cwm-level-1 AAFM India Chartered Wealth Manager (CWM) Level 1 Practice Questions
Prepare for cwm-level-1 with more than an answer.
- Time limit
- 180 minutes
- Questions on the exam
- 100-150
- Passing score
- 50% (scale 0-100)
- Level
- Foundation
- Valid for
- Lifetime with continuing education requirements
Domains covered on the exam 10
- Concept of Wealth Management10%
- Indian and Global Financial System10%
- Investment Vehicles in Wealth Management10%
- Measuring Investment Risk and Returns10%
- Concept of Insurance and Risk Management10%
- Role of Wealth Management in Banking10%
- Legalities in Wealth Management10%
- Tax Laws for Wealth Management10%
- Life Cycle Management10%
- Intergenerational Wealth Transfer & Estate Planning10%
- 1
True or False: Under the Hindu Succession Act, 1956 (as amended), a daughter has an equal right to ancestral property as a son, irrespective of whether her father was alive on the date of the 2005 amendment.
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Correct answer: A
The statement is true. A landmark Supreme Court ruling in 2020 (Vineeta Sharma vs. Rakesh Sharma) clarified that a daughter's right to coparcenary (ancestral) property is by birth. This right exists and is equal to a son's, regardless of whether the father was alive on September 9, 2005, the date the Hindu Succession (Amendment) Act came into force. This ruling established the daughter's right as absolute and not contingent on the father's survival on that date.
- 2
A wealth manager is advising a Non-Resident Indian (NRI) client residing in the UAE. The client has income from salary in the UAE, rental income from a property in Mumbai, and interest income from an NRE account in India. According to the Indian Income Tax Act, which income is taxable in India?
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Correct answer: C
For a Non-Resident Indian (NRI), income that accrues or arises in India is taxable in India. The rental income from a property situated in Mumbai is income that accrues in India and is therefore taxable. Salary earned in the UAE for services rendered there is not taxable in India for an NRI. Interest earned on a Non-Resident External (NRE) account is specifically exempt from tax in India as per Section 10(4)(ii) of the Income Tax Act.
- 3
Which of the following legal requirements is a mandatory compliance step for a bank or financial institution in India when onboarding a new wealth management client, as per RBI's KYC norms and PMLA regulations?
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Correct answer: B
As per the Reserve Bank of India's (RBI) Know Your Customer (KYC) Directions and the Prevention of Money Laundering Act (PMLA), all regulated entities must conduct Customer Due Diligence. This is a mandatory process that involves identifying the customer and verifying their identity using reliable, independent source documents, data, or information (e.g., Aadhaar, Passport, PAN card). This must be done before establishing a business relationship.
- 4
The process of periodically adjusting a portfolio's asset allocation back to its original target percentages is known as:
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Correct answer: C
Rebalancing is the discipline of realigning the weights of a portfolio of assets. It involves periodically buying or selling assets in a portfolio to maintain a desired level of asset allocation. For example, if the target is 60% equity and 40% debt, and due to market movements it becomes 70/30, rebalancing would involve selling some equity and buying debt to return to the 60/40 mix. This enforces a 'buy low, sell high' discipline.
- 5
To manage extreme INR volatility, the Reserve Bank of India (RBI) decides to intervene directly in the forex market. Which of the following represents a 'sterilized' intervention aimed at strengthening the INR without affecting the domestic money supply?
sequenceDiagram participant RBI participant CommercialBanks as Commercial Banks participant ForexMarket as Forex Market participant OMO as Open Market Operations RBI->>ForexMarket: Sells USD, Buys INR ForexMarket-->>RBI: INR liquidity absorbed RBI->>OMO: Buys Government Securities OMO-->>CommercialBanks: Injects INR liquidityShow answer details
Correct answer: C
A sterilized intervention involves two offsetting transactions. To strengthen the INR, the RBI sells USD and buys INR. This action reduces (absorbs) INR liquidity from the banking system. To 'sterilize' this effect and keep the domestic money supply constant, the RBI conducts a simultaneous, offsetting transaction: it buys government securities through OMO, which injects INR liquidity back into the system. The diagram correctly illustrates this two-step process.
- 6
A wealth manager is preparing a personal balance sheet for a new client. Which of the following items should be classified as 'Investments' on the asset side of the statement?
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Correct answer: C
On a personal balance sheet, the 'Investments' category includes assets held with the expectation of generating income or capital appreciation. PPF and equity mutual funds are prime examples of such assets. The primary residence and personal use assets like art are typically categorized under 'Personal Assets' or 'Use Assets', as their primary purpose is not income generation, even though they may appreciate in value.
- 7
The Reserve Bank of India (RBI) decides to increase the Repo Rate by 50 basis points. What is the most likely immediate impact on the Indian economy and financial markets?
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Correct answer: B
The Repo Rate is the rate at which the RBI lends money to commercial banks. An increase in the Repo Rate makes borrowing more expensive for these banks. They, in turn, pass on this increased cost to their customers, including corporations and retail borrowers, by raising their lending rates. This makes new loans for business expansion and investment more costly, which can lead to a slowdown in economic activity as intended by the contractionary monetary policy.
- 8
A client, aged 30, has a high-risk tolerance and a 25-year investment horizon for wealth creation. A wealth manager suggests an asset allocation strategy. According to Modern Portfolio Theory, which of the following allocations would be most appropriate for this client's profile?
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Correct answer: C
A young investor with a high-risk tolerance and a long investment horizon can afford to take on more risk for potentially higher returns. An allocation heavily skewed towards equity (75%) aligns with this profile, as equities have historically provided higher long-term growth. A smaller allocation to debt (15%) provides stability, and a portion in alternatives (10%) offers diversification. The other options are either too conservative or poorly diversified for a growth-oriented profile.
- 9
True or False: The Sharpe Ratio is a measure of an investment's excess return per unit of systematic risk, as measured by beta.
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Correct answer: B
The statement is false. The Sharpe Ratio measures an investment's excess return (return over the risk-free rate) per unit of its TOTAL risk, as measured by standard deviation. The Treynor Ratio, on the other hand, measures excess return per unit of SYSTEMATIC risk, as measured by beta.
- 10
A 40-year-old client wants to purchase a life insurance policy. They have two primary objectives: first, to ensure their family is financially secure in case of their untimely demise, and second, to build a corpus for their child's education in 15 years. Which insurance product is best suited to meet both these objectives simultaneously?
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Correct answer: B
A Unit Linked Insurance Plan (ULIP) combines life insurance coverage with investment. A portion of the premium pays for the life cover, while the rest is invested in market-linked funds (equity, debt, or hybrid). This structure allows the client to meet both objectives: the life cover provides financial protection for the family, and the investment component can grow over 15 years to create a corpus for the child's education. A pure term plan only provides a death benefit, and an endowment plan offers lower, guaranteed returns.
