Fund Administration & Operations Flashcards
7 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fund Administration & Operations flashcards as text
A fund's expense ratio is 1.25%. If the fund has $500 million in average net assets for the year, what is the annual expense amount charged to the fund?
Answer: $6,250,000
Annual expenses = $500 million × 1.25% = $6,250,000, which is accrued daily and deducted from the fund's gross returns.
Which operational risk is most directly mitigated by requiring dual authorization (four-eyes principle) for wire transfers?
Answer: Fraud or unauthorized disbursement of fund assets
Requiring two authorized individuals to approve wire transfers significantly reduces the risk of fraudulent or unauthorized transfer of fund assets.
In the context of U.S. mutual funds, what is the significance of the '4 p.m. ET cutoff' for purchase and redemption orders?
Answer: Orders received before 4 p.m. ET receive the current day's NAV; later orders receive the next business day's NAV
Under the SEC's forward pricing rule, mutual fund orders received before the 4 p.m. ET close receive that day's closing NAV; orders after that cutoff receive the next day's NAV.
What is 'side pocket' accounting in a hedge fund?
Answer: A segregated portfolio used to hold illiquid or hard-to-value assets
Side pockets segregate illiquid or difficult-to-value investments from the main fund, ensuring that only investors present when the illiquid investment was made share in its outcome.
A fund administrator receives a subscription agreement with an incomplete AML/KYC section. What is the appropriate action?
Answer: Place the subscription on hold and request the missing AML/KYC documentation before onboarding the investor
AML/KYC regulations require complete investor due diligence before onboarding; subscriptions must be held pending receipt and verification of all required documentation.
Which of the following best describes 'NAV per share dilution' risk in a mutual fund?
Answer: Large redemptions forcing asset sales at depressed prices reduce NAV for remaining shareholders
When large redemptions force a fund to sell assets at unfavorable prices, transaction costs and market impact can reduce the NAV received by remaining shareholders.
What information does a fund's 'Statement of Additional Information' (SAI) provide that is NOT typically in the prospectus?
Answer: Detailed financial statements and information about directors and their compensation
The SAI contains detailed information such as financial statements, director biographies and compensation, portfolio turnover history, and other technical details not summarized in the prospectus.