Introduction In HKSI exams, you often see questions that test not just rote memorization but your ability to apply core concepts to realistic scenarios. The following five questions illustrate how to connect theory with practice, a key skill for the HKSI certification. For each question, I share the correct answer, a concise explanation, and the practical takeaway you can apply in study and in future assessments.
Q1. If an inverted yield curve occurs in the future, what securities should you buy?
Options:
- A. Long-term bonds
- B. Short-term bills
- C. Floating-rate bonds
- D. Common stock
Answer: A
Explanation (in context of HKSI topics): An inverted (reverse) yield curve means short-term rates are higher than long-term rates. This environment signals expectations of future rate cuts and a looser monetary policy. In such a scenario, extending portfolio duration by buying long-dated bonds (or extending the maturity of the bond portfolio) is typically advantageous, as long-term rates are more likely to fall and bond prices rise.
Takeaway: When facing an inverted yield curve, consider increasing duration exposure to capture potential capital gains from falling rates.
Q2. Which statements about the Securities and Futures (Accounts and Audits) Rules are correct?
Statements: I. For each financial year, accounts should include income statements, balance sheets and notes for licensed corporations and connected entities. II. A licensed corporation that stops regulated activities does not need to provide cessation accounts. III. All licensed corporations must provide a quick liquidity (cash) position table. IV. Some licensed corporations must provide analyses of various borrowings and client accounts.
Options:
- A. I, IV
- B. II, IV
- C. I, II, IV
- D. I, II, III
Answer: A
Explanation: Statement II is incorrect because cessation accounts must be provided when regulated activities cease. Statement III is incorrect because the liquidity/working capital requirement applies to active licensed corporations, not all of them. Therefore, the correct combination is I and IV.
Takeaway: Pay attention to nuances about when specific types of accounts or analyses are required, and note the conditions under which they apply in practice.
Q3. 2018 sales and accounts receivable: how many days on average to collect receivables for Black Coffee Co. in 2018?
Data:
- 2018 sales: 900,000
- 2018 accounts receivable: 7,500
- 2017 accounts receivable: 8,640
Options:
- A. 3 days
- B. 3.27 days
- C. 4.27 days
- D. 13.27 days
Answer: B
Explanation: Average AR = (7,500 + 8,640) / 2 = 8,070. Receivables turnover = Sales / Average AR = 900,000 / 8,070 ≈ 111.52. Days sales outstanding (DSO) ≈ 365 / 111.52 ≈ 3.27 days. The calculation formula used is DSO = 365 × Average AR / Sales.
Takeaway: When calculating DSO, use the average of beginning and ending AR for the period, and apply the DSO formula to get a practical measure of collection efficiency.
Q4. If Wei Sheng Dairy Co. declares a stock dividend of 2 for every 5 shares, and before the distribution there are 1.0 billion shares outstanding, which of the following happens?
Background: Stock dividend ratio is 5 shares -> 2 new shares; total shares become 1.0 billion × (5+2)/5 = 1.4 billion (a 40% increase).
Statements: I. Outstanding shares increase by 20% II. Shareholders’ equity remains unchanged III. The company issues 2 billion additional shares IV. Earnings per share (EPS) is diluted per share
Options:
- A. I, III
- B. II, IV
- C. I, II, III
- D. I, II, III, IV
Answer: B
Explanation: Stock dividends dilute per-share price/value but do not dilute total shareholders’ equity. In this case, issued shares rise by 40% (not 20%), so I is false. The equity base remains unchanged (II true), and each share’s claim is diluted (IV true). Therefore II and IV are correct.
Takeaway: Stock dividends affect per-share metrics and price but not total equity; use this to explain how corporate actions alter per-share considerations rather than the overall equity pool.
Q5. When measuring market depth, what should you observe?
Options:
- A. The number of buyers at different price levels
- B. The number of sellers at different price levels
- C. The number of buyers and sellers at different price levels
- D. The number of buyers and sellers at a single price level
Answer: C
Explanation: Market depth reflects how price may move with trading activity. It is determined by the number of buyers and sellers across multiple price levels, not just at a single price. More depth across levels generally means less price impact for a given order size.
Takeaway: Understand depth as a function of both sides of the order book across price levels for a more nuanced view of liquidity and price stability.
Conclusion and next steps These five questions illustrate how HKSI exam topics connect theory to practical scenarios. The key is to identify what each concept implies in real-world settings and apply standard formulas consistently. If you found this breakdown helpful, follow HKSIYES for more in-depth explanations, study tips, and practice questions tailored to the HKSI exam prep. Stay curious and keep practicing with more questions like these to boost your confidence and score.