Answers to CFA practice questions

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  1. A is correct. Drivers of fintech include extremely rapid growth in data (including their quantity, types, sources, and quality) and technological advances enabling the capture and extraction of information from it.
  2. B is correct. Big Data is collected from many different sources and is in a variety of formats, including structured data (e.g., SQL tables or CSV files), semi-structured data (e.g., HTML code), and unstructured data (e.g., video messages).
  3. C is correct. Overfitting occurs when the ML model learns the input and target dataset too precisely. In this case, the model has been “over trained” on the data and is treating noise in the data as true parameters. An ML model that has been overfitted is not able to accurately predict outcomes using a different dataset and may be too complex.
  4. A is correct. Through the Text Analytics application of natural language processing (NLP), models using NLP analysis may incorporate non-traditional information to evaluate what people are saying—via their preferences, opinions, likes, or dislikes—in the attempt to identify trends and short-term indicators about a company, a stock, or an economic event that might have a bearing on future performance.
  5. B is correct. Research suggests that robo-advisers tend to offer fairly conservative advice, providing a cost-effective and easily accessible form of financial guidance to underserved populations, such as the mass affluent and mass market segments.
  6. C is correct. There is increasing interest in monitoring risk in real-time. To do so, relevant data must be taken by a firm, mapped to known risks, and identified while moving within the firm. Data may be aggregated for reporting purposes or used as inputs to risk models.
  7. C is correct. Global financial markets have undergone substantial change as markets have fragmented into multiple trading destinations consisting of electronic exchanges, alternative trading systems, and so-called dark pools. In such an environment, when markets are continuously reflecting real-time information and continuously changing conditions, algorithmic trading has been viewed as an important tool.
  8. C is correct. DLT has the potential to streamline the existing, often complex and labor intensive post-trade processes in securities markets by providing close to real-time trade verification, reconciliation, and settlement, thereby reducing related complexity, time, and costs.
  9. A is correct. Through tokenization—the process of representing ownership rights to physical assets on a blockchain or distributed ledger—DLT has the potential to streamline this rights process by creating a single, digital record of ownership with which to verify ownership title and authenticity, including all historical activity.

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