CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 51:

  Evan owns retractable preferred shares of Ingram Corp.

  Which statement CORRECTLY describes a key feature of Evan's shares?

  A. Gives Evan the option to convert the Ingram Corp preferred shares into a fixed number of common shares at a predetermined price within a specified period.
  B. Offers Evan the opportunity to receive additional dividends if Ingram Corp's profit exceeds a stated level.
  C. Entitles Evan to sell the shares back to Ingram Corp at a pre-determined price and time in the future.
  D. Allows Ingram Corp to buy back the preferred shares at a pre-determined price within a defined period.
  D. Allows Ingram Corp to buy back the preferred shares at a pre-determined price within a defined period.

  ---

  Explanation

  Retractable preferred shares are a type of preferred stock that lets the issuer force the redemption of the shares at a set price and time. The issuer can pay cash or common shares to the retractable preferred shareholders.

  References:

  Retractable Preferred Shares: What it is, How it Works, Example, What are Retractable Preferred Shares? Definition, And How Does it Work? - CFAJournal, Retractable Preferred Shares | Example | Feature - Accountinguide

• Question 52:

  What type of fee is used to compensate mutual fund sales representatives for providing ongoing services to clients?

  A. Management
  B. Trailer
  C. Acquisition
  D. Trustee
  B. Trailer

• Question 53:

  Maalik opens an account for a new client, John. During the new account process, Maalik determines that he will need to confirm John's identity.

  Which of the following statements about Maalik's identification requirements is CORRECT?

  A. If Maalik determines that there is anything suspicious about John's transaction, he is required to report the matter to his dealer. The dealer must report the matter to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
  B. If Maalik learns that John is the president of a state-owned company, Maalik is required to report John as a Politically Exposed Foreign Person (PEFP) to his dealer. If John is not a US person, the dealer must report the account to the Internal Revenue Service (IRS).
  C. If John wants to make a large cash deposit of $10,000 or more, Maalik is required to collect personal information about John and report it to his dealer. The dealer must report the information to the Canada Revenue Agency (CRA).
  D. If John attempts to make a suspicious deposit, Maalik is required to report the attempt to his dealer. The dealer must keep records of attempted suspicious transactions that are not reported to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
  A. If Maalik determines that there is anything suspicious about John's transaction, he is required to report the matter to his dealer. The dealer must report the matter to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

  ---

  Explanation

  The statement that is correct about Maalik's identification requirements is option A. According to Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), registered firms and individuals must report any suspicious transactions or attempted transactions to FINTRAC, which is Canada's financial intelligence unit that collects, analyzes, and discloses information related to money laundering and terrorist financing activities. A suspicious transaction or attempted transaction is one that there are reasonable grounds to suspect that it is related to a money laundering or terrorist financing offence. Therefore, if Maalik determines that there is anything suspicious about John's transaction, he must report the matter to his dealer, who must report it to FINTRAC within 30 days of making the determination. The other statements are not correct about Maalik's identification requirements.

  Option B is false because Maalik does not need to report John as a PEFP to his dealer; rather, he must take reasonable measures to determine whether John is a PEFP or a family member or close associate of a PEFP, and if so, he must obtain senior management approval before opening an account for John, take enhanced measures to verify John's identity, and conduct enhanced ongoing monitoring of John's account activity.

  Option C is false because Maalik does not need to collect personal information about John and report it to his dealer if John wants to make a large cash deposit; rather, he must verify John's identity using an original, valid, and current document or information from a reliable source, keep a record of John's name and address and the date and amount of the deposit, and report any large cash transactions of $10,000 or more in Canadian currency or its equivalent to FINTRAC within 15 days of receiving the cash. Option D is false because Maalik does not need to report the attempt to his dealer if John attempts to make a suspicious deposit; rather, he must report the attempt directly to FINTRAC within 30 days of detecting the suspicion, regardless of whether the transaction was completed or not.

  References:

  [FINTRAC - Home], [FINTRAC - Reporting], [FINTRAC - Guideline 2: Suspicious Transactions], [FINTRAC

  - Guideline 6A: Record Keeping and Client Identification for Financial Entities]

• Question 54:

  Reginald is a Dealing Representative, who feels pressure from management at the beginning of every calendar year, to open new registered retirement savings plans (RRSPs) and generate RRSP contributions. It is the end of February, and Reginald is close to reaching his personal sales objectives. He just finished an appointment with a prospective new client, Orel. Orel wants to open a tax-free savings account (TFSA) to build emergency savings. However, Reginald recommended to Orel that he should first contribute to an RRSP, and then use the tax savings for a TFSA contribution.

  With regards to account suitability, what can be said about Reginald's advice?

  A. Reginald is putting the client's interest first by informing Orel why he should change his investment strategy.
  B. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.
  C. Recommending an investment solution that addresses two needs, is putting Reginald's client's interest first.
  D. By convincing Orel to contribute to an RRSP, instead of a TFSA, Reginald has put his client's interest first.
  B. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.

  ---

  Explanation

  Orel's goal is to build emergency savings, which means he needs a flexible and accessible account that does not penalize withdrawals. A TFSA is more suitable for this purpose, as it allows tax-free withdrawals at any time and does not affect other income-tested benefits. An RRSP, on the other hand, is designed for long-term retirement savings, and withdrawals are subject to income tax and withholding tax. Moreover, RRSP withdrawals reduce the contribution room permanently, and may affect eligibility for government benefits such as the Canada Child Benefit or the Guaranteed Income Supplement.

  References:

  Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1: Registered Retirement Savings Plan (RRSP)1 and Section 3.2: Tax-Free Savings Account (TFSA)2 1: (https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf2:)

  https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

• Question 55:

  Grant is a Dealing Representative with WealthPlus Securities Inc. Grant becomes a volunteer member of his local arena's Hockey Association and is appointed as the Association's new Treasurer.

