CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 461:

  What type of managed fund, recently introduced to Canada, is allowed greater use of short sales, leverage, and derivatives compared to mutual funds, but not to the same extent as hedge funds?

  A. Liquid alts
  B. Private equity
  C. Closed-end discretionary fund
  D. Principal-protected notes
  A. Liquid alts

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  Explanation

  Liquid alternative funds (liquid alts) are designed to offer more flexibility in using short sales, leverage, and derivatives compared to traditional mutual funds, but with less freedom than hedge funds. The feedback from the document states: "Liquid alts, also known as alternative mutual funds, were recently introduced into Canada, and are allowed greater use of short sales, leverage, and derivatives compared to regular mutual funds, but not to the same extent as hedge funds."

  References:

  Chapter 13 - Alternative Managed ProductsLearning Domain: Understanding Alternative Managed Products

• Question 462:

  Which security is most likely to provide a capital gain if held to maturity?

  A. A corporate bond bought at a discount
  B. Cumulative preferred shares bought at par value
  C. Common shares of a mature company
  D. A government bond bought at a premium
  A. A corporate bond bought at a discount

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  Explanation

  A corporate bond bought at a discount will provide a capital gain at maturity, as the investor receives the par value, which is higher than the purchase price. The feedback from the document states: "Bond prices are quoted using an index with a base value of 100. A bond trading at 100 is said to be trading at face value, or par. A bond trading below par, say at a price of 98, is said to be trading at a discount... So if you buy a bond at a discount, at maturity, you will receive the par or face value. The difference between the discounted price and the par value received at maturity is considered a capital gain."

  References:

  Chapter 7 - Types of Investment Products and How They Are TradedLearning Domain: Understanding Investment Products and Portfolios

• Question 463:

  Which of the following are obligations on mutual fund dealing representatives imposed by The Proceeds of Crime (Money Laundering) and Terrorist Financing Act?

  A. record-keeping of large transactions, account-related information, and other relevant records
  B. reporting all financial transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
  C. enhancing public awareness of matters related to money laundering and terrorist financing
  D. confirming client identity each time before concluding any transaction
  A. record-keeping of large transactions, account-related information, and other relevant records

• Question 464:

  Which of the following money market securities have the highest degree of risk for the investor?

  A. Bankers' Acceptances
  B. Commercial Paper
  C. Treasury Bills
  D. Municipal Short-Term Paper
  B. Commercial Paper

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  Explanation

  Commercial paper is a type of money market security that is issued by corporations and financial institutions to raise short-term funds. Commercial paper has a maturity of less than one year, typically between 30 and 90 days. Commercial paper is unsecured, meaning that it is not backed by any collateral or guarantee. Therefore, commercial paper has the highest degree of risk for the investor among the four types of money market securities listed, as it depends on the creditworthiness and liquidity of the issuer. If the issuer defaults or faces financial difficulties, the investor may lose part or all of their principal. Commercial paper also has a higher interest rate than other money market securities to compensate for the higher risk.

  The other types of money market securities are: Bankers' acceptances: These are negotiable instruments that are issued by a bank on behalf of a client who needs to finance international trade transactions. Bankers' acceptances have a maturity of less than one year, usually between 30 and 180 days. Bankers' acceptances are secured by the bank's guarantee and the underlying goods or services that are being traded. Therefore, bankers' acceptances have a lower degree of risk for the investor than commercial paper, as they are backed by the bank's creditworthiness and the value of the trade transaction.

  Treasury bills: These are short-term debt obligations that are issued by the federal government to finance its operations and programs. Treasury bills have a maturity of less than one year, usually between 3 and 12 months. Treasury bills are considered risk-free investments, as they are backed by the full faith and credit of the government. Therefore, treasury bills have the lowest degree of risk for the investor among the four types of money market securities listed, as they have virtually no default risk or liquidity risk. Treasury bills also have the lowest interest rate among the four types of money market securities, as they reflect the risk-free rate of return.

  Municipal short-term paper: These are short-term debt instruments that are issued by municipalities or other local governments to finance their capital projects or operating expenses. Municipal short-term paper has a maturity of less than one year, usually between 30 and 270 days. Municipal short-term paper is secured by the taxing power and revenue sources of the issuing municipality or government. Therefore, municipal short-term paper has a lower degree of risk for the investor than commercial paper, as it is backed by the ability and willingness of the issuer to levy taxes and collect revenues. Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section 5.1: Money Market Securities, page 5-21

  Money Market Definition - Investopedia2 Commercial Paper Definition - Investopedia3 Bankers' Acceptance (BA) Definition - Investopedia4

  Treasury Bill (T-Bill) Definition - Investopedia

  Municipal Bond Definition - Investopedia

• Question 465:

  When can an individual legally start selling mutual funds?

