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At HKSIYES, we curate practical explanations for HKSI exam topics. The category "Question Explanations" is designed to turn tricky multiple-choice questions into clear concepts you can apply in real-world contexts. Below, we walk through five HKSI-style questions, showing not just the answers but also the reasoning and key takeaways you can carry into exams.

Question 1 — Winding-Up Petition: Who Can Apply to Wind Up a Company?

Question (translated): Who can apply to the court to wind up a company? Options:

1. The company itself
2. The Financial Secretary
3. The Director of the Companies Registry
4. The Chief Executive of the Hong Kong SAR Answer: A (1, 2, 3) Explanation (translated): According to the handbook, option 4 is not listed as a valid petitioner. Therefore, the valid petitioning entities include the company itself, the Financial Secretary, and the Director of the Companies Registry. In practice, court petitions can arise from specific statutory or regulatory avenues, and exam-focused material often highlights which parties are considered eligible for winding-up petitions within the tested framework.

Key takeaways:

• Understand who may initiate a winding-up petition in the HK context as described in your study materials.
• Note that not all public office holders (e.g., Chief Executive) are listed as eligible petitioners in standard handbook material.

Question 2 — Selling Securities You Do Not Own

Question (translated): What is the term for selling securities that you do not own at the time of sale? Options: A) Hedging B) Short selling C) Arbitrage D) Margin financing Answer: B Explanation (translated): Short selling occurs when an investor sells shares they do not currently own, typically borrowing the stock from a broker to sell in the market with the goal of buying it back later at a lower price.

Key takeaways:

• Short selling involves borrowing shares to sell now and cover later.
• Distinguish short selling from hedging, arbitrage, and margin financing in exam scenarios.

Question 3 — When Can Short Selling Be Executed? Identify the incorrect statement

Question (translated): Under which conditions is short selling permitted? Which statement is not correct? Options: A) Someone acting in good faith with a reasonable belief that they or their agent have unlimited authority to transfer the security B) Market participants involved in routine trading of fractional (odd lots) shares C) Selling related securities of an option contract when the contract is not on an approved market D) As allowed by the rules under Section 397 of the Securities and Futures Ordinance Answer: C Explanation (translated): The incorrect statement is that selling related securities of an option contract not on an approved market is allowed. The correct approach is that such selling would be permitted only when the option contract itself is on a recognized/approved market. The nuance lies in ensuring the underlying and the contract are both on an accepted trading venue.

Key takeaways:

• Short selling rules often hinge on the status of the underlying contract on an approved market.
• Pay attention to the precise regulatory language around market approval and the contract’s listing.

Question 4 — Which Is Not a Commodity Derivative?

Question (translated): Which of the following is not a commodity derivative? Options: A) Silver futures B) Wheat futures C) Soybean futures D) Stock index futures Answer: D Explanation (translated): Commodity derivatives have underlying physical commodities (e.g., metals, grains). Financial derivatives (like stock indices and interest rate products) are not commodity derivatives. Thus, stock index futures are financial derivatives, not commodity derivatives.

Key takeaways:

• Distinguish between commodity derivatives (based on physical commodities) and financial derivatives (based on financial instruments).

Question 5 — Put Option on a Brand with Premiums: Writer’s Maximum Profit

Question (translated): A put option on a milk brand has a strike price of $30, and the option buyer paid a premium of $8. The buyer buys 10 contracts, with each contract covering 100 shares. What is the put writer’s maximum profit? Options: A) Loss of $30,000 B) Loss of $8,000 C) Profit of $8,000 D) Profit of $30,000 Answer: C Explanation (translated): The maximum profit for the writer (put seller) is the premium received from the buyer. The buyer pays $8 per share, so for 10 contracts × 100 shares per contract, the total premium is $8 × 10 × 100 = $8,000.

Key takeaways:

• A put writer’s maximum profit equals the total premiums received, regardless of the stock price at expiration.
• Understand the contract size in options problems (contracts × shares per contract).

Final thoughts

We hope this walkthrough helps you see how HKSI-style questions test your ability to apply regulatory concepts in practical scenarios. Practice with similar questions, focus on the underlying principles, and you’ll build both speed and accuracy for exam day.

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