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SEC Nigeria Sponsored Individual study materials
SEC Nigeria Sponsored Individual study resources

SEC Nigeria Sponsored Individual practice questions

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Question 1Nigerian Capital Market Regulatory Framework and SEC Rules

Under the Investments and Securities Act, which body is empowered to register and regulate capital market operators in Nigeria?

  1. The Central Bank of Nigeria
  2. The Nigerian Exchange Limited
  3. The National Insurance Commission
  4. The Securities and Exchange Commission Correct answer.

Explanation

The Securities and Exchange Commission is the apex regulator of the Nigerian capital market, established to register and supervise capital market operators and to protect investors. The Central Bank regulates banks and the money market, the Exchange operates a trading platform, and NAICOM oversees insurers.

Question 2Nigerian Capital Market Regulatory Framework and SEC Rules

A Sponsored Individual seeking registration with the SEC must be sponsored by which of the following?

  1. The Chartered Institute of Stockbrokers
  2. A registered capital market operator Correct answer.
  3. The Central Bank of Nigeria
  4. The Nigerian Exchange Limited

Explanation

A Sponsored Individual is an individual who applies to the SEC to be registered and is sponsored by a registered capital market operator. The sponsor vouches for the applicant and remains accountable for the individual's conduct in the market.

Question 3Nigerian Capital Market Regulatory Framework and SEC Rules

Which document must a Sponsored Individual submit to demonstrate that the sponsor accepts responsibility for the applicant?

  1. A tax clearance certificate
  2. A sponsor's declaration and undertaking Correct answer.
  3. A bank reference letter
  4. A curriculum vitae

Explanation

The registration file for a Sponsored Individual must include a declaration and undertaking from the sponsoring capital market operator accepting responsibility for the applicant. Bank references and tax clearances support the file but do not establish sponsorship.

Question 4Nigerian Capital Market Regulatory Framework and SEC Rules

The SEC Rule requiring capital market operators to report suspicious transactions is primarily aimed at which objective?

  1. Preventing money laundering and market abuse Correct answer.
  2. Determining the listing price of new shares
  3. Restricting foreign portfolio investment
  4. Maximising brokerage commissions

Explanation

Suspicious transaction reporting supports anti-money laundering and counter-terrorist financing objectives, and market abuse detection. It is not a pricing mechanism and is not intended to restrict legitimate foreign investment.

Question 5Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best describes the SEC's investor protection mandate in the Nigerian capital market?

  1. Setting the interest rate for treasury bills
  2. Underwriting all public offers
  3. Ensuring fair, transparent and orderly markets and safeguarding investors' interests Correct answer.
  4. Guaranteeing a fixed return on every investment

Explanation

The SEC's mandate centres on maintaining fair, efficient and transparent markets and protecting investors. It does not guarantee investment returns, underwrite offers, or set monetary policy rates.

Question 6Nigerian Capital Market Regulatory Framework and SEC Rules

A registered Sponsored Individual wishes to change the capital market operator sponsoring him. What is the correct regulatory step?

  1. Simply inform clients without notifying the SEC
  2. Notify the SEC and obtain approval for the change of sponsor Correct answer.
  3. Apply to the Central Bank for a new licence
  4. Continue operating under the old sponsor indefinitely

Explanation

A change of sponsor affects the basis of the individual's registration, so the SEC must be notified and must approve the new sponsoring operator. Operating under a lapsed or unapproved sponsor would leave the individual without valid sponsorship.

Question 7Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following would most likely disqualify an applicant from SEC registration as a Sponsored Individual?

  1. Completion of the SEC-sponsored training
  2. Membership of a professional body
  3. A prior conviction for fraud Correct answer.
  4. A degree in finance

Explanation

Integrity is a core registration criterion, so a fraud conviction renders an applicant unfit for registration. Professional membership, relevant qualifications and training support rather than disqualify an application.

