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Free IFSE Institute CIFC Exam Questions and Answer
NEW QUESTION # 115
In a mutual fund dealer, who is the person responsible for establishing and maintaining compliance policies and procedures as well as monitoring and assessing compliance?
- A. the chief compliance officer
- B. the trustee
- C. the chief executive officer
- D. the ultimate designated person
Answer: A
Explanation:
Explanation
In a mutual fund dealer, the chief compliance officer (CCO) is the person responsible for establishing and maintaining compliance policies and procedures as well as monitoring and assessing compliance by the dealer and its representatives. The CCO must report to the board of directors or senior management of the dealer and must meet certain proficiency requirements, such as passing the Mutual Fund Dealers Compliance Exam. The CCO is also accountable to the securities regulators and self-regulatory organizations for any compliance issues or breaches. References: Guide to Broker-Dealer Registration
NEW QUESTION # 116
During the calendar year, Firmansyah received a $1,800 eligible dividend from a large Canadian bank and a foreign, dividend from his The USD/CAD exchange rates is 1.3605.
Firmansyah's federal marginal tax bracket is 29%. The enhanced dividend gross-up rate is 38% and the federal dividend tax credit rate for eligible dividends is 15%.
What federal tax liability will be due from the investment income?
- A. $870.00
- B. $348.00
- C. $522.00
- D. $695.76
Answer: D
NEW QUESTION # 117
Which information is typically included in the Letter of Engagement?
- A. Client's responsibilities
- B. Investment Objective
- C. Process for complaints
- D. Payee for deposits
Answer: A
NEW QUESTION # 118
Your client, Rinaldo, wants to know more about the fees associated with his mutual funds. What can you tell him about a mutual fund's management expense ratio (MER)?
- A. Mutual funds are required to calculate the MER on a daily basis.
- B. The MER reflects the percentage of each dollar of fund assets that is used to pay for management services.
- C. Trailer and brokerage fees are charged separately from the MER.
- D. Mutual fund performance is not impacted by the MER since rates of return are published net of fees.
Answer: B
Explanation:
Explanation
C is correct because the management expense ratio (MER) reflects the percentage of each dollar of fund assets that is used to pay for management services and operating expenses of a mutual fund. The MER includes various fees and expenses, such as management fees, administration fees, trailer fees, audit fees, legal fees, and taxes. The MER reduces the return of the fund, as it is deducted from the fund's income and capital gains before they are distributed to investors. Mutual funds are not required to calculate the MER on a daily basis (A), but rather on an annual basis. Trailer and brokerage fees are included in the MER (B), not charged separately. Mutual fund performance is impacted by the MER (D), as it lowers the net return of the fund. Rates of return are published net of fees, but they do not reflect the impact of the MER on the fund's performance.
References: Canadian Investment Funds Course (CIFC) | IFSE Institute
NEW QUESTION # 119
Every February, Reginald, a Dealing Representative, feels pressured by his Manager to generate new registered retirement savings plans (RRSP) and contributions to assist the branch in meeting broader business targets. Reginald is nearing the end of February, and he has a meeting with a new client, Orel. Orel wants to open a tax-free savings account (TFSA) to develop emergency savings because he does not want to worry about his withdrawals being taxed. Reginald suggests that if Orel were to contribute to an RRSP first, then the resulting tax savings could be used to fund a new emergency account.
In relation 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 purpose for investing.
- B. By convincing Orel to contribute an RRSP, instead of a TFSA, Reginald has put his client's interest first.
- C. Recommending an investment solution that addresses two needs is putting Reginald's client's interest first
- D. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.
Answer: D
NEW QUESTION # 120
Sean purchases 500 units of Penn Canadian Equity Fund when the net asset value per unit (NAVPU) is
$16.70. On December 15, the mutual fund's NAVPU is $21. On December 16, the mutual fund declares a distribution of $1.25 per unit. Sean's distribution is immediately reinvested and he purchases additional units of the mutual fund.
Which of the following statements about the effect of the distribution is correct?
- A. After the distribution. Sean will have J&625 in cash and JB8.350 worth of the Penn Canadian Equity Fund.
- B. The total value of Sean's mutual fund holdings after the distribution and reinvestment is ยง9,875.
