rises, rises (c) falls, rises (d) falls, falls 271. Which of the following are the leading indicators? i. Average hourly work week in manufacturing ii. Average weekly initial claims for unemployment iii. Manufacturers new orders for consumer goods and materials iv. Average duration of unemployment v. Change in layout cost per unit of output (a) Only (i) and (ii) (b) Only (i), (ii) and (iii) (c) Only (i), (iv) and (v) (d) Only (iv) and (v) 272. The function of _________ indicators is to predict the future movements of the economy. (a) leading Page 59 (b) lagging CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook
(c) coincident (d) none of the above 273. Which stage of the business cycle is most often characterised by rising interest rates and higher wages? (a) Recession (b) Expansion (c) Contraction (d) None of the above 274. Which of the following will most likely decrease when an economy is in the expansion phase of the business cycle? (a) Production (b) Unemployment rate (c) Consumer spending (d) All of the above 275. If consumers anticipate an inflationary environment, it may lead to consumer spending: (a) decreasing (b) remaining unchanged (c) increasing 276. An economy experiencing deflation is most likely characterised by: (a) delayed consumption (b) increased production (c) reduced unemployment 277. The Phillips curve is an economic concept developed by: (a) A. W. Phillips (b) J M Keynes (c) Thomas Malthus (d) David Ricardo CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 60
278. The Phillips curve states that inflation and unemployment have an _______ relationship. (a) direct (b) inverse (c) can’t say 279. Which of the following factors cause a fall in the aggregate demand? (a) Higher interest rates which reduce borrowing and investment (b) Falling real wages (c) Credit crunch (d) All of the above 280. Monetarism is (a) another name for Keynesian economics (b) a school of thought that stresses the importance of maintaining the gold standard (c) a school of thought that stresses the important role of the money supply (d) none of the above 281. The economist who proposed that, “Inflation is always and everywhere a monetary phenomenon” was: (a) John Maynard Keynes (b) John R. Hicks (c) Milton Friedman (d) Franco Modigliani 282. Countries with the highest inflation rates are likely to have: (a) the highest rates of money growth (b) large budget deficits (c) the lowest interest rates (d) both (a) and (b) of the above 283. According to the monetarists, inflation is caused by Page 61 (a) supply shocks (b) expansionary fiscal policies CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook
(c) expansionary monetary policies (d) rising prices 284. Full form of IOSCO: (a) Indian Organization of Securities Commission (b) International Organization of Securities Commission (c) International Organization of Securities Council (d) Indian Organization of Securities Council 285. IOSCO was established in _____: (a) 1980 (b) 1981 (c) 1982 (d) 1983 286. The IOSCO core objectives of securities regulation are: (a) the protection of investors (b) ensuring that markets are fair, efficient and transparent (c) the reduction of systemic risk (d) all of the above 287. IAIS stands for ____________ (a) Internal Association of Insurance Supervisors (b) International Association of Insurance Supervisors (c) International Academy of Insurance Supervisors (d) International Association of Insurance Surveyors 288. The headquarter of the International Association of Insurance Supervisors (IAIS) is located at ______________ (a) Geneva, Switzerland (b) Berlin, Germany (c) Singapore (d) Basel, Switzerland CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 62
