CIFC Risk Assessment and Financial Planning 3

Question 1

Which of the following scenarios best illustrates concentration risk?

Accepted Answer

Allocating 70% of a portfolio to a single sector

Answer

Concentration risk arises when a large portion of a portfolio is allocated to a single sector, security, or asset class.

Question 2

A client's investment policy statement specifies a maximum equity allocation of 60%. The current equity weight is 68% after market gains. What action is required?

Accepted Answer

Rebalance the portfolio back to the 60% equity target

Answer

Portfolio drift beyond policy limits requires rebalancing to realign with the client's agreed risk profile and investment policy statement.

Question 3

In the context of financial planning, what does 'time horizon' primarily influence?

Accepted Answer

The client's ability to recover from short-term losses and tolerate volatility

Answer

A longer time horizon allows an investor more time to recover from market downturns, generally supporting higher risk tolerance.

Question 4

Which type of risk CANNOT be eliminated through diversification?

Accepted Answer

Systematic risk

Answer

Systematic (market) risk affects all securities and cannot be diversified away, unlike unsystematic risks tied to individual issuers.

Question 5

A client has a high income but significant debt obligations and limited liquid savings. How should their risk capacity be assessed?

Accepted Answer

Low, because debt and illiquidity limit their financial cushion

Answer

High income alone does not mean high risk capacity; significant debt and low liquidity reduce the client's ability to absorb investment losses.

(CIFC) Canadian Investment Funds Course Practice Test

(CIFC) Canadian Investment Funds Course Practice Test

CIFC Risk Assessment and Financial Planning 3