Risk Management Flashcards
7 cards from real IFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management flashcards as text
A fund's standard deviation is 15% while the benchmark's standard deviation is 10%. This indicates the fund:
Answer: Has greater volatility than the benchmark
A higher standard deviation indicates greater price volatility and therefore higher risk compared to the benchmark with its lower standard deviation.
Under NI 81-102, what is the primary purpose of concentration limits for Canadian mutual funds?
Answer: To limit exposure to any single issuer and reduce concentration risk
NI 81-102 imposes concentration limits (typically no more than 10% of NAV in any single issuer) to prevent excessive exposure to any one entity, reducing concentration risk.
A risk-averse investor is best suited to a fund with:
Answer: Low beta and low standard deviation
Risk-averse investors prefer funds with low beta (low market sensitivity) and low standard deviation (low volatility), indicating more stable and predictable returns.
Operational risk in a mutual fund context refers to:
Answer: Losses from failed internal processes, systems, or human error
Operational risk encompasses losses arising from inadequate or failed internal processes, people, systems, or external events within the fund management company.
Which scenario represents a duration mismatch risk for a bond fund manager?
Answer: Funding long-duration bond purchases with short-term liabilities that reprice frequently
Duration mismatch occurs when the fund's asset duration differs significantly from its liability duration, creating vulnerability if interest rates change and liabilities reprice before assets mature.
A mutual fund that uses leverage to amplify returns also amplifies potential losses. What regulatory restriction applies to leverage in Canadian retail mutual funds under NI 81-102?
Answer: Leverage is limited through restrictions on borrowing (generally up to 5% of NAV for short-term purposes)
NI 81-102 generally restricts retail mutual funds from borrowing more than 5% of NAV, and only for specific short-term purposes, strictly limiting leverage to protect investors.
A portfolio manager concerned about political instability in a foreign country where the fund has significant investments is primarily managing:
Answer: Country or political risk
Country or political risk refers to potential losses arising from political instability, government actions, or economic disruptions specific to a particular foreign country.