CISI Financial Markets common mistakes
CISI Financial Markets · Understand the traps and how to avoid them.
Calculating settlement amounts on bonds using the clean price and ignoring accrued interest, so the answer omits the coupon accrued between the last coupon date and settlement.
Candidates learn 'price × nominal / 100' as a formula and stop there; accrued interest is treated as an afterthought rather than part of the consideration actually paid.
What to do instead
Before answering any bond settlement question, write the three-line working: clean price, plus accrued interest (coupon × days accrued / days in coupon period), equals dirty price. Practise converting between clean and dirty in both directions until the direction of adjustment is automatic.
Confusing the direction of the FX quote, quoting or calculating the wrong side (bid vs offer) when a client is buying or selling the base currency.
Candidates memorise 'buy low, sell high' without anchoring it to which currency the market maker is quoting and which side the customer takes, so the spread is applied backwards.
What to do instead
Adopt a fixed script: identify the base currency, state what the customer receives and delivers, then decide whether the bank buys or sells the base. Work through five worked examples each way (customer buys base, customer sells base) with a two-way quote.
Treating a forward rate as a forecast of the future spot rate and answering questions about expected exchange rates using the forward premium or discount.
The forward rate is derived from the interest rate differential (covered interest parity), but candidates conflate this arithmetic relationship with market expectation.
What to do instead
Learn the distinction explicitly: forwards are priced off relative interest rates and are not predictions. When a question asks about expectations, look for inflation or purchasing power parity content; when it asks for a forward rate, use the interest rate differential.
Mixing up the rights and obligations of the buyer and seller of an option, or assuming the option buyer must exercise when the option is in the money.
Calls and puts, long and short, are learned as a table to memorise rather than as a payoff logic, so the combinations collapse under exam pressure.
What to do instead
Draw the payoff diagram from scratch for each of the four positions before answering, and state in words who has the right and who has the obligation. Rebuild the diagrams from memory daily for a week rather than rereading a summary table.
Answering questions on margin and gearing by calculating the initial margin requirement but not the variation margin or the maintenance margin trigger.
Candidates stop at the first number they can compute and do not read the question to see whether it asks about a subsequent price move and a margin call.
What to do instead
For every margin question, write the full sequence: opening position, initial margin, mark to market at the new price, equity balance, comparison with maintenance margin, size of the call. Read the final line of the question before starting the calculation.
Confusing primary and secondary markets, or the roles of the various intermediaries (broker, market maker, underwriter, custodian) when asked who performs a described function.
The terms are covered quickly early in the syllabus and candidates rely on everyday usage of words like 'broker' rather than the precise exam definition.
What to do instead
Build a one-page grid of each intermediary against the functions: advising, executing, making two-way prices, bringing new issues to market, safekeeping assets, settling. Test yourself by covering the function column and reciting from the role.
Applying the wrong regulatory regime or the wrong body to a scenario, for example attributing conduct rules to the prudential regulator or missing that a firm's senior managers carry personal accountability.
Candidates learn the names of regulators and rulebooks as a list without mapping each to the activities it covers, so scenario questions defeat them.
What to do instead
For each regulator and rulebook, write one sentence on what it covers and one on what it does not. Practise scenario questions by first naming the activity in the scenario, then the rule that governs it, then the body responsible.
Answering ethics questions by choosing the option that is legal or commercially convenient rather than the one that reflects the required standard of conduct, such as failing to escalate a suspected market abuse.
Candidates treat ethics as common sense and answer from personal instinct rather than from the framework of integrity, due skill and care, and market conduct taught in the syllabus.
What to do instead
For each ethics scenario, identify the duty owed, to whom, and the required action including escalation and record keeping. Learn to reject options that are 'permitted but inappropriate' and to prefer disclosure and escalation over silence.
Ignoring the effect of the coupon frequency and the day count convention when comparing bond yields, or treating a semi-annual yield as directly comparable with an annual yield.
Candidates compute a yield correctly in isolation but do not convert to a common basis before comparing, which is what the question actually requires.
What to do instead
Make 'convert to an annual or effective basis' a mandatory step whenever two yields are compared. Practise converting between semi-annual and annual compounding and note which convention the question specifies.
Misreading whether a question asks for the nominal, real, gross or net figure, or whether a return is before or after charges and tax, and then selecting a distractor that matches the wrong basis.
Exam questions deliberately include the answer to the adjacent calculation as a distractor, and candidates compute confidently without checking which measure was requested.
What to do instead
Underline the qualifier in the question stem (nominal, real, gross, net, before tax) before calculating, and write it above the working. Where two plausible answers appear, recheck which basis each represents rather than choosing on gut feel.