CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 211:

  What program requires pensioners to reside in Canada for a specific period of time?

  A. OAS
  B. RPP
  C. CPP
  D. GIS
  A. OAS

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  Explanation

  Old Age Security (OAS) requires Canadian residency for eligibility. A pensioner must typically have resided in Canada for at least 10 years after age 18 to qualify.

  CPP (C) is contributory and based on employment earnings, not residency. RPP (B) is an employer-sponsored pension, not linked to residency. GIS (D) is a supplement to OAS and also requires residency but is dependent on OAS eligibility.

• Question 212:

  A fund manager who utilizes an interest rate anticipation philosophy forecasts a rise in interest rates.

  What change in asset allocation should he implement?

  A. Increase long-term bond and low coupon bond holdings
  B. Increase long-term and high coupon bond holdings
  C. Increase short-term T-bill and low coupon bond holdings
  D. Increase short-term T-bill and high coupon bond holdings
  D. Increase short-term T-bill and high coupon bond holdings

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  Explanation

  When anticipating rising interest rates, a fund manager using an interest rate anticipation philosophy should reduce interest rate sensitivity by increasing holdings in short-term T-bills and high coupon bonds, which are less affected by rate increases. The feedback from the document states: "Interest rate anticipation is a fixed-income investing philosophy that involves moving between long-term government bonds and very short-term T-bills, based on a forecast of interest rates over a certain time horizon. Price sensitivity to interest rate movements increases as the term to maturity increases and the coupon decreases. Therefore, to avoid a large capital loss if interest rates rise, the fund manager would decrease the fund's interest rate sensitivity."

  References:

  Chapter 15 - Selecting a Mutual FundLearning Domain: Evaluating and Selecting Mutual Funds

• Question 213:

  A yield curve is described as normal.

  What does this indicate?

  A. Long-term rates are lower than short-term rates
  B. Interest rates are identical across all maturities
  C. Short-term rates are lower than long-term rates
  D. Bond prices are increasing
  C. Short-term rates are lower than long-term rates

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  Explanation

  A normal yield curve slopes upward, indicating that longer-term securities generally offer higher yields than shorter-term securities. Investors usually require additional compensation for longer maturities. Therefore, Option C is correct.

• Question 214:

  Which of the following statements about pension adjustments (PA) is TRUE?

  A. They represent how much your pension is reduced due to market conditions.
  B. They increase your registered retirement savings plan (RRSP) room by the amount of the pension adjustment.
  C. They represent how much your pension will increase due to years of service.
  D. You will receive a PA whether you are in a defined contribution or a defined benefit pension plan.
  D. You will receive a PA whether you are in a defined contribution or a defined benefit pension plan.

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  Explanation

  A pension adjustment (PA) is the amount that the Canada Revenue Agency (CRA) assigns to your pension plan each year to reflect the value of the pension benefits that you earned. The PA reduces your registered retirement savings plan (RRSP) contribution room for the following year by the same amount. The PA ensures that all taxpayers have access to comparable tax assistance, regardless of the type of pension plan they participate in. You will receive a PA whether you are in a defined contribution or a defined benefit pension plan, but the calculation of the PA will differ depending on the type of plan. (Canadian Investment Funds Course, Chapter 8, Section 8.2) Canadian Investment Funds Course, Chapter 8, Section 8.2:

  Retirement Savings Plans and Pension Plans Investopedia:

  Pension Adjustment:

  Definition and Types of Plans1 PlanEasy: What Is A Pension Adjustment?2

• Question 215:

  Helen is an experienced investor and after all these years she believes that the market is completely efficient.

  What action would she undertake?

  A. Invest in ETF that tracks the S&P/TSX Composite Index
  B. Use market timing strategy trying to "beat the market"
  C. Find a portfolio manager who will be managing her portfolio on an everyday basis
  D. Monitor financial press in order to find securities that are under-or over-valued
  A. Invest in ETF that tracks the S&P/TSX Composite Index

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  Explanation

  If Helen believes in the Efficient Market Hypothesis (EMH), she accepts that markets fully reflect available information and that it is nearly impossible to consistently beat the market. The recommended action is passive investing, e.g., buying an index-tracking ETF. B (market timing) and D (security selection) contradict EMH.

• Question 216:

  What is the best risk assessment of a portfolio composed only of dividend-paying Canadian chartered bank stocks?

