CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 161:

  What is a requirement when holding an RRIF?

  A. The RRIF must be fully managed as opposed to self-directed
  B. The RRIF must be terminated at the end of the year in which the client turns age 71
  C. The term must be based on the age of the holder of the RRIF
  D. Minimum annual withdrawals must be made from the RRIF
  D. Minimum annual withdrawals must be made from the RRIF

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  Explanation

  An RRIF (Registered Retirement Income Fund) requires annual minimum withdrawals starting the year after it is established.

  It can be either self-directed or managed.

  The RRSP must be converted to an RRIF or annuity by the end of the year the holder turns 71; the RRIF itself is not terminated at that age.

  Withdrawals are based on the age of the annuitant or spouse.

  Thus, the key requirement is minimum annual withdrawals.

• Question 162:

  For what reason do different entities have securities created and sold?

  A. Government debt is reduced due to the capital that is received from investors when their securities are purchased.
  B. When common shares are initially sold, the capital raised will increase the issuing corporation's retained earnings.
  C. Governments can address financial needs and support initiatives when securities are first sold.
  D. The issuance of securities is a method used by corporations to redistribute their wealth to investors to lower taxes.
  C. Governments can address financial needs and support initiatives when securities are first sold.

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  Explanation

  One of the main reasons why different entities have securities created and sold is to raise funds for various purposes. Governments, for example, can issue securities such as bonds or treasury bills to finance public spending, such as infrastructure, education, health care, or social programs. By selling securities to investors, governments can borrow money at a lower cost than other sources of funding, and can also stimulate the economy and create jobs12

  References: Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.1: Money Market Instruments3 and web search results from search_web(query="reasons for issuing securities") 12 3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf

• Question 163:

  A fund manager is selling industrial sector stocks and using the proceeds to overweight the portfolio in financial services stocks to take advantage of her belief of changes in the business cycle.

  What equity investing philosophy describes this approach?

  A. Growth investing
  B. Momentum investing
  C. Sector rotation
  D. Growth at a reasonable price
  C. Sector rotation

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  Explanation

  Sector rotation is an equity investing strategy where portfolio weightings are shifted among sectors to reflect expected changes in the business cycle. The Investment Funds in Canada course explains that different sectors perform better at different economic stages. For example, financial services often outperform during economic expansion, while industrials may lag during certain cycle transitions. The fund manager's decision to reduce exposure to industrial stocks and increase exposure to financial services based on economic expectations is a textbook example of sector rotation. Growth investing focuses on earnings expansion, momentum investing follows price trends, and growth at a reasonable price blends valuation with growth - none of which describe sector-based reallocations driven by macroeconomic analysis.

• Question 164:

  Reagan has accepted a role to be the Chief Revenue Officer of a charitable organization. She is currently registered as a Dealing Representative for Sunshine Financial Services.

  Which of the following would apply to her?

  A. The dealer will closely monitor her sales activities to ensure any clients from the charity are not getting a discount on potential fees.
  B. Holding both positions at the same time is a violation of securities industry rules and regulations .
  C. Reagan is not required to inform her dealer of this outside activity if none of her colleagues from the charity become clients.
  D. The regulator will limit her from providing financial services to anyone associated with the charity.
  C. Reagan is not required to inform her dealer of this outside activity if none of her colleagues from the charity become clients.

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  Explanation

  This answer is correct because according to FINRA Rule 3270, a registered representative must notify their firm in writing of any outside business activity (OBA) that involves compensation or the reasonable expectation of compensation from another person, or that may be viewed by customers or the public as part of the member's business. However, if the OBA does not involve any of these factors, then the notification is not required. In this case, Reagan's role as the Chief Revenue Officer of a charitable organization may not involve any compensation or any connection to her securities business, especially if none of her colleagues from the charity become clients. Therefore, she is not required to inform her dealer of this outside activity.

  References:

  Outside Business Activities and Private Securities Transactions, Selling Away in Securities: Understanding FINRA Rule 3270

• Question 165:

  Who is responsible for the explicit costs of operating a mutual fund?

  A. Investor
  B. Manager
  C. Sponsor
  D. Distributor
  A. Investor

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  Explanation

  Explicit costs of operating a mutual fund include: Management fees, Operating expenses, Custodial fees, Record-keeping, Marketing/distribution.

  These costs are embedded in the MER (Management Expense Ratio) and are borne by the investors, as they reduce fund returns.

  The manager (B) oversees operations but does not personally cover costs. The sponsor (C) establishes the fund, and the distributor (D) sells units, but neither pays the ongoing operating costs.

