CIFC Flashcards_Units 1 to 5

Question 1

Which organization produces Canada’s National Instruments?
a) Investment Industry Regulatory Organization of Canada
b) Mutual Fund Dealers Association
c) Canadian Securities Administrators
d) Provincial Securities Commissions

Answer 1

c) Canadian Securities Administrators

Question 2

Which organization produces Canada’s National Instruments?
a) Investment Industry Regulatory Organization of Canada
b) Mutual Fund Dealers Association
c) Canadian Securities Administrators
d) Provincial Securities Commissions

Answer 2

c) Canadian Securities Administrators

Question 3

One of your potential clients, Jean-Francois, does not want to provide his personal information. He wants to know from you as to what constitutes “personal information.”
Which of the following constitutes personal information as defined under Personal Information Protection and Electronics Documents Act (PIPEDA)?

a) client’s business title
b) client’s business address
c) client’s income
d) client’s employer’s website address

Answer 3

c) client’s income

Question 4

Which of the following statements about the Mutual Fund Dealers Association (MFDA) is CORRECT?
a) The MFDA has the authority to fine, suspend or terminate the membership of its members.
b) The MFDA is responsible for approving your registration as a mutual fund dealing representative.
c) The MFDA regulates the activities of mutual fund portfolio managers.
d) The MFDA is responsible for regulating all mutual fund dealers in Canada.

Answer 4

a) The MFDA has the authority to fine, suspend or terminate the membership of its members.

Question 5

What does the Mutual Fund Dealers Association (MFDA) have the power to do?
a) initiate securities legislation
b) draft National Instruments
c) perform compliance reviews
d) compensate clients defrauded by its members

Answer 5

c) perform compliance reviews

Question 6

Which of the following statements about the Ombudsman for Banking Services (OBSI) is TRUE?
a) OBSI is a regulator created by law to regulate banking services and investment firms.
b) OBSI can provide recommendations to settle claims up to $350,000 and fraud claims up to $150,000.
c) OBSI attempts to resolve disputes between participating banking services and investment firms and their clients
d) Membership in OBSI is optional.

Answer 6

c) OBSI attempts to resolve disputes between participating banking services and investment firms and their clients

Question 7

To which of the following entities does the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) apply?
a) financial entities only
b) financial entities and life insurers only
c) financial entities, life insurers and real estate entities only
d) financial entities, life insurers, real estate entities and casinos

Answer 7

d) financial entities, life insurers, real estate entities and casinos

Question 8

Which of the following organizations is regulated under the Personal Information Protection and Electronic Documents Act (PIPEDA)?
a) Bank of Canada
b) Canada Revenue Agency
c) Bell Canada Ltd.
d) Human Resources and Skills Development Canada

Answer 8

c) Bell Canada Ltd.

Question 9

Which one of the following is a Politically Exposed Foreign Person (PEFP)?
a) Supporter of a major political party in a foreign jurisdiction
b) Judge of the Supreme Court in a foreign jurisdiction
c) Receptionist in a foreign jurisdiction’s embassy in Canada
d) Sergeant in the army of a foreign jurisdiction

Answer 9

b) Judge of the Supreme Court in a foreign jurisdiction

Question 10

What responsibilities do provincial and territorial securities commissions have?
a) To oversee the operations of insurance companies, federally regulated deposit-taking institutions, and federally regulated private pension plans.
b) To attempt to resolve disputes between investment firms and their clients.
c) To compensate investors who have been defrauded by mutual fund dealer firms.
d) To register mutual fund dealer firms and individuals to sell securities in their province.

Answer 10

d) To register mutual fund dealer firms and individuals to sell securities in their province.

Question 11

Suryono is unclear about Mutual Fund Dealers Association (MFDA) rules regarding client communications, and seeks your help. Which of the following statements about MFDA client communication rules is CORRECT?
a) MFDA rules regarding client communications refer to written communication.
b) MFDA rules regarding client communications refer to either written or verbal communication.
c) Verbal communication to clients must be documented by the dealing representative.
d) Trade communications and account statements, although written communications are not defined as client communications.

Answer 11

a) MFDA rules regarding client communications refer to written communication.

Question 12

Josh has a client, Arnold, who read somewhere about the Client Relationship Model (CRM). He asks Josh about the objective of the relationship disclosure requirement of CRM.
Which of the following replies should Josh give to Arnold?

a) The requirement authorizes dealer firms to disclose their client-planner relationship to third parties.
b) The requirement requires clients to understand their obligations and those of the dealer firm.
c) The requirement requires clients to disclose all the information asked for by the dealing representative.
d) There are different levels of disclosures depending on the type and scope of services required by the client.

Answer 12

b) The requirement requires clients to understand their obligations and those of the dealer firm.

Question 13

Which of the following practices is acceptable?
a) It is advisable to keep blank forms signed by clients in their files in case they are unavailable for signature.
b) Excessive trading may be permissible as long as it is in the client’s best interest.
c) Outside business activities like selling securities are permissible as long as you conduct it outside the mutual fund dealer.
d) It is advisable for you to obtain a power of attorney (POA) on all your clients to make transactions easier to fulfill.

Answer 13

b) Excessive trading may be permissible as long as it is in the client’s best interest.

Question 14

Which of the following statements about excessive trading is correct?
a) It is a practice that is permitted by the Mutual Fund Dealers Association (MFDA) but only for high net worth clients.
b) It is a practice that provides little economic benefit to the client and only benefits the representative.
c) It is the charging of huge fees to clients while executing few trades and giving little advice.
d) It is an acceptable sales practice for commission-based accounts.

Answer 14

b) It is a practice that provides little economic benefit to the client and only benefits the representative.

Question 15

All of the following individuals are registered as dealing representatives with mutual fund dealers. They also have outside business activities. Which individual has engaged in an inappropriate outside business activity?
a) Mohamed, who is licensed to sell insurance with an insurance company
b) Don, who along with his family owns several rental units
c) Ruben, who sells limited partnerships directly for an issuer
d) Lorenzo, who coaches part-time for his son’s hockey team

Answer 15

c) Ruben, who sells limited partnerships directly for an issuer

Question 16

Which of the following rules pertain to your registration as a mutual fund dealing representative?
a) You must be registered in the province in which you wish to sell mutual funds by the appropriate provincial securities regulatory authority. You are not permitted to be registered in a province where you do not reside.
b) You cannot begin to sell securities until you have received formal confirmation from the Mutual Fund Dealers Association of Canada (MFDA) that your application for registration has been approved and registration granted.
c) The securities regulatory authority must be informed of any material or significant change in your personal circumstances.
d) You are responsible for filing your application for registration through the National Registration Database (NRD).

Answer 16

c) The securities regulatory authority must be informed of any material or significant change in your personal circumstances.

Question 17

How often must you renew your registration?
a) You must renew your registration every year.
b) You must renew your registration every two years.
c) You must renew your registration every three years.
d) There is no requirement to renew your registration.

Answer 17

d) There is no requirement to renew your registration.

Question 18

Which of the following statements about the use of forms pre-signed by your clients is TRUE?
a) They are a good way to save time when your client wishes to perform a transaction.
b) They may only be used for high value transactions with high net worth clients.
c) They are prohibited by MFDA regulations.
d) They may be used provided a suitability assessment is performed at some time.

Answer 18

c) They are prohibited by MFDA regulations.

Question 19

What would be considered a sales communication?
a) financial statements
b) trade confirmation
c) statements of account
d) newspaper ad

Answer 19

d) newspaper ad

Question 20

Henry is a dealing representative with ABC123 Mutual Funds Inc. One of his clients, Sophie, is currently going through a divorce. Sophie’s husband Trevor also holds an account with the mutual fund dealer, handled by another dealing representative at a different branch. Sophie asks Henry to give her a printout of Trevor’s transaction history for the past six months.
Henry refuses to give a printout, but offers to look up Trevor’s account on his computer and give her the major details verbally.

Has Henry acted unethically?

a) Since Henry did not give Sophie a printout of Trevor’s account, he has acted ethically.
b) Since he did not receive any direct or indirect compensation, Henry’s actions are ethical.
c) Henry has acted unethically by reviewing an account for a client of his company for whom he is not the dealing representative.
d) Since it is common practice at the mutual fund dealer to access client accounts, Henry’s actions are considered ethical.

Answer 20

c) Henry has acted unethically by reviewing an account for a client of his company for whom he is not the dealing representative.

Question 21

What does CSA stand for?

Answer 21

Canadian Securities Administrators

Question 22

Which of the regulatory bodies discussed in chapter 1 DOES NOT regulate the mutual fund and securities industry?

a)	OSFI
b)	CSA
c)	MFDA
d)	AMF

Answer 22

a) OSFI

Question 23

List two types of transactions that you as a registered representative must report to FINTRAC

Answer 23

• Cash transactions of $10,000 or more
• Suspicious transactions

Question 24

What does IIROC stand for and what does this organization do?

Answer 24

IIROC - Investment Industry Regulatory Organization of Canada

The mandate of this organization is to protect the investing public by working with provincial securities commissions to police the activities of their members.

Question 25

Which of the following pieces of identification would not be acceptable as proof of identity?

a)	The client's Birth certificate
b)	The client's Ontario Health Card
c)	The client's Ontario driver's license
d)	The client's Belgian passport

Answer 25

b) The client’s Ontario Health Card

Question 26

Which of the following National Instruments deals with minimum standards of conduct for mutual fund sales representatives

a)	NI 81-101
b)	NI 81-102
c)	NI 31-101
d)	NI 81-105

Answer 26

d) NI 81-105

Question 27

Which of the following National Instruments deals with how often mutual funds must make their financial statements available to their investors

a)	NI 81-101
b)	NI 81-105
c)	NI 81-102
d)	NI 81-107

Answer 27

c) NI 81-102

Question 28

Education is one of IIROC’s principal activities

a)	True
b)	False

Answer 28

a) True

Question 29

Records maintained by financial institutions must be kept in such a way that they can be provided to FINTRAC within _____________ days of the request to examine them.

Answer 29

30

Question 30

An employee’s name, title, business address, and/ or telephone number are considered personal information that must be protected according to the rules of PIPEDA

a)	True
b)	False

Answer 30

b) False

Question 31

One of the main duties of the Provincial Securities Commissions is disclosure. What does this refer to?

Answer 31

Making sure that all information investors need is provided to them

Question 32

The Ombudsman for Banking Services and Investments can settle disputes up to what dollar amount?

Answer 32

$350,000

Question 33

Which of the following is not a principal activity of IIROC?

a)	Representing public policy
b)	Publishing statistical information
c)	liaising with other financial institutions
d)	Managing the provincial securities commission

Answer 33

d) Managing the provincial securities commission

Question 34

Which of the following organizations is responsible to register individuals and firms selling securities in a province?

a)	MFDA
b)	IIROC
c)	Provincial Commission
d)	CSA

Answer 34

c) Provincial Commission

Question 35

As a Canadian citizen you have provided The Canadian Revenue agency with personal information that they must keep confidential by law. Which legislation guides their conduct in this regard?

a)	PIPEDA
b)	Privacy Act

Answer 35

b) Privacy Act

Question 36

Jonathan is a new registered mutual fund representative. He has been advised by his manager that his written communications with clients must adhere to certain guidelines. Which of the national instruments would this rule fall under?

a)	NI 31-103
b)	NI 81-101
c)	NI 81-102
d)	NI 81-105

Answer 36

d) NI 81-105

Question 37

Susan has provided her childcare provider with her date of birth, SIN, age and other pieces of personal information. Which legislation governs how the company deals with her information?

