CSC Mutual Funds and ETFs 4

Question 1

An ETF trading at $50.25 when its NAV is $50.00 is said to be trading at a:

Accepted Answer

Premium of $0.25

Answer

When an ETF's market price exceeds its NAV, it trades at a premium; authorized participants can arbitrage this by creating new units until the premium disappears.

Question 2

Which of the following is a key risk specific to leveraged and inverse ETFs held for periods longer than one day?

Accepted Answer

Volatility decay (beta slippage)

Answer

Leveraged and inverse ETFs reset daily, causing volatility decay or beta slippage where compounded daily returns diverge significantly from the leveraged index return over time.

Question 3

In Canada, which regulator oversees the registration and conduct of mutual fund dealers?

Accepted Answer

CIRO (formerly MFDA)

Answer

CIRO (Canadian Investment Regulatory Organization, formerly MFDA) regulates mutual fund dealers and their registered representatives in Canada.

Question 4

A money market mutual fund primarily invests in which type of securities?

Accepted Answer

Short-term, high-quality debt instruments with maturities under 365 days

Answer

Money market funds invest in short-term, highly liquid, investment-grade debt instruments such as T-bills and commercial paper to preserve capital.

Question 5

What is the significance of the 'portfolio turnover rate' disclosed in a mutual fund's MRFP?

Accepted Answer

It indicates how frequently the fund trades its portfolio, affecting transaction costs and tax efficiency

Answer

A high portfolio turnover rate means the fund trades frequently, generating higher transaction costs and potentially more taxable distributions for investors.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Mutual Funds and ETFs 4