CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 151:

  Which of the following is a rationale for a portfolio manager to use a passive portfolio management strategy?

  A. The manager does not believe in using benchmarks.
  B. The manager wishes to create c apital gains in the mutual fund by frequently buying and selling stocks
  C. The manager believes he or she can outperform the market with his or her stock picking skills.
  D. The manager believes that as the markets are fairly priced, it would be futile to look for mis-priced securities.
  D. The manager believes that as the markets are fairly priced, it would be futile to look for mis-priced securities.

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  Explanation

  D is correct because a passive portfolio management strategy is based on the assumption that the markets are efficient and that it is impossible or very difficult to consistently find mis-priced securities that can generate abnormal returns. A passive portfolio manager aims to replicate the performance of a market index or benchmark by holding a diversified portfolio of securities that mirrors the index or benchmark. A passive portfolio manager does not believe in using active strategies such as market timing, security selection, or sector rotation. The manager does not need to use benchmarks (A), as they are essential for measuring and evaluating the performance of a passive portfolio. The manager does not wish to create capital gains in the mutual fund by frequently buying and selling stocks (B), as this would incur higher transaction costs and taxes, and deviate from the index or benchmark. The manager does not believe he or she can outperform the market with his or her stock picking skills (C), as this would imply an active portfolio management strategy.

  References:

  Investment Funds in Canada (IFC) | Canadian Securities Institute

• Question 152:

  An investor deposits $80,000 in a 10-year, segregated fund contract worth $50,000 at maturity; assuming the contract guarantee is set at 75%, how much will the investor be paid (maturity guarantee)?

  A. $30,000
  B. $37,500
  C. $10,000
  D. $22,500
  B. $37,500

• Question 153:

  A sample of four portfolios is given below, with an even split between allocations 1 and 2.

  Portfolios | Allocation #1 | Allocation #2

  Portfolio A

  Preferred shares

  Common shares

  Portfolio B

  Treasury bills

  Debentures

  Portfolio C

  Debentures

  Common shares

  Portfolio D

  Treasury bills

  Preferred shares

  Which portfolio carries the greatest amount of risk?

  A. Portfolio B
  B. Portfolio A
  C. Portfolio D
  D. Portfolio C
  C. Portfolio D

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  Explanation

  Risk hierarchy in CSC: Common shares (highest risk), Preferred shares, Debentures, Bonds, T-bills (lowest risk).

  Portfolio analysis:

  A (Preferred + Common) # Medium-high risk.

  B (T-bills + Debentures) # Low-medium risk.

  C (Debentures + Common) # Contains common shares (high risk) plus debentures (credit risk), making it highest overall risk.

  D (T-bills + Preferred) # Low risk.

  Therefore, Portfolio C carries the greatest amount of risk.

• Question 154:

  Which of the following statements about your mutual fund registration is CORRECT?

  A. You can sell mutual funds anywhere in Canada as long as you are registered with one of the provincial or territorial securities commissions.
  B. Your online application must be reviewed and approved by your mutual fund dealer before you can begin to sell mutual funds.
  C. You must renew your registration through the online NRD system every two years.
  D. You must inform the regulatory authorities of any material or significant changes to your personal circumstances.
  D. You must inform the regulatory authorities of any material or significant changes to your personal circumstances.

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  Explanation

  According to the Registered Investments (RIs) - Canada.ca, you must inform the regulatory authorities of any material or significant changes to your personal circumstances, such as a change of name, address, or employment status. You must also report any disciplinary actions, criminal charges, or civil lawsuits that may affect your suitability as a registrant. Failing to do so may result in suspension or revocation of your registration.

• Question 155:

  Which of the following statements describes a feature of the Home Buyers' Plan (HBP)?

  A. To qualify-as a first-time home buyer you or your spouse must never have previously owned a home
  B. Once you are required to repay the amounts back to your RRSP. any missed or incomplete payments are subject to tax.
  C. A qualifying home must be purchased by December 31 of the year of withdrawal.
  D. If you have a spouse or common-law partner, each of you can withdraw up to JE50.000 from your registered retirement savings plans (RRSPs).
  B. Once you are required to repay the amounts back to your RRSP. any missed or incomplete payments are subject to tax.