Question 8Nigerian Capital Market Regulatory Framework and SEC Rules

The SEC's 'fit and proper' assessment of a Sponsored Individual applicant focuses chiefly on which combination?

  1. Number of clients and office location
  2. Political affiliation and tribe
  3. Age, gender and religion
  4. Integrity, competence and financial soundness Correct answer.

Explanation

Fit and proper criteria assess personal integrity, professional competence and financial soundness. Personal characteristics such as political affiliation or ethnicity have no place in regulatory fitness assessment.

Question 9Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following is a key function of a Compliance Officer within a registered capital market operator?

  1. Monitoring adherence to SEC rules and reporting breaches Correct answer.
  2. Executing trades on behalf of clients
  3. Approving annual financial statements
  4. Setting the company's dividend policy

Explanation

The Compliance Officer monitors the firm's adherence to SEC rules and internal policies and reports breaches to management and the regulator. Trading, audit approval and dividend decisions are separate functions.

Question 10Nigerian Capital Market Regulatory Framework and SEC Rules

A Sponsored Individual is required to renew registration periodically. Which action best reflects compliance with continuing registration obligations?

  1. Suspending all activity to avoid fees
  2. Renewing only when a new client is acquired
  3. Waiting for the SEC to send a reminder before acting
  4. Paying the prescribed annual fees and filing required returns by the due date Correct answer.

Explanation

Registered individuals must pay prescribed fees and file required returns within the deadlines set by the SEC. Renewal is a proactive obligation and does not depend on a reminder or on client acquisition.

Question 11Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best explains why the SEC requires sponsored individuals to disclose conflicts of interest?

  1. To reduce the number of registered individuals
  2. To increase the sponsor's revenue
  3. To discourage clients from trading
  4. To preserve market integrity and ensure clients receive fair treatment Correct answer.

Explanation

Disclosure of conflicts protects market integrity and ensures fair treatment of clients by allowing them to assess the independence of advice. It is not a revenue or restriction tool.

Question 12Nigerian Capital Market Regulatory Framework and SEC Rules

Under the SEC rules, which of the following activities requires registration as a capital market operator?

  1. Dealing in securities on behalf of clients Correct answer.
  2. Attending a shareholders' meeting
  3. Publishing a personal blog on financial literacy
  4. Opening a savings account at a bank

Explanation

Dealing in securities for clients is a regulated capital market activity requiring registration. Financial literacy writing, attending meetings and personal banking fall outside the registration requirement.

Question 13Nigerian Capital Market Regulatory Framework and SEC Rules

What is the primary purpose of the SEC's Know Your Customer requirements for sponsored individuals?

  1. To set the client's tax rate
  2. To identify clients and understand the source of their funds Correct answer.
  3. To select which securities the client should buy
  4. To determine the client's political preferences

Explanation

KYC requirements exist to identify clients, understand their financial profile and verify the source of funds, supporting anti-money laundering efforts. They do not involve political profiling, investment selection or tax setting.

Question 14Nigerian Capital Market Regulatory Framework and SEC Rules

A Sponsored Individual is approached to handle a client's funds outside the sponsoring operator's books. What is the correct response?

  1. Accept if the amount is below a threshold
  2. Accept if the client signs a waiver
  3. Accept, provided a receipt is issued
  4. Decline, because client funds must be handled through the sponsoring operator's regulated channels Correct answer.

Explanation

Client funds must flow through the regulated books and accounts of the sponsoring capital market operator; handling funds privately is a serious breach. A receipt, waiver or small amount does not legitimise the arrangement.

Question 15Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following statements about the SEC's power to inspect registered capital market operators is accurate?

  1. The SEC may inspect only with the operator's written consent
  2. The SEC may inspect only after a court order in every case
  3. The SEC has no inspection powers over registered operators
  4. The SEC may conduct routine and special inspections of operators' books and records Correct answer.