  Which of the

  following statements about Grant's appointment as Treasurer is CORRECT?

  A. If Grant is not compensated for the Treasurer position, his firm's approval is not required.
  B. Grant must obtain the firm's approval before he starts the Treasurer position.
  C. Since Grant holds the Treasurer position on a voluntary basis, it is not an outside activity.
  D. Grant must disclose the Treasurer position to his firm once he has accepted the position.
  B. Grant must obtain the firm's approval before he starts the Treasurer position.

  ---

  Explanation

  Grant's appointment as Treasurer is considered an outside activity, regardless of whether he is compensated or not. According to the CIFC, Dealing Representatives must obtain their firm's written approval before engaging in any outside activity that could interfere with their ability to perform their duties or create a conflict of interest with their clients or employer. Grant must disclose the nature and extent of his involvement with the Hockey Association and how it may affect his availability, reputation, or potential for conflicts of interest. The firm may approve, reject, or impose conditions on Grant's outside activity. Canadian Investment Funds Course, Chapter 8: Suitability and Know Your Client1

• Question 56:

  A client asks what inflation represents.

  Which response is most accurate?

  A. A decrease in interest rates over time
  B. An increase in the general level of prices over time
  C. A decline in economic growth
  D. An increase in stock market returns
  B. An increase in the general level of prices over time

  ---

  Explanation

  Inflation refers to a sustained increase in the general price level of goods and services over time. As inflation rises, purchasing power declines because each dollar buys fewer goods and services. Therefore, Option B is correct.

• Question 57:

  Which financial leverage ratio measures a company's ability to repay its borrowings?

  A. Operating profit margin ratio
  B. Interest coverage ratio
  C. Total debt ratio
  D. Cash flow from operations to total debt ratio
  D. Cash flow from operations to total debt ratio

  ---

  Explanation

  The cash flow from operations to total debt ratio assesses a company's ability to meet its debt obligations using cash generated from operations. The feedback from the document states: "The cash flow from operations/total debt ratio gauges a company's ability to repay the funds it has borrowed. A company's annual cash flow should therefore be adequate to meet these commitments."

  References:

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

• Question 58:

  What type of transaction must be reported under current anti-money laundering and terrorist financing legislation?

  A. Any cross-border transactions of $10,000 CDN or more
  B. Deposit transactions of $5,000 CDN or more
  C. Deposit transactions of $10,000 CDN or more
  D. Any transaction of $10,000 CDN or more
  C. Deposit transactions of $10,000 CDN or more

  ---

  Explanation

  The correct answer is C. Deposit transactions of $10,000 CDN or more. Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), as outlined in Investment Funds in Canada, securities dealers and mutual fund dealers are required to report large cash transactions to FINTRAC. A large cash transaction is defined as a cash deposit of $10,000 or more in a single transaction or multiple transactions within a 24-hour period. This reporting obligation applies regardless of whether the transaction appears suspicious. The objective is to detect and deter money laundering and terrorist financing activities. Cross-border reporting rules are different and involve specific criteria. Transactions of $5,000 do not meet the reporting threshold. Not all $10,000 transactions are reportable-only cash deposits fall under this mandatory reporting rule.

  The CIFC curriculum stresses that understanding reporting thresholds is a critical compliance responsibility for dealing representatives. Therefore, Option C is the correct and fully CIFC-aligned answer.

• Question 59:

  What asset class would have the highest level of expected volatility?

  A. Equities - preferred shares
  B. Bonds - government
  C. Equities - common shares
  D. Bonds - corporate
  C. Equities - common shares

  ---

  Explanation

  The Investment Funds in Canada course explains that volatility measures the degree of price fluctuation over time and is commonly used as a proxy for investment risk. Among major asset classes, common shares (equities) exhibit the highest expected volatility due to their sensitivity to business performance, economic cycles, interest rates, and investor sentiment.

  Common shareholders are residual claimants on a corporation's earnings and assets. They are paid dividends only after all other obligations-such as interest on debt and preferred share dividends-have been met. As a result, common share prices fluctuate widely based on changes in earnings expectations, economic conditions, and market psychology. The CIFC text highlights that equities offer higher expected returns precisely because they carry higher risk and volatility.

  Preferred shares are generally less volatile than common shares because they provide fixed dividend payments and have priority over common shares. Government bonds have the lowest volatility due to high credit quality and predictable cash flows. Corporate bonds are riskier than government bonds but still far less volatile than equities.

  Because common shares are most exposed to market and company-specific risk, they experience the greatest price variability. Therefore, Option C is the correct and fully verified CIFC answer.

• Question 60:

  What role do investment dealers play in the Canadian and global financial markets?

  A. They are contributors to a company's profits.
  B. They are contributors to an investor's earnings.
  C. They assist with the exchange of capital for a financial instrument.
  D. By underwriting financial instruments, they raise capital for investors.
  C. They assist with the exchange of capital for a financial instrument.

  ---

  Explanation

  Investment dealers are people or firms who buy and sell securities for their own account, whether through a broker or otherwise. They play an important role in the Canadian and global financial markets because they are market makers, create liquidity, and help promote long-term growth in the market. They also provide investment services to investors, such as underwriting securities, raising capital, and offering advice. By assisting with the exchange of capital for a financial instrument, they facilitate the flow of funds between savers and borrowers, and between different sectors and countries. The other options are not accurate descriptions of the role of investment dealers.

  References:

  Dealers: Definition in Trading, Meaning and Comparison to Brokers, Investment Dealers Definition