IFC Products and Trading 5

Question 1

Which of the following is a key regulatory requirement for mutual fund dealers in Canada under MFDA rules?

Accepted Answer

Suitability assessment must be conducted before recommending any mutual fund

Answer

MFDA registrants must assess the suitability of any mutual fund recommendation relative to the client's KYC information and investment objectives.

Question 2

A 'systematic withdrawal plan' (SWP) for a mutual fund investor means:

Accepted Answer

Regular redemptions of a fixed amount or percentage from the fund

Answer

An SWP allows investors to automatically redeem a set dollar amount or percentage of their fund holdings at regular intervals to generate income.

Question 3

Which statement correctly describes the tax treatment of capital gains distributions from Canadian mutual funds?

Accepted Answer

They are reported as capital gains in the investor's hands even if reinvested

Answer

Capital gains distributions retain their character and are reported as capital gains in the investor's hands, subject to the 50% inclusion rate.

Question 4

An 'arbitrage-free' price for an ETF means that:

Accepted Answer

The ETF's market price equals the NAV of its underlying basket of securities

Answer

When designated brokers can arbitrage any price difference between the ETF and its underlying holdings, the market price converges to NAV.

Question 5

What type of risk is most associated with investing in a global equity mutual fund denominated in Canadian dollars?

Accepted Answer

Currency risk from fluctuations between CAD and foreign currencies

Answer

A global equity fund holds foreign assets, so changes in exchange rates between the Canadian dollar and foreign currencies directly affect returns.

IFC - Investment Funds in Canada Practice Test