IFC Risk Management 4

Question 1

A fund's standard deviation is 15% while the benchmark's standard deviation is 10%. This indicates the fund:

Accepted Answer

Has greater volatility than the benchmark

Answer

A higher standard deviation indicates greater price volatility and therefore higher risk compared to the benchmark with its lower standard deviation.

Question 2

Under NI 81-102, what is the primary purpose of concentration limits for Canadian mutual funds?

Accepted Answer

To limit exposure to any single issuer and reduce concentration risk

Answer

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.

Question 3

A risk-averse investor is best suited to a fund with:

Accepted Answer

Low beta and low standard deviation

Answer

Risk-averse investors prefer funds with low beta (low market sensitivity) and low standard deviation (low volatility), indicating more stable and predictable returns.

Question 4

Operational risk in a mutual fund context refers to:

Accepted Answer

Losses from failed internal processes, systems, or human error

Answer

Operational risk encompasses losses arising from inadequate or failed internal processes, people, systems, or external events within the fund management company.

Question 5

Which scenario represents a duration mismatch risk for a bond fund manager?

Accepted Answer

Funding long-duration bond purchases with short-term liabilities that reprice frequently

Answer

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.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Risk Management 4