CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 171:

  A client had set up a voluntary accumulation plan to invest a set amount annually in December in an equity mutual fund. They decided to move to a pre-authorized plan where they will invest a smaller amount in this fund every week.

  What is likely the most significant benefit of this change?

  A. Enhancing the compounding effects.
  B. Lower fund management fees.
  C. Increases the possibilities to time the market.
  D. Gaining from disciplined savings habits.
  D. Gaining from disciplined savings habits.

• Question 172:

  The Corporation Group is seeking financing for the purchase of new equipment for a planned expansion. They want to use the funds for a period of five years. They do not want to pledge any of their existing assets as security or extend shares to any of their debtors. Additionally, they want the privilege of repaying borrowed funds at any time if they so choose.

  What is the most ideal fixed-income security they should issue to raise this capital?

  A. Callable debentures
  B. Convertible bonds
  C. Commercial paper
  D. Treasury bills
  A. Callable debentures

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  Explanation

  The Corporation Group needs 5-year financing, without pledging assets (so not secured bonds). Debentures are unsecured debt backed only by the issuer's credit rating, meeting the requirement of not pledging assets.

  They also want flexibility to repay early. Only callable debentures provide this feature since they allow the issuer to repay before maturity.

  Convertible bonds (B) would dilute equity (which they want to avoid). Commercial paper (C) and Treasury bills (D) are short-term instruments (under 1 year), not suitable for 5-year financing.

  # Therefore, the ideal choice is Callable Debentures.

• Question 173:

  What activity is expected of mutual funds registrants?

  A. Circumventing regulatory rules
  B. Developing financial plans
  C. Addressing client goals
  D. Cross-selling products
  C. Addressing client goals

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  Explanation

  Mutual fund registrants are expected to: Act in clients' best interests.

  Provide advice to help achieve client financial goals. A (circumventing rules) is illegal. B (developing financial plans) may be part of the role, but the CSC stresses suitability and addressing client goals.

  D (cross-selling) benefits the dealer, not the client.

  # Correct = Addressing client goals.

• Question 174:

  Russell is a Dealing Representative with Wealth Quest Strategies Ltd., a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA). Russell is developing his website to include sales content on a Target Date Fund.

  Which of the following is Russell permitted to include on his website about the Target Date Fund?

  A. the asset mix through the life of the fund until the future date ii. the expected decline in the fund's risk level as the fund reaches its target date iii. the guaranteed return that the client will receive on the future date iv. a graphic illustration of the fund's promised growth on target date
  B. i and ii
  C. i and iii
  D. ii and iv
  E. iii and iv
  A. the asset mix through the life of the fund until the future date ii. the expected decline in the fund's risk level as the fund reaches its target date iii. the guaranteed return that the client will receive on the future date iv. a graphic illustration of the fund's promised growth on target date

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  Explanation

  A target date fund is a type of mutual fund that adjusts its asset allocation and risk level according to a predetermined future date, such as retirement or college education. A target date fund typically starts with a higher proportion of stocks and a lower proportion of bonds and cash, and gradually shifts to a more conservative mix as the target date approaches. This is called the fund's glide path, which shows the asset mix through the life of the fund until the future date. Russell is permitted to include this information on his website, as it is factual and relevant to the fund's characteristics and suitability. Russell is also permitted to include information about the expected decline in the fund's risk level as the fund reaches its target date, as this is part of the fund's objective and strategy. However, Russell is not permitted to include any information that implies or suggests that the target date fund offers a guaranteed return or a promised growth on the future date, as this would be misleading and inaccurate. Target date funds are not guaranteed investments, and their performance depends on the market conditions and the fund manager's decisions. Russell must not make any false or exaggerated claims about the target date fund's benefits or returns on his website. Canadian Investment Funds Course, Chapter 7: Know Your Product1

• Question 175:

  Which of the following is included when calculating a country's gross domestic product (GDP)?

  A. total income of all employed individuals
  B. the cost of all goods produced
  C. the market value of goods and services sold to final users
  D. the value of work done by volunteers
  C. the market value of goods and services sold to final users

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  Explanation

  Gross domestic product (GDP) is a measure of the total economic activity in a country. It is calculated by adding up the market value of all the final goods and services produced within a country's borders in a given period of time, usually a year or a quarter. Final goods and services are those that are sold to the end users, such as consumers, businesses, or the government, and are not used as inputs for further production. For example, a loaf of bread sold to a consumer is a final good, but the flour used to make the bread is not. The market value of goods and services is the price that buyers are willing to pay for them in the market. This reflects the value added by the producers at each stage of production and avoids double counting. For example, if a farmer sells wheat for $10 to a miller, who then sells flour for $20 to a baker, who then sells bread for $30 to a consumer, the value added at each stage is $10, $10, and $10, respectively. The total value added is $30, which is equal to the market value of the final good (bread). Therefore, GDP only includes the market value of final goods and services and excludes intermediate goods and services.

  Canadian Investment Funds Course, Unit 4, Section 4.1; 5; 6; 7; 8

• Question 176:

  Maxine is a portfolio manager who 15 years ago, purchased 100 shares of Never2Tacky, a social media corporation for Aspirations Global Technology Fund. She purchased the stock when it was trading at $10. Last year, the peak market price was $120. Presently, it is trading at $99. News agencies are now reporting that additional regulations regarding social media companies are about to be agreed upon by G7 countries. Maxine is concerned the market value of Never2Tacky is going to drop. She buys a put option with an exercise price of $95 with an expiry of 9 months.