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  Explanation

  The Home Buyers' Plan (HBP) is a program that allows eligible first-time home buyers to withdraw up to $35,000 from their registered retirement savings plans (RRSPs) to buy or build a qualifying home without paying any tax on the withdrawal. The withdrawn amount must be repaid to the RRSP over a period of up to 15 years, starting from the second year after the withdrawal. If the required repayment for a year is not made, it is added to the taxpayer's income and subject to tax. Therefore, option B describes a feature of the HBP. The other options are not correct descriptions of the HBP.

  Option A is false because to qualify as a first-time home buyer, you or your spouse must not have owned and lived in another home as your principal place of residence during the four-year period before the date of withdrawal.

  Option C is false because a qualifying home must be purchased or built before October 1 of the year following the year of withdrawal.

  Option D is false because if you have a spouse or common-law partner, each of you can withdraw up to $35,000 from your RRSPs, not $50,000.

  References:

  [Home Buyers' Plan (HBP)], [Home Buyers' Plan (HBP) - Canada.ca], [Home Buyers' Plan (HBP) | GetSmarterAboutMoney.ca]

• Question 156:

  What information can be found from a simplified prospectus instead of Fund Facts?

  A. Costs associated with mutual fund investing.
  B. A summary of the top 10 investment holdings.
  C. The investment strategies that are being used or proposed to be used.
  D. Investor rights regarding cancelling an order.
  C. The investment strategies that are being used or proposed to be used.

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  Explanation

  A simplified prospectus is a legal document that provides essential information about a mutual fund, such as its investment objectives, strategies, risks, fees, performance, and distribution policy. A simplified prospectus also contains information about the fund manager, the dealer, and the rights of investors. A fund facts is a summary document that highlights the key information from the simplified prospectus in a concise and easy-to-read format. A fund facts is delivered to investors before or at the time of purchase of a mutual fund One of the information that can be found from a simplified prospectus instead of fund facts is the investment strategies that are being used or proposed to be used by the mutual fund. The investment strategies describe how the fund manager intends to achieve the fund's investment objectives, such as the types of securities, markets, sectors, or styles that the fund will invest in, the asset allocation or diversification policy, the use of derivatives or leverage, or the criteria for selecting or selling securities. The investment strategies may also include any restrictions or limitations that the fund must follow, such as the minimum or maximum exposure to certain securities, markets, or sectors, or the adherence to any ethical, environmental, social, or governance (ESG) principles. The investment strategies provide investors with a detailed and comprehensive understanding of how the fund operates and what risks it may entail 34.

  The other options are not correct, as they can be found in both the simplified prospectus and the fund facts. The costs associated with mutual fund investing include the sales charges, trailing commissions, management fees, operating expenses, and taxes that investors may have to pay when they buy, hold, or sell a mutual fund. These costs are disclosed in both documents, as they affect the returns and performance of the fund12 A summary of the top 10 investment holdings shows the largest positions that the fund holds in its portfolio, such as the names and percentages of the securities, markets, or sectors that the fund invests in. This summary gives investors a snapshot of the fund's composition and diversification, and it is updated regularly in both documents12 Investor rights regarding cancelling an order refer to the right of withdrawal and the right of rescission that investors have when they purchase a mutual fund. The right of withdrawal allows investors to cancel their purchase within two business days of receiving the fund facts or the confirmation of purchase, and receive a refund of the purchase price or the market value of the fund, whichever is less. The right of rescission allows investors to cancel their purchase within 48 hours of receiving the confirmation of purchase, if they did not receive the fund facts before or at the time of purchase, and receive a refund of the purchase price or the market value of the fund, whichever is less. These rights are explained in both documents, as they protect the interests of investors

• Question 157:

  Your client's unused RRSP contribution room is $46,000. He contributes $15,000 in the current taxation year.

  How much RRSP contribution room can he carry forward?

  A. $31,000
  B. $46,000
  C. $35,000
  D. $38,000
  A. $31,000

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  Explanation

  Unused RRSP contribution room can be carried forward indefinitely. The carry-forward amount is the unused room minus the current year's contribution: $46,000 - $15,000 = $31,000. The feedback from the document states: "Any RRSP contribution room that is not used in a taxation year can be carried forward to be used in future years. There is no limit on the amount that can be carried forward. In this example, $46,000 - $15,000 = $31,000."

