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The Financial Service Sector (Proportion: 6% - 3 questions)

By the end of this section, candidates should be able to:

• Understand the role of each of the following within the financial services sector:
  • Retail banks / Corporate banks
  • Savings institutions
  • Investment banks
  • Private banks
  • Pension funds
  • Insurance companies
  • Fund managers
  • Brokers
  • Custodians
  • Investment platforms
  • Third-party investment managers (TPAs)
  • Trade and professional associations
  • Sovereign wealth funds
  • Peer-to-peer lending and crowdfunding platforms
• Understand the function of both the retail (individuals) and corporate (business) sectors, the differences between them, and their main types of clients.
• Understand the role of investment distribution channels:
  • Independent financial advice and restricted advice services
  • Execution-only services (where no advice is given)
  • Robo-advice (automated investment advice)
• Be familiar with the following emerging topics:
  • Financial technology (FinTech).
  • Environmental, Social, and Governance (ESG) investing.

Economic Environment (Proportion: 8% - 4 questions)

After completing this section, the candidate should be able to:

• Understand the factors that affect the level of economic activity in each of the following:
  • Centrally planned economy
  • Market economy
  • Mixed economy
  • Open economy
• Recognise the stages of the economic cycle and the role of the government in setting:
  • Economic policy
  • Fiscal policy
  • Monetary policy
• Understand the role of central banks, including:
  • The Federal Reserve
  • The European Central Bank
  • The Bank of England
  • The Bank of Japan
• Understand the impact of the following economic data:
  • Gross Domestic Product (GDP)
  • Balance of Payments
  • Budget Deficit/Surplus
  • Unemployment Rate
  • Exchange Rates
  • Inflation/Deflation

Equity / Shares (Proportion: 18% – 9 Questions)

After completing this section of the book, candidates should be able to:

• Understand how companies are set up and know the differences between private and public companies.
• Understand the features of ordinary shares and preference shares, and the advantages of each in terms of:
  • Dividend payments
  • Capital gains
  • Shareholder rights
  • Rights to subscribe for new shares
  • Voting rights
  • Be able to calculate the dividend yield on a share
• Understand the benefits, risks, and downsides of investing in shares, including:
  • Price volatility
  • Liquidity risks
  • Risks linked to the issuing company
  • Currency exchange risks
• Understand the role of a company's board of directors and the difference between:
  • Mandatory decisions
  • Voluntary decisions
  • Mandatory decisions with options (including mergers and acquisitions)
• Understand the following terms:
  • Bonus issues / free share distributions / profit capitalisation / share splits / reverse share splits
  • Rights issues / open offers
  • Dividend distributions
  • Share buybacks
• Be able to calculate:
  • The theoretical share price after a rights issue
  • The theoretical share price after a bonus issue
• Understand the purpose and format of company general meetings.
• Understand the role of the stock exchange, including:
  • Primary and secondary markets
  • Listing of Shares
• Understand the characteristics of depositary receipts, such as:
  • American Depositary Receipts (ADR)
  • Global Depositary Receipts (GDR)
  • Dividend payments
  • How they are issued and pre-issue trading
  • Rights to subscribe for new shares
• Know the main types of stock market indices and how they are used.
• Understand how shares are traded, including:
  • Trading directly on the exchange / Over the counter (OTC) trading
  • Multilateral trading facilities (MTFs)
  • Order-driven trading platforms
  • Quote-driven trading platforms
• Know the different ways shares can be owned and the related terms:
  • Registered shares and bearer shares
  • Share freezing and digital restrictions
• Understand the role of a central counterparty (CCP) in clearing and settlement.
• Understand how settlement works, including:
  • The participants involved
  • The settlement process
  • Settlement cycles

Bonds (Proportion: 14% – 7 Questions)

After completing this section of the book, candidates should be able to:

4.1.1 Understand the key features of bonds and related terms, such as:

• Coupon (interest rate)
• Maturity or redemption date
• Face value (par value)
• Yields

