CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 321:

  Which company usually fills the role of the custodian for a mutual fund?

  A. A trust company
  B. A management company
  C. An insurance company
  D. A subsidiary company
  A. A trust company

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  Explanation

  Comprehensive Detailed Explanation with Investment Funds in Canada Course References: The custodian of a mutual fund is responsible for safekeeping assets and handling cash inflows and outflows.

  According to CSC, an independent financial organization, usually a trust company, serves as custodian. The custodian collects funds from investors, receives portfolio income, and arranges for distributions and redemptions.

  Thus, the correct answer is A.

  A trust company.

• Question 322:

  Jane Lawrence meets with an investment colleague for lunch. Her colleague discusses a new fund that he is recommending to his clients. He also tells her that until the end of the day, the fund company is offering advisors a $50 bonus for first-term orders completed using the firm's new automated application tool.

  When Jane returns to the office, she immediately contacts all her clients to recommend they purchase this fund.

  Which component of the duty of care standard has Jane violated?

  A. Know your client
  B. Unsolicited orders
  C. Due diligence
  D. Personal business
  C. Due diligence

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  Explanation

  The duty of care includes Know Your Client (KYC) and due diligence. Due diligence means ensuring that product recommendations are suitable, unbiased, and based on a careful review of the product's risks, costs, and client needs.

  Jane violated due diligence by recommending a fund based on a sales incentive ($50 bonus) rather than analyzing suitability for her clients.

• Question 323:

  Portia is a Dealing Representative with Highview Wealth Inc., a mutual fund dealer. Portia recommends the Stature Growth Fund to her client Clive.

  Which of the following CORRECTLY describes what Portia must do in order to satisfy her obligations under the Client Relationship Model (CRM) and Client Focused Reforms (CFR)?

  A. Portia must calculate the net asset value per unit (NAVPU) and report it to Give in the trade confirmation.
  B. Portia must mark the trade as ^unsolicited" if Clive wants to proceed with the trade and it is not suitable for him.
  C. Portia must disclose the costs, expenses, and ongoing fees associated with the investment prior to the trade.
  D. Portia must provide Clive with the pre-trade disclosure to address any material conflicts of interest with the trade.
  C. Portia must disclose the costs, expenses, and ongoing fees associated with the investment prior to the trade.

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  Explanation

  The Client Relationship Model (CRM) and Client Focused Reforms (CFR) are regulatory initiatives that aim to enhance the relationship between registered firms and their clients by imposing higher standards of conduct and disclosure. One of the obligations under CRM and CFR is to provide clients with information about the costs, expenses, and ongoing fees associated with an investment prior to executing a trade. This includes disclosing the management expense ratio (MER), sales charges, deferred sales charges (DSC), switch fees, short-term trading fees, and trailer fees of a mutual fund. This information helps clients understand the impact of fees on their returns and compare different investment options.

  Therefore, option C is correct regarding what Portia must do in order to satisfy her obligations under CRM and CFR. The other options are not correct.

  Option A is false because Portia does not need to calculate the net asset value per unit (NAVPU) and report it to Clive in the trade confirmation; rather, the NAVPU is determined by the mutual fund manager and reported by the mutual fund dealer in the trade confirmation.

  Option B is false because Portia must not mark the trade as unsolicited if Clive wants to proceed with the trade and it is not suitable for him; rather, Portia must act in Clive's best interest and advise him against making an unsuitable trade or decline to execute it.

  Option D is false because Portia does not need to provide Clive with the pre-trade disclosure to address any material conflicts of interest with the trade; rather, Portia must disclose any material conflicts of interest with the client relationship as part of the relationship disclosure information (RDI) that is provided at account opening and updated as necessary.

  References:

  [Client Relationship Model - Phase 2 (CRM2) | GetSmarterAboutMoney. ca], [Client Focused Reforms | GetSmarterAboutMoney.ca], [Client Focused Reforms - FAQs | IFIC]

• Question 324:

  Sharon short-sold 7,500 shares of LMP at $85. She later buys back the short position at $95. Sharon was charged a 1% commission on the proceeds for both the short sale and buyback transactions.

  What is Sharon's profit or loss?

  A. $75,000 loss.
  B. $74,250 profit.
  C. $61,500 profit.
  D. $88,500 loss.
  D. $88,500 loss.

• Question 325:

  Which of the followings describes segregated funds?

  A. Segregated funds have high returns, high management fees, and cannot be redeemed until the maturity date of the contract.
  B. Segregated funds flow through capital losses to investors because the investors are the owners of the underlying fund.
  C. Segregated funds offer some protection of the capital invested but there is an added cost for the protection.
  D. Segregated funds are subject to securities regulation because they are distributed by mutual fund dealing representatives.
  C. Segregated funds offer some protection of the capital invested but there is an added cost for the protection.

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  Explanation

  Segregated funds offer some protection of the capital invested but there is an added cost for the protection. Segregated funds are contracts issued by life insurance companies that invest in underlying funds, similar to mutual funds.

