R02 Alternative investments: free practice questions

1. Question 1 of 5

   Which feature do most investments in physical collectables share?

   Option A: They produce no income and cost money to keepOption B: Their value is backed by the GovernmentOption C: They can be sold instantly at a quoted priceOption D: They pay a regular dividend from their dealers

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   The answer is A: They produce no income and cost money to keep

   Most physical assets generate no income and incur costs such as insurance, storage, security and maintenance. Their value depends on limited supply and fluctuating demand from collectors.

   Why the other options are wrong

   B

   There's no Government backing.

   C

   They can be hard to sell, often with large dealer margins.

   D

   Collectables don't generate income.

2. Question 2 of 5

   Which client is most likely to succeed when investing in collectables?

   Option A: One who needs to diversify a small portfolio cheaplyOption B: One with specialist knowledge who enjoys the itemsOption C: One who wants a reliable income in retirementOption D: One who may need the money back at short notice

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   The answer is B: One with specialist knowledge who enjoys the items

   Specialist knowledge is needed to buy successfully and it's hard to diversify. Collectors who know and enjoy what they buy are more likely to invest well, and get pleasure from the items even if the investment disappoints.

   Why the other options are wrong

   A

   Collectables are hard to diversify and costly to hold.

   C

   Collectables produce no income.

   D

   Collectables can be slow and costly to sell.

3. Question 3 of 5

   Which of the following are practical ways for a private investor to gain commodity exposure? 1. Shares in commodity-producing companies 2. Funds that invest in commodities 3. Exchange-traded commodities 4. Storing physical oil at home

   Option A: 1 and 2 onlyOption B: 1, 2 and 3 onlyOption C: 1, 2, 3 and 4Option D: 2, 3 and 4 only

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   The answer is B: 1, 2 and 3 only

   Direct investment in commodities isn't practical for most people. Exposure is usually gained through producers' shares, commodity funds or exchange-traded commodities (ETCs).

   Why the other options are wrong

   A

   Exchange-traded commodities are also a common route.

   C

   Direct physical investment isn't practical for most investors.

   D

   Shares in producers are a practical route; storing oil isn't.

4. Question 4 of 5

   Which of the following purposes does cryptocurrency 'mining' serve? 1. Confirming that transactions are legitimate 2. Preventing double spending 3. Creating new units of the currency 4. Recording the owner's name against each wallet

   Option A: 1, 2 and 3 onlyOption B: 1, 2, 3 and 4Option C: 1 and 2 onlyOption D: 2, 3 and 4 only

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   The answer is A: 1, 2 and 3 only

   Mining confirms transactions are legitimate, avoiding double spending, and creates new currency by rewarding miners. The system doesn't record the names of wallet owners.

   Why the other options are wrong

   B

   Statement 4 is wrong: wallets are anonymous.

   C

   Mining also creates new digital currency for the miners.

   D

   Transactions are anonymous; owners' names aren't recorded.

5. Question 5 of 5

   Which statement about cryptocurrencies is correct?

   Option A: They're covered by the FSCS if an exchange failsOption B: Their transactions can easily be reversed by the bankOption C: They aren't backed by governments or central banksOption D: Each one is issued by a national central bank

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   The answer is C: They aren't backed by governments or central banks

   Cryptocurrencies are digital currency systems not backed or influenced by governments or central banks. Transactions are anonymous and can't be reversed once confirmed.

   Why the other options are wrong

   A

   Cryptocurrency isn't FSCS-protected.

   B

   Confirmed transactions can't be reversed.

   D

   They aren't issued or backed by central banks.

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