CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 471:

  What term refers to surplus cash flow after expenses have been paid?

  A. Gross income
  B. Variable income
  C. Discretionary income
  D. Excess income
  C. Discretionary income

• Question 472:

  What items are typically classified as current assets on the statement of financial position?

  A. Cash, accounts receivable, and retained earnings
  B. Cash, accrued charges, and accounts receivable
  C. Cash, accounts receivable, and inventories
  D. Cash, inventories, and depreciation
  C. Cash, accounts receivable, and inventories

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  Explanation

  Current assets on a statement of financial position include items that are expected to be converted to cash or used within one year, such as cash, accounts receivable, and inventories. The feedback from the document states:

  "Typical current asset accounts include cash, representing the total amount in all of the company's deposit accounts; inventories, representing the finished and unfinished products which have not yet been sold; and accounts receivable."

  References:

  Chapter 9 - Understanding Financial StatementsLearning Domain: Understanding Investment Products and Portfolios

• Question 473:

  What purpose does it serve for non-money market mutual funds to hold money market instruments?

  A. Money market instruments primarily generate investment income that provides investors with preferential tax treatment.
  B. If the portfolio manager has an immediate need for cash, money market instruments are relatively easy to liquidate.
  C. They are purchased by non-money market funds to satisfy the regulatory requirement of fund diversification.
  D. They ensure that the fair market value of a mutual fund will not drop below a minimal market value.
  B. If the portfolio manager has an immediate need for cash, money market instruments are relatively easy to liquidate.

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  Explanation

  The purpose of holding money market instruments for non-money market mutual funds is to provide liquidity for the fund. If the portfolio manager has an immediate need for cash, such as to pay expenses or meet redemption requests, money market instruments are relatively easy to liquidate because they have short maturities and low credit risk. Money market instruments do not primarily generate investment income that provides investors with preferential tax treatment, as interest income from money market instruments is fully taxable at the investor's marginal tax rate. Money market instruments are not purchased by non-money market funds to satisfy the regulatory requirement of fund diversification, as there is no such requirement for mutual funds. Money market instruments do not ensure that the fair market value of a mutual fund will not drop below a minimal market value, as money market instruments can also fluctuate in value depending on interest rate changes and supply and demand factors.

  References:

  Money Market Instruments

• Question 474:

  What amount of Canadian taxes would an investor with a 33% marginal tax rate pay on a $5,000 dividend payment from a foreign corporation?

  A. $0
  B. $1,241
  C. $1,650
  D. $825
  C. $1,650

• Question 475:

  What term refers to the minimum rate at which the Bank of Canada lends money on a short-term basis to chartered banks?

  A. Bank rate
  B. Nominal rate
  C. Prime rate
  D. Target rate
  A. Bank rate

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  Explanation

  The correct answer is

  A. Bank rate. The Investment Funds in Canada curriculum defines the bank rate as the minimum rate at which the Bank of Canada makes short-term loans to major financial institutions, including chartered banks. It serves as a key benchmark in the Canadian financial system. The prime rate is set by individual banks and is typically higher than the bank rate. The nominal rate simply refers to the stated interest rate without inflation adjustment. The target rate (overnight rate target) is the Bank of Canada's policy objective, not the actual lending rate. Because the question asks specifically for the minimum lending rate, the correct and CIFC-verified answer is Option

  A.

• Question 476:

  Which Sharpe ratio result would indicate that the fund earned a return less than the risk-free return?

  A. 2.5
  B. 1
  C. -0.2
  D. 0.5
  C. -0.2

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  Explanation

  A negative Sharpe ratio indicates that the fund's return is less than the risk-free rate, as the numerator (Fund Return - T-bill Rate) is negative. The feedback from the document states: "The Sharpe ratio is calculated as (Fund Return - T-bill Rate) ?Fund Standard Deviation. A negative Sharpe ratio means the mutual fund has a return less than the risk-free rate, as the numerator of the ratio would be negative."

  References:

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

• Question 477:

  Which statement about market risk is true?

  A. Market risk is measured by the standard deviation
  B. Market risk is cancelled out by diversification
  C. Market risk is greater than the sum of the risks of all stocks
  D. Market risk can result from changes in inflation and interest rates
  D. Market risk can result from changes in inflation and interest rates

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  Explanation

  Market risk, or systematic risk, arises from factors affecting the entire market, such as changes in inflation or interest rates, and cannot be fully eliminated through diversification. The feedback from the document states: "Once a portfolio becomes well diversified, the only remaining risk to be concerned about is market risk. Market risk is defined as the variability of a stock or a portfolio in relation to the market as a whole. The process of diversification cancels out much firm-specific risk, so market risk is less than the total risk you would calculate if you looked at each stock separately. Market risk is also referred to as systematic risk and arises from such things as inflation, the business cycle, and interest rates."

