Demystifying HKSI Exam Question Types: Market Structure, Derivatives, and More

If you’re preparing for HKSI assessments, you’ll encounter questions that test not only your knowledge but also your ability to apply it to real-world market structures and instruments. In this post, we walk through five representative questions, unpack the underlying concepts, and highlight the common pitfalls to avoid. By the end, you’ll have clearer takeaways you can reuse in your future study sessions.

1) Which statements about exchange or clearing house participants are not correct?

Question prompt:

• (1) One merely needs to obtain the Exchange Participant qualification to become a participant of the Futures Exchange immediately.
• (2) The trading rights of an exchange are not transferable.
• (3) Only Futures Exchange (FX) participants can become Clearing House participants, and all FX participants are Clearing House participants.
• (4) One merely needs the Clearing House Participant qualification to become a participant of the Stock Exchange or the FX.

Answer: C

Explanation and takeaways:

• The two exchanges’ trading rights are independent of each other, and so are the participant qualifications for exchanges and clearing houses. Statements (1) and (4) are incorrect because gaining one kind of participation does not automatically grant participation in another entity.
• Statement (3) is only partially correct: while some FX participants may be Clearing House participants, not all FX participants are necessarily Clearing House participants. The latter part is incorrect.
• Key takeaway: In HK markets, Exchange participants and Clearing House participants are distinct memberships with separate qualification criteria. Do not assume automatic cross-membership.

2) Bull/Bear certificates: when asset price reaches the pre-set level specified in the listing document

Question prompt:

• [A] Investors must pay the issuer.
• [B] The issuer pays investors in real time.
• [C] The issuer will redeem the certificate in real time.
• [D] Investors redeem the certificate in real time.

Answer: C

Explanation and takeaways:

• A bull/bear certificate is designed to be recalled when the underlying price hits a pre-specified level (the recall price). This is typically executed as a forced recall event, ending the instrument’s trading on the exchange in real time. Thus, the correct description is that the issuer redeems (recalls) the certificate when the level is reached.
• Key takeaway: Be comfortable with the concept of recall/forced redemption events for structured products and how they terminate trading on the exchange.

3) Which of the following sentences is correct?

Question prompt:

• [A] She sings beautiful.
• [B] She sings beautifully.
• [C] She sing beautifully.
• [D] She singing beautifully.

Answer: B

Explanation and takeaways:

• The verb should be followed by an adverb describing how she sings, not an adjective. The correct form is "She sings beautifully."
• Key takeaway: Small grammar details matter in finance communications and exam questions—focus on the function of adverbs vs adjectives when describing actions.

4) If interest rates rise, which bonds will have increased interest payments?

Question prompt:

• I. Fixed-rate bonds
• II. Floating-rate bonds
• III. Zero-coupon bonds

Options:

• [A] II
• [B] III
• [C] II,III
• [D] I,II,III

Answer: A

Explanation and takeaways:

• Floating-rate bonds adjust their coupon payments based on a reference rate (e.g., HIBOR). When rates rise, their coupons increase. Fixed-rate and zero-coupon bonds do not have their coupon payments increased with rising rates in the same way. Floating-rate bonds are thus the instrument whose interest payments increase as rates rise.
• Key takeaway: Understanding the coupon structure of different bond types helps you anticipate how yields and payments respond to interest rate changes.

5) Hong Kong bond market development is slow mainly because

Question prompt:

• I. The Hong Kong government has long surpluses, reducing the need to issue bonds.
• II. The Hong Kong stock market is relatively active, absorbing some funds.
• III. The government believes debt securities are not suitable for retail investors.
• IV. The HKMA prohibits retail participation in securities trading.

Options:

• [A] I,II
• [B] II,III,IV
• [C] I,III
• [D] I,II,III,IV

Answer: A

Explanation and takeaways:

• The Hong Kong SAR government has sustained budgets with long-term surpluses, reducing the necessity to issue bonds. Relative to the stock market, the debt market has lacked liquidity and activity. The other statements are not cited as the primary reasons in this context.
• Key takeaway: Government funding needs and market liquidity dynamics are central to understanding why a debt market may develop slowly in a given region.

Final thoughts

These questions illustrate how HKSI topics span market structure, derivatives, language use in finance, fixed vs floating-rate instruments, and government debt market dynamics. Regularly revisiting the explanations helps reinforce the core concepts and improves exam performance.

If you found this walkthrough helpful, be sure to follow HKSIYES for more topic-by-topic explanations and practical tips to boost your HKSI preparation. Stay tuned and keep practicing with us!