Answer 37

PIPEDA

Question 38

Name the three types of transactions that must be reported by IAs:

Answer 38

1) suspicious transactions

2) Large financial transactions (>$10,000)

3) Transactions involving terrorist property

Question 39

Which of the following documents is NOT detailed in NI 81-101?

a)	The Annual Information Form
b)	The Purchase Confirmation Form
c)	The Simplified Prospectus
d)	The Fund Facts Document

Answer 39

b) The Purchase Confirmation Form

Question 40

What does PIPEDA stand for?

Answer 40

Personal Information Protection and Electronic Documents Act

Question 41

What document is used to ensure investors have all pertinent details on the funds they are buying?

Answer 41

Simplified Prospectus

Question 42

Which national instrument deals with mutual fund operations?

a)	81-101
b)	31-101
c)	81-102
d)	81-105

Answer 42

c) 81-102

Question 43

What does PCMLTFA stand for?

Answer 43

Proceed of Crime (Money Laundering) and Terrorist Financing Act

Question 44

The provinces have their own Privacy Acts in addition to PIPEDA and the Privacy Act

a)	True
b)	False

Answer 44

b) False

Question 45

Marjorie works as a trainer at Good Life Fitness. Recently when she was chatting with her friend Sonya, she let slip that an acquaintance of theirs who attends the gym weighs over 200lb! Has Marjorie broken the privacy rules put in place by PIPEDA?

a)	She sure has!
b)	Nope. Weight is not private information

Answer 45

a) She sure has!

Question 46

Which recently introduced legislation attempts to protect consumers from receiving unwanted email solicitations?

Answer 46

The Electronic Commerce Protection Act

Question 47

Large cash transactions that must be reported to FINTRAC are any transaction of greater than ____________________

$10,000

$1000

$1,000,000

$100,000

Answer 47

$10,000

Question 48

MFDA IPC coverage only extends to accounts held in ____________________ name

Trustee

Fund Company

Nominee

Client

Answer 48

Nominee

Question 49

The MFDA regulates the operations, standards of practice, and business conduct of its members. Which of the following is not included in MFDA rules and requirements?

a) Marketing material on hand for client review

b) Suitability and trade review of client transactions

c) Capital requirements for the firm

d) Client reporting required to be sent and kept on file for clients

Answer 49

a) Marketing material on hand for client review

Question 50

Which of the following will be considered a politically exposed foreign person for FINTRAC reporting purposes?

a) The French ambassador to Canada

b) The sister of the District Attorney for New York City

c) The CEO of a Russian arms manufacturer

d) The leader of the National Front Party in Libya

Answer 50

a) The French ambassador to Canada

CEO is only considered a politically exposed foreign person if the arms manufacturer he works for is state owned.

The leader of the National Front party would only qualify if the party is part of the legislature or is the head of state of a government

Question 51

Which of the national instruments deals with mutual fund sales practices?

81-101

81-105

31-101

81-102

Answer 51

81-105

Question 52

Which of the following bodies oversees only the distribution side of the industry?

IIROC

MFDA

FINTRAC

CSA

Answer 52

MFDA

Question 53

Which of the following is NOT one of the CSA’s mandates?

To foster fair and efficient capital markets

To reduce risks to the market’s integrity and to investor confidence in the markets.

To protect investor portfolios from excessive losses over time

To protect investors from unfair, improper and fraudulent practices

Answer 53

To protect investor portfolios from excessive losses over time

Question 54

London Life (An insurance company in Canada) would be regulated by which of the following bodies?

OBSI

OSFI

CSA

IIROC

Answer 54

OSFI

Question 55

The maximum total amount of MFDA IPC protection an individual can receive is__________________

$100,000

$200,000

$2,000,000

$1,000,000

Answer 55

$2,000,000

General Accounts $1,000,000

Registered Accounts $1,000,000

Question 56

Which of the following bodies is a forum for the provincial regulatory bodies who co-ordinate and harmonize securities law by passing national instruments.

CSA

MFDA

IIROC

FINTRAC

Answer 56

CSA

Question 57

Which of the following is / are responsibilities of the Provincial Securities Commissions?

I. Investigating investor complaints
II. Registering portfolio managers
III. Protecting the rights and interests of policy holders, pension plan members, and creditors of financial institutions.
IV. Reviewing mutual fund simplified prospectuses before they are offered for sale to the public

I, II, III, and IV

I, II, and IV

I and IV only

I and III only

Answer 57

I, II, and IV

Question 58

The OBSI is a regulator dealing with clients and investment firms throughout Canada.

True

False

Answer 58

False

Question 59

FINTRAC stands for:

a) Finance Trading and Reporting Administration of Canada

b) Financial Trading and Reporting Analysis Corporation

c) Financial Transactions and Reports Analysis Center of Canada

d) Finance Tracking, Reporting, and Analysis Center

Answer 59

c) Financial Transactions and Reports Analysis Center of Canada

Question 60

Match the National Instrument to the main focus of the instrument

__4__
Registration

__3__
Sales Practices

__1__
Disclosure

__2__
Mutual Fund Operation

1. NI 81-101
2. NI 81-102
3. NI 81-105
4. NI 31-103

Question 61

To whom does the CCO submit their annual report on compliance assessment within the dealer firm?

a) The CEO

b) The UDP

c) The Board of Directors

d) The MFDA

Answer 61

c) The Board of Directors

Question 62

Stanley is a new Registered Rep with Sunshine Financial. He has just completed a meeting with his new client Eloise Sharp. During the meeting, Stanley advised Eloise that it appears the HGF Equity fund she has been investing in for the past 3 years has been under-performing. He recommended that she switch to the KJH Equity fund that has had superior results. He told Eloise that the KJH fund’s returns have been substantially better enough that if they continue on in the same way in the future it will more than make up for the front end load charge she’ll pay to buy into the fund. Eloise agreed and signed a form for Stanley to process tomorrow when the market opens. Which of the following mistakes has Stanley made?

a) Stanley had Eloise pre-sign a form. This is not allowed.

b) Stanley Made predictions about the future return on the fund that could be misleading to the client.

c) Stanley has engaged in excessive trading because he recommended a trade from one equity fund to another

d) None. Everything that Stanley did was fine.

Answer 62

d) None. Everything that Stanley did was fine.

The form was signed at the time of the transaction, Stanley made no predictions , he said “if”, and there was benefit to the client so, Stanley did nothing wrong.

Question 63

A dealing representative can accept monetary or non-monetary gifts from clients as long as those gifts have been approved by their dealer.

a) True
b) False

Answer 63

a) True

The dealer will only be able to approve the gifts if they are of a nominal value

Question 64

Which of the following is NOT part of the client Relationship Model?

a) Advising clients how you will be paid for your services

b) Advising clients that statements will be mailed quarterly

c) Advising clients to whom cheques should be made out when paying for services

d) Obtaining all pertinent details regarding your clients finances, personal situation, and goals.

Answer 64

d) Obtaining all pertinent details regarding your clients finances, personal situation, and goals.

Obtaining all pertinent details is part of the KYC requirement (Know Your Client) but not part of CRM (Client Relationship Management)

Question 65

It has been determined by the compliance department of Hala’s mutual fund dealer that she has engaged in “churning”. While reviewing the trade in question, the department has determined that while the trade was not necessary, it was suitable to the client’s risk tolerance. What remedy is likely to be required of Hala?

a) Hala will pay a fine to the dealer and 50% of the fine will be paid to the client for their trouble.

b) Hala will be required to reverse the transaction and pay the client and fees and losses incurred

c) Hala will have to pay a fine to the company and will be relieved of her registration.

d) Hala’s trade will be left in place but she will be required to pay any associated fees to the client

Answer 65

b) Hala will be required to reverse the transaction and pay the client and fees and losses incurred

Updated: The appropriate remedy is to allow the trade to remain since it was suitable but for Hala to pay the fees since it was unnecessary. This however has been removed from the text so students couldn’t be expected to know this answer.

Question 66

Which of the following dealing representatives is in a conflict of interest situation?

a) Abilgail who acts as her client Marie’s POA

b) Johnny who refers clients needing legal advice to his friend Marty who works for ACME legal services who has a referral arrangement through Marty’s dealer.

c) Erin whose husband works for a competing brokerage firm

d) Dylan who has his life insurance license and sells insurance to his clients through his dealer.

Answer 66

a) Abilgail who acts as her client Marie’s POA

Abilgail is in a conflict of interest situation because as the POA for her client, she would be both client and registered rep in every transaction.

Even if the client were her Mother, father or sibling, she would have to have another rep be their adviser to avoid this conflict.

Question 67

Melissa Johnson is a registered rep with Investor’s Group. As such she is self-employed but registered through IG. Because Melissa came to IG after having had a successful career as a legal secretary with Cox Palmetto Law Group, she has a ton of contacts in the legal services field. She has begun to notice that many of her clients need legal services when it comes to their estate planning. Melissa has discussed setting up a referral arrangement with Cox Palmetto and has discussed it with IG. Today her friend Marty has presented her with a money order for her first referral fee. She’s going to buy some wine and a new pair of shoes with that cheque to celebrate! Which statement below is correct?

a) This transaction is outside of allowed activity because the fee paid must be paid to the dealer not to Melissa.

b) In order for this transaction to be allowed, Melissa must share the referral fee with the dealer

c) As long as Melissa notified her clients in writing of the arrangement, this arrangement is within the bounds of MFDA regulations because it has been approved by Melissa’s dealer.

Answer 67

a) This transaction is outside of allowed activity because the fee paid must be paid to the dealer not to Melissa.

Any referral fees paid MUST be funneled through the reps dealer.

Question 68

Phillipe is unclear about Mutual Fund Dealers Association (MFDA) rules regarding client communications, and seeks your help. Which of the following statements about MFDA client communication rules is CORRECT?

a) MFDA rules regarding client communications refer to either written or verbal communication.

b) MFDA rules regarding client communications refer to written communication.

c) Verbal communication to clients must be documented by the dealing representative.

d) Trade communications and account statements are included in the list of sales communications.

Answer 68

b) MFDA rules regarding client communications refer to written communication.

Question 69

Which of the following statements about excessive trading is correct?

a) It is the charging of huge fees to clients while executing few trades and giving little advice.

b) It is a practice that is permitted by the Mutual Fund Dealers Association (MFDA) but only for high net worth clients.

c) It is an acceptable sales practice for commission-based accounts.

d) It is a practice that provides little economic benefit to the client and only benefits the representative.

Answer 69

d) It is a practice that provides little economic benefit to the client and only benefits the representative.

Question 70

Which of the following are duties of the CCO?

I) Setting up internal policies for the dealer

II) Conducting Audits of the dealer’s employees

III) Providing an annual report to the Board of Directors

IV) Managing the dealer’s account where all fines for wrong-doing are placed.

a) I,II, and III only

b) I, II, III, and IV

c) I, II, and IV only

d) I and II only

Answer 70

a) I,II, and III only

The CCO is not involved in fines and enforcement. This would be done by the commission or the MFDA. Also, the CCO isn’t involved in the administration of any of the dealer’s accounts. Their job is solely to prevent dealing reps from acting outside of internal and external rules,

Question 71

As a Dealing Representative, you must be registered in every location your clients reside. There is however an exemption that lets you service clients in a jurisdiction where you are not registered as long as your dealer is registered in their province and you have fewer than ____________ clients in that jurisdiction.

a) 50

b) 25

c) 5

d) 10

Answer 71

c) 5

Question 72

Which statement below about registration to sell mutual funds is FALSE?

a) The regulatory authority must be advised if you change your name.

b) In New Brunswick you must complete a training course within 90- days of your registration

c) If you leave one employer for another your registration will be suspended

d) Registration through NRD will allow you to sell mutual funds in all provinces in Canada.