4.2 Government Bonds After completing this section, candidates should be able to:

4.2.1 Understand the definition and key features of government bonds, including:

• Types of government bonds
• Bonds issued by the United States
• Bonds issued by the United Kingdom
• Bonds issued by China
• Bonds issued by Germany
• Bonds issued by Japan

4.3 Corporate Bonds

4.3.1 Understand the categories and features of the following types of bonds:

• Domestic bonds
• Foreign bonds
• Eurobonds (external bonds)
• Asset backed securities, including covered bonds
• Zero-coupon bonds
• Hybrid bonds (convertible bonds / preferred bonds)
• Floating rate bonds
• Medium-term notes

4.4 Bond Investment – Key Points

4.4.1 Understand the advantages and possible risks of investing in different types of bonds.

4.4.2 Be able to calculate the fixed yield on a bond.

4.4.3 Understand the role of credit rating agencies and the difference between investment grade and non-investment grade bonds.

After completing this section of the book, candidates should be able to:

5.1 Cash and Deposits

5.1.1 Understand the features of fixed-term deposit accounts and current accounts.

5.1.2 Understand the advantages and disadvantages of investing in cash.

5.1.3 Understand the differences between cryptocurrencies and traditional fiat currencies.

5.2 Money Market Instruments

5.2.1 Understand the difference between money market instruments and money instruments.

5.2.2 Understand the definition and features of the following:

• Treasury bills
• Commercial paper
• Certificates of deposit
• Money market funds

5.2.3 Understand the advantages and disadvantages of investing in money market instruments.

5.3 Real Estate Investments

5.3.1 Understand the features of real estate investment, including:

• Commercial and residential properties
• Direct and indirect investment methods

5.3.2 Understand the benefits and potential risks of investing in real estate.

5.4 Foreign Exchange Markets

5.4.1 Understand the basic structure of the foreign exchange (forex) market, including:

• Currency pricing
• Settlement processes
• Spot and forward transactions
• Short-term currency swaps

5.4.2 Be able to calculate the forward exchange rate using the interest rate parity formula.

Financial Derivatives (Proportion: 8% – 4 Questions)

After completing this section of the book, candidates should be able to:

6.1 Derivatives

6.1.1 Understand the uses of derivatives and how they are applied.

6.2 Futures Contracts

6.2.1 Understand the definition and purpose of futures contracts.

6.3 Options Contracts

6.3.1 Understand the definition and purpose of options contracts.

6.3.2 Understand the following terms:

• Call option
• Put option

6.4 Key Terms in Derivatives

6.4.1 Understand the following terms:

• Going long (buying)
• Going short (selling)
• Opening a contract
• Closing a contract
• Contract holder (or owner)
• Writing a contract
• Premium (contract price)
• Covered (secured) investment
• Uncovered (unsecured) investment

6.5 Commodities and Financial Derivatives Markets

6.5.1 Understand the key features of commodities markets and financial derivatives markets.

6.5.2 Understand the advantages and potential disadvantages of investing in commodities and derivatives.

6.6 Interest Rate Swaps

6.6.1 Understand the definition and purpose of interest rate swaps.

6.7 Credit Default Swaps

6.7.1 Understand the definition and purpose of credit default swaps.

Investment Funds (Proportion: 12% – 6 Questions)

After completing this section of the book, candidates should be able to:

7.1 Collective Investment

7.1.1 Understand the advantages, risks, and potential disadvantages of collective investment.

7.1.2 Understand the difference between active management and passive management (such as index tracking).

7.1.3 Understand the different types of investment funds and how they are classified.

7.2 Open-Ended Investment Funds

7.2.1 Understand the features of open-ended investment funds / mutual funds and the different types of funds, including:

• Funds in the United States
• Funds in Europe

7.3 Closed-Ended Investment Companies

7.3.1 Understand the features of closed-ended investment companies (fixed capital investment companies), including:

• Share classes
• Leverage
• Real Estate Investment Trusts (REITs)

