CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 241:

  Karen's know your client (KYC) profile corresponds to someone who has a long time horizon, is comfortable with risk and volatility, and is primarily interested in growth. She watches the daily movements of the Toronto Stock Exchange (TSX) and wants a mutual fund that will closely match what she sees.

  What kind of mutual fund would be BEST for her?

  A. Canadian small capitalization equity fund
  B. Canadian equity index fund
  C. Canadian dividend fund
  D. Canadian bond fund
  B. Canadian equity index fund

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  Explanation

  A Canadian equity index fund is a type of mutual fund that invests in stocks that track a Canadian equity market index, such as the S&P/TSX Composite Index or the S&P/TSX 60 Index. These indices measure the performance of the largest and most liquid companies listed on the Toronto Stock Exchange (TSX). A Canadian equity index fund aims to replicate the returns of the index it follows, before fees and expenses. Therefore, this type of fund would be best for Karen, who has a long time horizon, is comfortable with risk and volatility, and is primarily interested in growth. She also wants a mutual fund that will closely match what she sees on the TSX.

  References:

  CIBC Canadian Equity Index ETF, Top Canadian Index Funds of 2023 | The Motley Fool Canada

• Question 242:

  What does PIPEDA require firms in Canada to do?

  A. Obtain consent only when using or publicly disclosing personal information
  B. Prohibit the disclosure of private information under any circumstance
  C. Verify client identification regarding specific transactions
  D. Provide service even if an individual refuses the collection of their information
  A. Obtain consent only when using or publicly disclosing personal information

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  Explanation

  PIPEDA (Personal Information Protection and Electronic Documents Act) requires firms to obtain informed consent when collecting, using, or disclosing personal information. B (prohibit disclosure) is too absolute; exceptions exist (e.g., legal requirements).

  C (verify client ID) is under AML rules, not PIPEDA.

  D (must provide service if info refused) is incorrect; firms may deny services if info is not provided.

• Question 243:

  On January 3, John invests $500 in the Blue Sky U.S. Equity Fund. On July 1 of the same year, he invests another $500 into the same mutual fund. Information about the net asset value per unit (NAVPU) at the time of each transaction is provided below.

  Given this information, what will be the value of John's investment on December 31 of this year (please ignore transaction costs and distributions)?

  A. $1,198
  B. $1,216
  C. $1,256
  D. $1,332
  C. $1,256

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  Explanation

  The value of John's investment on December 31 of this year can be calculated by multiplying the number of units he holds by the net asset value per unit (NAVPU) on that date. Since John invested $500 on January 3 and $500 on July 1, he holds a total of 125.6 units (62.8 units from the first investment and 62.8 units from the second investment). Therefore, the value of his investment on December 31 will be 125.6 units x $9.55 NAVPU = $1,256. Canadian Investment Funds Course, Chapter 2: Mutual Funds1

• Question 244:

  Melanie is saving for a home renovation that she plans to undertake in two years.

  Which investment objective is most consistent with this goal?

  A. Long-term growth
  B. Speculation
  C. Capital preservation
  D. Aggressive growth
  C. Capital preservation

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  Explanation

  When funds will be needed within a relatively short period, preserving capital is typically the primary objective. Investments focused on aggressive growth or speculation may expose the investor to unnecessary market risk. Therefore, Option

  C is correct.

• Question 245:

  Quintin has been a Dealing Representative for Global Maximum Financial for 5 years. Today, he opened an account for his new client, Reginald. In addition to opening a new account, Reginald agreed to accept Quintin's investment recommendation and placed a purchase order to buy units of the Global Maximum Value Equity fund.

  Quintin informed his Branch Manager Lupita about this new account on the same day the purchase order was received. Lupita told Quintin that she would complete her review of the New Client Application Form (NCAF) by no later than tomorrow.

  Which statement regarding this new account opening is CORRECT?

  A. Quintin cannot accept purchase orders from a client until Lupita completes her review of the NCAF.
  B. Lupita has two business days from the date of opening the new account to approve the NCAF completed by Quintin.
  C. Quintin and Lupita are both following proper procedure regarding new account openings and purchase orders.
  D. Unless Quintin is presently under probation, he does not need Lupita's approval regarding the NCAF.
  A. Quintin cannot accept purchase orders from a client until Lupita completes her review of the NCAF.

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  Explanation

  According to the MFDA Rules, a Dealing Representative must not accept any purchase orders from a client until the Branch Manager or other designated person has reviewed and approved the New Client Application Form (NCAF) for the client. This is to ensure that the Dealing Representative has obtained and verified all the necessary information about the client, such as identity, investment objectives, risk tolerance, financial situation, and suitability of investments. The review and approval of the NCAF must be completed before any trades are executed for the client, unless there are exceptional circumstances that justify a delay. In this case, Quintin should have waited for Lupita's approval of the NCAF before placing the purchase order for Reginald. 1: MFDA Rules as at December 31, 2021 - MFDA 2 (Rule 2.2.4)

• Question 246:

  Which statement regarding the underwriting process and over-the-counter (OTC) markets is CORRECT?

  A. Corporations must have their shares listed both on an exchange and the OTC market during the underwriting process.
  B. During the underwriting process investment bankers raise investment capital from investors on behalf of corporations and governments issuing securities.
  C. Many new stock issues that are underwritten by securities firms are first listed on a stock exchange before they are sold over-the-counter.
  D. The disclosure standards for stock exchanges are not as stringent as those imposed by the OTC market.
  B. During the underwriting process investment bankers raise investment capital from investors on behalf of corporations and governments issuing securities.

