CSC Portfolio Management Process 2

Question 1

Which of the following best describes the purpose of an Investment Policy Statement (IPS) in the portfolio management process?

Accepted Answer

To document the client's financial goals, risk tolerance, and investment constraints

Answer

An IPS formalizes the client's objectives, risk tolerance, time horizon, and constraints to guide all portfolio decisions.

Question 2

In the context of the CSC, which constraint is most likely to restrict a portfolio manager from investing in certain securities?

Accepted Answer

Liquidity requirements

Answer

Liquidity requirements constrain the portfolio by ensuring sufficient assets can be converted to cash when needed, limiting illiquid investments.

Question 3

A client has a 30-year investment horizon and a high risk tolerance. Which asset allocation is most appropriate?

Accepted Answer

80% equities, 20% fixed income

Answer

A long horizon and high risk tolerance support a growth-oriented allocation with a large equity component to maximize long-term returns.

Question 4

Strategic asset allocation differs from tactical asset allocation in that strategic allocation:

Accepted Answer

Establishes long-term target weights based on the IPS

Answer

Strategic asset allocation sets long-term target weights aligned with the client's goals and risk profile as defined in the IPS.

Question 5

When rebalancing a portfolio, a manager sells outperforming assets and buys underperforming ones. This practice is known as:

Accepted Answer

Contrarian rebalancing

Answer

Contrarian rebalancing systematically sells assets that have risen above target weights and buys those that have fallen below, restoring the target allocation.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Portfolio Management Process 2