  Segregated funds have a maturity guarantee and a death benefit guarantee, which ensure that the investor or their beneficiary will receive a certain percentage of their initial investment, regardless of market fluctuations. However, these guarantees come at a cost, which is reflected in higher management fees and insurance fees than mutual funds. Segregated funds do not have high returns, as they depend on the performance of the underlying funds. Segregated funds can be redeemed before the maturity date of the contract, but they may be subject to early redemption fees or market value adjustments. Segregated funds do not flow through capital losses to investors, as they are not considered owners of the underlying fund. Segregated funds are subject to insurance regulation, not securities regulation, because they are distributed by life insurance agents.

  References:

  Segregated Funds

• Question 326:

  All other factors being equal, which fund outperformed the benchmark during this period? The benchmark return is 4.75%.

  Fund

  Starting NAV ($) Ending NAV ($)

  ABC

  21.15

  22.09

  FED

  25.37

  26.61

  MCQ

  30.14

  31.55

  XYZ

  31.00

  31.99

  A. ABC
  B. MCQ
  C. FED
  D. XYZ
  B. MCQ

• Question 327:

  A portfolio that incurs a substantial loss due to a significant downturn in Canadian equities has been exposed to what type of risk?

  A. Unique
  B. Currency
  C. Default
  D. Systematic
  D. Systematic

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  Explanation

  Systematic risk (market risk) affects the entire market or asset class, and cannot be diversified away. A downturn in Canadian equities impacts all Canadian stocks, making it a systematic risk. Unique risk (A) is company-specific and can be diversified away. Currency risk (B) arises from exchange rate fluctuations, not applicable here. Default risk (C) applies to debt issuers failing to meet obligations, not equities.

• Question 328:

  Clinton is meeting with his advisor Zaydin to discuss the best ways to regularly invest from his paydays. Clinton is concerned that he may be unable to commit to regular contributions versus lump-sum deposits.

  Why would Zaydin recommend an accumulation plan to his client?

  A. Investment discipline
  B. Reduced fees
  C. Increases market timing opportunities
  D. Lowered NAVPS
  A. Investment discipline

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  Explanation

  An accumulation plan, such as a Pre-Authorized Chequing (PAC) plan, is recommended primarily to encourage investment discipline, which is why Option A is correct. The Investment Funds in Canada text explains that accumulation plans "encourage investors to save regularly and consistently over time," helping clients overcome behavioural challenges such as procrastination or irregular saving habits. By investing automatically from each payday, clients commit to a structured saving process without needing to decide repeatedly whether to invest. This aligns with the CIFC emphasis on behavioural finance, which notes that disciplined, systematic investing often leads to better long-term outcomes than sporadic lump-sum investing.

  Reduced fees are not guaranteed under accumulation plans, making

  Option B incorrect. Accumulation plans do not improve market timing; in fact, CIFC explicitly warns that attempting to time the market is ineffective, making

  Option C incorrect. NAVPS is determined by fund assets and liabilities and is not lowered by contribution methods, so

  Option D is also incorrect.

  The course further explains that accumulation plans complement dollar-cost averaging, which reduces emotional decision-making and smooths market volatility over time. Therefore, the key benefit-and the reason Zaydin would recommend the plan-is investment discipline.

• Question 329:

  You have been researching Canadian equity mutual funds for a new client. You come across the following information.

  

  What can you conclude from this information?

  A. Chamberlain Equity Fund has lower volatility since its 5-year annualized return is higher.
  B. Fontaine Equity Fund is a better fund because it has a higher quartile ranking.
  C. Fontaine Equity Fund has a lower risk level since its Sharpe Ratio is lower.
  D. Fontaine Equity Fund's higher MER contributes to its lower 5-year annualized return.
  D. Fontaine Equity Fund's higher MER contributes to its lower 5-year annualized return.

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  Explanation

  The management expense ratio (MER) is the percentage of a fund's assets that is paid to the fund manager for operating and managing the fund. A higher MER means that more of the fund's returns are eaten up by fees, leaving less for the investors. Therefore, Fontaine Equity Fund's higher MER of 2.99% contributes to its lower 5-year annualized return of 11.25%, compared to Chamberlain Equity Fund's MER of 2.57% and 5-year annualized return of 13.42%. Therefore, D is the correct answer., Management Expense Ratio (MER): Definition and How It Works - Investopedia

• Question 330:

  Jenny contributed $5,000 each year for five years to a spousal RRSP in Albert's name. In the sixth calendar year, Jenny did not contribute and Albert withdrew all the funds from the spousal RRSP.

  What are the tax implications of the withdrawal for Albert and Jenny?

  A. No effect on Jenny's taxable income and Albert includes $25,000 plus income earned in the plan in his taxable income.
  B. Albert includes $10,000 in his taxable income and Jenny includes $15,000 plus income earned in the plan in her taxable income.
  C. Jenny includes $25,000 in her taxable income and Albert includes income earned in the plan in his taxable income.
  D. Jenny includes $10,000 in her taxable income and Albert includes $15,000 plus income earned in the plan in his taxable income.
  C. Jenny includes $25,000 in her taxable income and Albert includes income earned in the plan in his taxable income.