  What type of strategy is Maxine using?

  A. Speculating
  B. Modern portfolio theory
  C. Passively managing
  D. Hedging
  D. Hedging

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  Explanation

  A put option is a contract that gives the buyer the right, but not the obligation, to sell a certain amount of an underlying security at a specified price within a specified time frame. A put option increases in value as the price of the underlying security decreases, and vice versa. Therefore, buying a put option can be used as a hedging strategy to protect against downside risk or loss in the value of the underlying security. In this case, Maxine is using a put option to hedge against the potential drop in the market value of Never2Tacky due to the regulatory changes. If the price of Never2Tacky falls below $95, she can exercise the put option and sell her shares at $95, limiting her loss. If the price of Never2Tacky stays above $95, she can let the put option expire and keep her shares, paying only the premium for the option. Buying a put option is not speculating, as it does not involve taking a high-risk position in anticipation of a favorable outcome. It is also not related to modern portfolio theory or passive management, which are different concepts in investment analysis.

  References:

  Put Option: What It Is, How It Works, and How to Trade Them, Put Options: What.

  They Are and How They Work, Put: What It Is and How It Works in Investing, With Examples

• Question 177:

  Which of the following Dealing Representatives has fulfilled their "Know Your Product" obligation?

  A. Godfried opens an account for his new client, Nadia. When the investments from her previous dealer are transferred in, Godfried sells the investments. Nadia becomes very upset when she is charged $4,329 in redemption fees that neither she nor Godfried expected.
  B. Otev meets with his client, Saeed. Saeed's brother invested in the Navigator Eastern Asia Fund and it provided great returns. When Saeed asks Otev if the Navigator Fund or something similar is available through his firm, Otev doesn't know and doesn't look it up.
  C. Rehan reviews the features of the Hedge Fund that her client, Georgi, wants to buy. When Rehan explains the product to Georgi, she tells him that the Hedge Fund has a lock-up period and he will not be able to redeem the fund if he needs the money.
  D. Tevy recommends the firm's in-house Principal Protected Note (PPN) to her client Mei. Since Mei is seeking safety and liquidity, Tevy determines that the PPN is a good product for her because it's on the firm's list and the principal is guaranteed.
  C. Rehan reviews the features of the Hedge Fund that her client, Georgi, wants to buy. When Rehan explains the product to Georgi, she tells him that the Hedge Fund has a lock-up period and he will not be able to redeem the fund if he needs the money.

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  Explanation

  The "Know Your Product" obligation requires that Dealing Representatives understand all the products they purchase, sell or recommend for their clients, including their structure, features, risks, costs and suitability. Rehan has fulfilled this obligation by reviewing the features of the Hedge Fund and explaining them to Georgi, who may not be aware of the lock-up period and its implications. The other Dealing Representatives have failed to fulfill their obligation by either not knowing or not disclosing important information about the products they deal with.

  Canadian Investment Funds Course, Chapter 7: Know Your Product1

• Question 178:

  What decision accounts for most of the success or failure of a portfolio?

  A. Market timing
  B. Security analysis
  C. Sector weighting
  D. Asset allocation
  D. Asset allocation

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  Explanation

  Research and the CSC curriculum stress that asset allocation is the single most important factor in determining portfolio performance, more than market timing or security selection. Proper asset mix (equities, fixed income, cash) accounts for most portfolio success or failure.

• Question 179:

  Jabir recently joined Prosper Wealth Inc. and is looking forward to being a Dealing Representative for the firm.

  Which of the following statements CORRECTLY describe when Jabir will be eligible to open new client accounts and sell investments?

  A. Upon registration application by the dealer
  B. Upon employment with the dealer
  C. Upon formal confirmation from the regulator
  D. Upon passing the proficiency course
  C. Upon formal confirmation from the regulator

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  Explanation

  Jabir will be eligible to open new client accounts and sell investments only after he receives formal confirmation from the securities regulator that he is registered as a Dealing Representative. This is because registration is a legal requirement for anyone who trades securities or advises clients on securities in Canada, unless an exemption applies. Registration helps protect investors by ensuring that only qualified and competent individuals and firms can conduct securities related business. Jabir must also meet the proficiency, solvency, and suitability requirements for registration, as well as comply with the ongoing obligations of a registrant. Passing the proficiency course and being employed by the dealer are necessary but not sufficient conditions for registration. The dealer must apply for registration on behalf of Jabir and wait for the regulator' s approval.

  Canadian Investment Funds Course, Unit 1, Section 1.2

• Question 180:

  How might a registrant provide beneficial mutual fund advice and service?

  A. Identifying the right solutions
  B. Identify low-cost MER funds
  C. Guarantee future performance
  D. Cross sell multiple products or services
  A. Identifying the right solutions

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  Explanation

  A registrant adds value by helping clients match mutual fund solutions to their needs and objectives, not by making promises or pushing products.

  B (low MERs) is one factor, but not the entire scope of advice.

  C (guaranteeing performance) is unethical and prohibited.

  D (cross-selling) prioritizes the dealer, not the client.