Real CIFC Exam Questions are the Best Preparation Material [Q101-Q123]

Q101. Bernadette has a high-paying job and is in the top tax bracket. She recently received a payment of $5 million upon the settlement of her uncle’s estate. Bernadette would like to invest her inheritance in financial products that would not only grow her money but is also income tax friendly.
Which of the following would provide the most favourable tax treatment?

Dividends received from a large foreign corporation.

Coupon payments from Government of Canada bonds.

Capital gains from a large Canadian corporation.

Eligible dividends from a publicly-listed Canadian corporation

Q102. Which of the following statements about registered education savings plans (RESPs) is CORRECT?

Contributions to RESPs are tax deductible.

There is a yearly contribution limit per beneficiary.

RESPs must be collapsed by the end of the 31st year of its starting date

Contributed funds grow tax-free within the plan.

Q103. Faruq is a Dealing Representative with Smart Planning Group, a mutual fund dealer. Faruq meets with his new client, Taline, and learns that she lives on a low, fixed income.
Taline tells Faruq that she wants to maximize her investment returns as high as possible to make up the difference. Taline also indicates that she cannot afford large investment losses because her income is low.
Which of the following CORRECTLY describes how Faruq should assess Taline’s risk profile?

Taline’s risk profile should be “high”” because she is willing to accept risk in order to maximize her investment returns.

Faruq should override the risk that Taline is able to accept because her return expectations cannot otherwise be met.

Faruq should assess Taline’s risk profile based on the higher of her: (1) risk tolerance and (2) risk capacity

Taline’s risk profile should be “low” because her risk capacity is low and she cannot afford lame investment losses.

Q104. Solomon is a Dealing Representative who is excited about a new equity fund his dealer recently approved. He thinks investors will be attracted to the fund’s historical performance. He has a prospective new client, Madira, who is 25 years old. Madira has invested in mutual funds before, but not with Solomon’s dealer. She has made an appointment to open a new RRSP with Solomon’s firm.
What does Solomon need to do to make this a suitable recommendation?

Show from past fund performance, that mutual fund costs are not important if there are high returns.

Rely on the risk rating of the mutual fund when offering an investment solution.

Identify how the proposed investment is in alignment with the investor’s profile and holdings.

Match the past rates of return of the mutual fund with what is the anticipated rate of return.

Q105. What type of shares offer its shareholders the opportunity to receive additional dividends if the company’s profit exceeds a stated level?

Redeemable preferred shares

Cumulative preferred shares

Convertible preferred shares

Participating preferred shares

Q106. Which of the following is a characteristic of a bond fund?

Income from a bond fund will primarily be interest but may also be capital gains

Bond funds are very low risk because they never go down in value.

If interest rates rise the value of a bond fund will also tend to rise.

Securities regulation specifies that bond funds must invest in investment grade bonds.

Q107. When you buy a put option, which of the following is TRUE?

You have the right to sell a set number of shares at a set price.

You have the right to purchase a set number of shares at a set price.

You have the obligation to sell a set number of shares at a set price.

You have the obligation to buy a set number of shares at a set price.

Q108. Your client, Helen, just received her non-registered account statement which states that one of her mutual funds made an interest income distribution during the year. She asks you how she will be taxed on the distribution. What do you tell Helen?

She will pay taxes on 50% of the distribution.

She will pay taxes at her top marginal tax rate.

She will pay taxes on the grossed-up amount of the income.

She will pay taxes at her average tax rate.

Q109. Maalik opens an account for a new client, John. During the new account process, Maalik determines that he will need to confirm John’s identity. Which of the following statements about Maalik’s identification requirements is CORRECT?

If Maalik determines that there is anything suspicious about John’s transaction, he is required to report the matter to his dealer. The dealer must report the matter to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

If Maalik learns that John is the president of a state-owned company, Maalik is required to report John as a Politically Exposed Foreign Person (PEFP) to his dealer. If John is not a US person, the dealer must report the account to the Internal Revenue Service (IRS).

If John wants to make a large cash deposit of $10,000 or more, Maalik is required to collect personal information about John and report it to his dealer. The dealer must report the information to the Canada Revenue Agency (CRA).

