Quiz 1 - IFC Check PDF

Title Quiz 1 - IFC Check
Course Investment Funds In Canada
Institution Lambton College of Applied Arts and Technology
Pages 36
File Size 419.3 KB
File Type PDF
Total Downloads 29
Total Views 165

Summary

IFC Check...


Description

Check Companion

2021-06-20, 3 :06 AM

Check: Practice Test 1 Reports Overall Results

Questions

Number Correct

Your Score

1

100

9

9%

2

100

1

1%

3

100

8

8%

4

100

0

0%

5

100

0

0%

6

100

20

20%

Score:

20%

Attempt

You did not pass the test.

https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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Learning Domain Results Score:

20%

Questions

Number Correct

Your Score

An Introduction to the Mutual Funds Marketplace

14

11

79%

The Know Your Client Communication Process

19

9

47%

Understanding Investment Products and Portfolios

18

0

0%

The Modern Mutual Fund

4

0

0%

Analysis of Mutual Funds

11

0

0%

Understanding Alternative Managed Products

3

0

0%

Evaluating and Selecting Mutual Funds

16

0

0%

Ethics, Compliance and Mutual Fund Regulations

15

0

0%

Learning Domain

https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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Question Results 1. Marc asks his new client for copies of his mortgage documents. Which Know Your Client component is Marc researching?

Good choice!

A.

Financial goals and objectives.

B.

Financial circumstances.

C.

Investment knowledge.

D.

Personal circumstances.

Feedback: Financial circumstances are an important consideration in judging the suitability of investments, because they determine the amount of savings clients can commit to investing and the level of risk they can assume. Marc’s client’s mortgage document will give Marc valuable insights into the level of debt and mortgage obligations his client has, helping in evaluating the client’s financial circumstances. Reference | Chapter 1 – The Role of the Mutual Fund Sales Representative Learning Domain | An Introduction to the Mutual Funds Marketplace 2. What term describes the range of possible future outcomes on the price of a security?

Good choice!

A.

Beta.

B.

Fluctuation.

C.

Return.

D.

Risk.

Feedback: Risk is the potential volatility in returns or the range of possible future outcomes on the price of a security. Reference | Chapter 1 – The Role of the Mutual Fund Sales Representative Learning Domain | An Introduction to the Mutual Funds Marketplace 3. A client has $100,000 in savings, $5,000 in bank accounts, and $10,000 in loans. Calculate his net worth. Good choice!

A.

$95,000

B.

$115,000

C.

$105,000

D.

$90,000

Feedback: Net worth is calculated as the value of all of the client’s assets after subtracting outstanding loan and mortgage balances. In this example, the client has $100,000 + $5,000 = $105,000 in assets, and $10,000 in loans. Therefore, his net worth is $105,000 - $10,000 = $95,000. Reference | Chapter 1 – The Role of the Mutual Fund Sales Representative Learning Domain | An Introduction to the Mutual Funds Marketplace

https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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4. Which newspaper article would be likely to result in foreign capital moving out of a country?

Good choice!

A.

Government Re-elected for a Fourth Consecutive Term.

B.

Corporate Taxes Reduced.

C.

International Ranking of Domestic Level of Education Rises Significantly.

D.

New Taxes on Foreign Direct Investment.

Feedback: Capital moves in and out of a country based on a variety of risk factors. Increased trade barriers or increased taxes on foreign investments would typically reduce the attractiveness of a country for foreign investment. (a), (b) and (d) would all indicate positive trends in a risk factor analysis. Reference | Chapter 2 – Overview of the Canadian Financial Marketplace Learning Domain | An Introduction to the Mutual Funds Marketplace 5. Which example demonstrates direct use of capital savings? A.

Purchasing a company’s stocks.

You chose:

B.

Depositing funds in a Canadian bank account.

The correct answer is:

C.

Building a new factory.

D.

Purchasing an investment fund.

Feedback: Capital savings are used directly by, for example, a couple investing their savings in a home; a government investing in a new highway or hospital; or a domestic or foreign company paying start-up costs for a plant to produce a new product. Reference | Chapter 2 – Overview of the Canadian Financial Marketplace Learning Domain | An Introduction to the Mutual Funds Marketplace 6. Which of the following transactions takes place in the secondary market?

Good choice!

A.

Issue of federal Treasury bills.

B.

Resale of previously issued securities.

C.

Issue of new debt and equity securities.

D.

Sale of mutual funds.

Feedback: The secondary market involves the resale of previously issued securities between investors. It enables investors who originally bought the investment products to sell them and obtain cash. Reference | Chapter 2 – Overview of the Canadian Financial Marketplace Learning Domain | An Introduction to the Mutual Funds Marketplace 7. Which exchange in Canada deals exclusively with financial and equity futures and options?