• Question 166:

  Fred's client, Matteo, holds a technology-themed mutual fund. The fund's investment objective recently changed, allowing it to hold various cryptocurrencies, resulting in a high-risk rating and making it unsuitable for Matteo. Fred discussed the change with his client, but Matteo insisted on continuing to hold the fund.

  What action must Fred take?

  A. Report the change to senior management.
  B. Update Matteo's risk profile so the fund is now suitable for him.
  C. Redeem the fund.
  D. Document the client's decision to hold.
  D. Document the client's decision to hold.

• Question 167:

  Which financial instrument gives its purchaser the right to vote at the issuing company's annual meeting?

  A. Common shares
  B. Preferred shares
  C. Corporate bonds
  D. Options
  A. Common shares

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  Explanation

  Common shares provide their holders with ownership rights in a corporation, including the right to vote at shareholders' meetings, such as the annual general meeting (AGM). The Investment Funds in Canada course explains that common shareholders are the residual owners of the corporation, meaning they have a claim on profits after all obligations are met and the ability to participate in corporate governance. Voting rights typically allow common shareholders to elect the board of directors, approve major corporate changes, and vote on other significant matters affecting the company. This right distinguishes common shares from other financial instruments. The CIFC text highlights that common shares "generally carry voting rights, allowing shareholders to influence the direction of the company." Preferred shares, while also equity securities, usually do not carry voting rights except in special circumstances, such as when preferred dividends are in arrears. Corporate bonds represent debt, not ownership, and bondholders are creditors with no voting rights. Options are derivative instruments that provide the right to buy or sell an underlying security but do not convey ownership or voting privileges unless exercised into common shares.

  Because only common shareholders are entitled to regular voting rights at the issuing company's annual meeting, Option A is the correct and fully verified answer according to the Investment Funds in Canada curriculum.

• Question 168:

  Jeff is a new client. He is 50 years old with modest savings in the low six figures, and wants to reinvest his portfolio to ensure that he can retire comfortably at age 65. In his meeting with Jeff, the advisor uncovered some of Jeff's biases. Jeff displayed several strong emotional biases along with a few weak cognitive biases.

  What should the advisor do?

  A. The advisor should moderate and adapt to Jeff's cognitive biases
  B. The advisor should moderate and adapt to Jeff's emotional biases
  C. The advisor should moderate Jeff's emotional biases
  D. The advisor should adapt to Jeff's cognitive biases
  B. The advisor should moderate and adapt to Jeff's emotional biases

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  Explanation

  Given Jeff's low wealth level and strong emotional biases, the advisor should moderate and adapt to these emotional biases to ensure suitable investment recommendations. The feedback from the document states:

  "Jeff has a relatively low level of wealth and strong emotional biases; that's why the advisor should moderate and adapt to Jeff's emotional biases."

  References:

  Chapter 5 - Behavioural FinanceLearning Domain: The Know Your Client Communication Process

• Question 169:

  Which person would be categorized as a vulnerable client?

  A. Nafissa, who has no savings to address an immediate financial emergency.
  B. Ginger, who has reached retirement age and is easily confused.
  C. Aldous, who has become recently unemployed but still has a mortgage to pay.
  D. Peter, who is 65 years old but cannot afford to retire.
  B. Ginger, who has reached retirement age and is easily confused.

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  Explanation

  A vulnerable client is a client who, due to their personal circumstances, is especially susceptible to harm or disadvantage when dealing with financial services. Vulnerability can be permanent or temporary, and can arise from various factors, such as physical or mental health conditions, cognitive impairments, low financial literacy, language barriers, abuse, or discrimination. A vulnerable client may have different needs and challenges than other clients, and may require more support and protection from their adviser. Ginger would be categorized as a vulnerable client because she has reached retirement age and is easily confused, which may affect her ability to understand and make informed decisions about her financial situation. She may also be at risk of being exploited or misled by others who may take advantage of her confusion. Therefore, Ginger' s adviser should take extra care to ensure that she is treated fairly and that her best interests are served.

  Canadian Investment Funds Course, Chapter 8: Suitability and Know Your Client1

• Question 170:

  Which statement best describes suitability?

  A. Recommending the investment with the highest historical return
  B. Ensuring recommendations match the client's circumstances and objectives
  C. Limiting recommendations to government securities
  D. Focusing only on a client's age
  B. Ensuring recommendations match the client's circumstances and objectives

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  Explanation

  Suitability requires that recommendations align with a client's financial circumstances, objectives, risk tolerance, time horizon, and other KYC information. Historical performance alone does not determine suitability. Therefore, Option B is correct.