IFC Products and Trading 3

Question 1

Under Canadian securities regulation, what is a 'principal-protected note' (PPN)?

Accepted Answer

A structured product that guarantees return of principal at maturity

Answer

A PPN is a structured product that guarantees the investor will receive at least the original principal back at maturity, while providing exposure to an underlying asset.

Question 2

Which order type guarantees execution but not price when trading an ETF?

Accepted Answer

Market order

Answer

A market order guarantees execution at the best available price but does not guarantee a specific price, unlike a limit order.

Question 3

What distinguishes a 'labour-sponsored investment fund' (LSIF) from a conventional mutual fund?

Accepted Answer

LSIFs invest in small- and medium-sized businesses and offer tax credits

Answer

LSIFs are venture capital funds sponsored by labour organizations that invest in SMEs and provide investors with federal and provincial tax credits.

Question 4

A mutual fund's management expense ratio (MER) does NOT typically include:

Accepted Answer

Brokerage commissions paid on portfolio trades

Answer

Portfolio trading commissions are generally excluded from the MER and are instead reported separately as part of the trading expense ratio (TER).

Question 5

Which of the following best describes the creation/redemption mechanism unique to ETFs?

Accepted Answer

Designated brokers exchange baskets of securities for ETF units with the fund

Answer

Designated brokers (market makers) create or redeem large blocks of ETF units by exchanging the underlying basket of securities with the ETF manager, keeping market price close to NAV.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Products and Trading 3