Good choice!

A.

Canadian Securities Exchange

B.

The TSX Venture Exchange.

C.

The Montreal Exchange.

D.

The Toronto Stock Exchange.

Feedback: The Montreal Exchange (Bourse de Montreal) is the only exchange in Canada that deals exclusively with financial and equity futures and options. Reference | Chapter 2 – Overview of the Canadian Financial Marketplace Learning Domain | An Introduction to the Mutual Funds Marketplace https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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8. What term applies to unemployment created by a new technology that eliminates the need for subway train drivers?

Good choice!

A.

Natural.

B.

Cyclical.

C.

Structural.

D.

Frictional.

Feedback: Structural unemployment results from changes in the economy, such as technological advances that reduce the need for human labour. Reference | Chapter 3 – Economic Principles Learning Domain | An Introduction to the Mutual Funds Marketplace 9. The demand for blue widgets increases sharply due to a newspaper report that using blue widgets improves recovery from influenza. What can be said about the law of supply?

Good choice!

A.

Price increases and production decreases.

B.

Price and production both increase.

C.

Price and production both decrease.

D.

Price decreases and production increases.

Feedback: The law of supply states that when demand is greater than supply, the price increases, and producers increase production to meet demand and maximize profit. Reference | Chapter 3 – Economic Principles Learning Domain | An Introduction to the Mutual Funds Marketplace 10.If the Consumer Price Index (CPI) was 140.6 last year and 146.9 this year, what was the inflation rate over the year?

Good choice!

A.

5.20%

B.

4.12%

C.

6.04%

D.

4.48%

Feedback: To calculate the rate of inflation over a period of time one must subtract the CPI at the beginning of the period from the CPI at the end of the period and then divide the result by the CPI at the beginning of the period. In this example, the solution can be derived as follows: (146.9 - 140.6) / 140.6. Reference | Chapter 3 – Economic Principles Learning Domain | An Introduction to the Mutual Funds Marketplace

https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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11. Gary chooses not to recommend that his client sell a current mutual fund to purchase a similar new mutual fund despite pressure to meet a sales target for the new fund. What responsibility applies to Gary’s action? You chose:

A.

Professional.

B.

Legal.

The correct answer is:

C.

Ethical.

D.

Compliance.

Feedback: Gary is fulfilling his ethical responsibility by placing his client’s needs ahead of his own need to reach a sales target. As the new fund is similar to the current investment, it would be an appropriate one for the client, so he would not be compromising his legal responsibility to ensure that all client orders are suitable. Reference | Chapter 1 – The Role of the Mutual Fund Sales Representative Learning Domain | An Introduction to the Mutual Funds Marketplace 12.What does suitability mean?

Good choice!

A.

The investor’s major concerns are addressed.

B.

Recommendations are not based on the personal and financial knowledge of the client.

C.

Understanding the personal and financial knowledge of the client.

D.

Recommendations are appropriate for the client’s unique situation and investment objectives.

Feedback: Suitability means ensuring that all recommendations are appropriate for the client’s unique situation and investment objectives. It also means that recommendations are based on a personal and financial knowledge of the client and knowledge of the investment products being recommended. Reference | Chapter 1 – The Role of the Mutual Fund Sales Representative Learning Domain | An Introduction to the Mutual Funds Marketplace 13.Which organization regulates mutual and investment funds? You chose:

The correct answer is:

A.

Investment Industry Regulatory Organization of Canada (IIROC).

B.

ICE Futures Canada.

C.

Bourse de Montreal.

D.

Securities commissions.

Feedback: The responsibility of regulating mutual funds lies with the securities commissions. Reference | Chapter 2 – Overview of the Canadian Financial Marketplace Learning Domain | An Introduction to the Mutual Funds Marketplace

https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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14.What stage in the business cycle typically has increasing wages, rising inflation, rising interest rates with slowing sales, and decreasing business investment? A.

Good choice!

Recovery.

B.

Trough.

C.

Peak.

D.

Expansion.

Feedback: The top of the cycle is called a peak. A peak is characterized by the following activities: demand begins to outstrip the capacity of the economy to supply it; wages increase; inflation rises; interest rates rise and bond prices fall; sales begin to decline; business investment slows, and stock market activity begins to decline. Reference | Chapter 3 – Economic Principles Learning Domain | An Introduction to the Mutual Funds Marketplace 15.Based on the financial planning pyramid, what security would be appropriate for a very aggressive investor? You chose:

The correct answer is:

A.

Commodities.

B.

Tax shelters.

C.

Foreign stocks.

D.

Over the Counter (OTC) Securities.

