CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 81:

  Maureen is 65 years old and will be retiring soon. She has a modest portfolio of mutual funds that focus on growth. As she approaches retirement, Maureen wants to switch to investments that provide steady income with low to medium risk.

  Given Maureen's wishes, which of the following mutual funds would be suitable for her?

  A. money market funds, mortgage funds, bond funds
  B. money market funds. Canadian dividend funds, sector funds
  C. Canadian dividend funds, global equity index funds, bond funds
  D. money market funds, global equity funds, bond funds
  A. money market funds, mortgage funds, bond funds

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  Explanation

  Maureen is looking for investments that provide steady income with low to medium risk. Money market funds, mortgage funds, and bond funds are suitable for her because they invest in fixed-income securities that pay regular interest and have lower volatility than equity funds. Money market funds invest in short-term debt instruments such as treasury bills and commercial paper. Mortgage funds invest in mortgages or mortgage-backed securities that are secured by real estate properties. Bond funds invest in bonds issued by governments or corporations with varying maturities and credit ratings.

  References:

  Best Retirement Income Funds Of 2023 - Forbes Advisor, 5

  Best Income Funds for Retirement - U.S.

  News, 7

  Best Funds for Retirement | Investing | U.S.

  News

• Question 82:

  What personal information must be obtained from clients opening a non-registered account? Date of birth Social insurance number Permanent address Full legal name

  A. 1 and 4
  B. 1 and 2
  C. 3 and 4
  D. 2 and 3
  C. 3 and 4

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  Explanation

  For non-registered accounts, the mandatory personal information includes the client's full legal name and permanent address, while date of birth and social insurance number are recommended but not required.

  The feedback from the document states: "The first step as a dealing representative is to obtain a client's personal data including full legal name, permanent and mailing address, social insurance number and date of birth. While a permanent address is mandatory, providing a different mailing address is optional. Neither the social insurance number nor date of birth are mandatory for non-registered accounts, but both are highly recommended."

  References:

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

• Question 83:

  Lior is considering an investment that gains exposure to companies that trade on the Toronto Stock Exchange (TSX). He is not sure what the differences are between a Canadian equity fund and a Canadian dividend fund.

  What would you tell him?

  A. Equity funds are more appropriate than dividend funds if Lior requires a steady flow of income.
  B. Dividend funds generate tax-preferred income while income from equity funds is fully taxable.
  C. Dividend funds tend to be less volatile and lower risk than equity funds.
  D. Equity funds hold common shares while dividend funds hold only preferred shares.
  C. Dividend funds tend to be less volatile and lower risk than equity funds.

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  Explanation

  The answer that you should tell Lior is that dividend funds tend to be less volatile and lower risk than equity funds. A dividend fund is a type of equity fund that invests primarily in dividend-paying stocks, which are shares of companies that distribute a portion of their earnings to shareholders on a regular basis. A dividend fund provides income and capital appreciation to investors, as well as tax advantages for eligible dividends paid by Canadian corporations. A dividend fund tends to be less volatile and lower risk than an equity fund that invests in non-dividend-paying stocks or growth stocks, which are shares of companies that reinvest their earnings into expanding their business rather than paying dividends.

  This is because dividend-paying stocks are usually issued by well-established and profitable companies that have stable cash flows and earnings, which make them more resilient to market fluctuations and economic downturns. Therefore, option C is correct regarding what you should tell Lior. The other options are not correct or relevant to what you should tell Lior.

  Option A is false because equity funds are not more appropriate than dividend funds if Lior requires a steady flow of income; rather, dividend funds are more suitable for income-oriented investors who want to receive regular dividends from their investments.

  Option B is false because dividend funds do not generate tax-preferred income while income from equity funds is fully taxable; rather, both types of funds generate taxable income for investors, but eligible dividends from Canadian corporations may qualify for a lower tax rate than other types of income due to the dividend tax credit.

  Option D is false because equity funds do not hold common shares while dividend funds hold only preferred shares; rather, both types of funds hold common shares, but dividend funds focus on common shares that pay dividends, while equity funds may also hold common shares that do not pay dividends or pay low dividends.

  References:

  [Dividend Funds | GetSmarterAboutMoney.ca], [Equity Funds | GetSmarterAboutMoney.ca], [Dividend Tax Credit | GetSmarterAboutMoney.ca]

• Question 84:

  You are the portfolio manager for the ABC asset allocation fund. Interest rates are going up; the stock market has been very volatile recently and is forecast to continue that way for the next two quarters.

  What changes, if any, will you make to your current asset allocation of 50% bonds and 50% equities?

  A. None - the fund is balanced
  B. Increase the allocation to bonds because interest rates are rising
  C. Increase the allocation to equities to take advantage of the volatility
  D. Temporarily move a significant amount into money market securities
  D. Temporarily move a significant amount into money market securities

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  Explanation

  In volatile market conditions with rising interest rates, asset allocation fund managers may shift to money market securities to reduce risk. The feedback from the document states: "Asset allocation funds ideally provide a 'balanced' mix of safety, income and capital appreciation... When both bond and stock markets are volatile, they will hold large amounts of money market securities. In other words, asset allocation mutual fund managers attempt to time the market to get the best returns depending on market conditions."