  References: Chapter 8 -

  Constructing Investment PortfoliosLearning Domain: Understanding Investment Products and Portfolios

• Question 478:

  Exchange traded funds (ETFs) that track an index and index mutual funds have many similarities.

  However, what is a major difference between these two products?

  A. While ETFs are prone to tracking errors, index funds are perfectly aligned with their underlying index.
  B. ETFs can be purchased continuously throughout the trading day while index funds can only be bought or sold at the end of the day.
  C. The market price of ETFs always matches the underlying basket of securities while there can be a discrepancy in pricing index funds.
  D. ETFs do not have management fees since they are exchange traded while index funds do incur such fees.
  B. ETFs can be purchased continuously throughout the trading day while index funds can only be bought or sold at the end of the day.

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  Explanation

  ETFs can be purchased continuously throughout the trading day while index funds can only be bought or sold at the end of the day. This is because ETFs are traded on a stock exchange like stocks, while index funds are traded directly with the fund company like mutual funds. This difference gives ETFs more liquidity and flexibility than index funds, as investors can buy and sell ETFs at any time during market hours at the prevailing market price. Index funds, on the other hand, are priced only once a day at the end of the day based on the net asset value per unit (NAVPU) of the fund. Both ETFs and index funds are prone to tracking errors (A), which are the differences between the performance of the fund and the performance of the underlying index. Tracking errors can be caused by various factors, such as fees, expenses, dividends, rebalancing, and market conditions. The market price of ETFs does not always match the underlying basket of securities (C), as it is determined by supply and demand in the market. There can be a discrepancy between the market price and the NAVPU of an ETF, which is called the premium or discount. Index funds, on the other hand, are priced based on the NAVPU of the fund, which reflects the value of the underlying securities. Both ETFs and index funds have management fees (D), as they are both types of mutual funds that incur costs for managing and operating the fund.

  However, ETFs usually have lower management fees than index funds, as they are more passive and have lower turnover and distribution costs.

• Question 479:

  Gregory is a conservative investor who wants to hold a portfolio of equity securities that would fall less than the overall market in a downturn.

  Which of the following portfolios would you advise Gregory to invest in?

  A. a portfolio with a beta equal to 1
  B. a portfolio with a beta between 1 and 2
  C. a portfolio with a beta greater than 2
  D. a portfolio with a beta less than 1
  D. a portfolio with a beta less than 1

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  Explanation

  A portfolio with a beta less than 1 would be suitable for Gregory, who is a conservative investor and wants to reduce his exposure to market risk. A beta less than 1 means that the portfolio is less volatile than the market index and tends to dampen its movements. This implies that the portfolio would fall less than the market in a downturn, but also rise less than the market in an upturn. A portfolio with a beta equal to 1 would move in the same direction and magnitude as the market, while a portfolio with a beta greater than 1 would be more volatile than the market and amplify its movements. Canadian Investment Funds Course, Chapter 3: Risk and Return1

• Question 480:

  Bernadette has a high-paying job and is in the top tax bracket. She recently received a payment of $5 million upon the settlement of her uncle's estate. Bernadette would like to invest her inheritance in financial products that would not only grow her money but is also income tax friendly.

  Which of the following would provide the most favourable tax treatment?

  A. Coupon payments from Government of Canada bonds.
  B. Dividends received from a large foreign corporation.
  C. Capital gains from stock investments.
  D. Dividends from a large public Canadian corporation.
  D. Dividends from a large public Canadian corporation.

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  Explanation

  Dividends from a large public Canadian corporation are eligible for the dividend tax credit, which reduces the amount of tax payable on this type of income. The dividend tax credit is a non-refundable tax credit that recognizes that dividends are paid out of income that has already been taxed at the corporate level, and therefore should not be taxed again at the personal level. The dividend tax credit applies to both federal and provincial taxes, and the rates vary depending on the province or territory of residence12

  References:

  Canadian Investment Funds Course (CIFC) - Module 4: Taxation - Section 4.1: Taxation of Investment Income3 and web search results from search_web(query="tax treatment of different types of investment income in Canada")12 3: (https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-4.pdf)