FREE IFC Investment Strategies Questions and Answers

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Which of the following transactions takes place in the secondary market?

Correct! Wrong!

The secondary market involves the resale of previously issued securities between investors. It enables investors who originally bought the investment products to sell them and obtain cash.

The demand for blue widgets increases sharply due to a newspaper report that using blue widgets improves recovery from influenza. What can be said about the law of supply?

Correct! Wrong!

The law of supply states that when demand is greater than supply, the price increases, and producers increase production to meet demand and maximize profit.

Which example demonstrates direct use of capital savings?

Correct! Wrong!

Capital savings are used directly by, for example, a couple investing their savings in a home; a government investing in a new highway or hospital; or a domestic or foreign company paying start-up costs for a plant to produce a new product.

What is the purpose of the fund facts?

Correct! Wrong!

The fund facts document is a four page document designed to give investors key information that is relevant to their investment decision, including facts about the fund itself, performance history, investments and the costs of investing in the fund.

What term applies to unemployment created by a new technology that eliminates the need for subway train drivers?

Correct! Wrong!

Structural unemployment results from changes in the economy, such as technological advances that reduce the need for human labour.

Which exchange in Canada deals exclusively with financial and equity futures and options?

Correct! Wrong!

The Montreal Exchange (Bourse de Montreal) is the only exchange in Canada that deals exclusively with financial and equity futures and options.

If the Consumer Price Index (CPI) was 140.6 last year and 146.9 this year, what was the inflation rate over the year?

Correct! Wrong!

To calculate the rate of inflation over a period of time one must subtract the CPI at the beginning of the period from the CPI at the end of the period and then divide the result by the CPI at the beginning of the period. In this example, the solution can be derived as follows: (146.9 - 140.6) / 140.6 x 100.

Which newspaper article would be likely to result in foreign capital moving out of a country?

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Capital moves in and out of a country based on a variety of risk factors. Increased trade barriers or increased taxes on foreign investments would typically reduce the attractiveness of a country for foreign investment. (a), (b) and (d) would all indicate positive trends in a risk factor analysis.

A client has $100,000 in a savings account, $5,000 in a chequing account, and $10,000 in loans. Calculate his net worth.

Correct! Wrong!

Net worth is calculated as the value of all of the client’s assets after subtracting outstanding loan and mortgage balances. In this example, the client has $100,000 + $5,000 = $105,000 in assets, and $10,000 in loans. Therefore, his net worth is $105,000 - $10,000 =$95,000.

What term describes the range of possible future outcomes on the price of a security?

Correct! Wrong!

Risk is the potential volatility in returns or the range of possible future outcomes on the price of a security.

Gary chooses not to recommend that his client sell a current mutual fund to purchase a similar new mutual fund despite pressure to meet asales target for the new fund. What responsibility applies to Gary’s action?

Correct! Wrong!

Gary is fulfilling his ethical responsibility by placing his client’s needs ahead of his own need to reach a sales target. As the new fund is similar to the current investment, it would be an appropriate one for the client, so he would not be compromising his legal responsibility to ensure that all client orders are suitable.

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