Answer 72

d) Registration through NRD will allow you to sell mutual funds in all provinces in Canada.

Registration through the NRD will allow you to sell mutual funds only in the province or provinces in which you are registered.

Question 73

Which of the following is NOT included in the compliance regime of a mutual fund dealer?

a) Compliance policies

b) Oversight of punishments for wrong-doing.

c) Risk management

d) Compliance training

Answer 73

b) Oversight of punishments for wrong-doing.

The goal of the compliance regime, is to prevent wrongdoing by a rep. Enforcement of the rules is the job of the commissions and the MFDA

Question 74

Which of the following is NOT a best practice recommended for dealer reps?

a) Keep up to date on industry changes

b) Avoid conflicts of interest that could be perceived to affect your judgement

c) Understand the client’s financial circumstances

d) Attempt to distinguish fact from comment when possible regarding recommendations to your client.

Answer 74

d) Attempt to distinguish fact from comment when possible regarding recommendations to your client.

The correct wording to make this statement a best practice is that you must “CLEARLY” distinguish between…..

Question 75

Which of the following documents IS considered a sales communication?

a) The Financial Statements

b) A newspaper advertisement

c) The prospectus

d) The Annual Information Form

Answer 75

b) A newspaper advertisement

The prospectus, the AIF, and the Financial Statements are legal documents used to disclose information about the fund and/or the fund provider but they are not sales communications.

Question 76

Alexander has been dealing with the Patel’s as his client s for 10 years. Recently Sylvie and Kumar Patel have decided to divorce. The divorce is not a friendly one and the Patels are both asking Alexander for information on the other’s accounts. Can Alexander remain as the advisor to both Sylvie and Kumar?

a) No. He must assign one of the clients to another advisor to avoid a conflict of interest.

b) Yes he can but he must ensure that he provides each client with only the information on accounts on which they are signed.

c) Yes he can but he must obtain written authorization from each client.

Answer 76

b) Yes he can but he must ensure that he provides each client with only the information on accounts on which they are signed.

Pg. 31 of the text lists “protecting confidentiality of client information” as a best practice.

Question 77

Sean is a financial advisor employed by XYZ Investments (His dealer), but he markets himself under the registered trade name Bull Market Financial Services. He just had the following business card drawn up. Which statement below is correct?

Bull Market Investment Services
Sean Holder
Dealer Representative
XYZ Investments

a) This business card is not acceptable because Bull market Financial Services is a legal name and cannot be a trade name.

b) This business card is fine as long as the dealer and MFDA approve it.

c) This business card is not acceptable because Sean can’t advertise that he is a dealing representative

d) This business card is not acceptable because Sean can’t operate under any name other than the dealer he represents

Answer 77

b) This business card is fine as long as the dealer and MFDA approve it.

The card uses the trade name “Bull Market Financial Services” which is ok as long as it is not a legal name (it’s not as it’s not a LTD or INC), and it is approved for use by his dealer and the MFDA. (pg 70 text)

Using dealing rep as his title is fine.

Question 78

Wilson Holder is a retired client. He has been dealing with his representative for 20 years and trusts him implicitly. Wilson winters in Spain and as such it is often hard for his dealing representative to reach him when he wants to suggest a purchase or sale of funds. Since they have encountered this problem in the past, Wilson has signed a Limited Authorization form for his account. On Monday Wilson’s rep could not reach him, so he went ahead with a fund sale that he knew Wilson would have wanted him to do. Would this be considered discretionary trading?

a) Yes

b) No

Answer 78

a) Yes

This would be considered discretionary trading because the rep processed the trade without getting instructions from the client by phone, email, etc.

Question 79

Which of the following situations would be allowed regarding outside business activities of a dealer rep, and would therefore likely be approved by the rep’s dealer?

a) All of TriStar Mutual Fund referral agreements are with CIBC. Stephanie is a new rep with TriStar and has begun to refer her clients requiring mortgages to her friend Jessica who works for TD Bank since TriStar does not offer mortgages.

b) Ethan represents Caribe Mutual funds but has an opportunity to sell the recognized security, Principal Protected Notes for NB Securities. He figures since Caribe doesn’t offer these it will be a source of additional diversification for his clients.

c) Sarina is a registered rep with Topflight Mutual Funds in Manitoba. She has recently entered into an arrangement with Manitoba investments to sell their GICs since Topflight does not sell GICs and GICs are not considered securities under Manitoba law

Answer 79

c) Sarina is a registered rep with Topflight Mutual Funds in Manitoba. She has recently entered into an arrangement with Manitoba investments to sell their GICs since Topflight does not sell GICs and GICs are not considered securities under Manitoba law

This is outside of the dealing reps dealer’s referral; arrangements so it is not allowed.

Question 80

With which organization(s) must mutual fund dealers operating outside of Quebec register?

a) Canadian Securities Administrators (CSA)

b) Investment Industry Regulatory Organization of Canada (IIROC)

c) Mutual Fund Dealers Association (MFDA)

d) Office of the Superintendent of Financial Institutions Canada (OSFI)

Answer 80

c) Mutual Fund Dealers Association (MFDA)

Question 81

Which organization operates the Investor Protection Corporation (IPC)?

a) Canadian Securities Administrators (CSA)

b) Investment Industry Regulatory Organization of Canada (IIROC)

c) Mutual Fund Dealers Association (MFDA )

d) Office of the Superintendent of Financial Institutions Canada (OSFI)

Answer 81

c) Mutual Fund Dealers Association (MFDA )

Question 82

A client has arrived in your branch to open an account. You learn that she is a recent arrival to Canada from Switzerland and that her mother was a judge before retiring last year.

Should you identify this client as a politically exposed foreign person?

a) True

b) False

Answer 82

a) True

Question 83

Eleanor is a dealing representative with XYZ Financial. In a recent review, her branch manager suggested that she should do a better job in prospecting and attracting new clients. Eleanor has decided to devote 45 minutes each day to prospecting for new clients.

Going over her contact list, Eleanor notices the names of several former clients that she had at per previous dealer which she left two years ago. She decided that they would be good people to contact to see if she can win their business again. Eleanor begins calling her former clients.

Is this appropriate?

a) Yes

b) No

Answer 83

b) No

Question 84

Continuing with her prospecting activities, Eleanor decides to cold-call individuals who may be interested in her services. She checks to make sure that each person she calls is not listed on the national DNCL and her firm’s own do not call list.
Is this appropriate?

a) True

b) False

Answer 84

a) True

Question 85

Jennifer has a married couple as her clients. They are going through a divorce. Both spouses ask Jennifer probing questions about the other partner’s financial dealings in accounts that are not joint name accounts. In her eagerness to retain the business of both her clients, she would like to disclose information to both the spouses.
Which course of action would be the most appropriate?

a) As long as Jennifer is disclosing information to both spouses there are no ethical issues involved.

b) Jennifer should not discuss dealings of one spouse with the other, without express consent from the account holder. Ideally, Jennifer should manage the account of only one spouse, and refer the other person to a different dealing representative.

c) Jennifer could distort the information to both the spouses and thereby maintain confidentiality of client information.

d) Jennifer should choose to disclose the information to the spouse that is most likely to keep her as a dealing representative.

Answer 85

b) Jennifer should not discuss dealings of one spouse with the other, without express consent from the account holder. Ideally, Jennifer should manage the account of only one spouse, and refer the other person to a different dealing representative.

Question 86

Which of the following actions are examples of good business practices?

a) Do not disagree with the client. The client is always right.

b) In an ethical dilemma between your client’s and your employer’s interests, you will choose your employer’s interests first.

c) Treat the client fairly, honestly, and in good faith.

d) You make handwritten notes of all your meetings and throw them away after the meeting.

Answer 86

c) Treat the client fairly, honestly, and in good faith.

Question 87

John, a dealing representative, wants to trade foreign currencies on behalf of clients as an after-office part-time activity. The Policy and Procedures Manual does not have any reference to the activity.
What should John do?

a) John can sign up for his currency trading account as it is after-office hours activity

b) John should get the activity cleared with his Compliance Department

c) John can undertake this activity in his wife’s name

d) John can undertake the activity and feign ignorance when questioned

Answer 87

b) John should get the activity cleared with his Compliance Department

Question 88

Which of the following dealing representatives are in a conflict of interest situation?

a) Jonathan, who is named and agrees to act as an executor in the estate of his non-family member client

b) Thomas, who signs a referral arrangement through his mutual fund dealer to refer clients with insurance needs to his friend James.

c) Eric, whose wife works with a competitor mutual fund dealer.

d) Sabrina, who has just passed LLQP and would be applying for a license as a life insurance agent

Answer 88

a) Jonathan, who is named and agrees to act as an executor in the estate of his non-family member client

Question 89

A conflict of interest exists when there is a ______________ that could influence the type of advice and service to the client.

a) financial interest

b) disagreement

c) disconnect

d) distortion

Answer 89

a) financial interest

Question 90

Under MFDA Rules you have the duty to disclose which of the following?

a) outside business activities

b) educational background

c) marital status

d) how you are fulfilling your continuing education requirements

Answer 90

a) outside business activities

Under the MFDA Rules, you are required to disclose the following:

• conflict of interest
• referral arrangements
• dual occupation
• leveraging risks
• complaint procedures
• outside business activities

Question 91

Christian is a dealing representative with ABC Investments Inc. He has recently been elected to serve as the Treasurer of his church. The church is a client of ABC Investments Inc. and Christian is the designated dealing representative for the account.
Is Christian required to inform his employer as the position is a voluntary position?

a) Yes

b) No

Answer 91

a) Yes

Question 92

Peter, a dealing representative has referral arrangements with a mortgage broking firm where his wife is an employee. He refers one of his clients Jeremy to the mortgage broking firm and he receives a fee for doing so. He does not think it is necessary to inform the client nor his employer as the referral is not in conflict with his duties as a dealing representative.
Which one of the following statements is TRUE?

a) There is no regulatory breach as the dealing representative has only helped his client locate an excellent broker.

b) There is no regulatory breach as the referral is for a business not carried on by his employer.

c) There is no potential conflict of interest in referring the client to the mortgage broking firm.

d) There is a regulatory breach as there is no referral agreement in place between the mutual fund dealer and the mortgage broker.

Answer 92

d) There is a regulatory breach as there is no referral agreement in place between the mutual fund dealer and the mortgage broker.

Question 93

Scott is a recently licensed dealing representative. One of his clients is going overseas on a three month vacation and gave Scott a Limited Authorization Form (LAF), duly completed and signed by the client.

With the LAF on file:

a) Scott’s authority to accept specific instruction from his client without obtaining a signature is only limited to renewals and does not extend to redemptions or purchases.

b) Scott’s authority to accept specific instruction from his client without obtaining a signature is limited for up to 3 months.

c) Scott’s authority to accept specific instruction from his client without obtaining a signature will not be valid unless it is registered with the applicable Securities Regulator.

d) None of the above.

Answer 93

d) None of the above.

While the LAF is not subject to the conditions noted in a, b & c, it is important to understand that the LAF does not confer any trading authority on the dealing representative. According to Securities Regulators and MFDA Regulations, dealing representatives do not have discretionary trading authority and must receive specific instructions from the client.

Question 94

When can you begin selling mutual funds?

a) when you become an employee or principal agent of the mutual fund dealer

b) when you file an application with the provincial securities regulators through the NRD

c) when you receive confirmation that you passed the CIFC

d) when you receive confirmation from the Securities Regulators via the Registration Department of your mutual fund dealer

Answer 94

d) when you receive confirmation from the Securities Regulators via the Registration Department of your mutual fund dealer

Question 95

How often must you renew your registration?

a) every year

b) every two years

c) every three years

d) there is no requirement to renew your registration but registration fees must be paid each year

Answer 95

d) there is no requirement to renew your registration but registration fees must be paid each year

Question 96

Gilles and Marielle Lachette are the lucky winners of the latest home lottery sponsored by their local children’s hospital. The Lachettes sold their prize and received $500,000 in cash. They have come to you for advice. They want to take this money and use it to retire early. What do tell them?
a) Ask them to sign the forms so you can invest their money right away and that you will complete the information later.
b) Let them know that you will be asking them a series of questions to learn about their situation so that you can recommend an investment strategy that will meet their needs.
c) Tell them that you will ask them a series of questions related to an investment product you sell to see if they qualify to invest.
d) Start off the conversation by assuring them that they can definitely retire early with this money.

Answer 96

b) Let them know that you will be asking them a series of questions to learn about their situation so that you can recommend an investment strategy that will meet their needs.

Question 97

You have a new client, Daniel Frost. During your meeting, the topic of risk comes up in your conversations. Daniel is quite adventurous in his personal life and feels that he is a risk taker. Which of the following actions would be appropriate?
a) Since Daniel is a risk taker in other aspects of his life, you should assume he is comfortable with a high risk portfolio.
b) In your experience, clients always say they are high risk until they lose money so you always put them as low risk on their know your client (KYC) forms.
c) You should explain to Daniel that risk is about his ability to withstand financial losses not just about his attitude.
d) You should inform Daniel that you will take his adventurous lifestyle into consideration but you are the professional and will determine what his risk level will be.

Answer 97

c) You should explain to Daniel that risk is about his ability to withstand financial losses not just about his attitude.

Question 98

Which of the following statements about leverage is TRUE?
a) If a client has been approved by a bank for a loan it means leverage is a suitable strategy for him or her.
b) Leverage will magnify gains and losses.
c) Leverage is permitted by MFDA rules only for high net worth individuals.
d) If the investment does not perform, the client does not have to pay back the loan.

Answer 98

b) Leverage will magnify gains and losses.

Question 99

You have a meeting with Max, a prospective new client. Max is very busy and can give you only half an hour for the meeting. When you attempt to ask questions required by the KYC rule, Max becomes impatient and asks you to stop wasting his time and tell him which mutual funds are winners.
What should you do?

a) Tell Max your five winners.
b) Insist on obtaining Know Your Client (KYC) information and let Max know that you cannot make a recommendation without the requested information.
c) Complete the application with the information you already have and make a quick recommendation.
d) Walk away from the meeting.

Answer 99

b) Insist on obtaining Know Your Client (KYC) information and let Max know that you cannot make a recommendation without the requested information.

Question 100

Under the Know Your Client rule, which of the items listed below is not essential to obtain from your client?
a) tolerance for risk
b) investment objectives
c) investment knowledge and experience
d) educational background

Answer 100

d) educational background

Question 101

Which of the following regarding know your product (KYP) is TRUE?
a) You have failed in your KYP duties because you do not know enough about this new product to make a recommendation.
b) You have failed in your KYP duties because this new product is inappropriate for investors with moderate-to-low risk profiles.
c) You have satisfied your KYP duties because your dealer has already performed due diligence on these new products.
d) You have satisfied your KYP duties because you have matched a risk profile on the information sheet to that of your client.

Answer 101

a) You have failed in your KYP duties because you do not know enough about this new product to make a recommendation.

Question 102

Your client wants to take advantage of a period of low interest rates and make an investment using borrowed funds. Which of the following statements about leverage is TRUE?
a) Clients will always be able to use returns on their investment to pay the interest on their loans.
b) Due to interest payments, if an investment falls in value, someone using leverage will suffer a greater loss than someone who does not.
c) Using leverage is always a good idea since interest payments are tax deductible.
d) When interest rates are low, leverage is a suitable strategy for every client.

Answer 102

b) Due to interest payments, if an investment falls in value, someone using leverage will suffer a greater loss than someone who does not.

Question 103

Your client, Roderick, likes to call you up and request transactions that you feel are unsuitable for him. What should you do?
a) Put through the order without question. Roderick is responsible for his own mistakes.
b) Put through the order because unsolicited trades do not require you to do a suitability assessment.
c) Inform Roderick that you believe the investment is unsuitable and then check with your compliance department on whether you can refuse the trade.
d) Tell Roderick you will refuse the order but do not explain why since he can use this information against you

Answer 103

c) Inform Roderick that you believe the investment is unsuitable and then check with your compliance department on whether you can refuse the trade.

Question 104

What step in the Strategic Investment Planning Process involves changing and evolving the investment plan over time?
a) clarifying the client’s status, problems and opportunities
b) identifying strategies and presenting the plan
c) implementing the plan
d) monitoring performance and updating the plan

Answer 104

d) monitoring performance and updating the plan

Question 105

Lou Romano, a financial planner, meets with his client, Reena Shah. Reena and Lou have already determined her investment objectives and gathered her financial data. Reena likes to read the business news and is eager to invest in the latest investment trend. She likes to call Lou with these ideas, but he is hesitant to endorse any investments that require a great deal of risk since Reena is an impatient investor. Where are Lou and Reena in the investment planning process?
a) gathering client data and identifying objectives
b) clarifying the client’s status, problems and opportunities
c) identifying strategies and presenting the plan
d) implementing the plan

Answer 105

b) clarifying the client’s status, problems and opportunities

Question 106

Which of the following clients is NOT a client for whom age will impact how you proceed with the client?

a) Sabrina aged 72 who is requesting some changes to the funds in her RRSP account

b) Curtis aged 17 who is purchasing his first mutual fund and has chosen a money market fund

c) Barbara aged 58 who wants to increase the funds invested in her existing Equity fund.

Answer 106

c) Barbara aged 58 who wants to increase the funds invested in her existing Equity fund.

Question 107

A temporary hold must be put in place for any transaction where the dealer has reasonable grounds to be concerned that the client may be in a vulnerable position (ie; unable to make decisions, or at risk of being exploited financially)

a) True

b) False

Answer 107

b) False

It is recommended and allowed but not mandatory as there is no safe harbour regulation to protect the dealer form client complaints regarding losses due to the hold.

Question 108

You can never proceed with an account opening without a completed NCAF (NAAF)

a) True
b) False

Answer 108

a) True

The text states that the NAAF MUST be completed for each new client account.

The text also states “ the account cannot be opened without the information required” - Pg. 85 - bottom of the page.

Question 109

Aidan is a 56 year old school teacher who is planning to retire in the next 4 years. He has his investments divided up for several purposes. Today he is discussing with you the investment account that he has in place for a vehicle purchase. He thinks that as soon as he retires he should buy a new car which will then do him for probably the next 9 or 10 years. He has $30,000 now and thinks that $32,000 should get him what he wants. Which of the following product would be the best recommendation for Aidan’s investment?

a) An equity fund

b) A money market fund with a deferred sales fee schedule that reduces each year for the first 5 years

c) A 4 year 3% GIC

d) A 7% 5 year GIC

Answer 109

c) A 4 year 3% GIC

Aidan’s time horizon is in the next 4 years (he is retiring in 4 years and will buy the car then). Therefore his investment must be available then. An equity fund may be down on value when the funds are needed so is not acceptable, The money market fund has a back-end load until the 5th year so there would be a charge to remove the money before then, and a 5 year GIC will be locked in for a year before the funds are needed.

So, even though the equity fund and the 5 year GIC have higher returns (possible in the Equity fund but not guaranteed), the 4 year GIC is most applicable.

Question 110

Which of the following is NOT included in the client engagement letter?

a) Duties and responsibilities of the dealing representative

b) The level of service to be provided to the client

c) Fees the client will pay for the dealer’s services

d) The investments to be provided to the client.

Answer 110

d) The investments to be provided to the client.

Question 111

In which of the following stages of the Strategic Investment Planning process is the New Account Application Form (NAAF) completed for the client?

a) Establish Client Engagement

b) Identify Strategies and Present the Plan

c) Gather Data and Identify Objectives

d) Clarify Status , Problems, and Opportunities

Answer 111

a) Establish Client Engagement

Question 112

Which if the following is NOT one of the “most fundamental and important duties of every dealing representative” ?

a) KYC

b) KYP

c) Suitability

d) Due Diligence

Answer 112

d) Due Diligence

Question 113

You’re excited to start working with your new client, 27 year old Sebastian, and he seems almost as excited as you are! You’re his first financial advisor and Sebastian has all sorts of hopes and dreams that he’s been sharing with you in your initial meeting. It’s hard not to get swept away by Sebastian’s enthusiasm as tells you about his plan to retire by 55, travel every five years (starting in 5 year’s time) to Africa for 1 month where he’ll work with impoverished villages building schools and homes, and save for a house down-payment so he can buy a house with his fiancé in 2 years’ time.
He’ll need to accumulate $25,000 for the house down-payment and $10,000 every 5 years for his travel plans. He has $10,000 to start the account off with today. What is Sebastian’s time horizon?

a) 28 years

b) 2 years

c) 1 year

d) 5 years

Answer 113

b) 2 years

Time Horizon = Time frame before the first need to access funds. For Sebastian, this is in 2 years when he and his fiancé plan to buy a house and will need the down payment.

Question 114

Diya has been working with her client for many years. She knows that her client has a moderate risk tolerance. The client has just asked Diya to move some of her funds from the money market account they are in, into a higher risk equity fund. As long as Diya explains the increased risk to her client and ensures that her client understands the risk, she will be ok to proceed with the transaction assuming Diya has found the fund to be suitable for her client

a) True

b) False

Answer 114

a) True

Diya’s risk tolerance is moderate so the inclusion of some equity funds is reasonable in her portfolio.

Question 115

Your client Imelda has approached you with an investment plan she would like to put in place. She has been watching gas prices fall sharply over the past 6 months. She feels very strongly that they will climb again. She wants to borrow money to invest in Oil futures. If she takes the long position in the future and she’s right, she could make a lot of money. You have been dealing with Imelda for many years and you know that she has a high risk tolerance, a low net worth, and a long investment horizon. Which of the following statements best describes what you should do?

a) Because leverage is involved you must prepare a detailed Net worth statement and then you can proceed.

b) Given her high risk tolerance, the trade is acceptable and can be processed

c) Since its Imelda’s idea, you don’t have to perform due diligence, you can go ahead and put the plan in motion

d) Given her low net worth, Imelda can’t withstand the potential loss from this transaction so you have an obligation to discourage her from making it.

Answer 115

d) Given her low net worth, Imelda can’t withstand the potential loss from this transaction so you have an obligation to discourage her from making it.

It’s true that you will have to prepare an in depth net worth statement since Imelda wants to borrow but it is not a given that you can then proceed because this isn’t a suitable transaction for her given her low net worth. A loss on this strategy could be catastrophic for Imelda.

In addition, a high risk tolerance does not immediately mean all risky strategies are acceptable for the client. Risk tolerance includes BOTH the emotional tolerance and the funds on hand to allow a loss.

Finally, it is an unsolicited order (because it was Imelda’s idea) and these still must be judged for suitability.

Question 116

When a client refuses to provide the KYC information required, you may also have to report the transaction to ______________

a) CSA

b) MFDA

c) FINTRAC

d) IIROC

Answer 116

c) FINTRAC

Your firm’s Policies and Procedures Manual will likely provide guidelines for dealing with a client who refuses
to disclose KYC information to you. In some circumstances the client’s failure to provide you with required KYC
information may constitute an attempted suspicious transaction that must be reported to the Financial
Transactions and Analysis Centre of Canada (FINTRAC).

Question 117

Which of the following is NOT listed as a piece of information needed to satisfy the KYC requirement?

a) Health Status

b) Net Worth

c) Investment knowledge

d) # of dependents

Answer 117

a) Health Status

Could be good to know if it impacts objectives or other needs (liquidity) but is not one of the requirements listed in the text.

Question 118

The NAAF must be approved within ______ business day(s) of the first transaction.

Answer 118

one

The NCAF/KYC Form should be completed, signed, dated, and then reviewed and approved by your dealer.
The client should receive a signed copy of the NCAF/KYC Form for their records. Dealer approval by a
designated officer, partner, director, or Branch Manager should be completed no later than one business day
after the initial transaction in the account.

Question 119

If an order presented to you by a client is unsolicited and unsuitable you must reject the order.

a) True

b) False

Answer 119

b) False

“whether or not you can refuse a trade depends on your mutual fund dealer’s internal policy. Before you refuse an order for an unsuitable trade, review your dealer’s policy and procedures manual and check with your compliance department.”

Question 120

Marion has been a client with James Investments for several years. Her advisor has dealt with her often and knows her well. Marion, whose pension income in retirement is $85,000 per year, likes to keep a very close watch on her investments and comes in at least once per week to discuss them. she’s afraid of even slight drops in value. It’s a little annoying but with $600,000 invested, she’s a very good client so her advisor Denise is happy to indulge her. It’s probably common for older people to worry about their money a little more anyway.
Judging from what you know of the client, what would Marion’s investment goals likely be?
I) Preservation of capital
II) Income
III) Liquidity
IV) Tax Minimization

a) I only

b) II only

c) II and III

d) I and IV

Answer 120

d) I and IV

We know several things about Marion:

• She has a good income and does not indicate a need for more from her investments
• She has a solid Net worth.
• Despite these two things she is a nervous investor who is afraid to lose money

For these reasons, her investment goals are safety (because she is nervous about loss) and tax minimization (because she has a high income and net worth)

She doesn’t need income or liquidity because she has ample income .

Question 121

Once the letter of Engagement is signed between you and your client, it becomes a valid legal contract.

a) True

b) False

Answer 121

a) True

Question 122

Which of the following is a key objective of the KYC rule?

a) To ensure that a dealing representative has done sufficient due diligence on a client to enable the detection of fraud, money laundering or other illegal activity.

b) To ensure that an Ultimate Designated Person (UDP) has sufficient access to client personal and account information to property approve high-value transactions.

c) To ensure that a dealing representative has sufficient information about a client’s past investment history to help avoid making mistakes on future transactions.

d) To ensure that a mutual fund dealer has sufficient information about a client to enable it to carry out its suitability obligation.

Answer 122

d) To ensure that a mutual fund dealer has sufficient information about a client to enable it to carry out its suitability obligation.

Question 123

Which of the following individuals is NOT permitted to approve the NAAF for a new client?

a) Director

b) Partner

c) Branch Compliance Officer

d) Branch Manager

Answer 123

c) Branch Compliance Officer

The branch compliance officer is not specifically listed as one of those able to approve the NAAF on page 52 of the text. They would have to be identified as a designated officer in the branch.

Question 124

Andres is working with a new client. During their discussions Andres’ has noticed that his client’s monthly expenses far exceed her income. What step of the strategic Investment Planning process are Andres and his client in?

a) Gather Data and Identify Objectives

b) Establish Client Engagement

c) Clarify Status, Problems, and Opportunities

d) Monitor Performance

Answer 124

c) Clarify Status, Problems, and Opportunities

Andres has identified a problem that may impact the client’s ability to achieve their goals.

Question 125

As long as your dealer has placed a product on their list of generally suitable products, there is no need for you as a dealer representative to further assess suitability of the product for your client.

a) True

b) False

Answer 125

b) False

Due diligence must still be performed for every client transaction. Not all approved products are suitable for all clients.

Question 126

Which of the following are investment objectives?

I) Speculation
II) Income
III) Liquidity
IV) Capital Preservation (Safety)

a) I, II and IV

b) I, II, and III

c) I, IV, and III

d) II, III and IV

Answer 126

a) I, II and IV

Liquidity is a need that will direct specific investment choices but is not listed in the unit as an objective.

Question 127

Which of the following clients IS an example of a client for whom knowing his/her occupation, would impact the investment choices you recommend to him/her?

a) Jesse who works as a commission-based sales executive.

b) Martha who works part-time as a cashier at Walmart

c) Rajesh who works as a salaried department store manager

d) Roger who works three jobs in the education industry.

Answer 127

a) Jesse who works as a commission-based sales executive.

Jesse’s income is variable and can fluctuate widely. The other three have fairly stable levels of income from month to month.

Question 128

Bart is a new dealing representative. You have been asked to train and orient him. During the course Bart wants to know the key concept pertaining to Know Your Product (KYP).
Which of the following is the key concept?

a) It is essential that you know and understand the attributes and risks of the product.

b) It is sufficient to know the representations about the product made by the issuer.

c) It is sufficient to know that the product is on the approved list of the dealer firm.

d) It is essential to know that no product can be recommended unless it has been initially recommended by the securities commissions.

Answer 128

a) It is essential that you know and understand the attributes and risks of the product.

Question 129

You get a walk-in client, Jeff, who would like to invest $50,000. You proceed to obtain KYC information from him. He answers the first 3 general questions but later refuses to answer further questions. In his opinion, it is his money and he can do whatever he wanted without anyone telling him what to do.
As a dealing representative, what should you do?

a) Refer him to another dealing representative

b) Write notes as an attachment to the New Account Application Form of the client’s disinclination to furnish personal information

c) Refer to your Policies and Procedures Manual and follow the company policy

d) Receive the funds, open the account “subject to review”

Answer 129

c) Refer to your Policies and Procedures Manual and follow the company policy

Question 130

Which of the following dealing representatives performed the suitability process step 1 correctly?

a) Tom, who has just opened an account for his friend, Jim. He knows his friend and does not see the need to document much information about him.

b) Svetlana, who persisted in getting the KYC information from her potential client Steve, in spite of Steve’s reluctance to give her his personal information.

c) Jeremy, who told the client point blank that if he were not inclined to give him the KYC information, Jeremy would have no choice but to ask him to take his business elsewhere.

d) Shahid, who referred the “difficult client” to one of his of his colleagues.

Answer 130

b) Svetlana, who persisted in getting the KYC information from her potential client Steve, in spite of Steve’s reluctance to give her his personal information.

Question 131

What does Know Your Client information include? Check all the answers that apply. Press Submit to check your answer.

a) investment knowledge

b) educational qualifications

c) investment needs and objectives

d) risk tolerance

Answer 131

a) investment knowledge

c) investment needs and objectives

d) risk tolerance

Question 132

Robert is a 38 year old dentist, single, earning approximately $90,000 annually, with a net worth of $250,000. He is working
towards saving $500,000 within 5 years to buy a house and settle down. He is not investment savvy, and depends on you to achieve results.

Do you have all the required client information to make a suitable recommendation?

a) You have the required KYC information.

b) You have the required information to recommend a managed portfolio that has been found to be suitable for everyone so far.

c) You have omitted information about his risk tolerance.

d) You have omitted information about his investment needs and objectives.

Answer 132

c) You have omitted information about his risk tolerance.

Question 133

Which word pair below best completes the blanks in this sentence:

“Once registrants know the essential ____ about the client, investment and investment strategy, they are responsible for ensuring that the investment is _________ and aligned with the client’s investment needs.”

a) information / profitable

b) facts / suitable

c) details / insured

d) data / registered

Answer 133

b) facts / suitable

Question 134

One of your clients, Bob Jones is a lawyer, 27 years old and single. He earns $70,000 annually and has saved $30,000. He has been investing in equities for the past two years. Bob plans to use this money to start investing for retirement.

Bob does not plan to retire until age 65, and is not concerned about volatility since his job is stable and he does not need the money at this time . Bob reads the business section of the newspaper each morning and has a good understanding of financial markets.

In a recent newspaper article, Bob read about a new growth fund and its portfolio manager. He is interested in investing $5,000 in this mutual fund.

Are you required to do a KYC suitability review for unsolicited orders received from Bob?

a) Yes

b) No

Answer 134

a) Yes

Question 135

What are the three stages in ensuring the suitability of your recommendations to your client?

Answer 135

1) KYC - Know your client

2) KYP - Know your product

3) Assess the suitability of the trade

Question 136

What is due diligence?

Answer 136

Due diligence is performed when you do the research and ensure that you know everything you need to know about both the client and the product being recommended.

Question 137

What are the first 3 steps to the Strategic Investment Process?

Answer 137

Step1 : Establish the Client Engagement

Step 2: Gather Client Data and Identify Objectives

Step 3: Clarify Client Status, Problems and Opportunities

Question 138

Harold is meeting with his dealing representative to hear the suggestions she has for how Harold can accomplish his goal of retiring in 15 years. What stage of the Strategic Investment Planning Process are Harold and his advisor at?

Answer 138

Step 4: Identify Strategies and present the plan

Question 139

Sheldon is researching the tax implications of a Real Estate fund for his client before making the recommendation. What step of the Suitability Process is Sheldon in?

Answer 139

Step 2: KYP (Know Your Product)

Question 140

What should you do if a client refuses to give you all of the required KYC information?

Answer 140

Refuse the business

or

Contact your compliance department to see if they can help explain to the client why the information is necessary

Question 141

List 4 essential pieces of KYC information you must obtain from a client

Answer 141

Any 4 of :

Risk Tolerance

Investment Objectives

Time Horizon

Investment knowledge

Age

Net Worth

Income

Occupation

Question 142

What is a material change?

Answer 142

Any change to the client’s life situation that could impact their risk tolerance, needs, or goals.

Question 143

In what situation is more detail required on the client’s Net Worth?

Answer 143

When they are entering into a leveraged account

Question 144

Why is it important to know your client’s occupation?

Answer 144

Because some occupations by their nature have an interrupted or fluctuating income stream. If this is the case, liquidity may be a need for the client.

Question 145

How can you as dealing representative protect yourself from making an improper assessment of a client’s risk tolerance?

Answer 145

Use a risk tolerance questionnaire with them.

Question 146

Speculative growth is a secondary investment objective

Answer 146

False, Only tax minimization and liquidity are secondary objectives

Question 147

List three things you must know about your product

Answer 147

Any three of:

• key features
• How the product is structured
• Fees
• Restrictions
• tax issues
• Risk factors
• The role it plays in a portfolio
• How the product generates returns

Question 148

Bertha is a retired woman in her late 70’s. She collects a small pension but relies on the interest paid on her portfolio of government and corporate bonds to make ends meet. One of Bertha’s friends recently had a leaking roof which caused some damage to their kitchen. Bertha wonders what she would do if something like that happened to her. She only has $1000 in her savings account. What are Bertha’s investment objectives?

a)	Income and tax minimization
b)	Growth and tax minimization
c)	Growth and liquidity
d)	Income and liquidity

Answer 148

d) Income and liquidity

Bertha needs income from her investments so must invest to provide that. She also requires liquidity to at least some of her portfolio as she worries about covering emergency expenditures.

Question 149

Why is it important to know your client’s time horizon?

Answer 149

So that you can recommend products that align fees and costs as well as maturity dates to that horizon

Question 150

At a minimum, Which three components of the KYC information must be compared to the product to ensure suitability?

Answer 150

• risk tolerance
• investment objectives
• time horizon

Question 151

State two reasons why age is included in the KYC information?

Answer 151

1) because some investments have age restrictions

2) because a client agreement may not be enforceable if the client is not of legal age

3) because it helps your determine client goals

Question 152

What is an unsolicited order?

Answer 152

An order received form a client that you did not suggest or recommend.

Question 153

Clients with high income have lower risk tolerance because they are unwilling to lose the money they have worked so hard for.

a)	True
b)	False

Answer 153

b) False

Having a higher income makes it easier for client’s to withstand some losses

Question 154

If you accept an unsolicited order, what must you do?

Answer 154

• first speak to the compliance department to ensure you can do it
• then document:

a) that the order is unsolicited

b) that you did a suitability review

c) that you cautioned the client against it

d) get their authorization

Question 155

List two of the things you must disclose to the client in the disclosure document regarding the use of leverage.

Answer 155

Any two of:

• The fact that the value of the portfolio can drop below the loan value
• the fact that the risk attached to leverage can magnify both gains and losses
• the fact that interest costs may exceed returns
• The fact that no matter what happens to portfolio value, the client is still responsible for the full loan with interest
• That leveraging should never be used to reduce taxes.

Question 156

Measurement of market value of a basket of goods.

Answer 156

Consumer Price Index (CPI)

Question 157

An increase in the general price level.

Answer 157

Inflation

Question 158

It distributes purchasing power from lenders to borrowers.

Answer 158

Unanticipated Inflation

Question 159

Change in GDP compared to the previous year.

Answer 159

GDP Growth Rate

Question 160

Total market value of all final goods and services produced in a year.

Answer 160

Gross Domestic Product (GDP)

Question 161

Quantity of goods and services adjusted for inflation.

Answer 161

Real GDP

Question 162

A period of at least 6 consecutive months of economic contraction.

Answer 162

Recession

Question 163

Quantity of goods and services based on current market prices.

Answer 163

Nominal GDP

Question 164

Which of the following will cause the demand curve to shift upwards?

a) an increase in demand for the product

b) an increase in the number of firms supplying the product

c) a decrease in consumer income

d) a decrease in quantity of the product sold at lower prices

Answer 164

a) an increase in demand for the product

Question 165

Financial markets serve lenders by guaranteeing the return of funds on the due dates by the borrower.

a) True

b) False

Answer 165

b) False

Financial markets serve borrowers and lenders by channeling funds from lenders to borrowers, by facilitating the timing of purchase and providing a mechanism for government policy

Question 166

Has a physical location and facilitates the trading of mostly equity securities.

Answer 166

Stock Exchange

Question 167

Trading of currencies on an inter-dealer or bank basis.

Answer 167

Foreign Exchange Markets

Question 168

A marketplace that is a network of brokers and dealers.

Answer 168

Over the Counter

Question 169

Trading place for short-term financial assets, typically those with a maturity of less than one year, but sometimes up to three years.

Answer 169

Money Markets

Question 170

Trading place for financial assets such as stocks and bonds.

Answer 170

Capital Markets

Question 171

Which market facilitates the trading of stocks and bonds?
a) capital market
b) money market
c) foreign exchange market
d) inter-bank market

Answer 171

a) capital market

The capital market is a trading place for financial assets such as stocks and bonds. It is typically a longer-term market.

Question 172

Which of the following statements about the financial markets is true?

a) The primary market is where shares are traded amongst investors.

b) Borrowing money from a bank is an example of direct financing.

c) All financial transactions must flow through a financial intermediary.

d) Financial markets provide a mechanism to implement government policy.

Answer 172

d) Financial markets provide a mechanism to implement government policy.

Financial markets serve borrowers and lenders in three ways:
channeling funds from lenders to borrowers
facilitating the timing of purchases
providing a mechanism for government policy
The primary market is where shares are first issued by the issuer to investors. The secondary market is where shares are subsequently traded amongst investors. Direct financing is where the lender and borrower transact with each other directly. In most situations, a financial intermediary is used such as a bank to facilitate this transfer of capital.

Question 173

Which of the following items could be changed as part of a fiscal policy?
a) interest rates
b) money supply
c) taxes
d) foreign exchange

Answer 173

c) taxes

Fiscal policy consists of the government’s use of spending and taxes to influence the overall level of economic activity. Changes in government spending and changes in the tax amounts collected are all fiscal policy measures. Adjusting money supply, interest rates, or attempts to alter exchange rates are monetary policy measures.

Question 174

When is market equilibrium reached?
a) when there are more goods supplied than demanded
b) when there are more goods demanded than supplied
c) when the goods demanded are the same as the goods supplied
d) when the demand and supply curves shift

Answer 174

c) when the goods demanded are the same as the goods supplied

Market equilibrium is reached when the quantity of a good supplied at a given price equals the quantity demanded for that good at that same price.

Question 175

What does Gross Domestic Product measure?
a) the market value of raw materials produced domestically
b) the market value of final goods and services produced domestically
c) the market value of all goods and services sold domestically
d) the market value of final goods and services sold domestically

Answer 175

b) the market value of final goods and services produced domestically

Gross Domestic Product (GDP) is a measure of the sum of the market value of all the final goods and services produced in the economy in a year. By final goods and services we mean goods and services sold to their final users.

Question 176

Which of the following are characteristics of investment capital?
a) scarcity and mobility
b) neutrality and fluidity
c) liquidity and resilience
d) longevity and neutrality

Answer 176

a) scarcity and mobility

The characteristics of capital are:
Scarcity
Mobility
Sensitivity
Scarcity refers to the limited supply of capital and mobility is the ease and speed with which capital moves from one part of the world to another. Sensitivity is the degree to which investment capital is influenced by changes in financial markets and the overall economy.

Question 177

Which of the following statements is an example of monetary policy?
a) The federal government announces a new surtax for high-income earners.
b) The Bank of Canada raises interest rates to slow down the economy.
c) The federal government reduces the GST from 7% to 5%.
d) The federal government commits to transferring an additional $1 billion to the provinces for health care.

Answer 177

b) The Bank of Canada raises interest rates to slow down the economy.

Monetary policy is the responsibility of the Bank of Canada, and it is used to control the supply of money in the economy. Increasing interest rates is an example of monetary policy.

Question 178

ABC Corporation is attempting to raise $100 million from the financial market. It is offering to issue shares to the public through an Initial Public Offering (IPO). The shares are priced at $25 and investors from all over the world are likely to subscribe to the IPO.
In which market is ABC corporation attempting to raise funds?

a) foreign exchange market
b) primary market
c) secondary market
d) auction market

Answer 178

b) primary market

ABC corporation are issuing their shares in the primary market. Through the initial public offering, they are raising capital directly from investors.

Question 179

Which of the following statements about purchasing power is TRUE?
a) Purchasing power falls as inflation rises.
b) Purchasing power falls as inflation falls.
c) Purchasing power is not related to inflation.
d) Purchasing power falls during periods of rising real income.

Answer 179

a) Purchasing power falls as inflation rises.

Purchasing power is the amount that you can buy with your dollar. If inflation rises, then prices for goods and services rises. Henceforth, rising inflation erodes your purchasing power.

Question 180

What happens to the supply of the good or service produced when the sale price increases?
a) increases
b) decreases
c) not affected at all
d) changes in an unpredictable direction

Answer 180

a) increases

Question 181

Dobbin Corp. is interested in being traded on the OTC market. Which of the following is a characteristic of the OTC market, as opposed to a stock exchange?

a) Dobbin Corp will have greater exposure to the investing public on the OTC

b) Dobbin Corp. will have trades processed by dealers on the OTC

c) Dobbin Corp will have more liquidity on the OTC

d) Dobbin Corp will be subject to more stringent listing requirements on the OTC

Answer 181

b) Dobbin Corp. will have trades processed by dealers on the OTC

The OTC market is a “dealer” market. The stock exchange is an auction market.

Question 182

In the year 20XX the value of a basket of goods was calculated to be $4567 while in the base year the value of the same basket of goods was calculated to be $4235. What is the CPI for 20XX?

a) 107.84

b) .92

c) 1.07

d) 92.7

Answer 182

a) 107.84

(4567-4235)/4235

Question 183

Susan has just purchased a $10,000 bond with a 6% coupon rate and 4 years to maturity. This security is a _________________

a) A Liquid Market Security

b) Capital Market Security

c) TSX Market Security

d) Money Market Security

Answer 183

b) Capital Market Security

Question 184

A recession is equal to 6 consecutive months of economic decline which is measured by the change in

Answer 184

GDP, Real GDP

Question 185

Which of the following is NOT a reason for companies to have their shares trade on the OTC market?

a) Low investor interest

b) The inability to meet requirements to be listed.

c) High volume of trading in its shares

d) Unwillingness to abide by the disclosure rules of the exchange

Answer 185

c) High volume of trading in its shares

Question 186

An IPO takes place in the ___________________

a) Either the primary or secondary market

b) Neither the primary or secondary market

c) secondary market

d) primary market

Answer 186

d) primary market

Question 187

Joe and Mary, both age 28, married 4 years ago and live in a rented apartment, but dream of owning their own home. To this end, they have managed to save $10,000 per year and so have $40,000 to put toward a down payment on a townhouse in the future.
Which of the following ways financial markets serve the economy is this an example of?

a) Channel funds from lenders to borrowers

b) Providing a mechanism for government policy

c) Facilitating the timing of purchases

Answer 187

c) Facilitating the timing of purchases

They are putting the use of their money off now so they can use it for the down-payment in the future.

Question 188

In periods of unanticipated inflation ______ gain at the expense of ______

Answer 188

borrowers, lenders

Question 189

If the CPI for 20XX was 108.7 and the CPI for the next year (20XY) was 110.5, what is the inflation rate for 20XY?

a) 1.66%

b) .166%

c) 1.63%

d) .163%

Answer 189

a) 1.66%

110.5-108.70/108.70 x 100 =1.66%

Question 190

The exchange rate on $US currency is $1.02 per $1 Canadian. If Natalie, a Canadian resident, holds a $US denominated bond paying semiannual interest of $65, how much income does she receive every 6 months in Canadian dollars?

a) $66.30

b) $63.70

c) $73.86

d) $57.20

Answer 190

b) $63.70

Costs $1.02 US to buy $1 Cdn

Therefore $1US buys (1/1.02) = $0.98 Cdn.

So, $65 US x 0.98 = $63.70 Cdn

Question 191

Which of the following is an example of expansionary policy?

a) An announcement to expand the Trans-Canada Highway.

b) a decrease in the money supply

c) an increase in interest rates

d) an increase in sales tax in New Brunswick

Answer 191

a) An announcement to expand the Trans-Canada Highway.

This will cause the cost of borrowing to be more expensive. Fewer people will buy large expenditure items. This will slow the economy

Question 192

We say that when the market for laptop computers clears at a price of $798.00 then ___________________________.

a) Market Excess is reached at this price

b) Market Equilibrium is reached at this price.

c) Demand exceeds supply at this price

d) Supply exceeds demand at this price

Answer 192

b) Market Equilibrium is reached at this price.