  A. Upon completion of continuing education requirements
  B. Upon receipt of notification of registration from the securities administrator
  C. Upon filing a registration application and paying the required registration fee
  D. Upon successful completion of the proficiency examination
  B. Upon receipt of notification of registration from the securities administrator

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  Explanation

  An individual can legally sell mutual funds only after receiving notification of registration from the securities administrator, not merely after completing exams or filing applications. The feedback from the document states: "Despite receiving notification of successful completion of the required proficiency examination, filing a registration application and paying the required fee, an individual is not officially registered to sell mutual funds until notice has been received from the applicable securities administrator."

  References:

  Chapter 17 - Mutual Fund Dealer RegulationLearning Domain: Ethics, Compliance and Mutual Fund Regulations

• Question 466:

  Natasha currently owns 2 mutual funds: a bond fund and a Canadian equity fund. She would like to use one of them as her registered retirement savings plan (RRSP) contribution for the year.

  From a tax efficiency perspective, which mutual fund should she contribute?

  A. the equity fund
  B. the bond fund
  C. either since it makes no difference
  D. it depends on her marginal tax rate
  B. the bond fund

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  Explanation

  The bond fund should be contributed to Natasha's RRSP from a tax efficiency perspective, because interest income from bonds is fully taxable at her marginal tax rate outside of an RRSP. By contributing the bond fund to her RRSP, Natasha can defer paying tax on the interest income until she withdraws it from her RRSP in retirement, when she may be in a lower tax bracket. The equity fund should be kept outside of her RRSP, because dividends and capital gains from equities receive preferential tax treatment compared to interest income. Dividends qualify for the dividend tax credit and capital gains are only 50% taxable. Furthermore, equities tend to have higher returns than bonds over the long term, which means that Natasha would have more after-tax income by keeping them outside of her RRSP.

  References:

  Registered Retirement Savings Plan (RRSP), Does it pay to invest in an RRSP? Here's the math

• Question 467:

  How is the annual contribution limit for a TFSA determined?

  A. By the plan holder's income.
  B. By the government.
  C. By the date that the plan was opened.
  D. By the plan holder's age.
  B. By the government.

• Question 468:

  The Canadian Investor Protection Fund provides what amount of maximum protection for eligible customer losses due to a dealer member's insolvency?

  A. $250,000
  B. $100,000
  C. $500,000
  D. $1,000,000
  D. $1,000,000

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  Explanation

  The correct answer is D. $1,000,000. The Investment Funds in Canada curriculum explains that the Canadian Investor Protection Fund (CIPF) provides protection to eligible customers if a CIRO (formerly IIROC or MFDA) dealer member becomes insolvent.

  CIPF coverage applies to losses of property such as cash, securities, and other investment assets that were held by the dealer on behalf of clients. The CIFC text clearly states that coverage is provided up to $1 million per account category, such as general accounts and registered accounts. It is important to note that CIPF does not protect against market losses, poor investment performance, or unsuitable advice. Its sole purpose is to restore client property when it is missing due to dealer insolvency. The other amounts listed are incorrect and do not reflect current CIFC standards. The $1 million limit ensures investor confidence in the Canadian investment system and is a key component of investor protection.

  Therefore, Option D is the correct and fully verified answer under the Investment Funds in Canada framework.

• Question 469:

  Which investment securities will change value depending on the price change in the underlying assets?

  A. Corporate bonds
  B. Common shares
  C. Futures contracts
  D. Non-convertible preferred shares
  C. Futures contracts

• Question 470:

  A fund manager has diversified the equity portfolio he manages in order to reduce the potential negative impact of unfavorable information relating to any one stock.

  What type of risk has he reduced?

  A. Default risk
  B. Interest rate risk
  C. Market risk
  D. Unique risk
  D. Unique risk

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  Explanation

  Unique risk, also known as firm-specific risk, is reduced through diversification, as it relates to volatility caused by information specific to individual securities. The feedback from the document states: "If a security's price is affected by new information, and if new information arrives frequently, then its price will tend to be volatile and so will the returns that it generates. This source of volatility is specific to a given security and is known as unique risk. Diversifying a portfolio reduces unique risk."

  References:

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