Explanation

The SEC has statutory inspection powers enabling routine and special examinations of operators' books and records. Consent and court orders are not prerequisites in every case.

Question 16Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best describes the relationship between a sponsoring operator and a Sponsored Individual?

  1. The sponsor is merely a referee for employment
  2. The sponsor has no responsibility once registration is granted
  3. The sponsor supervises and remains accountable for the individual's market conduct Correct answer.
  4. The individual reports only to the SEC

Explanation

Sponsorship creates ongoing supervisory responsibility: the sponsor must oversee the individual and remains accountable for their conduct. The relationship is more than a mere reference and does not end at registration.

Question 17Nigerian Capital Market Regulatory Framework and SEC Rules

A Sponsored Individual learns that a client's transaction appears designed to disguise the proceeds of crime. What is the appropriate action?

  1. Report through the operator's compliance process in line with AML requirements Correct answer.
  2. Ignore it if the amount is small
  3. Advise the client on how to avoid detection
  4. Complete the transaction and keep records privately

Explanation

Suspected money laundering must be escalated through the operator's compliance and reporting channels as required by AML rules. Completing the deal, advising on evasion or ignoring small amounts would be serious breaches.

Question 18Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following is the most accurate description of the SEC's role in relation to collective investment schemes?

  1. The SEC appoints the fund manager
  2. The SEC guarantees returns to scheme investors
  3. The SEC manages the scheme's portfolio directly
  4. The SEC registers and supervises schemes and their operators Correct answer.

Explanation

The SEC registers and supervises collective investment schemes and their operators, including fund managers and trustees. It does not guarantee returns, manage portfolios or appoint managers.

Question 19Nigerian Capital Market Regulatory Framework and SEC Rules

A registered Sponsored Individual intends to hold a position as a director in an unrelated company. What is the correct regulatory approach?

  1. Conceal the directorship to avoid scrutiny
  2. Disclose the proposed directorship to the SEC and the sponsor for approval Correct answer.
  3. Resign from the sponsor before disclosing
  4. Assume that outside directorships are unregulated

Explanation

Outside directorships can create conflicts of interest, so they must be disclosed to the sponsor and the SEC for approval. Concealing such a position or assuming non-regulation breaches the duty of candour.

Question 20Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best explains why the SEC imposes record-keeping obligations on registered capital market operators?

  1. To increase the cost of doing business
  2. To enable regulatory inspection and reconstruction of transactions Correct answer.
  3. To replace external audits
  4. To create a marketing database

Explanation

Record-keeping obligations allow the SEC to inspect and reconstruct transactions for supervision and enforcement. They are not designed to raise costs, replace audits or serve marketing.

Question 21Nigerian Capital Market Regulatory Framework and SEC Rules

An operator's compliance officer discovers that a Sponsored Individual has traded on inside information. What is the most appropriate regulatory response?

  1. Warn the individual and take no further action
  2. Escalate to the SEC and cooperate with any investigation Correct answer.
  3. Handle the matter internally without informing the SEC
  4. Destroy the trading records

Explanation

Insider trading is a serious market abuse offence requiring escalation to the SEC and cooperation with investigation. Internal concealment, destruction of records or mere warnings would compound the breach.

Question 22Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best describes the SEC's approach to regulating conflicts between a sponsored individual's personal trading and client interests?

  1. Personal trading must be disclosed and managed so clients are not disadvantaged Correct answer.
  2. Personal trading is entirely unrestricted
  3. Personal trading is prohibited for all registered individuals
  4. Personal trading is permitted if done anonymously

Explanation

Personal trading is permitted but must be disclosed and managed to prevent client disadvantage. It is not wholly prohibited, and anonymity does not cure a conflict.

Question 23Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following is the most accurate statement about the SEC's power to sanction registered capital market operators?

  1. The SEC may only issue verbal warnings
  2. The SEC may sanction only unregistered persons
  3. The SEC may impose sanctions including suspension or revocation of registration Correct answer.
  4. The SEC must obtain the sponsor's approval before sanctioning

Explanation

The SEC possesses a range of sanctions including suspension, fines and revocation of registration. Its powers are not limited to verbal warnings, do not require sponsor approval and extend to registered operators.

Question 24Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following documents is typically required as part of a Sponsored Individual's application to demonstrate identity and integrity?

  1. A property valuation report
  2. A police clearance or sworn declaration of no criminal record Correct answer.
  3. A vehicle registration certificate
  4. A travel itinerary

Explanation

Identity and integrity are evidenced by documents such as police clearance or a sworn declaration of no criminal record. Property valuations, vehicle registrations and travel plans are irrelevant to fitness.

Question 25Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best describes the SEC's role in investor complaints and dispute resolution?

  1. The SEC acts as the investor's personal lawyer
  2. The SEC receives and investigates investor complaints and may refer disputes for resolution Correct answer.
  3. The SEC guarantees recovery of all losses
  4. The SEC has no involvement in investor complaints

Explanation

The SEC receives and investigates investor complaints and may refer disputes for resolution through appropriate channels. It does not act as personal counsel, guarantee recovery or ignore complaints.

Question 26Nigerian Capital Market Regulatory Framework and SEC Rules

Under the SEC Nigeria regulatory framework, which body is responsible for the registration and regulation of capital market operators and sponsored individuals?

  1. The National Insurance Commission (NAICOM)
  2. The Nigeria Deposit Insurance Corporation (NDIC)
  3. The Securities and Exchange Commission (SEC) Correct answer.
  4. The Central Bank of Nigeria (CBN)

Explanation

The SEC is the apex regulatory body for the Nigerian capital market, established to regulate and develop the market, including the registration of capital market operators and sponsored individuals. The CBN regulates banks and other financial institutions, while NDIC insures deposits and NAICOM regulates insurance.

Question 27Nigerian Capital Market Regulatory Framework and SEC Rules

Which SEC Nigeria rule governs the procedure for handling client complaints against a registered sponsored individual?

  1. The SEC Code of Conduct for Capital Market Operators
  2. The SEC Rules on Complaints and Dispute Resolution Correct answer.
  3. The Companies and Allied Matters Act (CAMA) 2020
  4. The Investments and Securities Act (ISA) 2025

Explanation

The SEC has specific rules and procedures for the resolution of complaints by investors against capital market operators and sponsored individuals. These rules set out the steps for lodging complaints and the timelines for resolution. The ISA provides the overarching legal framework but the detailed complaint procedure is in the SEC Rules.

Question 28Nigerian Capital Market Regulatory Framework and SEC Rules

What is the primary purpose of the SEC's minimum capital requirement for capital market operators?

  1. To generate revenue for the SEC through registration fees
  2. To guarantee profits for operators
  3. To ensure operators have sufficient financial resources to meet obligations and absorb losses Correct answer.
  4. To limit the number of operators in the market

Explanation

Minimum capital requirements are designed to ensure that capital market operators maintain adequate financial resources to meet their obligations to clients and counterparties and to absorb potential losses. This promotes market stability and investor protection. The requirement is not intended to generate revenue, limit competition, or guarantee profits.

Question 29Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following is a core obligation of a sponsored individual under the SEC's anti-money laundering (AML) rules?

  1. Conducting customer due diligence and reporting suspicious transactions Correct answer.
  2. Guaranteeing investment returns to clients
  3. Providing investment advice without registration
  4. Maintaining client funds in personal accounts

Explanation

Under the SEC's AML/CFT rules, sponsored individuals must perform customer due diligence, monitor transactions, and report suspicious activities to the relevant authorities. Guaranteeing returns and holding client funds personally are prohibited, and providing advice without registration is not permitted.

Question 30Nigerian Capital Market Regulatory Framework and SEC Rules

A sponsored individual receives a gift from a client whose account she manages. Under the SEC Code of Conduct, what is the most appropriate action?

  1. Accept the gift if its value is below a set threshold
  2. Accept the gift and keep it confidential
  3. Accept the gift only if it is given in cash
  4. Decline the gift and report the offer to the compliance officer Correct answer.

Explanation

The SEC Code of Conduct requires sponsored individuals to avoid situations that could compromise their independence and objectivity. Accepting gifts from clients can create a conflict of interest, so the safest approach is to decline and disclose the offer to the compliance officer. Some firms may have a de minimis threshold, but the rule emphasizes disclosure and avoidance of conflicts.

Question 31Nigerian Capital Market Regulatory Framework and SEC Rules

Which SEC Nigeria rule applies to the handling of material non-public information by a sponsored individual?

  1. The SEC Rules on Custody of Securities
  2. The SEC Rules on Insider Trading and Market Abuse Correct answer.
  3. The SEC Rules on Collective Investment Schemes
  4. The SEC Rules on Mergers and Acquisitions

Explanation

The SEC has specific rules prohibiting insider trading and market abuse, which require sponsored individuals to refrain from trading on material non-public information and to maintain its confidentiality. The other rule sets deal with different areas of market regulation.

Question 32Nigerian Capital Market Regulatory Framework and SEC Rules

A sponsored individual is offered a directorship in a company that is a client of his sponsoring operator. What should he do first?

  1. Accept the offer since it is a private matter
  2. Accept the offer and resign from the sponsoring operator
  3. Disclose the offer to his sponsoring operator and seek approval Correct answer.
  4. Decline the offer without informing anyone

Explanation

Under SEC rules, sponsored individuals must disclose any potential conflicts of interest, including outside directorships, to their sponsoring operator and obtain approval before accepting. This ensures transparency and allows the operator to manage the conflict. Accepting without disclosure or resigning prematurely are not appropriate.

Question 33Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best describes the SEC's requirement for record retention by sponsored individuals?

  1. Records must be kept for a minimum period as specified by SEC rules and made available for inspection Correct answer.
  2. Records must be kept only for transactions above a certain value
  3. Records must be kept indefinitely
  4. Records must be kept in paper form only

Explanation

SEC rules require sponsored individuals and capital market operators to maintain records for a specified minimum period (typically six years) and to make them available to the SEC upon request. Records can be kept in electronic form if retrievable. The requirement applies to all transactions, not just those above a threshold.

Question 34Nigerian Capital Market Regulatory Framework and SEC Rules

Under the SEC's rules on advertising by capital market operators, which of the following is prohibited?

  1. Including a statement that guarantees a specific return on investment Correct answer.
  2. Providing a balanced description of risks and returns
  3. Using past performance data with a disclaimer
  4. Clearly identifying the operator's registration status

Explanation

SEC rules prohibit misleading advertising, including guarantees of returns, as they create unrealistic expectations and violate fair marketing standards. Advertising may include registration status, balanced risk descriptions, and past performance with appropriate disclaimers.

Question 35Nigerian Capital Market Regulatory Framework and SEC Rules

A sponsored individual discovers that a colleague is engaging in market manipulation. What is the most appropriate action under SEC rules?

  1. Ignore it to avoid conflict
  2. Confront the colleague privately and keep it confidential
  3. Report the matter to the compliance officer or the SEC Correct answer.
  4. Join in the activity to avoid being ostracized

Explanation

SEC rules require sponsored individuals to report known or suspected violations of securities laws to the compliance officer or directly to the SEC. Whistleblowing is protected, and failure to report can lead to sanctions. Confronting privately or ignoring does not fulfill the obligation.

Question 36Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following is a key element of the SEC's corporate governance requirements for capital market operators?

