Free CII Securities advice and dealing (J12) Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CII Securities advice and dealing (J12) practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1An investor owns £7,500 nominal of a conventional gilt with a 4% annual coupon. What is each regular half-yearly coupon payment?

   1. A.£75
   2. B.£150Correct answer: B
   3. C.£300
   4. D.£375

   Explanation: DMO — About Gilts states: "This payment is made in two equal semi-annual payments on fixed dates, six months apart." The annual coupon is £7,500 × 0.04 = £300; each half-yearly payment is £300 / 2 = £150. £75 quarters the annual coupon, £300 omits the half-year split, and £375 uses a 5% annual rate without splitting.

   Reference: DMO — About Gilts — Conventional gilts

2. 2A share last traded at 245p. A client submits a market buy order while prices are moving quickly. Which statement about the execution price is correct?

   1. A.The last-traded 245p price must be used.
   2. B.The price is not guaranteed by the market order.Correct answer: B
   3. C.The lowest price of the day must be used.
   4. D.The price is fixed at the previous closing price.

   Explanation: "This type of order guarantees that the order will be executed, but does not guarantee the execution price." A market order prioritises immediate execution, not a specified price. A last trade or previous close is historical information, not the order's price limit; no rule guarantees the day's low.

   Reference: SEC Investor.gov — Types of Orders — Market orders

3. 3A firm buys 100 shares for a retail client with no specific execution instructions. Execution likelihood and other factors are equal; all execution-related fees are shown. Which route gives the lowest total consideration?

   1. A.£10.00 per share plus £18 fees.
   2. B.£10.01 per share plus £2 fees.Correct answer: B
   3. C.£9.99 per share plus £25 fees.
   4. D.£10.02 per share plus £4 fees.

   Explanation: "the best possible result must be determined in terms of the total consideration, representing the price of the financial instrument and the costs related to execution" Totals are£1,018,£1,003,£1,024and£1,006respectively. The second route has the lowest combined cost, even though its headline share price is not the lowest. The stem holds other execution factors equal.

   Reference: FCA Handbook — COBS 11.2A — COBS 11.2A.9R, Role of price

4. 4Which settlement arrangement directly links the final transfer of securities with the final transfer of the payment?

   1. A.Free-of-payment delivery
   2. B.Settlement netting
   3. C.Counterparty novation
   4. D.Delivery versus paymentCorrect answer: D

   Explanation: "Exchange of value of assets and money where the transfers are irreversible, unconditional and simultaneously final." Delivery versus payment links final securities delivery to final payment. Free-of-payment delivery lacks that linked cash leg; netting offsets obligations, while novation substitutes a counterparty rather than itself providing the simultaneous final exchange.

   Reference: DMO — Glossary — DVP: Delivery versus-Payment

5. 5Through the intertemporal substitution channel, how does an increase in real interest rates normally affect household consumption?

   1. A.It encourages borrowing and raises current consumption.
   2. B.It makes saving less attractive and raises consumption.
   3. C.It removes the incentive to postpone expenditure.
   4. D.It encourages saving and reduces current consumption.Correct answer: D

   Explanation: "Higher interest rates increase the cost of borrowing while also increasing the benefits of saving, encouraging households to save more and/or borrow less, reducing consumption as a result." More attractive saving and more expensive borrowing tend to shift spending away from the present. The other choices reverse those incentives. This describes a normal transmission tendency, not an identical response by every household.

   Reference: Bank of England — About a rate of general interest — Section 3.2.1, The intertemporal substitution channel

6. 6A retail client expresses enthusiasm for high-risk investments but could not meet essential commitments after a substantial loss. What must the adviser's suitability analysis recognise?

   1. A.Willingness to take risk establishes sufficient financial capacity.
   2. B.Risk tolerance and financial ability to bear loss must both be considered.Correct answer: B
   3. C.Financial capacity matters only after an investment has fallen.
   4. D.Enthusiasm permits the adviser to disregard financial commitments.

   Explanation: "in accordance with the client’s risk tolerance and ability to bear losses." Risk willingness does not create financial loss capacity. The adviser must assess both before recommending; later assessment or ignoring commitments would not meet the suitability requirement.

   Reference: FCA Handbook — COBS 9A.2 — COBS 9A.2, Assessing suitability: the obligations, rule 1(2)

7. 7Which feature distinguishes an index-linked gilt from a conventional gilt?

   1. A.Only its redemption principal is adjusted for RPI inflation.
   2. B.Only its semi-annual coupons are adjusted for RPI inflation.
   3. C.Both coupons and redemption principal adjust for RPI inflation.Correct answer: C
   4. D.Both coupons and redemption principal adjust for sterling exchange rates.

   Explanation: DMO — About Gilts states: "Index-linked gilts differ from conventional gilts in that the semi-annual coupon payments and the principal repayment are adjusted in line with the UK Retail Prices Index (RPI) with a lag." Both payment streams are indexed, with a lag. The first two options omit one stream; exchange-rate indexing confuses inflation protection with currency exposure.

   Reference: DMO — About Gilts — Index-linked gilts

8. 8A client places a sell limit order at 155p. What is the lowest execution price permitted by that limit?

   1. A.150p
   2. B.154p
   3. C.155pCorrect answer: C
   4. D.160p

   Explanation: "a sell limit order can only be executed at the limit price or higher." The minimum allowed price is155p.150p and154p breach the floor;160p is permitted but is not the lowest price allowed.

   Reference: SEC Investor.gov — Types of Orders — Limit orders

9. 9A firm aggregates two client orders for 1,000 and 3,000 shares. Its established fair allocation policy requires proportional allocation by order size. Only 2,000 shares are bought. How should the fill be allocated?

   1. A.1,000 shares to each client.
   2. B.2,000 shares to the larger client.
   3. C.1,500 shares to the smaller client and 500 to the larger.
   4. D.500 shares to the smaller client and 1,500 to the larger.Correct answer: D

   Explanation: "allocate the related trades in accordance with its order allocation policy." The required policy gives proportions1,000/4,000and3,000/4,000. Applied to2,000shares, these are500and1,500. Equal allocation, filling the larger order first or reversing the proportions would breach the stated policy. Proportional allocation is supplied by this firm's policy, not asserted as a universal rule.

   Reference: FCA — PS25/13, final instrument FCA 2025/40 — Instrument page 154, COBS 11.3.8AR

10. 10An investor makes a £24,000 electronic purchase of existing UK shares subject to standard 0.5% SDRT, with no exemption or relief. How much SDRT is payable?

    1. A.£24
    2. B.£120Correct answer: B
    3. C.£240
    4. D.£1,200

    Explanation: "When you buy shares, you usually pay a tax or duty of 0.5% on the transaction." SDRT=£24,000×0.005=£120.£24uses0.1%,£240uses1%,and£1,200uses5%. The stem explicitly makes the electronic transaction chargeable and excludes reliefs.

    Reference: HMRC — Tax when you buy shares — Overview