You are concerned about upcoming weakness in the Canadian dollar. Which type of fund should you invest in?
Correct Answer: D
A global fund that does not hedge foreign currency risk benefits from a weakening Canadian dollar, as the value of foreign investments increases in Canadian dollar terms. The feedback from the document states: "Global mutual funds are attractive in that they can provide a hedge against a decline in the relative value of the Canadian dollar... It is important for mutual fund sales representatives to know whether their global mutual funds hedge foreign exchange risk, because some clients will want to bear that risk themselves, while others will not." Reference: Chapter 12 - Riskier Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds
IFC Exam Question 147
Which of the followings describes segregated funds?
Correct Answer: C
Segregated funds offer some protection of the capital invested but there is an added cost for the protection. Segregated funds are contracts issued by life insurance companies that invest in underlying funds, similar to mutual funds. Segregated funds have a maturity guarantee and a death benefit guarantee, which ensure that the investor or their beneficiary will receive a certain percentage of their initial investment, regardless of market fluctuations. However, these guarantees come at a cost, which is reflected in higher management fees and insurance fees than mutual funds. Segregated funds do not have high returns, as they depend on the performance of the underlying funds. Segregated funds can be redeemed before the maturity date of the contract, but they may be subject to early redemption fees or market value adjustments. Segregated funds do not flow through capital losses to investors, as they are not considered owners of the underlying fund. Segregated funds are subject to insurance regulation, not securities regulation, because they are distributed by life insurance agents. References: Segregated Funds
IFC Exam Question 148
Which of the following statements best describes dollar-cost averaging?
Correct Answer: B
Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security. This strategy can reduce the overall impact of price volatility and lower the average cost per share. By buying regularly in up and down markets, investors buy more shares at lower prices and fewer shares at higher prices. Dollar-cost averaging aims to prevent a poorly timed lump sum investment at a potentially higher price. References: What Is Dollar-Cost Averaging? - Investopedia
IFC Exam Question 149
Which security is most likely to provide a capital gain if held to maturity?
Correct Answer: A
A corporate bond bought at a discount will provide a capital gain at maturity, as the investor receives the par value, which is higher than the purchase price. The feedback from the document states: "Bond prices are quoted using an index with a base value of 100. A bond trading at 100 is said to be trading at face value, or par. A bond trading below par, say at a price of 98, is said to be trading at a discount... So if you buy a bond at a discount, at maturity, you will receive the par or face value. The difference between the discounted price and the par value received at maturity is considered a capital gain." Reference: Chapter 7 - Types of Investment Products and How They Are TradedLearning Domain: Understanding Investment Products and Portfolios
IFC Exam Question 150
Which of the following is typical for a normal yield curve?
Correct Answer: D
A yield curve is a graphical representation of the relationship between the interest rates (or yields) and the term to maturity of different fixed income securities, such as bonds or debentures. A normal yield curve is upward sloping, meaning that the interest rates increase as the term to maturity increases. This is because investors typically demand higher compensation for lending their money for longer periods of time, as they face more uncertainty and risk. Therefore, a normal yield curve implies that short term rates are lower than long term rates. Canadian Investment Funds Course, Unit 5, Section 5.2