If John attempts to make a suspicious deposit, Maalik is required to report the attempt to his dealer. The dealer must keep records of attempted suspicious transactions that are not reported to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Explanation
The statement that is correct about Maalik’s identification requirements is option A. According to Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), registered firms and individuals must report any suspicious transactions or attempted transactions to FINTRAC, which is Canada’s financial intelligence unit that collects, analyzes, and discloses information related to money laundering and terrorist financing activities. A suspicious transaction or attempted transaction is one that there are reasonable grounds to suspect that it is related to a money laundering or terrorist financing offence. Therefore, if Maalik determines that there is anything suspicious about John’s transaction, he must report the matter to his dealer, who must report it to FINTRAC within 30 days of making the determination. The other statements are not correct about Maalik’s identification requirements. Option B is false because Maalik does not need to report John as a PEFP to his dealer; rather, he must take reasonable measures to determine whether John is a PEFP or a family member or close associate of a PEFP, and if so, he must obtain senior management approval before opening an account for John, take enhanced measures to verify John’s identity, and conduct enhanced ongoing monitoring of John’s account activity. Option C is false because Maalik does not need to collect personal information about John and report it to his dealer if John wants to make a large cash deposit; rather, he must verify John’s identity using an original, valid, and current document or information from a reliable source, keep a record of John’s name and address and the date and amount of the deposit, and report any large cash transactions of $10,000 or more in Canadian currency or its equivalent to FINTRAC within 15 days of receiving the cash. Option D is false because Maalik does not need to report the attempt to his dealer if John attempts to make a suspicious deposit; rather, he must report the attempt directly to FINTRAC within 30 days of detecting the suspicion, regardless of whether the transaction was completed or not. References: [FINTRAC
– Home], [FINTRAC – Reporting], [FINTRAC – Guideline 2: Suspicious Transactions], [FINTRAC – Guideline 6A: Record Keeping and Client Identification for Financial Entities]

Q110. For what reason do different entities have securities created and sold?

Government debt is reduced due to the capital that is received from investors when their securities are purchased.

When common shares are initially sold, the capital raised will increase the issuing corporation’s retained earnings.

Governments can address financial needs and support initiatives when securities are first sold.

The issuance of securities is a method used by corporations to redistribute their wealth to investors to lower taxes.

Q111. Throughout the year, the Redwood Global Equity Fund generated the following outcomes:
. $1.00 per unit of interest income from Canadian treasury bills
. $2.50 per unit of dividend income from foreign corporations
. $7.75 per unit of capital gains from the sale of Canadian corporations
. $6.50 per unit of capital gains from the sale of foreign corporations
. $2.00 per unit of capital losses from the sale of foreign corporations Given that the Redwood Global Equity Fund is structured as a mutual fund trust, which of the following statements is true?

Redwood can flow the foreign dividends to unitholders, who can then take advantage of the dividend gross-up and tax credit mechanism.

Unitholders will receive $12.25 per unit of net capital gains from Redwood, of which only 50% is subject to tax.

Redwood can distribute the $2.00 per unit of capital losses to unitholders, who can then use them to offset their capital gains.

Since Redwood pays the tax on foreign income, it does not distribute dividend or capital gains income from foreign sources to unitholders.

Explanation
This statement is true because a mutual fund trust can distribute its net income and net realized capital gains to its unitholders, and avoid paying tax at the fund level. The unitholders then report their share of the fund’s income and capital gains on their tax returns, and pay tax according to their marginal tax rates. In this case, Redwood has generated $14.25 per unit of capital gains from the sale of Canadian and foreign corporations, and $2.00 per unit of capital losses from the sale of foreign corporations. Therefore, its net capital gains are
$12.25 per unit ($14.25 – $2.00), which it can distribute to its unitholders. The unitholders will only include
50% of the net capital gains in their taxable income, as per the inclusion rate for capital gains in Canada1. The other 50% is tax-free.
The other statements are false because:
* A. Redwood cannot flow the foreign dividends to unitholders, who can then take advantage of the dividend gross-up and tax credit mechanism. This mechanism only applies to dividends received from Canadian corporations that are eligible for the enhanced dividend tax credit or the ordinary dividend tax credit2. Foreign dividends are treated as foreign income, and are subject to withholding tax by the source country and income tax by Canada3.
* C. Redwood cannot distribute the $2.00 per unit of capital losses to unitholders, who can then use them to offset their capital gains. A mutual fund trust can only distribute its net income and net realized capital gains, not its capital losses4. However, a mutual fund trust can carry forward its capital losses indefinitely and use them to reduce its taxable capital gains in future years5.
* D. Redwood does not pay the tax on foreign income, and it does distribute dividend or capital gains income from foreign sources to unitholders. A mutual fund trust pays tax on its foreign income only if it does not distribute it to its unitholders in the same year it is earned. However, most mutual fund trusts distribute all or most of their foreign income to their unitholders, as they want to avoid paying tax at the fund level and maintain their status as a mutual fund trust.
References:
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.3: Taxation of Mutual Funds, page 7-10
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.2: Taxation of Investment Income, page 7-4
* Foreign Income – Canada.ca
* Mutual Fund Trusts – Canada.ca
* Capital Losses and Deductions – Canada.ca
* Taxation of Foreign Income – IFSE Institute
* Mutual Fund Trusts – IFSE Institute

Q112. Which statement CORRECTLY describes index mutual funds and traditional exchange-traded funds (ETFs)?

