Question-by-Question: HKSI Concepts Unpacked Through 5 Practice Questions
If you’re preparing for HKSI exams, you’ll encounter questions that test not just recall, but how you apply regulatory concepts to real-world scenarios. Below is a guided walkthrough of five representative questions, drawn from common topics such as interest rates, collective investment plans, derivatives, market access, and advisor conduct. I’ll walk you through the key ideas, the traps that often mislead, and the essential takeaways you can carry into the exam room.
1) High-interest lending and the difference between nominal and effective rates
Scenario (summarized): A person is running a high-interest lending group. In Hong Kong, the legal rate cap is 60%. Among options with a nominal rate of 47.5% for various payment frequencies, which loan type could exceed the legal rate cap when actually paid?
- A. Daily payments, nominal rate 47.5%
- B. Nominal rate 47.5%
- C. Quarterly payments, nominal rate 47.5%
- D. Biannual payments, nominal rate 47.5%
Answer: A
Concept explained: In HKSI material, the key distinction is between the nominal rate (the stated percentage) and the actual effective rate you pay when payments are made more frequently than once a year. Daily payments involve compounding, so the effective annual rate is higher than the nominal rate.
Why A is correct (and others aren’t): The actual rate for daily payments compounds over 365 days:
- Actual rate ≈ (1 + 0.475/365)^{365} − 1 ≈ 0.608 or 60.8%
Even though the nominal rate is 47.5%, the daily compounding yields an effective rate above 60%, which surpasses the legal cap of 60%. The other frequencies (monthly, quarterly, biannual) do not induce the same level of daily compounding and therefore stay at or below the cap when evaluated properly.
Takeaways for the exam:
- Always distinguish nominal rate from effective rate.
- When payments compound more frequently than annually, compute the effective rate to assess regulatory limits.
- A daily-compounded loan at 47.5% nominal can exceed the 60% cap due to the math of compounding.
2) Understanding statements about Collective Investment Schemes (CIS) and structured products
Question (summarized): Which statement is not correct?
- A. CIS participants’ contributions and accrued profits are pooled
- B. Advertising or invitations to the public for CIS without regulatory clearance or exemption can be a crime
- C. The feature of structured products is that returns are linked to the occurrence (or non-occurrence) of specified events
- D. Unlisted structured investment products must be recognized by the SFC before offering to the public
Answer: C
Concept explained: Structural/structured products are typically issued to reference the performance of an underlying asset, a basket of assets, a commodity, an index, or the occurrence (or not) of a specified event. The payoff is linked to those references, not to the product itself in isolation. This makes statement C phrased as incorrect in this set.
Why C is incorrect: The hallmark of a structured product is its payoff depends on external references (underlying assets, indices, or events), not something intrinsic to the product by itself.
Takeaways for the exam:
- Know how to describe the payoff drivers for structured products (underlying references, not “self-referential” payoff).
- Be mindful of regulatory requirements around CIS advertising and approvals.
3) Identifying incorrect statements about fixed income, derivatives, and money market concepts
Question (summarized): Which statement is incorrect?
- A. Bonds can be bought in both primary and secondary markets
- B. Futures and options are both derivatives
- C. Fixed income securities can have floating or fixed interest rates
- D. Bonds and notes are all money market investments
Answer: D
Concept explained: Money market instruments are short-term debt securities, typically with maturities of one year or less. Not all bonds or notes (which can have longer maturities) fall under the money market umbrella. Fixed income encompasses a broader category, including bonds with fixed or floating rates, as well as other debt instruments.
Why D is incorrect: It incorrectly lumps bonds and notes into money market investments; the key criterion for money market status is the one-year-or-less maturity, which many bonds do not meet.
Takeaways for the exam:
- Distinguish money market instruments (maturity ≤ 1 year) from other fixed-income securities.
- Remember that bonds can be fixed-rate, floating-rate, or zero-coupon, and are not inherently money market instruments.
4)沪港通/Stock Connect: who can participate in the southbound trading
Question (summarized): Which investors can trade on the southbound (HK–Mainland) via Stock Connect?
- A. I, II, III
- B. II, IV
- C. II
- D. III, IV
Answer: C
Concept explained: Stock Connect’s southbound access is designed for Mainland institutions and individuals with a minimum asset threshold. The provided explanation notes: the scheme is open to Mainland institutions and Mainland individuals who hold at least RMB 0.5 million in assets.
Why B, A, D are not correct: The option that correctly reflects the official eligibility described in the question set is II (Mainland institutions) and the specified individual threshold; the other groupings overstate who can participate.
Takeaways for the exam:
- Be precise about eligibility criteria for cross-border trading schemes.
- Memorize the types of participants and any asset thresholds if the prompt provides them.
5) Continuation and renewal of entrusted accounts under the Code of Conduct
Question (summarized): Under the Code of Conduct, for a client who opened a discretionary account, which statement about renewal after expiry is incorrect?
- A. The authority should be confirmed with the client annually
- B. The intermediary may notify the client before expiry
- C. Unless the client provides written consent, automatic renewal is not allowed
- D. The client may terminate the authorization within a fixed period
Answer: C
Concept explained: The usual framework is that licensees/registrants must confirm authorization with the client at least annually. They may notify before expiry and indicate that unless the client cancels in writing before expiry, the authorization will automatically renew. Therefore, automatic renewal is allowed unless there is a written cancellation, making statement C the incorrect formulation in this set.
Why C is incorrect: It suggests that automatic renewal is forbidden without written consent, but the typical practice is that auto-renewal occurs unless the client explicitly cancels in writing beforehand.
Takeaways for the exam:
- Annual client authorization checks are standard.
- Auto-renewal provisions rely on the absence of a written cancellation notice before expiry.
Why these five questions matter to HKSI candidates
- They cover a spectrum of core HKSI topics: interest rate calculations, regulatory views on CIS and structured products, market instruments, market access rules, and conduct/renewal obligations. Gaining clarity on these topics helps you reason through similar questions more quickly and accurately on exam day.
- Understanding the underlying principles (rate compounding, payoff drivers, maturity definitions, eligibility criteria, renewal mechanics) will strengthen both your theoretical knowledge and practical interpretation of HKSI rules.
If you found this practical breakdown helpful, you’ll love more HKSI-style explainers and practice questions here at HKSIYES. Follow us to stay updated on exam strategies, regulatory changes, and bite-sized lessons that train your mind for the real test.
Estimated reading time: 7 min