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  Explanation

  Underwriting is the process through which an individual or institution takes on financial risk for a fee. This risk most typically involves loans, insurance, or investments. In the case of securities, underwriting involves conducting research and assessing the degree of risk each applicant or entity brings to the table before assuming that risk. During the underwriting process, investment bankers raise investment capital from investors on behalf of corporations and governments issuing securities. They also help determine the company's underlying value compared to the risk of funding its IPO.

  References:

  Underwriting: Definition and How the Various Types Work - Investopedia, The future of insurance underwriting | Deloitte Insights

• Question 247:

  Calculate the 2-year simple return for the AAA Mutual Fund.

  AAA Mutual Fund Performance

  Year | Price at Beginning | Distribution | Price at End | Simple 1-Yr Return 1st Year | $10.00 | $0.25 | $11.00 | 12.50% 2nd Year | $11.00 | $0.25 | $10.20 | -5.00%

  A. 7%
  B. 3%
  C. 8%
  D. -3%
  A. 7%

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  Explanation

  The 2-year simple return is calculated as: Return = (Price at the end of the period + total cash flow earned during the period - Price at the beginning of the period) / Price at the beginning of the period.

  Total cash flow = $0.25 (Year 1) + $0.25 (Year 2) = $0.50.

  Return = ($10.20 + $0.50 - $10.00) / $10.00 = $0.70 / $10.00 = 7.00%. The feedback from the document confirms: "Return = (Price at the end of the period + cash flow earned during the period - Price at the beginning of the period) / Price at the beginning of the period. In this case, ($10.20 + $0.50 - $10.00) / $10.00 = 7.00%."

  References:

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

• Question 248:

  The Optima Equity Fund has a beta of 1.4.

  What is the most accurate way to describe the Optima Equity Fund' s relationship to the market as a whole?

  A. If the market goes up by 5%, the Optima Fund should go up by 7%
  B. If the market goes up by 10%, the Optima Fund should go up by 11.4%
  C. If the market goes down by 5%, the Optima Fund should go down by 5.7%
  D. If the market goes down by 10%, the Optima Fund should go up by 11.4%
  A. If the market goes up by 5%, the Optima Fund should go up by 7%

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  Explanation

  A beta of 1.4 indicates that the Optima Equity Fund is 1.4 times more volatile than the market. If the market rises by 5%, the fund is expected to rise by 5% x 1.4 = 7%. The feedback from the document states: "One way to measure market risk is by calculating a portfolio's beta. Beta shows how much a portfolio fluctuates when the market as a whole fluctuates. A higher beta means that the portfolio is exposed to more risk. The market has a beta of 1.0. In this example: The Optima Equity Fund has a beta of 1.4, which means the Fund is expected to be 1.4 times more volatile than the market as a whole. If the S&P/TSX Composite Index is used to measure the performance of the Optima Fund, then if the Index rose by 10% you would expect to see the Optima Fund rise by 14% (1.4 x 10%)."

  References:

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

• Question 249:

  Nelson is a Dealing Representative with True Wealth Advisors Inc., a mutual fund dealer. Nelson follows proper procedures related to his firm's Relationship Disclosure Information (RDI).

  Which of the following CORRECTLY describes how Nelson is permitted to evidence that he satisfied his RDI obligation?

  A. Nelson may retain a copy of the RDI in the client file with detailed notes to confirm that he provided and explained the RDI to the client.
  B. Nelson may deliver the RDI to clients who request it and keep detailed notes of the clients who were provided with the RDI.
  C. Nelson can formalize his relationship under the RDI using a Letter of Engagement that specifies duties, responsibilities, and level of service.
  D. Nelson can record detailed notes which confirm that he provided and explained the Fund Facts to the client within 2 days of the RDI.
  A. Nelson may retain a copy of the RDI in the client file with detailed notes to confirm that he provided and explained the RDI to the client.

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  Explanation

  Relationship Disclosure Information (RDI) is a document that provides important information about the nature and scope of the relationship between a registered firm and its clients. It covers topics such as the products and services offered by the firm, the fees and charges applicable to the client's account, the risks associated with investing, the conflict of interest management policies of the firm, and the dispute resolution services available to the client. According to Section 14.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), registered firms must provide RDI to their clients before they purchase or sell securities for them or advise them to do so.

  Registered firms must also update RDI in a timely manner if there are any significant changes to it. To evidence that they have satisfied their RDI obligation, registered firms may retain a copy of the RDI in the client file with detailed notes to confirm that they have provided and explained RDI to their clients. This is one of the acceptable methods suggested by Alberta Securities Commission (ASC) in its presentation on RDI1. Delivering RDI only upon request or using a letter of engagement are not sufficient methods to comply with NI 31-103. Providing and explaining Fund Facts is a separate obligation under NI 31-101 Mutual Fund Distribution Rules.

  References:

  Relationship Disclosure Information August 2021, Relationship Disclosure Information, Relationship Disclosure Information

• Question 250:

  Which of the following statements about global equity funds is TRUE?

  A. They may invest in all countries including the investment fund manager's home country.
  B. They must invest almost exclusively outside of the Americas.
  C. They are always less risky than Canadian equity funds.
  D. They specialize in one or two countries.
  A. They may invest in all countries including the investment fund manager's home country.

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  Explanation

  Global equity funds are a type of investment fund that invests in equity securities of companies from different countries around the world, including the investment fund manager's home country. Global equity funds aim to provide diversification and growth potential by taking advantage of the opportunities and risks in various markets and regions. Global equity funds may have different geographic, sectoral, or thematic focuses, depending on their investment objectives and strategies. Global equity funds are different from international equity funds, which invest only in countries outside of the investment fund manager's home country. Global equity funds are also different from regional or country-specific equity funds, which specialize in one or a few countries or regions. Global equity funds may have higher risk than domestic equity funds, as they are exposed to currency risk, foreign market risk, political risk, and regulatory risk. Canadian Investment Funds Course, Chapter 4: Types of Investments1