- C. Sean's distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units.
- D. The NAVPU of the mutual fund does not change after the distribution since Sean reinvests his distribution and purchases additional units.
Answer: C
NEW QUESTION # 121
Which of the following statements is TRUE about the movement of business cycles in the Canadian economy?
- A. A period of at least 3 consecutive months of contraction is called a recession.
- B. A period of economic expansion is followed by a period of economic contraction.
- C. A period of economic expansion is of the same length in every cycle.
- D. A period of economic expansion is always of the same length as a period of economic contraction.
Answer: B
NEW QUESTION # 122
For what reason do different entities have securities created and sold?
- A. The issuance of securities is a method used by corporations to redistribute their wealth to investors to lower taxes.
- B. Governments can address financial needs and support initiatives when securities are first sold.
- C. Government debt is reduced due to the capital that is received from investors when their securities are purchased.
- D. When common shares are initially sold, the capital raised will increase the issuing corporation's retained earnings.
Answer: B
Explanation:
Explanation
One of the main reasons why different entities have securities created and sold is to raise funds for various purposes. Governments, for example, can issue securities such as bonds or treasury bills to finance public spending, such as infrastructure, education, health care, or social programs. By selling securities to investors, governments can borrow money at a lower cost than other sources of funding, and can also stimulate the economy and create jobs12 References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.1:
Money Market Instruments3 and web search results from search_web(query="reasons for issuing securities")12
3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf
NEW QUESTION # 123
Which of the following is a characteristic of a bond fund?
- A. If interest rates rise the value of a bond fund will also tend to rise.
- B. Securities regulation specifies that bond funds must invest in investment grade bonds.
- C. Bond funds are very low risk because they never go down in value.
- D. Income from a bond fund will primarily be interest but may also be capital gains
Answer: D
NEW QUESTION # 124
Saheed is a retiree who is considering splitting his pension income with his wife, Minu.
Which of the following outcomes may occur if he shares his pension benefits?
- A. Regardless of how much income each person reports, the total amount of income taxes will not change.
- B. Minu will be exposed to a pension adjustment (PA) if she receives income from his pension.
- C. This is a form of tax evasion and is therefore considered illegal based on income tax legislation.
- D. Whether the couple saves on income tax will be dependent on Minu's marginal tax rate.
Answer: D
Explanation:
Explanation
Whether the couple saves on income tax will be dependent on Minu's marginal tax rate. Pension income splitting is a tax planning strategy that allows a spouse or common-law partner who receives eligible pension income to allocate up to 50% of that income to their spouse or common-law partner1. This may result in tax savings if the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner1. The tax savings depend on the difference between the marginal tax rates of the spouses or common-law partners1. The other statements are incorrect. Minu will not be exposed to a pension adjustment (PA) if she receives income from Saheed's pension. A PA is a measure of the value of benefits accrued in a registered pension plan or deferred profit sharing plan during a calendar year2. It reduces the RRSP contribution room of the plan member, not the spouse or common-law partner who receives part of their pension income2. Pension income splitting is not a form of tax evasion and is not illegal based on income tax legislation. It is a legitimate way to reduce taxable income and taxes payable by shifting income from a higher-income spouse or common-law partner to a lower-income spouse or common-law partner1. Pension income splitting may change the total amount of income taxes paid by the couple, depending on their marginal tax rates. If the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner, pension income splitting may lower their combined taxes payable1. However, if they are in the same tax bracket, pension income splitting may not have any effect on their taxes payable1.
References: Pension income splitting, Pension adjustment
NEW QUESTION # 125
Khuyen is a Dealing Representative for Stark Contrast Investments. Her dealer has relationships with 20 different mutual fund families. This gave her the flexibility to sell two different types of funds from two different fund families to her client, Bao. $5,000 was invested in the Blue Moon Global Balanced fund and an additional $5,000 was invested in the Orange Sun Asset Allocation fund. Khuyen has been reviewing the performance of both funds and has determined that Bao would be better off being fully invested in the Blue Moon Global Balance fund. Bao had previously signed a Limited Authorization Form (LAF) for Khuyen, so she goes ahead and does not worry about consulting with Bao before making the change.
What type of activity has Khuyen performed?
