CSI Updated IFC Exam Questions and Answers by wesley

Promising that a mutual fund’s NAVPU will increase by a certain amount is an illegal and unacceptable selling practice, as it implies guaranteed future performance. The feedback from the document states:

"There are a number of sales practices that are clearly illegal or otherwise unacceptable to securities regulators. A dealing representative may not make promises that the NAVPS or NAVPU of a fund will achieve a certain level or increase by any amount."

A global fund that does not hedge foreign currency risk benefits from a weakening Canadian dollar, as the value of foreign investments increases in Canadian dollar terms. The feedback from the document states:

"Global mutual funds are attractive in that they can provide a hedge against a decline in the relative value of the Canadian dollar… It is important for mutual fund sales representatives to know whether their global mutual funds hedge foreign exchange risk, because some clients will want to bear that risk themselves, while others will not."

 A portfolio with a beta less than 1 would be suitable for Gregory, who is a conservative investor and wants to reduce his exposure to market risk. A beta less than 1 means that the portfolio is less volatile than the market index and tends to dampen its movements. This implies that the portfolio would fall less than the market in a downturn, but also rise less than the market in an upturn. A portfolio with a beta equal to 1 would move in the same direction and magnitude as the market, while a portfolio with a beta greater than 1 would be more volatile than the market and amplify its movements.

Canadian Investment Funds Course, Chapter 3: Risk and Return1

Interest rate risk is the primary risk for fixed-income securities, as their value decreases when interest rates rise due to fixed cash flows. The feedback from the document states:

"Interest rate risk is the fundamental risk factor for fixed-income securities such as bonds, mortgages and preferred shares. As interest rates move up, the value of a fixed-income security falls. This is because the cash flow from the fixed-income security is fixed."