Products and Trading Flashcards

Which of the following best describes a closed-end fund in Canada?

Answer: It issues a fixed number of shares traded on a stock exchange

A closed-end fund issues a fixed number of shares that trade on a stock exchange at market prices, which may differ from NAV.

What is the primary difference between a money market fund and a bond fund?

Answer: Money market funds invest in short-term, high-quality debt instruments

Money market funds invest in short-term, high-quality instruments such as T-bills and commercial paper, while bond funds hold longer-duration fixed-income securities.

When a mutual fund declares a distribution, what happens to its NAV per unit?

Answer: NAV decreases by the amount of the distribution

When a distribution is paid out, the fund's assets decrease by that amount, causing the NAV per unit to drop accordingly.

Which trading mechanism applies to exchange-traded funds (ETFs) that does NOT apply to traditional mutual funds?

Answer: ETFs can be sold short and bought on margin

Because ETFs trade on exchanges like stocks, they can be sold short and purchased on margin, unlike traditional mutual funds.

A fund-of-funds structure in Canada refers to a mutual fund that:

Answer: Invests primarily in units of other mutual funds

A fund-of-funds invests in other mutual funds rather than directly in securities, providing diversification across multiple fund managers.

Which statement about segregated funds is correct?

Answer: They offer maturity and death benefit guarantees not found in mutual funds

Segregated funds are insurance products that provide maturity and death benefit guarantees, distinguishing them from mutual funds regulated under securities law.

What is 'market impact cost' in the context of trading fund securities?

Answer: The adverse price movement caused by a large trade execution

Market impact cost is the price movement a large order causes against the trader, increasing the effective cost of executing large trades.