  A. There is some risk since these bank stocks would have a positive correlation.
  B. There is a high risk since these banks have volatile and unstable profits.
  C. There is no risk since these bank stocks are regarded as blue-chip companies.
  D. There is no risk since these bank stocks are dividend-paying stocks.
  A. There is some risk since these bank stocks would have a positive correlation.

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  Explanation

  Although Canadian chartered banks are considered high-quality, dividend-paying "blue-chip" stocks, a portfolio composed only of bank stocks still carries risk due to lack of diversification. The Investment Funds in Canada curriculum explains that diversification reduces risk only when assets have low or negative correlation. Bank stocks tend to move together because they are influenced by similar economic factors such as interest rates, credit conditions, and regulatory changes.

  This means the portfolio would have positive correlation, increasing exposure to sector-specific risk. While dividends may reduce volatility, they do not eliminate market or sector risk. The CIFC text stresses that "concentration in one sector exposes investors to systematic sector risk," even when the companies are financially strong. Options C and D are incorrect because no equity investment is risk-free, regardless of dividend history or reputation. Option B exaggerates risk by implying instability, which is inconsistent with Canadian banks' historical performance.

  Therefore, the correct and CIFC-verified answer is Option A.

• Question 217:

  Why is it important to include ethical decision-making as a Standard of Conduct?

  A. Ensures conformity with externally established standards.
  B. Enables CIRO to regulate the actions and behaviours of registered individuals.
  C. Provides flexibility so registrants can use their own judgement.
  D. Allows the security industry to operate with the trust and confidence of the public.
  D. Allows the security industry to operate with the trust and confidence of the public.

• Question 218:

  Rank the decisions made by a portfolio manager in order of importance for the success of the portfolio.

  A. Sector weighting, security selection, asset allocation
  B. Asset allocation, security selection, sector weighting
  C. Security selection, sector weighting, asset allocation
  D. Asset allocation, sector weighting, security selection
  D. Asset allocation, sector weighting, security selection

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  Explanation

  Asset allocation is the most critical decision for portfolio success, followed by sector weighting and then security selection. The feedback from the document states: "The single most important decision, one that accounts for most of the success or failure of a portfolio, is the asset allocation decision, which is the selection of the classes of securities to be held and in what proportion to hold them. The next most important decision is the selection of the specific industries from which stocks will be selected: the portfolio's sector weighting. The final decision is the security selection: the choice of which individual companies within the industry or sector to invest in."

  References:

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

• Question 219:

  What response would a loss-averse investor be most likely to choose in selecting a preferred investment return scenario?

  A. An assured loss of $750
  B. A 75% chance of losing $1,000, and a 25% chance of losing nothing
  C. A 25% chance of gaining $2,000, and a 75% chance of losing nothing
  D. A 5% chance of gaining $1,500, and a 95% chance of losing $800
  C. A 25% chance of gaining $2,000, and a 75% chance of losing nothing

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  Explanation

  Loss-averse investors prioritize minimizing potential losses over maximizing gains. The option with a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest loss potential, making it the preferred choice. The feedback from the document states: "The loss-averse investor will choose a lower potential of loss over a more rational choice. In this example, a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest possible loss potential, and will typically be the statement selected by the loss-averse investor."

  References:

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

• Question 220:

  A married couple is opening a spousal RRSP account in the name of the wife. The dealing representative gathers the information required on the NAAF, including the wife's name, social insurance number, permanent address, and investment objectives. The representative also gathers KYC information for both and informs them that leveraging is not permitted with respect to RRSP accounts.

  Which information was not required?

  A. Disclaimer with respect to leveraging
  B. Wife's KYC information
  C. Wife's social insurance number
  D. Husband's KYC information
  D. Husband's KYC information

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  Explanation

  For a spousal RRSP, KYC information is required only for the account holder (the wife) and those with trading authority, not the contributing spouse (the husband), who has no financial interest in the account.

  The feedback from the document states: "The investment experience and knowledge of all individuals who have trading authority over the account should be obtained, as well as KYC information for anyone with a financial interest in the account. For spousal RRSPs, the contributing spouse does not have a financial interest in the account, so KYC information is required for the non-contributing spouse only."

  References: Chapter 17 -

  Mutual Fund Dealer RegulationLearning Domain: Ethics, Compliance and Mutual Fund Regulations