CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 441:

  Which type of mutual fund would typically have the highest allocation to short-term debt securities?

  A. Equity fund
  B. Balanced fund
  C. Money market fund
  D. Dividend fund
  C. Money market fund

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  Explanation

  Money market funds invest primarily in short-term, high-quality money market instruments. Their objectives generally focus on liquidity and capital preservation. Therefore, Option C is correct.

• Question 442:

  Saheed is a retiree who is considering splitting his pension income with his wife, Minu.

  Which of the following outcomes may occur if he shares his pension benefits?

  A. Whether the couple saves on income tax will be dependent on Minu's marginal tax rate.
  B. Minu will be exposed to a pension adjustment (PA) if she receives income from his pension.
  C. This is a form of tax evasion and is therefore considered illegal based on income tax legislation.
  D. Regardless of how much income each person reports, the total amount of income taxes will not change.
  A. Whether the couple saves on income tax will be dependent on Minu's marginal tax rate.

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  Explanation

  Whether the couple saves on income tax will be dependent on Minu's marginal tax rate. Pension income splitting is a tax planning strategy that allows a spouse or common-law partner who receives eligible pension income to allocate up to 50% of that income to their spouse or common-law partner 1. This may result in tax savings if the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner 1. The tax savings depend on the difference between the marginal tax rates of the spouses or common-law partners 1. The other statements are incorrect. Minu will not be exposed to a pension adjustment (PA) if she receives income from Saheed's pension. A PA is a measure of the value of benefits accrued in a registered pension plan or deferred profit sharing plan during a calendar year 2. It reduces the RRSP contribution room of the plan member, not the spouse or common-law partner who receives part of their pension income 2. Pension income splitting is not a form of tax evasion and is not illegal based on income tax legislation. It is a legitimate way to reduce taxable income and taxes payable by shifting income from a higher-income spouse or common-law partner to a lower-income spouse or common-law partner 1. Pension income splitting may change the total amount of income taxes paid by the couple, depending on their marginal tax rates. If the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner, pension income splitting may lower their combined taxes payable 1. However, if they are in the same tax bracket, pension income splitting may not have any effect on their taxes payable 1.

  References:

  Pension income splitting, Pension adjustment

• Question 443:

  Sean purchases 500 units of Penn Canadian Equity Fund when the net asset value per unit (NAVPU) is $16.70. On December 15, the mutual fund's NAVPU is $21. On December 16, the mutual fund declares a distribution of $1.25 per unit.

  Sean's distribution is immediately reinvested and he purchases additional units of the mutual fund.

  Which of the following statements about the effect of the distribution is correct?

  A. After the distribution. Sean will have J&625 in cash and JB8.350 worth of the Penn Canadian Equity Fund.
  B. The total value of Sean's mutual fund holdings after the distribution and reinvestment is ?,875.
  C. The NAVPU of the mutual fund does not change after the distribution since Sean reinvests his distribution and purchases additional units.
  D. Sean's distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units.
  D. Sean's distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units.

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  Explanation

  Sean's distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units. When a mutual fund declares a distribution, it reduces its NAVPU by the amount of the distribution per unit. In this case, the NAVPU drops from $21 to $19.75 after the distribution of $1.25 per unit. Sean's distribution is $625 ($1.25 x 500 units), which he reinvests in the mutual fund at the new NAVPU of $19.75.

  He receives additional units. The total value of Sean's mutual fund holdings after the distribution and reinvestment is (500+31.65)x19.75=$10,500

  , not $9,875. The NAVPU of the mutual fund does change after the distribution, regardless of whether Sean reinvests his distribution or not.

  References:

  [Unit 7: Mutual Funds Administration]

• Question 444:

  Which of the following statement about Exchange Traded Funds (ETFs) is TRUE?

  A. Usually the market price of an ETF is the net asset value per unit (NAVPU) of the Fund on that day.
  B. Investors may sell their ETFs in the stock market or redeem them through the Fund at the NAVPU of the day.
  C. ETFs have lower MERs compared to mutual funds.
  D. All ETFs are actively managed.
  C. ETFs have lower MERs compared to mutual funds.

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  Explanation

  An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. ETFs have lower management expense ratios (MERs) compared to mutual funds because they are passively managed and do not incur high costs for research, analysis, and portfolio rebalancing. Therefore, this statement is true about ETFs.

  References:

  Exchange-Traded Fund (ETF) Explanation With Pros and Cons - Investopedia, The Best ETFs - Exchange Traded Funds Rankings | US News Investing

• Question 445:

  Based on the financial planning pyramid, what security would be appropriate for a very aggressive investor?

  A. Commodities
  B. Tax shelters
  C. Foreign stocks
  D. Over the Counter (OTC) Securities
  D. Over the Counter (OTC) Securities

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  Explanation

  The financial planning pyramid illustrates the risk-return spectrum of investments. For a very aggressive investor, high-risk securities like OTC securities are suitable. The feedback from the document states: "As a visual aid, the planning pyramid helps you show clients how mutual funds fit into the investment universe. A very aggressive investor could consider investments such as OTC Securities."

  References:

  Chapter 4 - Getting to know the clientLearning Domain: The Know Your Client Communication Process

• Question 446:

  Which of the following is a characteristic of a bond fund?

