CSI Updated IFC Exam Questions and Answers by olly

Discretionary trading is a type of trading activity where the advisor makes investment decisions on behalf of the client without obtaining the client’s prior consent for each transaction. Discretionary trading is only allowed if the client has signed a discretionary management agreement with the advisor and the advisor is registered as a portfolio manager. A limited authorization form (LAF) does not grant the advisor the authority to engage in discretionary trading. A LAF only allows the advisor to execute trades that are initiated by the client, such as pre-authorized contributions or withdrawals. Therefore, Khuyen has performed discretionary trading by switching Bao’s funds without consulting him, which is a violation of her registrant responsibilities and ethical standards. References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 2: The Sales Process, Section 2.4: Ethics and Compliance, page 2-161

Discretionary Trading Definition - Investopedia2

Loss-averse investors prioritize minimizing potential losses over maximizing gains. The option with a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest loss potential, making it the preferred choice. The feedback from the document states:

"The loss-averse investor will choose a lower potential of loss over a more rational choice. In this example, a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest possible loss potential, and will typically be the statement selected by the loss-averse investor."

A put option is a contract that gives the buyer the right, but not the obligation, to sell an underlying stock at a specified price (the strike price) within a specified time period (the expiration date). The seller of a put option is obligated to buy the stock if the buyer exercises the option. Patrick can purchase put options for the fund’s existing assets, which means he can lock in a minimum selling price for his stocks in case the market value drops below the strike price. This way, he can protect against potential losses and hedge his portfolio against market risk. References: What Is a Put Option and How to Use It With Example - Investopedia, How to Hedge With Stock Index Futures - Investopedia

This account/transaction is unsuitable because it does not match Gilles’ investment needs and objectives, risk profile, and capacity for loss. A leverage strategy involves borrowing money to invest in mutual funds, which increases the potential returns but also the potential losses. This strategy is very risky and requires a high risk tolerance, a long-term investment horizon, and a sufficient income to cover the interest payments. Gilles is 82 years old, retired, and needs regular income, which means he has a low risk tolerance, a short-term investment horizon, and a limited income. He cannot afford to lose his principal or pay the interest costs. Therefore, a leverage strategy is not appropriate for him.

References = IFSE CIFC Module 3: Investment Products, page 3-24. What is Suitability? | MFDAMSN-0069 | MFDA