CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 221:

  Stan, a portfolio manager, is looking at two steel companies as potential investments. Truesteel Inc. has a current ratio of 2:1 while Strongco Ltd. has a current ratio of 0.8:1.

  What could this information indicate?

  A. It appears that Truesteel is more profitable than Strongco.
  B. Truesteel is better able to meet its short-term financial obligations than Strongco.
  C. The stock market is more optimistic about the prospects for Truesteel than Strongco.
  D. Stronqco is reiving less on debt financing than Truesteel.
  B. Truesteel is better able to meet its short-term financial obligations than Strongco.

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  Explanation

  The current ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations with its current assets. A higher current ratio indicates that the company has more current assets than current liabilities, which means it can meet its short-term obligations more easily. A lower current ratio indicates that the company has less current assets than current liabilities, which means it may face liquidity problems or default risk. Therefore, the information given in the question indicates that Truesteel is better able to meet its short-term financial obligations than Strongco. The current ratio does not necessarily reflect the profitability, market outlook, or debt financing of the companies.

  References:

  Current Ratio Explained With Formula and Examples, Current Ratio Formula, Current ratio

• Question 222:

  Winter is a Dealing Representative with Top Tier Investing, a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA).

  Which of the following statements about Winter's suitability obligation is CORRECT?

  Winter is required to make a suitability determination every time: i) she makes a recommendation to a client ii) a client's investment returns decline. iii) she opens a new client account iv) the markets fluctuate.

  A. i and ii
  B. i and iii
  C. ii and iii
  D. iii and iv
  B. i and iii

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  Explanation

  According to the MFDA Rules, a Dealing Representative is required to make a suitability determination every time:

  The Dealing Representative makes a recommendation to a client; The Dealing Representative accepts a trade instruction from a client; The Dealing Representative opens a new account for a client or changes the account type; The Dealing Representative becomes aware of a material change in the client's KYC information; Securities are transferred or re-registered into the client's account; or There has been a change in the Approved Person responsible for the client's account2

  A suitability determination is the process of ensuring that any investment action taken for a client is suitable for the client based on their KYC information, such as investment objectives, risk tolerance, time horizon, financial situation, and investment knowledge. A suitability determination also requires putting the client's interests first and disclosing any material factors involved in the investment action 2.

  Therefore, Winter is required to make a suitability determination every time she makes a recommendation to a client (i) or she opens a new client account (iii). She is not required to make a suitability determination every time a client's investment returns decline (ii) or the markets fluctuate (iv), unless these events trigger a material change in the client's KYC information or affect the suitability of the client's portfolio.

  1: MSN-0069 | MFDA 2 (Know-Your-Client (KYC) and Suitability)

• Question 223:

  What action does an investor take when making a long margin purchase of common shares at market?

  A. The investor buys common shares using entirely their own funds at the current price available
  B. The investor places an order to buy when the price of common shares reaches or drops below a specified level
  C. The investor buys common shares using borrowed funds at the current price available
  D. The investor borrows common shares and then sells them in anticipation of a decline in the price of the common shares
  C. The investor buys common shares using borrowed funds at the current price available

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  Explanation

  A long margin purchase means buying securities partly with borrowed funds from the dealer . The investor pays part of the purchase price (the margin), while the dealer lends the balance .

  This differs from:

  A (cash purchase): uses only own funds.

  B (limit order): unrelated, based on price conditions.

  D (short sale): selling borrowed shares, not buying.

  Correct action = buying shares on borrowed funds at market price.

• Question 224:

  What variable needs to decrease on a company's statement of changes in equity for its retained earnings to increase?

  A. Cost of sales.
  B. Dividends paid.
  C. Taxes paid.
  D. Interest expenses.
  B. Dividends paid.

• Question 225:

  Sarah and Kyle are a married couple. They are both 34 years of age and work as teachers. Their combined annual income is $130,000. They are able to save $800 each month. They own a home worth $340,000 with a $120,000 mortgage.

  Since they work for the same employer, they have the same defined benefit pension plan. Other than a tax-free savings account (TFSA) in Kyle's name with $5,000, they do not have any other assets.

  They are avid sailors and want to save towards a purchase of a sailboat. For the type of sailboat they want, they estimate it should cost around $65,000. They want you to recommend an investment for their monthly savings to help them achieve their goal faster.

  What question should you ask them next?

  A. How would you feel if you lost part of your money in the short-term?
  B. What is your investment objective for these savings?
  C. What is your net worth?
  D. How much do you make individually each year?
  B. What is your investment objective for these savings?

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  Explanation

  The question that you should ask Sarah and Kyle next is what is their investment objective for these savings. An investment objective is a statement that defines the purpose and goals of an investment. It helps investors and advisors select suitable investment products and strategies that match the investor's needs and expectations. An investment objective typically considers factors such as risk tolerance, return expectations, time horizon, liquidity needs, tax situation, and personal preferences. Therefore, option B is the correct question to ask Sarah and Kyle next. The other options are not relevant or sufficient to determine their investment objective.

  Option A is related to their risk tolerance, but it is not the only factor that affects their investment objective.

  Option C is related to their net worth, but it does not indicate their purpose and goals for their savings.

  Option D is related to their income, but it does not reflect their return expectations or liquidity needs for their savings.

  References:

  [Investment Objective Definition], [Investment Objectives: What.