Feedback: As a visual aid, the planning pyramid helps you show clients how mutual funds fit into the investment universe. A very aggressive investor could consider investments such as OTC Securities. Reference | Chapter 4 – Getting to know the client Learning Domain | The Know Your Client Communication Process 16.Your client earns $100,000 from employment and $10,000 from investments each year. Her bills total $95,000 annually. What is her discretionary income? Good choice!

A.

$15,000

B.

$10,000

C.

$5,000

D.

$20,000

Feedback: Discretionary income eligible for savings and investments is the difference between the amount of money coming in from employment and other sources and the amount of money going out to pay bills. In this example, $100,000 + $10,000 - $95,000 = $15,000. Reference | Chapter 4 – Getting to know the client Learning Domain | The Know Your Client Communication Process

https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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17.What bias results in investors valuing an asset that they own over an asset that another individual owns? A.

Status Quo.

The correct answer is:

B.

Endowment.

You chose:

C.

Representativeness.

D.

Risk aversion.

Feedback: People who are subject to endowment bias place more value on an asset they hold property rights to than on an asset they do not hold property rights to. Reference | Chapter 5 – Behavioural Finance Learning Domain | The Know Your Client Communication Process 18.What response would a loss-averse investor be most likely to choose in selecting a preferred investment return scenario?

Good choice!

A.

An assured loss of $750.

B.

A 75% chance of losing $1,000, and a 25% chance of losing nothing.

C.

A 5% chance of gaining $1,500, and a 95% chance of losing $800.

D.

A 25% chance of gaining $2,000, and a 75% chance of losing nothing.

Feedback: The loss-averse investor will choose a lower potential of loss over a more rational choice. In this example, a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest possible loss potential, and will typically be the statement selected by the loss-averse investor. Reference | Chapter 5 – Behavioural Finance Learning Domain | The Know Your Client Communication Process 19.What bias would influence an investor’s decision to continue to hold an unprofitable investment despite little likelihood of an improvement in the investment’s value?

Good choice!

A.

Cognitive dissonance.

B.

Loss aversion.

C.

Status quo.

D.

Representativeness.

Feedback: Loss aversion bias states that people generally feel a stronger impulse to avoid losses than to acquire gains. Loss aversion can prevent people from unloading unprofitable investments, even when they see little to no prospect of a turnaround. Reference | Chapter 5 – Behavioural Finance Learning Domain | The Know Your Client Communication Process

https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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20.Joanne’s earned income last year was $45,000 and her pension adjustment was $2,500. She has $2,000 in carry forward registered retirement savings plan (RRSP) room for the current taxation year. What is Joanne’s maximum tax-deductible RRSP contribution amount for the current year? A.

$12,600

B.

$8,100

You chose:

C.

$5,600

The correct answer is:

D.

$7,600

Feedback: Joanne’s tax-deductible RRSP contribution room would be calculated as (18% × $45 000) -$2,500 + $2,000 = $7,600. Reference | Chapter 6 – Tax and Retirement Planning Learning Domain | The Know Your Client Communication Process 21.Rebecca, an investor in a 40% marginal tax bracket, receives $1,200 in Canadian dividends eligible for the dividend tax credit. What is the dividend tax credit that applies to this income? A.

$480

B.

$1,200

C.

$248.73

D.

$662.40

Feedback: The taxable amount of the dividend is the income received plus a 38% gross-up amount. In this example, $1,200 + ($1,200 × 38%) = $1,656. The dividend tax credit is 15.02% of the grossed-up amount, in this example, $1,656 × 15.02% = $248.73. Reference | Chapter 6 – Tax and Retirement Planning Learning Domain | The Know Your Client Communication Process 22.Which form of investment income is taxed at an investor’s marginal tax rate? Good choice!

A.

Foreign dividend income.

B.

Canadian dividend income.

C.

Capital gains.

D.

Capital losses.

Feedback: Foreign dividend income is not eligible for any dividend tax credit, and is taxed at an investor’s marginal tax rate. Reference | Chapter 6 – Tax and Retirement Planning Learning Domain | The Know Your Client Communication Process 23.What type of benefit plan has a final benefit that is dependent on the investment returns within the plan? Good choice!

A.

Defined contribution plan.

B.

Final average plan.

C.

Flat benefit plan.

D.

Career average plan.

Feedback: In a defined contribution plan, also known as a money-purchase plan, the eventual benefits at retirement will be based on how the contributions were invested within the plan. Reference | Chapter 6 – Tax and Retirement Planning Learning Domain | The Know Your Client Communication Process https://training.csi.ca/shared/products/MAAE/2018_CSI/html/app/index-assess.html?lang=en&exercise=IFC2019_Practice_Test_1

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24.What is the step in the financial pla...


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