- A. Top-down management
- B. Discretionary trading
- C. Value investing
- D. Churning
Answer: B
Explanation:
Explanation
Discretionary trading is a type of trading activity where the advisor makes investment decisions on behalf of the client without obtaining the client's prior consent for each transaction. Discretionary trading is only allowed if the client has signed a discretionary management agreement with the advisor and the advisor is registered as a portfolio manager. A limited authorization form (LAF) does not grant the advisor the authority to engage in discretionary trading. A LAF only allows the advisor to execute trades that are initiated by the client, such as pre-authorized contributions or withdrawals. Therefore, Khuyen has performed discretionary trading by switching Bao's funds without consulting him, which is a violation of her registrant responsibilities and ethical standards. References:
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 2: The Sales Process, Section 2.4:
Ethics and Compliance, page 2-161
Discretionary Trading Definition - Investopedia2
NEW QUESTION # 126
During the calendar year, Firmansyah received a $1,800 eligible dividend from a large Canadian bank and a foreign, dividend from his The USD/CAD exchange rates is 1.3605.
Firmansyah's federal marginal tax bracket is 29%. The enhanced dividend gross-up rate is 38% and the federal dividend tax credit rate for eligible dividends is 15%.
What federal tax liability will be due from the investment income?
- A. $870.00
- B. $348.00
- C. $522.00
- D. $695.76
Answer: D
Explanation:
Explanation
To calculate Firmansyah's federal tax liability from the investment income, we need to follow these steps:
* Step 1: Convert the foreign dividend from USD to CAD using the exchange rate given in the question.
The exchange rate is 1.3605 CAD per USD, which means that 1 USD is equivalent to 1.3605 CAD.
Therefore, Firmansyah's foreign dividend in CAD is:
500*1.3605=680.25
* Step 2: Calculate Firmansyah's grossed-up dividend income from both sources. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. The percentage varies depending on whether the dividend is eligible or non-eligible.
According to [this site], an eligible dividend is a dividend paid by a Canadian corporation that meets certain criteria, such as being listed on a designated stock exchange or being a subsidiary of such a corporation. A non-eligible dividend is a dividend that does not meet these criteria, such as a dividend paid by a foreign corporation or a small Canadian business corporation. The gross-up rate for eligible dividends in 2020 was 38%, while the gross-up rate for non-eligible dividends in 2020 was 15%.
Therefore, Firmansyah's grossed-up dividend income from both sources is:
(1800+680.25)*(1+0.38)=3426.35
* Step 3: Apply Firmansyah's federal marginal tax rate to his grossed-up dividend income to get his federal tax before credits. A marginal tax rate is the percentage of tax applied to an additional dollar of income. According to [this site], Firmansyah's federal marginal tax rate for 2020 was 29%, as his taxable income was between $150,473 and $214,368. Therefore, Firmansyah's federal tax before credits is:
0.29*3426.35=993.64
* Step 4: Subtract Firmansyah's federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. A dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation.
The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], the federal dividend tax credit rate for eligible dividends in 2020 was 15%, while the federal dividend tax credit rate for non-eligible dividends in 2020 was 9.03%. Therefore, Firmansyah's federal dividend tax credit from both sources is:
(1800+680.25)*0.38*0.15=297.88
* Step 5: Subtract Firmansyah's federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. This is the amount of federal income tax that Firmansyah has to pay or has overpaid from the investment income. Therefore, Firmansyah's net federal tax liability from the investment income is:
993.64297.88=695.76
Hence, option C is correct. References: [Canadian Investment Funds Course (CIFC) | IFSE Institute],
[Dividend Tax Credit | TurboTax Canada Tips], [Federal Income Tax Rates for Canada - TurboTax Canada Tips], [Eligible Dividends | TurboTax Canada Tips]
NEW QUESTION # 127
When comparing the current yield and yield-to-maturity of a bond, which statement applies?
- A. Yield-to-maturity is based on the current market value of the bond, not the price paid.
- B. Yield-to-maturity accounts for the reinvestment of coupon payments.
- C. Capital gains or capital losses are reflected in the current yield calculation.
- D. Current yield includes in the calculation the time to maturity.
