Question 1

Which of the following is NOT an example of derivative security?

Accepted Answer

Derivative securities, by definition, derive their value from an underlying asset or security. Bonds do not derive their value in this manner and are therefore not considered a derivative security.

Question 2

Personal trust accounts may be:

Accepted Answer

Personal trust accounts may be living or testamentary, meaning they can be established during the creator's lifetime or upon their death, respectively. They can also be revocable or irrevocable, allowing the creator to change or cancel the trust or not. Therefore, both options are correct.

Question 3

The objective/s of a trust department audit is/ are to:

Accepted Answer

A trust department audit aims to achieve all of the objectives mentioned in the options A, B, and C. The audit is conducted to detect and prevent any irregularities, assess the adequacy of controls and procedures, and determine the quantity of account administration. Therefore, the correct answer is D, i.e., all of the above objectives must be achieved while conducting a trust department audit.

Question 4

The duties of a guardian in guardianship arrangements are similar to those of a trustee. Specifically, the guardian is obligated to: 1) Protect and preserve the assets 2) Submit an inventory and appraisal to the court 3) Retain or divest assets 4) Use principal and income for the benefit of the ward 5) Submit an annual accounting to the court

Accepted Answer

The answer of The duties of a guardian in guardianship...

Question 5

The responsibility of setting an estate includes:

Accepted Answer

Setting an estate includes all three responsibilities mentioned in the options - taking possession of the property, valuing the property, and paying off the deceased person's debts. Therefore, option D is the correct choice.

Question 6

The objective/s of trust department's administration of corporate trust accounts include:

Accepted Answer

The objective/s of trust department's administration of corporate trust accounts are to ensure compliance with governing instruments, applicable law and accepted fiduciary principles (I), identify deficiencies and initiate corrective action promptly (II), have sufficient management and staff expertise to administer these accounts (III) and establish effective policies, procedures and internal controls (IV). Option B is only one of the objectives and Option C and E both do not cover all the objectives. Therefore, the best choice is D - I, II and IV.

Question 7

Which one of the following is not commonly granted trustee's powers?

Accepted Answer

Dealings are not commonly granted trustee's powers.

Question 8

The administration of personal trust accounts is primarily controlled by all of the following EXCEPT:

Accepted Answer

The answer of The administration of personal trust accounts is...

Question 9

Charitable trust that is an irrevocable trust and that may be testamentary or inter-vivos (Between living persons) is called:

Accepted Answer

The answer of Charitable trust that is an irrevocable trust...

Question 10

Which of the following is the right to sell?

Accepted Answer

A put option is a financial contract that gives the holder the right to sell an asset at a specified price within a certain time period.

Question 11

Individuals can invest in REITs:

Accepted Answer

The answer of Individuals can invest in REITs:
...

Question 12

To server as family and/or financial planning tool To provide for retirement To obtain favorable tax treatment These are the primary reasons

Accepted Answer

The primary reasons for establishing a trust are family and/or financial planning, providing for retirement, and obtaining favorable tax treatment.

Answer: B 
 Naming an institution as trustee can provide professional management and oversight of the trust assets, as well as potential expertise in tax and financial matters.

Answer: C 
 Safekeeping refers to the secure storage and protection of assets, such as in a safe deposit box or through electronic means. While important for asset protection, it does not address the primary reasons for establishing a trust.

Answer: D 
 Custodial refers to the management of assets on behalf of a minor or incapacitated individual. While relevant for certain types of trusts, it does not address the primary reasons for establishing a trust in general.

Question 13

Defined benefits & defined contribution plans and individual retirement accounts are commonly administered:

Accepted Answer

Defined benefits and defined contribution plans, as well as individual retirement accounts, are often administered through employee benefit trusts. These trusts are specifically designed to provide retirement benefits to employees and are a common vehicle for managing retirement plans in the corporate world. Charitable trusts and estate administrations are not typically involved in the management of retirement plans. While corporate trusts may be involved in certain types of retirement plans, employee benefit trusts are more commonly used.

Question 14

Unlike trust, there is no conveyance of title to the account assets. When the ________ relationship is established; legal title to the property remains with the principal.

Accepted Answer

The term "agency services" refers to a situation where one person (the agent) is authorized to act on behalf of another person (the principal). In this case, the principal retains legal title to the property, even though the agent may have certain rights or responsibilities related to the management of the assets. Options A and B are not relevant to this question, as they refer to different legal relationships. Option D is incorrect, as there must be a specific answer to the question posed.

Question 15

Which of the following is the right to buy?

Accepted Answer

The right to buy is also referred to as a call option. It is an agreement between two parties, where the buyer of the call option has the right but not the obligation to purchase an asset, such as a stock or a commodity, from the seller of the option at a specified price and within a certain time frame. Therefore, option D is the correct choice as it defines the right to buy. Option A (Put option) represents the right to sell, and options B (Strategic option) and C (System option) are not related to financial markets.

Question 16

Which of the following bonds are high yield bonds issued by companies that are considered highly speculative because of risk of default?

Accepted Answer

Junk bonds are high yield bonds issued by companies that are considered highly speculative because of risk of default. Municipal bonds are issued by state or local government entities and are generally considered less risky. Callable bonds allow the issuer to redeem the bond before maturity, while convertible bonds can be converted into equity shares of the issuing company.

Question 17

Relief from administrative details and continuity are the major reasons for:

Accepted Answer

Naming a financial institution as a trustee provides relief from administrative details and ensures continuity due to the institution's expertise and longevity in the industry. This option also offers convenience and complete services for trusts. Trust acceptance and trustee termination are not relevant reasons for naming a financial institution as a trustee.

Question 18

Securities products include: 1. Trusts 2. Annuities 3. Derivatives 4. Stocks 5. Bonds 6. Commodities 7. Mutual Funds 8. Pension Funds 9. Term Loans 10. Asset Management 11. Money Market Products

Accepted Answer

Trusts, Annuities, Derivatives, Stocks, Bonds, Commodities, Mutual Funds and Money Market Products are all securities products. Pension Funds and Term Loans are typically not considered securities products, however, Asset Management can be a part of the securities industry.

Question 19

Performance as _____________ is normally the only true trust relationship administered by a corporate trust department.

Accepted Answer

A trustee under a bond indenture is responsible for ensuring that the bond issuer (usually a corporation) complies with the terms of the bond agreement, including making interest payments and repaying principal. The trustee is appointed to act in the best interests of the bondholders, not the issuer. As such, the trustee's performance is the only true trust relationship administered by a corporate trust department, as it involves a fiduciary responsibility to act in the best interests of the bondholders. The other choices (B and C) involve banks and trusts under bond indentures, respectively, but do not necessarily involve a true trust relationship.

Question 20

Trust under will is a term referred to:

Accepted Answer

Trust under will is also known as Testamentary trust, which only takes effect after the death of the person creating the trust, through their will. Living trusts (A) are created and take effect during the lifetime of the grantor. Revocable trusts (C) can be amended or revoked by the grantor during their lifetime, and do not require probate upon the grantor's death, but they are not specifically referred to as "trust under will." Therefore, the correct choice is B, Testamentary trust.

Exam 2: Certified Trust and Financial Advisor