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CISI IFC Web-Based Practice Test

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CISI Investment Funds in Canada (IFC) Exam Sample Questions (Q154-Q159):

NEW QUESTION # 154
Barend is a Dealing Representative with Planvest Group Inc., a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA). Which of the following CORRECTLY describes Barend's obligation for conflicts of interest?

A. Barend must avoid material conflicts of interest that cannot be addressed in the best interest of the client.
B. Barend must disclose material conflicts of interest that cannot be addressed in the best interest of the client.
C. Barend must identify material conflicts of interest and promptly report the conflicts of interest to clients.
D. Barend must identify material conflicts of interest and implement controls on behalf of the firm.

Answer: B

Explanation:
A conflict of interest is a situation where an individual or a firm has competing or incompatible interests that may affect their ability to act fairly, honestly, and in the best interest of their clients. A material conflict of interest is a conflict of interest that a reasonable person would expect to know about and that may influence the client's decision to enter into or maintain a business relationship with the individual or the firm. According to the MFDA rules, Barend has an obligation to identify and address material conflicts of interest in a manner that prioritizes the client's interest over his own or the firm's interest1. If a material conflict of interest cannot be addressed in the best interest of the client, Barend must disclose it to the client before opening an account, providing advice, or executing a transaction. The disclosure must be clear, meaningful, and timely, and it must explain the nature and extent of the conflict of interest and how it could affect the client's interests2. Barend must also obtain the client's written consent to proceed with the account opening, advice, or transaction despite the conflict of interest. Barend must avoid material conflicts of interest that are prohibited by law or that would result in a breach of his fiduciary duty to the client. Barend must also report any material conflicts of interest to his firm and comply with the firm's policies and procedures for managing conflicts of interest3. References:
* MFDA Rule 2.1.4 - Conflicts of Interest1
* MFDA Policy No. 2 - Minimum Standards for Account Supervision2
* MFDA Policy No. 9 - Disclosure of Conflicts of Interest (Outside Business Activities)3

NEW QUESTION # 155
Which statement CORRECTLY describes index mutual funds and traditional exchange-traded funds (ETFs)?

A. Both types of funds attempt to replicate the return of a specific market index, but their returns may not perfectly match the index.
B. Both types of funds are closed-end investments that are required to hold the same securities as the index at all times.
C. The market price of an ETF must match its net asset value (NAV), whereas there can be discrepancy in the pricing of index funds.
D. Index funds use an active investment management style, whereas ETFs use a passive investment management style.

Answer: D

Explanation:
Index mutual funds and traditional exchange-traded funds (ETFs) are both types of investment funds that use a passive investment management style, which means they try to track the performance of a specific market index, such as the S&P/TSX Composite Index or the S&P 500 Index. They do so by holding the same securities as the index or a representative sample of them, and by adjusting their portfolio composition and weighting to reflect any changes in the index. However, both types of funds may not be able to exactly replicate the return of the index for various reasons, such as fees, expenses, tracking error, rebalancing frequency, dividend reinvestment, and cash holdings. Therefore, there may be some deviation or difference between the fund's return and the index's return, which is called tracking difference.
Canadian Investment Funds Course, Chapter 4: Types of Investments1

NEW QUESTION # 156
Your clients, Philip and Helen, have a disabled son, Alex, age 22. They want to set up a registered disability savings plan (RDSP) for Alex and have asked you for some information.
Which statement is TRUE?

A. Philip and Helen's contributions are refundable to them.
B. There is no annual or lifetime maximum limit on contributions.
C. Philip and Helen's contributions are tax-deductible.
D. Alex must quality for the disability tax credit.

Answer: D

Explanation:
A registered disability savings plan (RDSP) is a savings plan intended to help parents and others save for the long-term financial security of a person who is eligible for the disability tax credit (DTC). The DTC is a non- refundable tax credit that helps persons with disabilities or their supporting persons reduce the amount of income tax they may have to pay. To be eligible for the DTC, a person must have a severe and prolonged impairment in physical or mental functions, as defined by the Income Tax Act and as certified by a medical practitioner. Therefore, Alex must qualify for the DTC in order to be eligible for an RDSP. References: What is a registered disability savings plan (RDSP) - Canada.ca, Disability tax credit - Canada.ca

NEW QUESTION # 157
Which Sharpe ratio result would indicate that the fund earned a return less than the risk-free return?

A. 0.5
B. 2.5
C. -0.2
D. 0

Answer: C

Explanation:
Comprehensive and Detailed Explanation From Exact Extract:
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." Reference:Chapter 15 - Selecting a Mutual FundLearning Domain:Evaluating and Selecting Mutual Funds

NEW QUESTION # 158
Your client, a high-income earner in a high marginal tax bracket, is seeking to minimize the amount of tax he pays on investment income while continuing to invest in mutual funds. Which mutual fund would best meet his investment objective?

A. Fixed-income fund
B. Foreign equity fund
C. Canadian equity fund
D. Money market fund

Answer: C

Explanation:
Comprehensive and Detailed Explanation From Exact Extract:
Canadian equity funds are tax-efficient for high-income earners as they generate dividends and capital gains, which are taxed at lower rates than interest income. The feedback from the document states:
"Of the funds listed, the most tax-effective would be a Canadian equity fund because it should generate some dividends and some capital gains. Money market funds and fixed income funds would each generate highly taxed interest income, while a foreign equity fund would not generate tax-advantaged Canadian dividend income or capital gains. Before recommending an equity fund, the mutual fund representative should ensure that the fund is suitable for his client because equity funds have a higher risk profile than funds that generate interest income." Reference:Chapter 6 - Tax and Retirement PlanningLearning Domain:The Know Your Client Communication Process

NEW QUESTION # 159
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