  1. Maximizing shareholder profits at all costs
  2. Establishing an independent audit committee and a risk management framework Correct answer.
  3. Concentrating all decision-making in the CEO
  4. Avoiding disclosure of financial statements

Explanation

The SEC's corporate governance code for capital market operators requires the establishment of an independent audit committee, a risk management framework, and other structures to ensure accountability and transparency. Profit maximization at all costs, non-disclosure, and concentration of power are contrary to good governance.

Question 37Nigerian Capital Market Regulatory Framework and SEC Rules

A sponsored individual is asked by a client to execute a transaction that appears to be structured to avoid reporting thresholds. What should the sponsored individual do?

  1. Execute the transaction but keep no records
  2. Execute the transaction as instructed by the client
  3. Ask the client to split the transaction into smaller amounts
  4. Refuse to execute the transaction and file a suspicious transaction report Correct answer.

Explanation

Structuring transactions to avoid reporting thresholds is a form of money laundering. Under SEC AML rules, sponsored individuals must refuse to facilitate such transactions and report suspicious activity to the relevant authorities. Executing or assisting in structuring is illegal.

Question 38Nigerian Capital Market Regulatory Framework and SEC Rules

Which SEC Nigeria rule governs the conduct of securities lending and borrowing by capital market operators?

  1. The SEC Rules on Short Selling
  2. The SEC Rules on Margin Lending
  3. The SEC Rules on Securities Lending and Borrowing Correct answer.
  4. The SEC Rules on Derivatives

Explanation

The SEC has specific rules for securities lending and borrowing, which set out the conditions, collateral requirements, and disclosure obligations for such transactions. The other rule sets cover different activities.

Question 39Nigerian Capital Market Regulatory Framework and SEC Rules

Under the SEC's risk-based supervision framework, which of the following factors would most likely lead to heightened supervisory attention for a capital market operator?

  1. A stable financial position with no changes in management
  2. A consistent record of timely regulatory reporting
  3. A significant increase in the volume of complex products offered to retail clients Correct answer.
  4. A low client complaint ratio

Explanation

Risk-based supervision allocates supervisory resources according to the risk profile of operators. Factors such as complexity of products, rapid growth, and retail exposure increase risk and may attract heightened attention. Stability, low complaints, and timely reporting indicate lower risk.

Question 40Nigerian Capital Market Regulatory Framework and SEC Rules

Which of the following best describes the SEC's approach to regulating conflicts of interest arising from sponsored individuals' personal trading?

  1. Requiring personal trades to be executed only through the sponsored individual's own account
  2. Prohibiting all personal trading by sponsored individuals
  3. Requiring pre-clearance of personal trades and periodic disclosure of personal holdings Correct answer.
  4. Allowing personal trading without any restrictions

Explanation

The SEC's approach to personal trading conflicts typically involves requiring pre-clearance of trades, blackout periods, and periodic disclosure of personal holdings to monitor and manage conflicts. A total prohibition is not standard, and unrestricted trading is not allowed.

Question 41Securities and Investment Products

Under the Investments and Securities Act 2025, which body is the apex regulator of the Nigerian capital market?

  1. The Central Bank of Nigeria
  2. The National Insurance Commission
  3. The Nigerian Exchange Group
  4. The Securities and Exchange Commission Correct answer.

Explanation

The Securities and Exchange Commission is the apex regulator of the Nigerian capital market, empowered to register securities, license market operators and enforce the securities laws. The Central Bank regulates banks and the money market, while the exchange is a self-regulatory market operator supervised by the Commission.

Question 42Securities and Investment Products

A company wishes to offer shares to the public for the first time in Nigeria. Which document must be cleared by the Securities and Exchange Commission before the offer opens?

  1. A trust deed
  2. A prospectus Correct answer.
  3. A share certificate
  4. A memorandum of association

Explanation

A public offer of securities requires a prospectus that has been reviewed and approved by the Commission, because it contains the disclosures investors rely on. The other documents serve different purposes and do not authorise a public offer.

Question 43Securities and Investment Products

Which of the following best describes a collective investment scheme in the Nigerian capital market?

