CISI Updated IFC Exam Questions and Answers by skyler

 The “Know Your Product” obligation requires that Dealing Representatives understand all the products they purchase, sell or recommend for their clients, including their structure, features, risks, costs and suitability. Rehan has fulfilled this obligation by reviewing the features of the Hedge Fund and explaining them to Georgi, who may not be aware of the lock-up period and its implications. The other Dealing Representatives have failed to fulfill their obligation by either not knowing or not disclosing important information about the products they deal with.

Sachin is experiencing interest rate risk, which is the risk that changes in interest rates will affect the value of fixed income securities. When interest rates rise, bond prices fall, and vice versa. This is because investors will demand a higher yield to invest in bonds that pay a lower coupon rate than the prevailing market rate. Therefore, if the Bank of Canada makes it more expensive to borrow money, the existing bonds in Sachin’s fund will become less attractive and their prices will drop. Interest rate risk is measured by a fixed income security’s duration, with longer-term bonds having a greater price sensitivity to rate changes. Sachin can reduce his interest rate risk by diversifying his bond maturities or hedging using interest rate derivatives1.

Comprehensive and Detailed Explanation From Exact Extract:

Global equity funds can act as a hedge against a decline in the Canadian dollar’s value, increasing the investment’s value in Canadian dollars if the foreign currency strengthens. The feedback from the document states:

"Global mutual funds are attractive because they can provide a hedge against a decline in the relative value of the Canadian dollar. For example: if investors buy a Japanese fund, and then the value of the Canadian dollar falls relative to the yen, the Canadian dollar value of that investment will increase even if the value of the fund’s units in yen has remained unchanged."

The category of Know Your Client (KYC) information that has been given is investment experience. Investment experience refers to the level of knowledge and familiarity that a client has with various types of investments, such as mutual funds, stocks, bonds, etc. It also includes the client’s past performance, frequency of trading, and length of holding period. In this case, Felipe has given information about his investment experience by stating that he purchased a mutual fund with a deferred sales charge, that he had a 25-year growth objective, that he never noticed his mutual fund having a drop in value, and that he never made any changes to his investment.

References = Know Your Client (KYC): What It Means, Compliance Requirements, Know Your Client (KYC) - Overview, Importance and Benefits, Process, IFSE CIFC Module 2: The Investment Industry, page 2-14.