Index funds use an active investment management style, whereas ETFs use a passive investment management style.

Both types of funds are closed-end investments that are required to hold the same securities as the index at all times.

The market price of an ETF must match its net asset value (NAV), whereas there can be discrepancy in the pricing of index funds.

Both types of funds attempt to replicate the return of a specific market index, but their returns may not perfectly match the index.

Q113. Stan, a portfolio manager, is looking at two steel companies as potential investments. Truesteel Inc. has a current ratio of 2:1 while Strongco Ltd. has a current ratio of 0.8:1.
What could this information indicate?

It appears that Truesteel is more profitable than Strongco.

Truesteel is better able to meet its short-term financial obligations than Strongco.

The stock market is more optimistic about the prospects for Truesteel than Strongco.

Stronqco is reiving less on debt financing than Truesteel.

Q114. Kerry’s total income this past year was $100,000 and she claimed a tax deduction of $2,000. When the tax return is filed, what would be the federal tax payable when applying the following federal tax rates?
(Round to the closest whole dollar for the final answer.)

$17,472

$18,754

$24,000

$25,480

Q115. Nelson is a Dealing Representative with True Wealth Advisors Inc., a mutual fund dealer. Nelson follows proper procedures related to his firm’s Relationship Disclosure Information (RDI). Which of the following CORRECTLY describes how Nelson is permitted to evidence that he satisfied his RDI obligation?

Nelson may retain a copy of the RDI in the client file with detailed notes to confirm that he provided and explained the RDI to the client.

Nelson may deliver the RDI to clients who request it and keep detailed notes of the clients who were provided with the RDI.

Nelson can formalize his relationship under the RDI using a Letter of Engagement that specifies duties, responsibilities, and level of service.

Nelson can record detailed notes which confirm that he provided and explained the Fund Facts to the client within 2 days of the RDI.

Q116. Which information is typically included in the Letter of Engagement?

Client’s responsibilities

Process for complaints

Investment Objective

Payee for deposits

Q117. One of your clients, Fernando, is approaching 71 years of age and has a few questions regarding life income funds (LIFs).
Which of the following statements about LIFs is TRUE?

Fernando may make contributions to his LIF if he continues working.

Fernando is free to withdraw any amount from his LIF above the minimum amount.

Fernando can transfer money from his registered retirement savings plan (RRSP) to a LIF.

Fernando can transfer money from his locked-in retirement account (LIRA) to a LIF.

Q118. Which of the following statements regarding mutual fund fees is correct?

Redemptions are made from units held by investors to pay trailer fees.

Trailer fees are only paid to mutual fund dealers when a purchase is made.

The mutual fund dealer receives trailer fees based on the value of assets under management.

Trading commissions are paid from the management fee.

Q119. Which of the following statements about global equity funds is TRUE?

They may invest in all countries including the investment fund manager’s home country.

They must invest almost exclusively outside of the Americas.

They are always less risky than Canadian equity funds.

They specialize in one or two countries.

Q120. Which of the following statements about registered education savings plans (RESPs) is CORRECT?

Contributions to RESPs are tax deductible.

There is a yearly contribution limit per beneficiary.

RESPs must be collapsed by the end of the 31st year of its starting date

Contributed funds grow tax-free within the plan.

Q121. Bernadette has a high-paying job and is in the top tax bracket. She recently received a payment of $5 million upon the settlement of her uncle’s estate. Bernadette would like to invest her inheritance in financial products that would not only grow her money but is also income tax friendly.
Which of the following would provide the most favourable tax treatment?

Dividends received from a large foreign corporation.

Coupon payments from Government of Canada bonds.

Capital gains from a large Canadian corporation.

Eligible dividends from a publicly-listed Canadian corporation

Q122. Catarina is a Dealing Representative for Ethical Financial which represents 20 different mutual fund families.
Darlene is a fund manager from one of those mutual fund families and wants to send a gift card to Catarina as a symbol of appreciation. Ethical Financial’s policies and procedures manual (PPM) require that Catarina decline the gift.
What method of addressing conflict of interest is being used by Ethical Financial?

Potential

Disclosure

Avoidance

Control

Q123. Russell is a Dealing Representative with Wealth Quest Strategies Ltd., a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA). Russell is developing his website to include sales content on a Target Date Fund. Which of the following is Russell permitted to include on his website about the Target Date Fund?
i. the asset mix through the life of the fund until the future date
ii. the expected decline in the fund’s risk level as the fund reaches its target date iii. the guaranteed return that the client will receive on the future date iv. a graphic illustration of the fund’s promised growth on target date

i and ii

i and iii

ii and iv

iii and iv

Real CIFC Exam Questions are the Best Preparation Material [Q101-Q123]

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