  They Are and How to Use Them], [Investment Objectives | GetSmarterAboutMoney.ca]

• Question 226:

  At the close of business, a mutual fund has total assets of $180 million and total liabilities of $15 million. There are 15 million units outstanding.

  What is the fund's net asset value per unit (NAVPU)?

  A. $10.00
  B. $11.00
  C. $12.00
  D. $13.00
  B. $11.00

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  Explanation

  NAVPU is calculated by dividing net assets by the number of units outstanding.

  Net Assets = $180 million ? $15 million = $165 million

  NAVPU = $165 million 15 million = $11.00

  Therefore, Option B is correct.

• Question 227:

  One of your clients, Rakesh, had a portfolio composed of 60% ABC Equity Fund and 40% ABC Bond Fund. Since equities were performing much better than fixed income, he had increased his holdings in ABC Equity Fund to 70% and had reduced his holding in ABC Bond Fund to 30% of his portfolio. After benefitting the growth in his ABC Equity Fund for over 2 years, Rakesh is uncomfortable with this heavy exposure to equity funds and decides to rebalance his portfolio back to 60% of ABC Equity Fund and 40% of ABC Bond Fund.

  He instructs you to switch 10% of the portfolio from the ABC Equity Fund to the ABC Bond Fund.

  Which of the following statements is CORRECT?

  A. Rakesh will not be subjected to a switch fee if it is outlined in the prospectus.
  B. Rakesh will not be subjected to a switch fee if his equity fund is a no-load fund.
  C. Rakesh will not be subjected to a switch fee if his original units were purchased with a sales charge.
  D. Rakesh will not be subjected to a switch fee if his equity fund is a low-load fund.
  A. Rakesh will not be subjected to a switch fee if it is outlined in the prospectus.

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  Explanation

  Rakesh will not be subjected to a switch fee if it is outlined in the prospectus. A switch fee is a charge that may apply when an investor switches from one fund to another within the same fund family. The prospectus is the legal document that provides information about the fund, including its fees and charges. If the prospectus states that there is no switch fee or that there are certain conditions under which the switch fee is waived, then Rakesh will not have to pay a switch fee. The type of fund (no-load, low-load, or sales charge) does not determine whether there is a switch fee or not, as different fund families may have different policies regarding switch fees.

  References:

  Mutual Fund Fees, Prospectus

• Question 228:

  What statement shows a company's position at a specific date?

  A. Statement of financial position
  B. Cash flow statement
  C. Statement of comprehensive income
  D. Bank statement
  A. Statement of financial position

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  Explanation

  The correct answer is A. Statement of financial position, which is also commonly referred to as the balance sheet. The Investment Funds in Canada curriculum explains that this statement provides a snapshot of a company's assets, liabilities, and shareholders' equity at a specific point in time. Unlike the income statement or statement of comprehensive income, which measure performance over a period, the statement of financial position reflects what the company owns and owes on a particular date. The cash flow statement tracks the movement of cash over time, not a single moment. A bank statement is not a formal financial statement used in corporate analysis. The CIFC text emphasizes that understanding the statement of financial position is essential for assessing financial strength, solvency, and capital structure. Therefore, Option A is the correct and fully CIFC-aligned answer.

• Question 229:

  Yesterday, Mariana purchased mutual funds for the first time from Diablo, who is a Dealing Representative for Horizon Financial.

  When Mariana mentions to her friend Marcus that she just started to invest, Marcus confides that he experienced losses from mutual fund investing. Her initial feelings of excitement have now changed to worry and regret. She wished she had talked to her friend before investing and wonders if she can change her mind.

  Which statement regarding the right of withdrawal applies?

  A. The right of withdrawal is based on the securities act legislation within the jurisdiction the purchase occurred.
  B. Before Mariana can cancel her order, she must wait two business days to pass before she can cancel her order.
  C. How the right of withdrawal can be applied is determined by the Mutual Fund Dealers Association of Canada's conduct rules.
  D. The Canadian Securities Administrators have instituted national instruments regarding Mariana's right to cancel her order.
  A. The right of withdrawal is based on the securities act legislation within the jurisdiction the purchase occurred.

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  Explanation

  The right of withdrawal is a statutory right that allows investors to cancel their mutual fund purchase within two business days of receiving the Fund Facts document or confirmation of purchase, whichever is later. The right of withdrawal is based on the securities act legislation within the jurisdiction where the purchase occurred, which may vary slightly across provinces and territories.

• Question 230:

  Jasmine purchases a 1-year, $10,000 face value strip bond for $9,600.

  At maturity, when Jasmine receives $10,000, which of the following statements is CORRECT?

  A. Jasmine realizes a capital dividend of S400.
  B. Jasmine realizes a taxable dividend of $400.
  C. Jasmine realizes a taxable capital gain of $400.
  D. Jasmine realizes interest income of $400.
  D. Jasmine realizes interest income of $400.

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  Explanation

  Jasmine realizes interest income of $400 because she bought a strip bond, which is a bond that has its principal and coupon payments separated and sold individually. Jasmine bought the principal-stripped bond, also known as a zero-coupon bond, which pays no interest until maturity. The difference between the purchase price and the face value at maturity is considered interest income and is taxable in the year it is received.

  References:

  Strip Bonds: Definition, How They Work, Returns, and Example