CSI Updated CSC2 Exam Questions and Answers by jana

Responsible investing (RI) incorporates environmental, social, and governance (ESG) factors into investment decisions. This approach combines values-based investing (aligning investments with personal or institutional ethics) and valuation-based investing (analyzing ESG factors to assess potential risks and returns).

A. It is unavailable with certain asset classes like segregated funds: RI is increasingly available across various asset classes, including segregated funds.

B. ESG factors are standardized across the investment industry: ESG standards vary and are not uniformly applied.

D. It bases investment decisions exclusively on environmental factors: RI considers environmental, social, and governance factors, not just environmental concerns.

A high-water mark is tied to performance fee arrangements, especially in hedge funds and alternative investment funds. It prevents the fund manager from earning performance fees on the same gains more than once. If a fund loses value, the manager must first recover the losses and bring the fund above its previous highest value before charging a new performance fee. Because this feature directly affects how the manager is compensated, it falls under the fees area of due diligence. Fund structure deals with legal organization and terms. Risk analysis examines exposures, volatility, leverage, and strategy risk. Operations focus on processes, controls, valuation, custody, and administration. The high-water mark is primarily a fee-related inquiry.

A growth industry is expected to expand faster than the overall economy because of innovation, new demand, changing consumer behaviour, or technological development. Companies in these industries often generate above-average earnings relative to invested capital because demand is strong and expansion opportunities are significant. Option A describes a mature industry whose growth roughly tracks the broader economy. Option B may occur as competition develops, but price competition alone is not the best defining characteristic of a growth industry and may eventually pressure margins. Option C describes a defensive or mature industry where demand remains steady regardless of economic conditions. The strongest growth-industry characteristic is that companies can earn above-average returns on invested capital due to superior growth prospects.