  A. Income from a bond fund will primarily be interest but may also be capital gains
  B. Bond funds are very low risk because they never go down in value.
  C. If interest rates rise the value of a bond fund will also tend to rise.
  D. Securities regulation specifies that bond funds must invest in investment grade bonds.
  A. Income from a bond fund will primarily be interest but may also be capital gains

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  Explanation

  A bond fund is a mutual fund that invests primarily in bonds and other debt securities. Income from a bond fund will primarily be interest but may also be capital gains if the fund sells bonds that have appreciated in value. Bond funds are not very low risk because they can fluctuate in value depending on interest rate changes and credit risk. If interest rates rise, the value of a bond fund will tend to fall because existing bonds will become less attractive than new bonds with higher rates. Securities regulation does not specify that bond funds must invest in investment grade bonds, although some funds may have this as an investment objective or policy.

  References:

  What Is a Bond Fund?

• Question 447:

  Loretta is looking for a well diversified equity fund. Her ideal mutual fund would hold investments within and outside Canada. Although she is seeking growth, Loretta also wants a mutual fund that invests in quality companies.

  Which of the following mutual funds would be the best choice for Loretta?

  A. Dominion International Growth Fund - this international equity fund invests in small and medium sized companies in countries all around the world.
  B. Polar Global Blue Chip Equity Fund - this global equity fund invests in large, established companies in mostly stable and mature foreign markets.
  C. Lennox Energy Fund - this sector fund invests primarily in Canadian oil and gas companies that sell both to domestic and foreign markets.
  D. Auric Precious Metals Fund - this sector fund invests in Canadian companies that participate in the precious metals sector such as owning mines in foreign countries.
  B. Polar Global Blue Chip Equity Fund - this global equity fund invests in large, established companies in mostly stable and mature foreign markets.

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  Explanation

  Loretta is looking for a well diversified equity fund that invests both within and outside Canada. She also wants a fund that invests in quality companies, which implies that she prefers lower risk and higher stability. A global equity fund would meet her criteria, as it can invest in any country, including Canada, and diversify across different regions and markets. A global equity fund that focuses on large, established companies, also known as blue chip stocks, would also suit her preference for quality and stability, as these companies tend to have strong financial performance, competitive advantages, and consistent dividends. Therefore, the Polar Global Blue Chip Equity Fund would be the best choice for Loretta among the given options.

  Canadian Investment Funds Course, Unit 6, Section 6.2

• Question 448:

  Which of the following CORRECTLY describes a material conflict of interest that has been properly addressed by the Dealing Representative?

  A. Cametra asks to meet with her client, Pietro, to update his Know Your Client (KYC) information. They have not had a face-to-face meeting in years. Pietro feels updating the KYC information is unnecessary. He tells Cametra he is too busy and there is no reason for her to be concerned with the information she already has. Even though they fail to meet, Cametra continues to submit purchase orders at his request.
  B. Gibson reviews two similar mutual funds for his client. One fund pays higher trailer fees than the other. Gibson discloses the difference between the trailer fees before recommending the fund that has higher trailer fees.
  C. Keaira recommends a growth fund to her client, Shilo, but her Compliance Department questions the trade because Shilo's risk profile is too low. Rather than cancel the trade and absorb the market losses herself, Keaira recommends that Shilo keep the investment even though it is not in her best interest. Keaira updates Shilo's KYC to "high" risk and gets Shilo to sign the KYC update form.
  D. Oscar wants to recommend a fund to his client which has a higher management expense ratio (MER) than other mutual funds. Since the MER could impact the client's decision, Oscar reports the conflict of interest to his dealer and discloses the conflict of interest to his client. Oscar explains how the higher MER is in the client's best interest because the overall cost for the client will still be less than a fee-for-service account holding mutual funds with a lower MER.
  D. Oscar wants to recommend a fund to his client which has a higher management expense ratio (MER) than other mutual funds. Since the MER could impact the client's decision, Oscar reports the conflict of interest to his dealer and discloses the conflict of interest to his client. Oscar explains how the higher MER is in the client's best interest because the overall cost for the client will still be less than a fee-for-service account holding mutual funds with a lower MER.

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  Explanation

  A material conflict of interest is a situation where a Dealing Representative or their firm has an interest that could reasonably be expected to affect the exercise of their professional judgment or influence their actions or recommendations. A Dealing Representative must identify, disclose, and manage any material conflicts of interest in the best interest of their clients. Oscar has properly addressed the material conflict of interest arising from the higher MER by reporting it to his dealer, disclosing it to his client, and explaining how it is in the client's best interest. The other scenarios do not demonstrate proper management of material conflicts of interest.

  Canadian Investment Funds Course, Chapter 8: Suitability and Know Your Client1

• Question 449:

  Which organization regulates mutual and investment funds?

  A. Investment Industry Regulatory Organization of Canada (IIROC)
  B. Securities commissions
  C. ICE Futures Canada
  D. Bourse de Montreal
  B. Securities commissions

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  Explanation

  Securities commissions are responsible for regulating mutual and investment funds in Canada. The feedback from the document confirms: "The responsibility of regulating mutual funds lies with the securities commissions."

  References:

  Chapter 2 - Overview of the Canadian Financial MarketplaceLearning Domain: An Introduction to the Mutual Funds Marketplace

• Question 450:

  Which document contains information regarding the Independent Review Committee compensation?

  A. Annual Information Form
  B. Fund Facts
  C. Management Reports of Fund Performance
  D. Simplified Prospectus
  A. Annual Information Form

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  Explanation

  The Annual Information Form (AIF) is a document that provides detailed information about a mutual fund, such as its history, structure, management, fees, expenses, risks, policies, and performance. The AIF also contains information regarding the Independent Review Committee (IRC) compensation, which is the amount of fees and expenses paid by the fund to the IRC members for their services. The IRC is a committee of independent individuals who oversee the fund manager's decisions on conflict of interest matters and act in the best interests of the fund and its investors12

  References:

  web search results from search_web(query="Independent Review Committee compensation")12 and Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.2: Mutual Funds3 3: (https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf)