Question # 1
| Which person would be categorized as a vulnerable client? | | A. Nafissa, who has no savings to address an immediate financial emergency | | B. Ginger, who has reached retirement age and is easily confused | | C. Aldous, who has become recently unemployed but still has a mortgage to pay. | | D. Peter, who is 65 years old but cannot afford to retire. |
B. Ginger, who has reached retirement age and is easily confused
Explanation: A vulnerable client is a client who, due to their personal circumstances, is
especially susceptible to harm or disadvantage when dealing with financial services.
Vulnerability can be permanent or temporary, and can arise from various factors, such as
physical or mental health conditions, cognitive impairments, low financial literacy, language
barriers, abuse, or discrimination. A vulnerable client may have different needs and
challenges than other clients, and may require more support and protection from their
adviser. Ginger would be categorized as a vulnerable client because she has reached
retirement age and is easily confused, which may affect her ability to understand and make
informed decisions about her financial situation. She may also be at risk of being exploited
or misled by others who may take advantage of her confusion. Therefore, Ginger’s adviser
should take extra care to ensure that she is treated fairly and that her best interests are
served.
Question # 2
| The owners of Underground Airways Ltd. want to take their privately owned corporation
public through an initial public offering (IPO). They are speaking to a specialist from an
investment dealer to determine
whether it would be advisable to become listed on a stock exchange or the over-the counter
(OTC) market.
In comparing the two options, which of the following considerations is TRUE? | | A. Underground would be subject to less stringent listing requirements if they chose the
stock exchange as compared to the OTC market.
| | B. If Underground chose to list on the OTC market, there would be no secondary market
available for investors.
| | C. Underground would still be directly involved in the trading of their shares on either
market.
| | D. A stock exchange listing would provide Underground with greater market exposure and
public confidence than listing on the OTC market. |
D. A stock exchange listing would provide Underground with greater market exposure and
public confidence than listing on the OTC market.
Explanation:
According to the Canadian Investment Funds Course, a stock exchange is a
centralized and regulated market where securities of listed companies are traded between
buyers and sellers. A stock exchange has strict listing requirements that companies must
meet in order to be eligible for trading on the exchange. These requirements may include
minimum capitalization, number of shareholders, financial reporting, corporate governance,
and compliance with securities laws. A stock exchange also provides liquidity,
transparency, and efficiency for the trading of securities.
An over-the-counter (OTC) market is a decentralized and unregulated market where
securities that are not listed on a stock exchange are traded between dealers and brokers.
An OTC market has no physical location, rather the trading is done through phone, email,
or computer networks. An OTC market has lower listing requirements than a stock
exchange, which makes it easier for smaller or newer companies to access capital.
However, an OTC market also has less liquidity, transparency, and efficiency than a stock
exchange.
Therefore, if Underground Airways Ltd. wants to take their privately owned corporation
public through an initial public offering (IPO), they would have to weigh the pros and cons
of listing on a stock exchange or the OTC market. One of the main considerations is that a
stock exchange listing would provide them with greater market exposure and public
confidence than listing on the OTC market. This is because a stock exchange listing
signals that the company has met the high standards of the exchange and is subject to
ongoing regulation and oversight. A stock exchange listing also attracts more investors,
analysts, and media attention than an OTC listing. A stock exchange listing may also
increase the value and liquidity of the company’s shares.
Question # 3
| Which of the following is a characteristic of a bond fund? | | A. Income from a bond fund will primarily be interest but may also be capital gains
| | B. Bond funds are very low risk because they never go down in value.
| | C. If interest rates rise the value of a bond fund will also tend to rise.
| | D. Securities regulation specifies that bond funds must invest in investment grade bonds. |
A. Income from a bond fund will primarily be interest but may also be capital gains
Explanation: A bond fund is a mutual fund that invests primarily in bonds and other debt
securities. Income from a bond fund will primarily be interest but may also be capital gains
if the fund sells bonds that have appreciated in value. Bond funds are not very low risk
because they can fluctuate in value depending on interest rate changes and credit risk. If
interest rates rise, the value of a bond fund will tend to fall because existing bonds will
become less attractive than new bonds with higher rates. Securities regulation does not
specify that bond funds must invest in investment grade bonds, although some funds may
have this as an investment objective or policy.
Question # 4
| You are meeting a potential client, William, for the first time. He is a high net worth
individual and you are keen to get his business. Which of the following would you consider the most important to create an impressive first impression on your potential client? | | A. your body language
| | B. volume of your voice
| | C. your words
| | D. tone of your voice |
A. your body language
Explanation: Your body language would be the most important to create an impressive
first impression on your potential client. Body language is the non-verbal communication
that includes your posture, gestures, facial expressions, eye contact, and physical distance.
Body language can convey your confidence, enthusiasm, professionalism, and
trustworthiness. According to research, body language accounts for 55% of the impact of a
first impression, while tone of voice accounts for 38% and words account for only 7%. The
other statements are less important than body language. Volume of your voice is part of
your tone of voice, which can affect how your words are perceived by your potential client.
However, volume alone is not enough to create an impressive first impression; you also
need to consider your pitch, pace, and intonation. Your words are what you say to your
potential client, which can include your introduction, your value proposition, and your
questions. Your words are important to convey your message and establish rapport with
your potential client. However, your words have less impact than your body language and
tone of voice on your first impression. Tone of your voice is how you say your words, which
can include your volume, pitch, pace, and intonation. Your tone of voice can influence how
your potential client feels about you and your message. However, your tone of voice has
less impact than your body language on your first impression.
Question # 5
| Sujay contributes 3% of his $60,000 salary to his employer’s defined contribution pension
plan. His employer contributes the same amount to the plan. How will this affect his
registered retirement savings plan (RRSP) contribution room for the year? | | A. It will have no effect. RRSP contribution room is based on earned income only.
| | B. It will reduce Suiay's contribution room by 51,800.
| | C. It will reduce Suiay's contribution room by $1800.
| | D. It will reduce Suiay's contribution room by $3,600. |
D. It will reduce Suiay's contribution room by $3,600.
Explanation: D is correct because Sujay’s registered retirement savings plan (RRSP)
contribution room for the year will be reduced by $3,600. This is because his employer’s
defined contribution pension plan is considered a registered pension plan (RPP), which
affects his RRSP contribution room through a pension adjustment (PA). The PA is
calculated as 18% of his earned income in the previous year minus his RPP contributions
in the current year. In this case, Sujay’s PA for the current year is $3,600, which is 18% of
his $60,000 salary minus his 3% contribution ($1,800) and his employer’s 3% contribution
($1,800). The PA reduces his RRSP contribution room for the next year by the same
amount. It will have an effect on his RRSP contribution room (A), as it is not based on
earned income only, but also on RPP contributions. It will not reduce his contribution room
by $51,800 (B), as this is more than his earned income. It will not reduce his contribution
room by $10,800 ©, as this is 18% of his earned income without subtracting his RPP
contributions.
Question # 6
| Axis Wealth Management Inc. is a mutual fund dealer and member of the Mutual Fund
Dealers Association of Canada (MFDA).
Indrek is a Branch Manager for the Guelph Branch and he is responsible for conducting
suitability reviews in order to identify any unsuitable transactions or accounts. Which of the
following
accounts/transactions would be unsuitable? | | A. Gilles has invested in various mutual funds using a leverage strategy recommended by
his Dealing Representative. Gilles is 82, he is retired, he needs regular income, and his risk
profile is "low". | | B. Hundolf holds the Fortune Small Cap Equity Fund. Hundolf is fully employed, he is
saving for his retirement in 18 years, his investment objective is "growth", and his risk
profile is "medium-high". | | C. Megara bought a principal protected note (PPN) with a 7-year maturity. Megara wants
principal protection and has a long-term investment time horizon (10+ years). | | D. Ulani is saving for the final payment she will owe on her pre-construction condominium.
Ulani has invested in the Harbour Money Market Fund because she is seeking "safety". |
A. Gilles has invested in various mutual funds using a leverage strategy recommended by
his Dealing Representative. Gilles is 82, he is retired, he needs regular income, and his risk
profile is "low".
Explanation: This account/transaction is unsuitable because it does not match Gilles’
investment needs and objectives, risk profile, and capacity for loss. A leverage strategy
involves borrowing money to invest in mutual funds, which increases the potential returns
but also the potential losses. This strategy is very risky and requires a high risk tolerance, a
long-term investment horizon, and a sufficient income to cover the interest payments. Gilles
is 82 years old, retired, and needs regular income, which means he has a low risk tolerance, a short-term investment horizon, and a limited income. He cannot afford to lose
his principal or pay the interest costs. Therefore, a leverage strategy is not appropriate for
him.
Question # 7
| Which of the following applies to a mutual fund trust? | | A. It has a board of directors and shareholders.
| | B. It has unitholders.
| | C. It is not efficient at passing through income to investors.
| | D. It is always closed-end. |
B. It has unitholders.
Explanation:
A mutual fund trust is a type of unit trust that meets certain conditions under the Canadian
Income Tax Act and is eligible for favourable tax treatment. A unit trust is a collective
investment vehicle that holds assets and distributes profits to individual unit owners, also
called unitholders, instead of reinvesting them in the fund. A mutual fund trust is not a
corporation and does not have a board of directors or shareholders. It is also not a closedend
fund, which has a fixed number of shares that trade on an exchange. A mutual fund
trust is an open-end fund, which can issue and redeem units at any time based on the net
asset value of the fund.
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