Free IFC Investment Strategies Questions and Answers — Questions and Answers
Question 1: What is the purpose of the fund facts?
- To better align the interests of the fund with the client.
- To determine if a fiduciary duty is present in the representative-client relationship.
- To provide clients with key fund information that is relevant to their investment decisions. (Correct answer)
- To clarify for clients the nature and terms of their relationship with the dealer of the fund.
Correct answer: To provide clients with key fund information that is relevant to their investment decisions.
The fund facts document is a four page document designed to give investors key information that is relevant to their investment decision, including facts about the fund itself, performance history, investments and the costs of investing in the fund.
Question 2: What term describes the range of possible future outcomes on the price of a security?
- Beta
- Return
- Fluctuation
- Risk (Correct answer)
Correct answer: Risk
Risk is the potential volatility in returns or the range of possible future outcomes on the price of a security.
Question 3: A client has $100,000 in a savings account, $5,000 in a chequing account, and $10,000 in loans. Calculate his net worth.
- $115,000
- $90,000
- $95,000 (Correct answer)
- $105,000
Correct answer: $95,000
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.
Question 4: Which newspaper article would be likely to result in foreign capital moving out of a country?
- Corporate Taxes Reduced
- New Taxes on Foreign Direct Investment (Correct answer)
- Government Re-elected for a Fourth Consecutive Term.
- International Ranking of Domestic Level of Education Rises Significantly
Correct answer: New Taxes on Foreign Direct Investment
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.
Question 5: Which example demonstrates direct use of capital savings?
- Building a new factory (Correct answer)
- Depositing funds in a Canadian bank account.
- Purchasing a company’s stocks
- Purchasing an investment fund.
Correct answer: Building a new factory
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.
Question 6: Which of the following transactions takes place in the secondary market?
- Sale of mutual funds
- Issue of federal Treasury bills.
- Resale of previously issued securities. (Correct answer)
- Issue of new debt and equity securities.
Correct answer: Resale of previously issued securities.
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.
Question 7: Which exchange in Canada deals exclusively with financial and equity futures and options?
- The Montreal Exchange (Correct answer)
- The TSX Venture Exchange
- Canadian Securities Exchange
- The Toronto Stock Exchange
Correct answer: The Montreal Exchange
The Montreal Exchange (Bourse de Montreal) is the only exchange in Canada that deals exclusively with financial and equity futures and options.
Question 8: What term applies to unemployment created by a new technology that eliminates the need for subway train drivers?
- Natural
- Cyclical
- Frictional
- Structural (Correct answer)
Correct answer: Structural
Structural unemployment results from changes in the economy, such as technological advances that reduce the need for human labour.
Question 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?
- Price and production both increase (Correct answer)
- Price and production both decrease
- Price increases and production decreases
- Price decreases and production increases
Correct answer: Price and production both increase
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.
Question 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?
- 4.48% (Correct answer)
- 5.20%
- 4.12%
- 6.04%
Correct answer: 4.48%
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 x 100.
Question 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 asales target for the new fund. What responsibility applies to Gary’s action?
- Compliance
- Ethical (Correct answer)
- Legal
- Professional
Correct answer: Ethical
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.
Free IFC Investment Strategies Questions and Answers
What is the purpose of the fund facts?