7.3.2 Understand the meaning of discounts and premiums in the pricing of closed-end investment companies.

7.3.3 Understand how the shares of closed-ended investment companies are traded.

7.4 Exchange-Traded Funds (ETFs)

7.4.1 Understand the basic features of ETFs, including:

• Trading
• Replication methods
• Synthetic and physical replication

7.5 Hedge Funds and Private Equity

7.5.1 Understand the basic features of hedge funds, including:

• Potential risks
• Cost and liquidity
• Investment strategies

7.5.2 Understand the basic features of private equity funds, including:

• Fundraising
• Generating capital gains

Financial Services Regulation (Proportion: 10% – 5 Questions)

After completing this section of the book, candidates should be able to:

8.1 Regulation and Ethics

8.1.1 Understand the need for regulation and licensing of companies.

8.1.2 Understand the main objectives and activities of regulatory bodies in the financial services sector.

8.1.3 Know the Code of Conduct of the Chartered Institute for Securities & Investment (CISI).

8.1.4 Understand the key principles of professional integrity and ethical behaviour in financial services.

8.2 Financial Crime

8.2.1 Understand the meaning of money laundering, the stages of the process, and related offences.

8.2.2 Understand how companies or individuals can be misused to commit financial crimes, including:

• Fraud
• Cybercrime
• Terrorist financing

8.3 Market Abuse

8.3.1 Understand what constitutes insider trading, misuse of market rules, and the financial instruments involved.

Other Financial Products (Proportion: 8% – 4 Questions)

After completing this section of the book, candidates should be able to:

9.1 Retirement Planning

9.1.1 Understand the benefits provided by pension schemes.

9.1.2 Understand the key features of pension funds and the related risks, including:

• State pension schemes
• Occupational pension schemes:
  • Defined benefit schemes
• Defined contribution schemes
  • Personal pension schemes

9.2 Borrowing and Loans

9.2.1 Understand the differences between bank loans, overdrafts, and borrowing through credit cards.

9.2.2 Understand the difference between the advertised borrowing rate (nominal interest rate) and the actual annual percentage rate (APR) of a loan.

9.2.3 Be able to calculate the annual percentage rate (APR) of a loan based on the nominal interest rate and payment frequency.

9.2.4 Understand the difference between secured and unsecured borrowing.

9.3 Mortgage Finance

9.3.1 Understand the key features of the mortgage market, including:

• Interest rates
• Loan-to-value ratio (LTV)

9.3.2 Understand the definition and types of mortgages, including:

• Repayment mortgages
• Interest-only mortgages
• Offset mortgages

9.3.3 Understand the prohibition of interest (riba) and the types of mortgage contracts used in Islamic finance.

9.4 Life Insurance

9.4.1 Understand the basic principles of life insurance and the definitions of the following types of life insurance policies:

• Term insurance
• Whole-of-life insurance

After completing this section of the book, candidates should be able to:

10.1 Main Areas of Financial Advice

10.1.1 Understand the key areas of financial advice, including:

• Budget management
• Protection (insurance and risk management)
• Borrowing
• Investment and savings
• Financial planning for retirement
• Estate planning
• Tax planning and offshore considerations

10.2 Financial Advice Process

10.2.1 Understand the main factors in the financial advice process, including:

• Building and maintaining client relationships
• Affordability, suitability, and risk appetite
• Matching solutions to client needs
• Using communication skills to deliver advice
• Monitoring and reviewing clients’ circumstances
• Providing clients with clear information
• Consumer rights and the procedures to follow if they are breached, including understanding the limits of those procedures

10.3 Key Legal Concepts

10.3.1 Understand the key legal concepts related to:

• Legal persons (such as executors, intestacy, personal representatives, trustees, companies, limited liability entities)
• Contracts and contractual capacity
• Agency relationships
• Property: real estate, personal property, and joint ownership
• Powers of attorney
• Insolvency and bankruptcy
• Detecting and reporting potential fraud