Answer: B
Explanation:
Explanation
This statement is correct because yield-to-maturity (YTM) is the annualized rate of return of a bond that assumes that all coupon payments are reinvested at the same rate until the bond matures. YTM takes into account the bond's current market price, par value, coupon rate, and time to maturity, and it calculates the compound interest earned on the reinvested coupons. Therefore, YTM reflects the total return of the bond, including both the interest income and the capital gain or loss.
References = Current Yield vs. Yield to Maturity - Investopedia, Yield to Maturity (YTM) - Investopedia, Bond Current Yield Calculator
NEW QUESTION # 128
Daisy is a Dealing Representative registered in the province of Saskatchewan only. Daisy's client, Orville, a resident of Lloydminster, Saskatchewan is a retiree who presently has a $1,000,000 with her dealer, Easy Ride Financial. Orville is now planning to move to Vegreville, Alberta next month. Easy Ride Financial is registered in Alberta and Saskatchewan. Neither Easy Ride Financial nor Daisy have any clients who are resident in Alberta.
Which of the following should Daisy do if she wants to continue to service Orville's account?
- A. Daisy could seek permission from her dealer to request a client mobility exemption with the Alberta Securities Commission.
- B. Request approval from the Mutual Fund Dealers Association of Canada to be eligible to be a registered Dealing Representative in Alberta
- C. Daisy will need to forfeit her registration in Saskatchewan if she wants to be registered in Alberta to keep Orville as a client.
- D. Register with a different mutual fund dealer that is registered in Alberta so she can keep Orville as a client.
Answer: A
NEW QUESTION # 129
Louis is the portfolio manager for Quattro Fund. The mandate of the mutual fund is to invest in a combination of cash, fixed income, and equity securities; however, Louis has the ability to adjust the portfolio according to market conditions. If Louis feels that interest rates will fall, he could invest the whole portfolio in equities. If he feels the market is too high, he could take profits and sit totally in cash. What type of mutual fund is Quattro Fund?
- A. commodity pool
- B. Canadian equity fund
- C. asset allocation fund
- D. balanced fund
Answer: C
Explanation:
Explanation
An asset allocation fund is a type of mutual fund that invests in a combination of cash, fixed income, and equity securities, but has the flexibility to adjust the portfolio according to market conditions and the fund manager's outlook. The fund manager can change the asset mix to take advantage of opportunities or reduce risks in different asset classes and markets. The fund's objective is to achieve a balanced risk-return profile by diversifying across different assets and investment styles. Quattro Fund is an example of an asset allocation fund, as it can invest in cash, fixed income, and equity securities, and Louis can adjust the portfolio according to his views on interest rates and the market.
References: Canadian Investment Funds Course, Unit 6, Section 6.2; 4; 5; 6
NEW QUESTION # 130
Sven owns preferred shares that give him the option to sell his holdings back to the issuing company at a predetermined price and within a specified time. What type of preferred shares does Sven own?
- A. participating
- B. convertible
- C. redeemable
- D. retractable
Answer: D
Explanation:
Explanation
A is correct because retractable preferred shares are a type of preferred shares that give the holder the option to sell the shares back to the issuer at a predetermined price and within a specified time. This feature provides the holder with more flexibility and protection against interest rate fluctuations. Participating preferred shares (B) are a type of preferred shares that give the holder the right to receive additional dividends if the issuer's earnings exceed a certain level. Convertible preferred shares are a type of preferred shares that give the holder the option to convert the shares into common shares of the issuer at a predetermined ratio and price.
Redeemable preferred shares (D) are a type of preferred shares that give the issuer the option to buy back the shares from the holder at a predetermined price and within a specified time. References: Canadian Investment Funds Course (CIFC) | IFSE Institute
NEW QUESTION # 131
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. Philip and Helen's contributions are tax-deductible.
- C. Alex must quality for the disability tax credit.
- D. There is no annual or lifetime maximum limit on contributions.
Answer: C
NEW QUESTION # 132
Which statement regarding the Fund Facts document is CORRECT?
- A. The Fund Facts document must be delivered to the client, electronically or in writing, within 5 days of the transaction date.
- B. For leveraged accounts, the Fund Facts document is not required if the client has been provided with the Leverage Risk Disclosure document.
- C. The Fund Facts document must not contain performance data.