289. The two main objectives of the International Association of Insurance Supervisors is to contribute to global financial stability and to (a) promote and enhance the business environment of its member insurance and reinsurance companies (b) promote effective and globally-consistent supervision of the insurance industry (c) regulate global insurance companies (d) regulate global insurance intermediaries 290. Full form of ESMA: (a) The European Securities and Markets Authority (b) The European Securities and Markets Association (c) The Europa Securities and Markets Authority (d) The Europa Securities and Markets Association 291. ESMAs founded in ___________ and headquartered in _________. (a) 2011, Switzerland (b) 2011, Paris (c) 2010, Switzerland (d) 2010, Paris 292. ESMA works in the field of securities legislation and regulation to: (a) improve the functioning of financial markets in Europe (b) strengthening investor protection (c) co-operation between national competent authorities (d) all of the above 293. The main goals of The European Insurance and Occupational Pensions Authority (EIOPA) is: (a) To improve consumer protection and rebuild trust in the financial system (b) To ensure strong, effective and consistent regulation and supervision, taking account of the interests of all member states and the different nature of financial institutions (c) To bring about more harmonised and consistent application of the rules for financial institutions and markets across the EU (d) To strengthen the oversight of cross-border groups (e) All of the above CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 63
294. EIOPA is headquartered in: (a) Frankfurt (b) Switzerland (c) Vienna (d) Paris 295. The rapid increase of public debt of the Central Government since 1950-51 has been due to? (a) Uncontrolled inflation (b) Rising population (c) Mounting costs of public financing expenditure (d) Mounting shares of state government from revenues raised by the central government CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 64
Answer Keys Q. No. Answer Q. No. Answer Q. No. Answer Q. No. Answer Q. No. Answer 1 c 61 c 121 b 181 c 241 a 2 c 62 c 122 c 182 c 242 a 3 d 63 a 123 b 183 a 243 a 4 c 64 a 124 d 184 b 244 a 5 a 65 c 125 d 185 b 245 a 6 d 66 a 126 a 186 d 246 a 7 d 67 a 127 b 187 c 247 b 8 d 68 b 128 c 188 b 248 c 9 b 69 d 129 c 189 b 249 c 10 a 70 c 130 c 190 b 250 c 11 b 71 c 131 b 191 d 251 d 12 a 72 b 132 d 192 a 252 c 13 d 73 d 133 b 193 a 253 c 14 c 74 d 134 b 194 b 254 c 15 a 75 a 135 b 195 b 255 c 16 c 76 a 136 d 196 a 256 c 17 a 77 d 137 b 197 b 257 e 18 d 78 a 138 c 198 a 258 a 19 a 79 d 139 b 199 e 259 c 20 d 80 c 140 a 200 e 260 e 21 c 81 d 141 b 201 c 261 d 22 a 82 a 142 b 202 a 262 d 23 c 83 d 143 d 203 b 263 b 24 84 a 144 c 204 c 264 c 25 a 85 a 145 c 205 b 265 a 26 a 86 a 146 d 206 d 266 b 27 b 87 a 147 d 207 d 267 a 28 d 88 a 148 a 208 c 268 d 29 a 89 a 149 d 209 c 269 b 30 d 90 c 150 e 210 a 270 c CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 65
31 e 91 d 151 b 211 c 271 b 32 a 92 a 152 c 212 a 272 a 33 b 93 a 153 d 213 c 273 b 34 a 94 c 154 b 214 c 274 b 35 d 95 d 155 d 215 a 275 c 36 a 96 a 156 a 216 b 276 a 37 d 97 b 157 a 217 d 277 a 38 a 98 a 158 a 218 a 278 b 39 a 99 b 159 a 219 b 279 d 40 c 100 c 160 c 220 b 280 c 41 d 101 b 161 c 221 e 281 c 42 c 102 c 162 c 222 b 282 d 43 a 103 a 163 c 223 a 283 c 44 b 104 b 164 b 224 a 284 b 45 d 105 b 165 d 225 c 285 d 46 d 106 c 166 c 226 d 286 d 47 b 107 a 167 d 227 d 287 b 48 c 108 a 168 b 228 b 288 d 49 b 109 d 169 a 229 a 289 b 50 b 110 a 170 b 230 d 290 a 51 c 111 a 171 b 231 d 291 b 52 c 112 b 172 b 232 c 292 d 53 d 113 a 173 d 233 a 293 e 54 d 114 c 174 b 234 d 294 a 55 b 115 b 175 b 235 b 295 c 56 a 116 b 176 f 236 d 57 d 117 d 177 b 237 c 58 d 118 d 178 c 238 f 59 b 119 c 179 d 239 a 60 d 120 a 180 c 240 b CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 66
Acronyms CFT : Combating the Financing of Terrorism DICGC : Deposit Insurance and Credit Guarantee Corporation of India DRT : Debt Recovery Tribunal FATF : Financial Action Task Force FCA : Financial Conduct Authority FDMC : Financial Data Management Centre FMC : Forward Markets Commission FSAT : Financial Sector Appellate Tribunal FSDC : Financial Stability and Development Council FSLRC : Financial Sector Legislative Reforms Commission IRA : Independent Regulatory Agency IRDA : Insurance Regulatory and Development Authority KYC : Know Your Customer NCDRC : National Consumer Disputes Redressal Commission PDMA : Public Debt Management Agency PFRDA : Pension Fund Regulatory and Development Authority SAT : Securities Appellate Tribunal CFP Level 1 - Module 3 - Regulatory Environment, Law & Compliance - Workbook Page 67
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