  1. A debt instrument issued by a state government to fund infrastructure
  2. A single investor's discretionary managed account at a stockbroking firm
  3. A pooled arrangement in which investors' contributions are invested and shared according to the scheme's rules Correct answer.
  4. A private placement of shares to fewer than fifty high-net-worth investors

Explanation

A collective investment scheme pools money from many investors and invests it under a defined trust arrangement, with units representing each investor's proportionate interest. It is distinct from individual managed accounts, private placements and government debt.

Question 44Securities and Investment Products

An investor buys ordinary shares of a listed Nigerian company. Which right does that shareholding ordinarily confer?

  1. Priority over creditors on liquidation
  2. Voting at general meetings of the company Correct answer.
  3. Repayment of the subscription price on demand
  4. A guaranteed fixed dividend each year

Explanation

Ordinary shares carry residual ownership rights, including voting at general meetings and a claim on dividends only when declared. Dividends are not guaranteed and shareholders rank behind creditors on liquidation.

Question 45Securities and Investment Products

Which of these instruments is a money market product rather than a capital market product?

  1. A 91-day Treasury bill Correct answer.
  2. A 20-year corporate bond
  3. A closed-end equity fund unit
  4. A preference share

Explanation

Treasury bills mature within one year and are short-term debt instruments, placing them in the money market. Bonds of long tenor, preference shares and fund units are capital market instruments.

Question 46Securities and Investment Products

What does the term 'yield' mean when applied to a bond held by an investor?

  1. The annual return an investor earns relative to the price paid Correct answer.
  2. The number of years remaining until the bond matures
  3. The credit rating assigned by an agency to the issuer
  4. The coupon rate printed on the bond certificate

Explanation

Yield expresses the return an investor actually earns, taking into account the price paid as well as the coupon received. Coupon rate, credit rating and tenor are separate characteristics of the bond.

Question 47Securities and Investment Products

A registered exchange in Nigeria performs which function in the securities market?

  1. Guaranteeing investors against losses on their trades
  2. Approving prospectuses for public offers
  3. Providing a transparent platform for matching buy and sell orders Correct answer.
  4. Printing and issuing currency on behalf of the state

Explanation

An exchange provides an organised, transparent marketplace where buyers and sellers' orders are matched under rules approved by the Commission. It does not issue currency, guarantee investment returns or approve prospectuses.

Question 48Securities and Investment Products

Which statement correctly describes a derivative contract in the Nigerian capital market?

  1. It always confers ownership of the underlying asset
  2. It guarantees a fixed return regardless of market movements
  3. It can only be traded by the issuer of the underlying asset
  4. Its value is derived from an underlying asset such as a share or index Correct answer.

Explanation

A derivative is a contract whose value depends on an underlying asset, rate or index, and settlement may be in cash rather than by delivery. It does not automatically confer ownership nor guarantee returns.

Question 49Securities and Investment Products

A company's prospectus states that subscription monies will be held in a designated account and returned if the minimum subscription is not met. Which principle does this reflect?

  1. The requirement that investor funds be safeguarded pending allotment Correct answer.
  2. The rule that offers may remain open indefinitely
  3. The principle that investors must bear all pre-allotment risk
  4. The practice of allotting shares before payment is received

Explanation

Offer proceeds must be safeguarded in a designated account and returned where the minimum subscription is not achieved, protecting subscribers before allotment. Offers are time-bound and shares are allotted only after valid payment.

Question 50Securities and Investment Products

An investor holds a bond with a 12% coupon and a face value of N1,000, bought at N1,200. What is the current yield?

  1. 12.0%
  2. 10.0% Correct answer.
  3. 14.4%
  4. 8.3%

Explanation

Current yield equals the annual coupon divided by the price paid: N120 divided by N1,200 equals 10%. The 12% coupon applies to face value, not to the price actually paid.