CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 131:

  Tristan is evaluating different mutual fund options for his client.

  What mutual fund option would be the most expensive to buy in dollar terms?

  A. Purchase $1500 at 3% front-end load
  B. Purchase $1000 at 4% front-end load
  C. Purchase $5000 at 1% front-end load
  D. Purchase $3000 at 2% front-end load
  C. Purchase $5000 at 1% front-end load

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  Explanation

  A front-end load is a sales charge paid at the time of purchase, calculated as a percentage of the investment amount.

  A. $1,500 x 3% = $45

  B. $1,000 x 4% = $40

  C. $5,000 x 1% = $50

  D. $3,000 x 2% = $60 # Most expensive = $60 (Option D) Correction: Answer =

  D. Purchase $3,000 at 2% front-end load

• Question 132:

  Your client, Mrs. DaSousa, would like to diversify her portfolio by investing in a global equity fund.

  What should you advise her about the foreign currency risk?

  A. The fund manager can hedge the exchange risk by buying foreign currency through futures contracts
  B. The value of the fund will go up if the Canadian dollar increases in value against the foreign currency
  C. The foreign exchange risk will be offset by the lower liquidity risk
  D. The fund may provide a hedge against the Canadian dollar
  D. The fund may provide a hedge against the Canadian dollar

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  Explanation

  Global equity funds can act as a hedge against a decline in the Canadian dollar's value, increasing the investment's value in Canadian dollars if the foreign currency strengthens. The feedback from the document states: "Global mutual funds are attractive because they can provide a hedge against a decline in the relative value of the Canadian dollar. For example: if investors buy a Japanese fund, and then the value of the Canadian dollar falls relative to the yen, the Canadian dollar value of that investment will increase even if the value of the fund's units in yen has remained unchanged."

  References:

  Chapter 12 - Riskier Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds

• Question 133:

  What stage in the business cycle typically has increasing wages, rising inflation, rising interest rates with slowing sales, and decreasing business investment?

  A. Peak
  B. Expansion
  C. Trough
  D. Recovery
  A. Peak

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  Explanation

  The peak stage of the business cycle is marked by demand exceeding supply, leading to rising wages, inflation, and interest rates, while sales slow and business investment decreases. The feedback from the document states:

  "The top of the cycle is called a peak. A peak is characterized by the following activities: demand begins to outstrip the capacity of the economy to supply it; wages increase; inflation rises; interest rates rise and bond prices fall; sales begin to decline; business investment slows, and stock market activity begins to decline."

  References:

  Chapter 3 -

  Economic PrinciplesLearning Domain: An Introduction to the Mutual Funds Marketplace

• Question 134:

  What financial instrument is used for publicly-funded capital projects?

  A. Treasury bill
  B. Commercial paper
  C. Preferred issue
  D. Common shares
  A. Treasury bill

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  Explanation

  Governments finance publicly funded capital projects through issuing securities. The Government of Canada uses both bonds and Treasury bills (T-bills) to raise funds for deficits and large infrastructure projects.

  T-bills are short-term debt instruments used frequently for government funding.

  Commercial paper = corporate borrowing.

  Preferred and common shares = equity securities, not typically for public capital projects.

  Thus, the correct answer is Treasury bill.

• Question 135:

  Which account type allows investment earnings and withdrawals to be received tax-free, subject to contribution limits?

  A. RRSP
  B. RRIF
  C. TFSA
  D. Non-registered account
  C. TFSA

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  Explanation

  A Tax-Free Savings Account (TFSA) allows investment income and capital gains to accumulate tax-free, and withdrawals are generally not taxable. RRSP withdrawals are taxable when funds are withdrawn. Therefore, Option C is correct.

• Question 136:

  For the last year, an investor earned a return before adjustment for inflation of 2% on a money market fund, while inflation averaged 1.5%.

  What was his nominal rate of return?

  A. 0.50%
  B. 1.50%
  C. 3.50%
  D. 2.00%
  D. 2.00%

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  Explanation

  The nominal rate of return is the return before adjustment for inflation, which is given as 2%. The real rate of return would be adjusted for inflation (2% - 1.5% = 0.5%), but the question asks for the nominal rate. The feedback from the document states: "It is important to consider the effects of inflation on investments because we can isolate the difference between nominal and real returns. Investors are more concerned with the real rate of return - the return adjusted for the effects of inflation.

  A nominal return is a return that has not been adjusted for the impact of inflation. The approximate real rate of return is calculated as: Real Return = Nominal Rate - Annual Inflation Rate."

  References:

  Chapter 8 - Constructing Investment PortfoliosLearning Domain: Understanding Investment Products and Portfolios

• Question 137:

  Anthony purchased 500 units of XYZ Fund at a price of $12.00 per unit. Near the end of the year, the mutual fund made a distribution of $1.50 per unit. The net asset value per unit (NAVPU) immediately before the distribution was $16.50.

  Anthony immediately reinvested his distribution at the new NAVPU.

  How many new units did Anthony purchase when his distribution was reinvested?

  A. 45.50
  B. 50.00
  C. 52.60
  D. 55.40
  B. 50.00

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  Explanation

  When a mutual fund makes a distribution, its net asset value per unit (NAVPU) decreases by the amount of the distribution. Therefore, the new NAVPU of XYZ Fund after the distribution was $$(16.50 - 1.50 = 15.00)

• Question 138:

  Which form of investment income is taxed at an investor's marginal tax rate?

  A. Capital gains
  B. Capital losses
  C. Canadian dividend income
  D. Foreign dividend income
  D. Foreign dividend income

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  Explanation

  Foreign dividend income is taxed at the investor's marginal tax rate without the benefit of a dividend tax credit, unlike Canadian dividend income, which qualifies for a tax credit. The feedback from the document states: "Foreign dividend income is not eligible for any dividend tax credit, and is taxed at an investor's marginal tax rate."

  References:

  Chapter 6 - Tax and Retirement PlanningLearning Domain: The Know Your Client Communication Process

• Question 139:

  Which newspaper article would be likely to result in foreign capital moving out of a country?

  A. Corporate Taxes Reduced
  B. New Taxes on Foreign Direct Investment
  C. Government Re-elected for a Fourth Consecutive Term
  D. International Ranking of Domestic Level of Education Rises Significantly
  B. New Taxes on Foreign Direct Investment

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  Explanation

  New taxes on foreign direct investment increase the cost of investing in a country, making it less attractive for foreign capital and likely causing capital outflows. The feedback from the document explains: "Capital moves in and out of a country based on a variety of risk factors. Increased trade barriers or increased taxes on foreign investments would typically reduce the attractiveness of a country for foreign investment. (a), (c), and (d) would all indicate positive trends in a risk factor analysis."

  References:

  Chapter 2 - Overview of the Canadian Financial MarketplaceLearning Domain: An Introduction to the Mutual Funds Marketplace

• Question 140:

  What may be used to determine which of two bond portfolios is more sensitive to interest rate changes?

  A. Beta
  B. Sharpe
  C. Variance
  D. Time-weighted maturity
  D. Time-weighted maturity

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  Explanation

  The sensitivity of a bond or bond portfolio to interest rate changes is measured by duration, also called time-weighted maturity.

  Duration represents the approximate % change in bond price for a 1% change in interest rates. Higher duration = greater sensitivity to interest rate movements. Therefore, the correct measure is Time-weighted maturity (Duration).