  References:

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

• Question 158:

  A sales representative is comparing the performance of a mutual fund with other funds of similar investment mandates.

  What is this method of relative performance evaluation called?

  A. Total rate of return
  B. Peer group
  C. T-bills plus benchmark performance
  D. Risk-adjusted rate of return
  B. Peer group

• Question 159:

  Which of the following statements about standard deviation is CORRECT?

  A. Indicates how much an investment's performance fluctuates around its average historical return.
  B. A standard deviation greater than one indicates a higher level of volatility than the market.
  C. Measures the systematic risk of an investment relative to a benchmark index.
  D. Standard deviation is also referred to as beta.
  A. Indicates how much an investment's performance fluctuates around its average historical return.

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  Explanation

  The correct answer is A. Indicates how much an investment's performance fluctuates around its average historical return.

  Standard deviation is a measure of how spread out the data points are from the mean value. It is calculated as the square root of the variance, which is the average of the squared differences from the mean. Standard deviation can be used to assess the volatility or risk of an investment by showing how much the returns deviate from the expected or average return. A higher standard deviation means that the investment has a wider range of possible outcomes, which implies more uncertainty and risk. A lower standard deviation means that the investment has a narrower range of possible outcomes, which implies more stability and consistency.

  B. A standard deviation greater than one indicates a higher level of volatility than the market. This statement is incorrect because the standard deviation of an investment is not directly comparable to the standard deviation of the market, unless they have the same mean return. The standard deviation of an investment only measures the absolute variation of the returns, not the relative variation to the market. A better measure of the relative volatility of an investment to the market is beta, which is the ratio of the covariance of the investment and the market to the variance of the market.

  C. Measures the systematic risk of an investment relative to a benchmark index. This statement is incorrect because the standard deviation of an investment does not distinguish between the systematic risk and the unsystematic risk. The systematic risk is the risk that affects the entire market or a large segment of the market, such as inflation, interest rates, or political events. The unsystematic risk is the risk that affects a specific investment or a small group of investments, such as management decisions, product quality, or lawsuits. The standard deviation of an investment captures both types of risk, whereas the beta of an investment only captures the systematic risk.

  D. Standard deviation is also referred to as beta. This statement is incorrect because standard deviation and beta are different measures of risk. Standard deviation measures the absolute variation of the returns of an investment, whereas beta measures the relative variation of the returns of an investment to the market. Standard deviation is a measure of total risk, whereas beta is a measure of systematic risk.

• Question 160:

  Daisy is a Dealing Representative registered in the province of Saskatchewan only. Daisy's client, Orville, a resident of Lloydminster, Saskatchewan is a retiree who presently has a $1,000,000 with her dealer, Easy Ride Financial. Orville is now planning to move to Vegreville, Alberta next month. Easy Ride Financial is registered in Alberta and Saskatchewan. Neither Easy Ride Financial nor Daisy have any clients who are resident in Alberta.

  Which of the following should Daisy do if she wants to continue to service Orville's account?

  A. Request approval from the Mutual Fund Dealers Association of Canada to be eligible to be a registered Dealing Representative in Alberta
  B. Daisy could seek permission from her dealer to request a client mobility exemption with the Alberta Securities Commission.
  C. Daisy will need to forfeit her registration in Saskatchewan if she wants to be registered in Alberta to keep Orville as a client.
  D. Register with a different mutual fund dealer that is registered in Alberta so she can keep Orville as a client.
  B. Daisy could seek permission from her dealer to request a client mobility exemption with the Alberta Securities Commission.

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  Explanation

  Daisy could seek permission from her dealer to request a client mobility exemption with the Alberta Securities Commission. This exemption allows a registered individual in one jurisdiction to service a client who moves to another jurisdiction, without having to register in the new jurisdiction, subject to certain conditions. Some of these conditions are that the individual must be registered with a dealer that is registered in both jurisdictions, the individual must not have more than five clients in the new jurisdiction, and the individual must notify the regulator in the new jurisdiction of the exemption.

  References:

  Client Mobility Exemption