CSC Mutual Funds and ETFs 2

Question 1

Which structure allows an ETF to create or redeem units in large blocks directly with authorized participants?

Accepted Answer

In-kind creation/redemption mechanism

Answer

ETFs use an in-kind creation/redemption mechanism where authorized participants exchange baskets of securities for ETF units, keeping prices aligned with NAV.

Question 2

What is the primary tax advantage of the in-kind ETF redemption process compared to mutual funds?

Accepted Answer

Redemptions can be satisfied with low-cost securities, deferring embedded gains

Answer

In-kind redemptions allow the ETF to distribute appreciated securities rather than selling them, deferring capital gains recognition for remaining unitholders.

Question 3

A mutual fund with a 2% management expense ratio (MER) and 0.5% trading expense ratio (TER) has a total cost to investors of:

Accepted Answer

2.5%

Answer

The fund's total cost is the MER plus TER, which equals 2.0% + 0.5% = 2.5% annually.

Question 4

Under Canadian securities regulation, mutual fund prospectuses must be renewed every:

Accepted Answer

12 months

Answer

Canadian mutual fund prospectuses must be renewed annually (every 12 months) to ensure disclosure documents remain current.

Question 5

Which type of ETF uses derivatives to deliver a multiple (e.g., 2x) of an index's daily return?

Accepted Answer

Leveraged ETF

Answer

Leveraged ETFs use derivatives such as futures and swaps to amplify daily index returns by a stated multiple like 2x or 3x.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Mutual Funds and ETFs 2