  References:

  Chapter 12 - Riskier Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds

• Question 85:

  A mutual fund has the following investment objective: "This Fund invests in a diverse portfolio of equity securities that are judged to have fundamental growth opportunities."

  What is this type of mutual fund?

  A. Equity index
  B. Equity growth
  C. Target-date
  D. Standard equity
  B. Equity growth

• Question 86:

  An increase in which factor may cause interest rates to decrease?

  A. Default risk
  B. Business activity
  C. Capital supply
  D. Inflation rate
  C. Capital supply

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  Explanation

  Interest rates in the economy are determined primarily by the supply of capital (loanable funds) and the demand for capital, as explained in the Investment Funds in Canada (CIFC) text under Economic Factors and Financial Markets. The course states that "interest rates are influenced by changes in the supply and demand for money," and that an increase in the supply of capital, all else being equal, will place downward pressure on interest rates.

  When capital supply increases, there is more money available for lending from sources such as households, corporations, pension funds, insurance companies, and governments running budget surpluses. With more funds competing to be lent, lenders are willing to accept lower interest rates in order to attract borrowers. This inverse relationship between capital supply and interest rates is a foundational concept in CIFC economics.

  The other options all result in higher, not lower, interest rates according to CIFC principles. An increase in default risk leads lenders to demand higher returns to compensate for the added risk. Increased business activity raises demand for borrowing, which pushes interest rates upward. Similarly, higher inflation erodes purchasing power, so lenders require higher nominal interest rates to maintain real returns. Therefore, only an increase in capital supply leads to lower interest rates, making Option C the correct and fully verified answer based on the Investment Funds in Canada curriculum.

• Question 87:

  When can a mutual fund sales representative disclose confidential client information without informing the client?

  A. When disclosures are documented
  B. When legally required by the government or by law
  C. When referring the client to a specialist or expert for investment advice
  D. When requested by the Canadian Investment Regulatory Organization
  B. When legally required by the government or by law

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  Explanation

  The correct answer is B. When legally required by the government or by law. Under privacy legislation discussed in Investment Funds in Canada, including PIPEDA, confidential client information may only be disclosed without consent when disclosure is legally required, such as in response to court orders, law enforcement investigations, or regulatory obligations under legislation like AML or FINTRAC rules. Referrals to specialists require client consent, documentation alone does not remove the consent requirement, and regulatory organizations typically obtain information through the dealer, not directly from representatives without due process.

  The CIFC curriculum clearly states that privacy obligations are fundamental and exceptions are narrow and law-based. Therefore, Option B is the correct answer.

• Question 88:

  In the OTC market, who enters the bid and ask quotations?

  A. Mutual fund company
  B. Issuing company or government
  C. Retail investors
  D. Dealers
  D. Dealers

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  Explanation

  The OTC (dealer) market is a negotiated market where investment dealers (market makers) post bid and ask quotations via electronic platforms.

  Mutual fund companies and issuing companies do not post quotes directly. Retail investors place orders through dealers, but they do not set bid-ask spreads.

  Thus, the correct answer is D. Dealers.

• Question 89:

  A client owns units of a mutual fund held in a non-registered account. The fund distributes interest income during the year.

  How is the interest income generally taxed?

  A. It is tax-free.
  B. It is taxed as a capital gain.
  C. It is eligible for the dividend tax credit.
  D. It is fully taxable at the investor's marginal tax rate.
  D. It is fully taxable at the investor's marginal tax rate.

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  Explanation

  Interest income received from mutual funds in a non-registered account is generally fully taxable at the investor's marginal tax rate. Unlike eligible Canadian dividends, interest income does not qualify for the dividend tax credit. It is also not taxed as a capital gain. Therefore, Option D is correct.

• Question 90:

  Which of the following characteristics about mortgage mutual funds is CORRECT?

  A. typically monthly distributions of interest
  B. if interest rates fall, the mutual fund's net asset value per unit (NAVPU) will decline
  C. suitable only for high risk investors
  D. risk-free where the mortgages are National Housing Act (NHA) insured
  A. typically monthly distributions of interest

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  Explanation

  A is correct because mortgage mutual funds typically pay monthly distributions of interest to their investors, as they invest in mortgages that generate regular interest income. If interest rates fall, the mutual fund's net asset value per unit (NAVPU) will increase (B), not decline, as the value of the existing mortgages in the fund will rise. Mortgage mutual funds are suitable for low to moderate risk investors (C), not only for high risk investors, as they provide stable income and capital preservation. Mortgage mutual funds are not risk-free (D), even if the mortgages are National Housing Act (NHA) insured, as they still face credit risk, interest rate risk, and liquidity risk.