Question 193

We say that when the market for laptop computers clears at a price of $798.00 then ___________________________.

a) Market Excess is reached at this price

b) Market Equilibrium is reached at this price.

c) Demand exceeds supply at this price

d) Supply exceeds demand at this price

Answer 193

b) Market Equilibrium is reached at this price.

Question 194

The popularity of the “Monster Hunter” game has caused it to fly off the shelves. As soon as new games are received by the stores, they are purchased by consumers. Which of the following statements is true of “Monster Hunter”?

a) The demand curve for “Monster Hunter” at the same selling price will shift to the left.

b) The demand curve for “Monster Hunter” at the same selling price will shift to the right.

c) The supply curve for “Monster Hunter” at the same selling price will shift to the right.

d) The supply curve for “Monster Hunter” at the same selling price will shift to the left.

Answer 194

b) The demand curve for “Monster Hunter” at the same selling price will shift to the right

At the same price, demand for the product is increasing. A shift to the right of the demand curve will reflect a higher demand at the same price.

Question 195

The value of goods and services produced within an economy over the course of a year and adjusted for inflation during that same period is known as:

a) Real GDP

b) Nominal GNP

c) Real GNP

d) Nominal GDP

Answer 195

a) Real GDP

Question 196

When the government uses ___________ fiscal policy they decrease tax rates to stimulate the economy.

Answer 196

expansionary

Question 197

Which of the following is an example of monetary policy?

a) The federal government announces an increase in the HST

b) The Bank of Canada increases the money supply to reduce interest rates

c) The Bank of Canada reduces the level of income tax on low wage earners

d) The federal government announce an increase in EI benefits

Answer 197

b) The Bank of Canada increases the money supply to reduce interest rates

Question 198

When a security is being issued by a company that does not meet listing requirements, the security can be issued on the ____________ in the ___________ market.

a) TSX Venture exchange, primary

b) TSX Venture exchange, secondary

c) OTC, secondary

d) OTC, primary

Answer 198

d) OTC, primary

Question 199

When the cost of producing computer desks increases due to an increase in the cost of metal brackets used in their production,

a) the supply curve for computer desks at the same selling price will shift to the right

b) The demand curve for computer desks selling at the same selling price will shift to the right

c) The demand curve for computer desks selling at the same selling price will shift to the left

d) The supply curve for computer desks at the same selling price will shift to the left

Answer 199

d) The supply curve for computer desks at the same selling price will shift to the left

When costs to produce increase the producer would be willing to supply fewer at the same price.

Question 200

In Japan 2.5 million people are retired or not actively looking for work, 1.25 million people are in need of employment, and 10.5 million people are employed. What is Japan’s unemployment rate?

a) 21.27%

b) 50%

c) 10.64%

d) 11.90%

Answer 200

c) 10.64%

Unemployment Rate = # unemployed as % of the total workforce

Total Workforce = 1.25 million + 10.5 million = 11.75 million

Unemployment Rate = 1.25 million / 11.75 million = 10.638%

Question 201

Nickerson Gallery Investment Services is the lead underwriter of a new issue of securities by Dobbin Corp. When the details of the issue are agreed upon, Nickerson agrees to purchase the new shares from Dobbin Corp in full and then subsequently resell them to the public. In the instance Nickerson is acting as:

a) Principal and Dealer

b) Agent and Broker

c) Agent and Dealer

d) Principal and Broker

Answer 201

a) Principal and Dealer

The dealer (Nickerson - Gallery) has taken ownership of the security before reselling it so they are acting as a principal. (Principal = Dealer)

Question 202

When economic growth in an economy is strong the unemployment rate in that economy will be _______________

Answer 202

Low

Question 203

The dealer involved in a bond transaction is paid by way of a ___________________

Answer 203

Spread

Question 204

Inflation is measured by: ________________

Answer 204

CPI

Question 205

Why do we say that in periods of unexpected inflation, borrowers gain at the expense of lenders?

Answer 205

Because loans are paid back in the same $ figure as before but now the $ paid to the lender buy less for the lender receiving the payment

Question 206

An economic contraction of ___________________ duration is considered a recession.

Answer 206

6 consecutive months

Question 207

GDP measures______________________

Answer 207

The total value of final goods and services produced in an economy in a year

Question 208

What is the difference between real and nominal GDP?

Answer 208

Nominal GDP is stated in today’s dollars. Real GDP takes into consideration inflation by comparing this year’s figures to a figure using base year (2002) prices.

Question 209

If CPI this year was 128.6 and was 124.3 last year, what is the inflation rate?

Answer 209

128.6 - 124.3/124.30

=3.46%

Question 210

Monetary policy involves the use of ______________ to manipulate the economy.

Answer 210

interest rates and the money supply

Question 211

To enact expansionary monetary policy, the action taken would be ________________

Answer 211

a decrease in the interest rate, increase money supply through redeposit or open market operations

Question 212

In a primary market transaction who receives the money paid for the securities?

Answer 212

the issuer

Question 213

When a dealer commits to purchase all shares to e sold from the issuing company and then sells them to the public, this is called ________________________

Answer 213

a firm commitment

or

a bought deal

Question 214

All bond trading takes place on the OTC.

Why do some shares trade in the OTC market?

Answer 214

some shares will trade there if :

• the company doesn’t meet listing requirements
• The company doesn’t want to adhere to listing rules
• the shares have limited liquidity (thin trading)
• There is not much investor interest in the shares

Question 215

What is the difference between a securities firm acting as a dealer and as a broker

Answer 215

Dealer = principal

Broker = agent

Question 216

When the supply curve shifts to the left, consumers will buy ______________ of a good at the same price.

Answer 216

less

Question 217

If a complementary good has an increase in demand, the demand curve for its compliment will have a shift to the __________________

Answer 217

right

Question 218

Why is diversification one of the benefits of indirect financing as opposed to direct financing?

Answer 218

Because the intermediary can lend to many borrowers instead of just one which reduces the risk.

Question 219

How do consumers use the financial markets to time their spending?

Answer 219

Consumers use the markets to invest funds today so they will grow for use tomorrow

Question 220

If the exchange rate is $1.26 Canadian / $1 US, how much $US would a Canadian have to invest in $US denominated securities if they had $10,000 to invest?

Answer 220

10,000 / 1.26 = $7,936.51

Question 221

How do corporations go from being a private corporation to being a public corporation?

Answer 221

An IPO is used to sell shares to the public.

Question 222

When shares are sold from one investor to another this occurs in the ______________market

Answer 222

capital or secondary

Question 223

Fiscal policy involves the use of ______________ to manipulate the economy.

Answer 223

taxation

government spending

and transfer payments

Question 224

Ted buys a 4% coupon paying bond for $5,500. The bond will mature in 10 years with a face value of $5,000. What is Ted’s current yield?

a) 3.40%
b) 3.64%
c) 4.00%
d) 4.40%

Answer 224

b) 3.64%

The bond pays $200 each year in interest, calculated as ($5,000 x 4%). The price of the bond has no impact on the coupon payment. Since Ted bought the bond at a premium (he paid $5,500 for a bond with a face value of $5,000), his current yield will be lower than the 4% coupon rate. Ted’s current yield is 3.64%, calculated as (($200 coupon payment ÷ $5,500 price of the bond) x 100).

Question 225

All of the following organizations are issuing new 5 year bonds. Which bond issuer would offer the lowest coupon rate?

a) Government of Canada (credit rating AAA)
b) Province of Manitoba (credit rating AA)
c) Royal Bank of Canada (credit rating AA-)
d) Magna Corporation (credit rating B+)

Answer 225

a) Government of Canada (credit rating AAA)

One of the major factors in setting the coupon rate is the credit worthiness of the issuer. The Government of Canada has the highest credit rating and therefore, can offer the lowest coupon rate.

Question 226

What rights do owners of common shares possess?

a) the right to determine when dividends will be issued
b) the right to vote at shareholders’ meetings or vote by proxy
c) the right to receive a fixed proportion of the corporation’s profits in cash
d) the right to receive dividends before preferred shareholders

Answer 226

b) the right to vote at shareholders’ meetings or vote by proxy

Common shareholders have the right to vote at shareholders’ meetings or by proxy. The board of directors determines when dividends will be paid. Preferred shareholders, as well as common shareholders, have the right to receive a proportion of a corporation’s profits in the form of dividends, but it is not fixed, guaranteed, or even necessarily in cash. Preferred shareholders have priority over common shareholders in the payment of dividends.

Question 227

What statement is generally TRUE with respect to the coupon rate on outstanding bonds?
a) As interest rates go up, coupon rates go down.
b) As interest rates go up, coupon rates go up.
c) Coupon rates are fixed over the life of a bond.
d) Coupon rates decrease as the bond reaches maturity.

Answer 227

c) Coupon rates are fixed over the life of a bond.

Question 228

Which of the following types of shares offers investors the greatest guarantee relating to the payment of dividends?
a) cumulative preferred shares
b) retractable preferred shares
c) common shares
d) convertible preferred shares

Answer 228

a) cumulative preferred shares

Most preferred shares are cumulative, which means that if a dividend is not paid, it accumulates and must be paid in full to preferred shareholders before any dividends can be made to common shareholders.

Question 229

What does it mean if preferred shares are redeemable or callable?
a) The investor can retract the shares on a specific date.
b) The investor can demand the company buy back the shares on or after a specific date.
c) The issuing company reserves the right to force the investor to sell the shares back to the company at a pre-determined price.
d) The issuing company is required to purchase a certain amount of the shares in the marketplace each year

Answer 229

c) The issuing company reserves the right to force the investor to sell the shares back to the company at a pre-determined price.

If a preferred share is redeemable or callable, the issuing company has the right to force the investor to sell the shares back to the company at a pre-determined price. Retractable preferred shares give the investor the ability to demand the company buy back the shares on or after a specified date.

Question 230

In general, what type of benefit do preferred shareholders enjoy over common shareholders?
a) Preferred shareholders are automatically granted voting privileges.
b) The board of directors guarantees dividend payments to their preferred shareholders.
c) Preferred shareholders have a preference as to assets in the event of a company’s bankruptcy.
d) Preferred shareholders have a right to share in the profits of the company beyond their fixed dividend.

Answer 230

c) Preferred shareholders have a preference as to assets in the event of a company’s bankruptcy.

In the event of bankruptcy, preferred shareholders are given a prior claim to the remainder of the company’s assets ahead of common shareholders. Therefore, preferred shareholders have a preference as to assets over common shareholders. Preferred shareholders do not have the voting privileges that common shareholders enjoy. The dividend payments for preferred shares are not guaranteed. In contrast to common shareholders, preferred shareholders do not have the right to share in the successes of the company beyond their right to the fixed dividend, unless they hold participating preferreds.

Question 231

Karl is a wheat farmer. He is nervous about the price of wheat this year and decides to enter into a futures contract to set the price for his wheat. Which of the following statements is correct?
a) Karl has hedged his risk by setting the price now for his wheat. When the futures contract comes due, he has to sell his wheat at the pre-determined price.
b) When the futures contract expires, Karl will have the option to decide whether he wants to sell his wheat for the price of the contract or on the open market if he can get a higher price.
c) By entering into a futures contract, Karl is speculating on the price of wheat.
d) With a futures contract, the buyer has the option of whether he wants to buy Karl’s wheat at the pre-determined price.

Answer 231

a) Karl has hedged his risk by setting the price now for his wheat. When the futures contract comes due, he has to sell his wheat at the pre-determined price.

