Introduction

In HKSI exams and practice materials, you’ll often encounter questions that blend market concepts, regulatory principles, and practical judgment. The five questions below are representative of that mix: they touch on a volatility index, drivers of personal financial advisory services, Hong Kong’s legal framework, independence criteria for company directors, and the mechanics of interest rate swaps. Rather than rote answers, this post unpacks the reasoning so you can apply the same logic to similar problems on exam day.

1) Measuring 30-day expected volatility: What is VHSI?

Question context: There is a measure designed to quantify the Hang Seng Index’s 30-day expected volatility, derived from option prices on the index’s nearest and next expiration contracts.

• Answer: B. Hang Seng Volatility Index (VHSI)
• Why this is correct: The Hang Seng Index Volatility Index, abbreviated VHSI, is specifically constructed to gauge the market’s anticipated volatility over a 30-day horizon. It is derived from the implied volatilities embedded in options on the Hang Seng Index (the nearest and next expiration). This index provides a snapshot of market sentiment and expected price swings, which is precisely what the question asks for.
• Study tip: Remember the naming convention—VHSI stands for Hang Seng Index Volatility Index, a volatility gauge based on option prices rather than a price index itself.

2) Drivers of growth in personal financial advisor services

Question context: Which factor is NOT a primary driver for the rapid growth of personal financial advisor services?

• Answer: D. Global interest rates falling sharply
• Why this is correct: The growth of personal financial advisory services is typically driven by demographic and market factors such as an aging population (more retirees needing planning), higher savings levels, and a more mature financial landscape with a broader range of investment products. While low or falling interest rates can influence investment choices, they are not generally cited as a direct driver of the expansion of advisory services themselves. The combination of aging, higher savings, and market maturation creates persistent demand for professional financial guidance.
• Study tip: Distinguish between demand-side drivers (demographics, savings, financial sophistication) and policy/market rate effects. They can influence demand, but the strongest drivers in many analyses are the first group.

3) Hong Kong law: which statements are correct?

Question context: Assess statements about Hong Kong’s legal system.

• Answer: D. (3) and (4) are correct
• Why this is correct (as per the exam perspective): The Hong Kong legal framework relies on a common law tradition supplemented by equitable principles, where equity can prevail in certain conflicts with common law. The statement that agency law and contract law are civil-law branches is not accurate in Hong Kong’s system, where common law and equity operate in parallel with statutory law. Equity has developed its own independent jurisprudence, and the common law is not simply “statutes designated by courts”—it originates from judge-made authority, with statutory law interacting with the common law framework. Therefore, statements (3) and (4) align with the typical exam interpretation.
• Takeaway: Be clear on the coexistence and interaction of common law and equity in HK, and that agency/contract principles in HK are not treated as civil-law branches.

4) Independence of a non-executive director (NED): a case study

Question context: Mr. Du was appointed as an independent non-executive director of Wiki Company. In the year prior to appointment, he had significant interests in Wiki’s business, and also significant business dealings with a major related party of Wiki. Does he meet the independence criteria?

• Answer: B. Not satisfied
• Why this is correct: Independence criteria require that a proposed NED does not have any substantial interests in the issuer, its holding company, or its subsidiaries within a specified look-back period (often one year) and has not engaged in significant transactions with related parties. Having material interests or substantial business dealings with the issuer or its related parties within the year preceding appointment would compromise independence. In this scenario, Du’s prior interests and related-party dealings mean he would not be considered independent.
• Takeaway: When assessing independence, pay attention to any material relationships within the look-back window. Even if a person is otherwise qualified, recent significant ties can disqualify them.

5) The mechanics of interest rate swaps

Question context: How are payments in an interest rate swap determined?

• Answer: D. Net interest
• Why this is correct: An interest rate swap typically involves exchanging cash flows where one party pays a fixed rate and the other pays a floating rate. The payment exchanged is the net difference between the two interest amounts (net interest), not the total of both legs. The net settlement reflects the value created by the difference between fixed and floating rates over the contract period.
• Takeaway: Focus on the concept of net settlement in swaps. The fixed and floating cash flows exist, but the swap’s economic effect is realized through the net difference delivered at settlement.

Final thoughts

These five items illustrate how HKSI exam questions often test both factual knowledge and the application of regulatory concepts. Building a solid mental map of key terms (like VHSI), core drivers of industry trends, and the nuanced requirements of financial governance (independence criteria) will help you tackle similar questions with confidence.

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