- D. Before accepting an order from a client, a Dealing Representative is expected to provide and explain the Fund Facts document.
Answer: D
Explanation:
Explanation
The Fund Facts document is a summary disclosure document that highlights key information about a mutual fund or an exchange-traded fund (ETF), such as the performance history, investments, fees, and risks.
According to the Point of Sale (POS) disclosure rules, a Dealing Representative must provide and explain the Fund Facts document to the client before accepting an order to buy or switch a fund. This allows the client to make an informed investment decision and to know their rights.
References = Fund Facts | AMF - Autorite des marches financiers, Fund Facts/ETF Facts - Fidelity, Understanding Fund Facts | GetSmarterAboutMoney.ca, IFSE CIFC Module 2: The Investment Industry, page
2-16.
NEW QUESTION # 133
Preston has been working for Thompson Industries for just over a year and has been part of Thompson's deferred profit sharing plan (DPSP) program from his start date. Preston wants to know more about these types of plans.
What would you tell Preston about DPSPs?
- A. Investment growth within the plan is taxable each year.
- B. The employer is obliged to make DPSP contributions for an amount equal to employee contributions.
- C. Once the plan is set up, the employer is obliged to make plan contributions each year.
- D. DPSP contributions are tax-deductible to the employer.
Answer: D
Explanation:
Explanation
A DPSP is a type of registered plan that allows employers to share their profits with their employees.
Employees do not contribute to a DPSP, and they do not pay taxes on the contributions until they withdraw them. Employers can deduct their contributions to a DPSP from their taxable income, subject to certain limits and conditions.
References = IFSE CIFC Module 6: Registered Plans, page 6-12. Contributing to a deferred profit sharing plan
- Canada.ca
NEW QUESTION # 134
Which of the following characteristics about mortgage mutual funds is CORRECT?
- A. if interest rates fall, the mutual fund's net asset value per unit (NAVPU) will decline
- B. suitable only for high risk investors
- C. typically monthly distributions of interest
- D. risk-free where the mortgages are National Housing Act (NHA) insured
Answer: C
Explanation:
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 , 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. References: Investment Funds in Canada (IFC) | Canadian Securities Institute
NEW QUESTION # 135
Fabiola is an optometrist and an incorporated professional. She has fallen behind schedule regarding saving for retirement. She is considering opening an Individual Pension Plan (IPP).
What provision might encourage her to use an IPP?
- A. Her pension benefit is not pre-determined because it is based on the returns on investments which she chooses.
- B. Withdrawals will be taxable to the business, not to Fabiola, when she starts receiving her pension income.
- C. When Fabiola files her personal tax return, she will be able to claim contributions as an eligible deduction.
- D. Contributions to her IPP can be greater than what applies to contributions for registered retirement savings plans.
Answer: D
Explanation:
Explanation
An IPP is a registered, defined-benefit pension plan that provides a fixed retirement benefit to the person designated in the plan. It is similar to an RRSP, but with some differences in contribution limits, deductions, and tax benefits. One of the main advantages of an IPP is that it allows higher contribution limits than an RRSP, especially for older and higher-income individuals. The contributions are based on the actuarial calculations of the pension benefit, and are tax-deductible for the sponsoring corporation. The higher contribution limits can help Fabiola catch up on her retirement savings and reduce her taxable income123 References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.3:
Individual Pension Plan (IPP) and web search results from search_web(query="individual pension plan")123
https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf
NEW QUESTION # 136
Which document contains information regarding the Independent Review Committee compensation?
- A. Annual Information Form
- B. Management Reports of Fund Performance
- C. Fund Facts
- D. Simplified Prospectus
Answer: A
Explanation:
Explanation
The Annual Information Form (AIF) is a document that provides detailed information about a mutual fund, such as its history, structure, management, fees, expenses, risks, policies, and performance. The AIF also contains information regarding the Independent Review Committee (IRC) compensation, which is the amount of fees and expenses paid by the fund to the IRC members for their services. The IRC is a committee of independent individuals who oversee the fund manager's decisions on conflict of interest matters and act in the best interests of the fund and its investors12 References = web search results from search_web(query="Independent Review Committee compensation")12 and Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.2: Mutual Funds3
3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf
NEW QUESTION # 137
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