With a futures contract, there is a legal obligation to buy or sell the underlying asset when the contract comes due. Karl is hedging the price of wheat since he wants to receive a guaranteed price when he is ready to sell his wheat.

Question 232

What is a benefit of purchasing treasury bills (T-bills)?
a) The principal is insured with the MFDA Investor Protection Corporation (IPC).
b) The secondary market provides investors with the ability to sell their T-bills.
c) T-bill yields are comparable to those of long-term bonds.
d) T-bills are not subject to inflation risk.

Answer 232

b) The secondary market provides investors with the ability to sell their T-bills.

T-bills are highly liquid since they can be bought and sold with ease on the secondary market. They are not insured with the IPC, but rather guaranteed by the Government of Canada. Yields are usually lower than long-term bonds since T-bills are shorter terms and pose less risk. T-bills are subject to inflation risk.

Question 233

Why would a yield curve be inverted?
a) Long-term lending rates have risen but short term rates have not.
b) Fewer long-term bond issuers are available than short-term issuers.
c) Short-term lending rates are higher than long-term rates.
d) More short-term bond issuers are available than long-term issuers.

Answer 233

c) Short-term lending rates are higher than long-term rates.

Inverted yield curves are downward sloping indicating that short-term bonds have higher rates than long-term bonds. This suggests investors expect rates to decline. This can be a sign that a recession is forthcoming.

Question 234

When the issuing company is having really strong performance, which of the following types of preferred shares would an investor not want to be holding

a) Retractable

b) Callable

c) convertible

d) participating

Answer 234

b) Callable

This would not be good for the investor as the issuing company can call the shares in when the investor really doesn’t want to see.

Question 235

XYZ Co. bonds have a yield to maturity of 6.2% and a current yield of 4%. Which of the following statements is true?

a) If an investor buys this bond today and holds it to maturity their annual return using simple interest will b 6.2%

b) If the investor buys this bond today their annual income yield will be 4%

c) If the investor buys this bond today and holds it until maturity their annual compound return will be 4%

d) If the investor buys this bond today their annual income yield will be 6.2%

Answer 235

b) If the investor buys this bond today their annual income yield will be 4%

Question 236

Which of the following is NOT a main investment objective?

a) tax minimization

b) income

c) growth

d) safety

Answer 236

a) tax minimization

Question 237

If an issuer is in breach of _________________ the bond holders can force the issuer into bankruptcy

a) Lack of repayment is a risk investors take. Issuers cannot be forced into bankruptcy.

b) Principal repayment

c) Either principal and interest payment

d) Interest payments

Answer 237

c) Either principal and interest payment

If the issuer defaults on the coupon
payments or principal, the bondholder can force the issuer into bankruptcy to sell their assets and use the
proceeds to repay the bondholders.

Question 238

What happens on the maturity date for a bond?

a) If the bond is convertible it transfers to a common share

b) The bond pays the face value to the investor

c) The bond pays one final coupon payment and the face value of the bond

d) The face value less one final coupon payment is paid to the investor.

Answer 238

c) The bond pays one final coupon payment and the face value of the bond

Question 239

Annie is the heir to her uncle’s fortune. Uncle George held the majority of his portfolio in stocks and bonds. Since many family members have been left out of the will, it will take a year to settle George’s estate. Annie is heir to all of it. $100,000 of the estate’s value is in DEF Inc stock. Annie is pretty sure that by the time the estate is settled, DEF stock’s value will have declined. Today Annie bought a put option with a strike price of today’s value and a maturity date 1 year from now. Which statement is true?

a) Annie is a speculator

b) Annie is a hedger

Answer 239

b) Annie is a hedger

Annie is a hedger because she is protecting the value of her asset from a decline in value by locking in a future sales price for when the estate closes.

Question 240

Which of the following statements is NOT TRUE of futures and forwards?

a) Futures trade on an exchange, forwards do not

b) CDCC does not take part in futures contracts

c) Futures are less flexible than forwards

d) Forwards can be designed to meet specific customer needs.

Answer 240

b) CDCC does not take part in futures contracts

They don’t get involved in forward contracts.

Question 241

If the price of the underlying security rises in value, which of the following investors will be in a profit situation?

a) The writer of a put

b) The writer of a call

c) The short position to a futures contract

Answer 241

a) The writer of a put

The short position holder would now sell at a strike price lower than market value so they are in a loss position.

Question 242

A ______________ yield curve can signal a recession.

a) Flat

b) Normal

c) Inverted

Answer 242

c) Inverted

Question 243

In periods of increasing interest rates, an issuer would prefer to have _____________ debentures outstanding

a) retractable

b) Straight

c) extendible

d) callable

Answer 243

b) Straight

The callable bond isn’t of benefit in the event of increasing interest rates because calling the bonds in an re-issuing would result in higher borrowing cost for the issuer.

The extendible bond will be of no value to either the issuer or the holder in times of rising rates. It won’t be to the benefit of the holder to extend the existing rate if they can let it mature and buy a new bond with a higher rate. The extension capability lies with the holder not the issuer.

The holder could retract the retractable bond to get a better rate with a new bond purchase. This would benefit the holder not the issuer. In fact, this would be to the detriment of the issuer because the bondholder would force them to retire the bond early when they ay not want to.

So, the straight bond is the best one for the issuer to have outstanding.

Question 244

If interest rates are expected to decrease in the near future an investor would prefer to be holding________________.

a) Retractable and callable preferreds

b) Extendible and convertible

c) extendible and callable preferreds

d) retractable and convertible preferreds

Answer 244

b) Extendible and convertible

An extendible bond is a good one to hold because with decreasing rates, the investor can lock in their existing higher coupon rate for longer . A convertible bond is good because when rates decrease company’s borrowing costs reduce and profits go up so the ability to convert to a common share would be a good thing to have.

Question 245

Which of the following statements is NOT true of Futures and options?

a) Both options and futures originate with individual investors

b) Options come with an obligation, futures do not

c) Both options and futures trade on an exchange

d) Options and futures can both benefit the holder if the price of the underlying security declines in value

Answer 245

b) Options come with an obligation, futures do not

It is the other way around

Question 246

Allison holds a $16500.00 bond she purchased for 98. The bond has a 5% coupon and 7 years to maturity. What is the current yield of Allison’s bond? (Provide your answer rounded to two decimal places) ______ %

Answer 246

5.10%

$16500 x .05 = $825 income

$16500 x .98 = $16170 purchase price

Current Yield = $825 / $16170 = 5.10%

Question 247

Which of the following listings correctly places the following securities in the correct order from lowest risk to highest risk?

a) Common shares, preferred shares, debentures, Money market

b) Money market, bonds, debentures, preferred

c) Common, preferred, bonds, debentures

d) preferred shares, bonds, debentures, cash

Answer 247

b) Money market, bonds, debentures, preferred

Question 248

When can an investment in a Tbill provide a capital gain for tax purposes?

a) When the Tbill matures for less than the investor paid for it.

b) When the T-bill is sold on the secondary market prior to maturity for a higher price than it was purchased for.

c) T-bills always provide a capital gain for tax purposes because they always sell at a discount

d) When the T-bill is sold on the secondary market prior to maturity for a lower price than it was purchased for.

Answer 248

b) When the T-bill is sold on the secondary market prior to maturity for a higher price than it was purchased for.

Question 249

Jenny purchased a T-bill with a $20,000 face value for $19725.00. The T-bill has 86 days to maturity. What is jenny’s annual yield on this investment?

a) 3.28%

b) 1.39%

c) 5.83%

d) 5.92%

Answer 249

d) 5.92%

(20,000-19,725)/19,725 x 365/86 x 100 = 5.9171 or 5.92%

Question 250

Dobbin Corp has issued $50,000,000 in 10 year bonds. Which of the following risks might these bonds have?

a) Default risk and sovereign risk

b) default risk and reinvestment risk

Answer 250

b) default risk and reinvestment risk

Only government bonds have sovereign risk

Question 251

Which of the following lists is in correct order form highest yield to lowest yield?

a) Commercial Paper, Banker’s Acceptances, T-bills

b) Tbill, Banker’s Acceptance, Commercial Paper,

c) T-bills, Commercial Paper, Bankers Acceptances

Answer 251

a) Commercial Paper, Banker’s Acceptances, T-bills

Question 252

If the yield curve is inverted, (short-term rates are higher than long-term rates) long-term bonds offer better yields to investors.

a) True

b) False

Answer 252

b) False

This downward sloping curve shows yield on short-term
bonds to be higher than long-term bonds that suggests that
investors expect rates to decline. This can be a sign that a
recession is forthcoming.

Question 253

To hedge exchange rate fluctuations, a Canadian mutual fund manager who investes in foreign securities might________

a) protect the fund’s value by investing in derivatives to protect against a weaking Canadian dollar

b) protect the fund’s value by investing in derivatives to protect against a strengthening Canadian dollar

Answer 253

b) protect the fund’s value by investing in derivatives to protect against a strengthening Canadian dollar

The Canadian manager has to convert the holdings back to Canadian dollars. A strengthening Canadian dollar means fewer Canadian dollars will be received per Euro.

$1 Can = 0.50 Euro ——– 1 Euro = 1/.5 converts to $2 Can

After strengthening, $1 = 0.60 Euro ——-> 1Euro converts now to 1/.6 = $1.67 Cdn.

Question 254

A 4% cumulative preferred share with $35 par value and $28 market price has not paid dividends for the past 2 years. What amount must be paid (per share) this year before common dividends can be paid?

a) $3.36

b) $4.20

c) $2.80

d) 0

Answer 254

b) $4.20

$35 x 4% = $1.40 x 3 years = $4.20

$35 x .04 = $1.40 dividends to be paid per year.

Since the shares are cumulative, the issuing company must pay the 2 years dividends in arrears ($1.40 x 2) PLUS the new dividend for this year of 1.40 = $4.20

Question 255

Which of the following statements is true?

a) When the yield curve is normal short term bonds provide a higher return than long term bonds

b) The term structure of interest rates refers to the relationship between the risk and return on bonds.

c) When the yield curve is inverted short term bonds provide a higher return than long term bonds.

d) An inverted yield curve can signify an increase in inflation

Answer 255

c) When the yield curve is inverted short term bonds provide a higher return than long term bonds.

Question 256

Issuer Coupon Payment frequency bid ask Yield
ABC Co 4% S ? ? 3.26%

a) The bond above would sell at a discount

b) The bond above would sell at PAR

c) The bond above would sell at a premium

d) There is not enough information to determine the price level for the bond above

Answer 256

c) The bond above would sell at a premium

Current Yield less than Coupon Rate sells at Premium

Question 257

Which of the following statements is NOT correct?

a) Only common shareholders take the risk of losing all of their investment

b) Preferred shares and common shares can experience capital gains

c) Both preferred shares and common shares can have voting rights

d) preferred shares are typically redeemable

Answer 257

a) Only common shareholders take the risk of losing all of their investment

Preferred investors also risk losing investment if the company claims bankruptcy. If there is enough money after debts are paid, the preferred shareholder will receive PAR value but if not they will receive only whatever is left.

Question 258

Which of the following is the correct listing of money market securities from most risky to least risky?

a) BA, Commercial paper, Provincial ST paper, Municipal ST paper

b) Commercial Paper, BA, Municipal ST paper, Provincial ST paper,

c) Provincial ST paper, Municipal ST paper, BA, Commercial paper

Answer 258

b) Commercial Paper, BA, Municipal ST paper, Provincial ST paper,