Free Practice Questions for CISI IFC Exam

Comprehensive and Detailed Explanation From Exact Extract:

For a spousal RRSP, KYC information is required only for the account holder (the wife) and those with trading authority, not the contributing spouse (the husband), who has no financial interest in the account. The feedback from the document states:

"The investment experience and knowledge of all individuals who have trading authority over the account should be obtained, as well as KYC information for anyone with a financial interest in the account. For spousal RRSPs, the contributing spouse does not have a financial interest in the account, so KYC information is required for the non-contributing spouse only."

Comprehensive and Detailed Explanation From Exact Extract:

Withdrawals from an RRSP are taxed as regular income at the plan holder’s marginal tax rate, regardless of the type of income earned within the plan. The feedback from the document states:

"Contributions withdrawn from an RRSP are taxed as regular income at the plan holder’s marginal tax rate."

According to the Personal Information Protection and Electronic Documents Act (PIPEDA), personal information is any factual or subjective information, recorded or not, about an identifiable individual. This includes information in any form, such as age, name, ID numbers, income, ethnic origin, or blood type. However, PIPEDA also specifies some exceptions to the definition of personal information, such as business contact information. Business contact information is any information that is used for the purpose of communicating or facilitating communication with an individual in relation to their employment, business or profession. This includes the employee’s name, position name or title, work address, work telephone number, work fax number or work electronic address. Therefore, an employee’s business address and business telephone number are not considered personal information under PIPEDA. An employee’s name could be considered personal information if it is not used for business purposes, but it is not clear from the question whether that is the case. An employee’s credit record is clearly personal information under PIPEDA, as it reveals sensitive information about the individual’s financial situation and history.

A DPSP is a type of registered plan that allows employers to share their profits with their employees. Employees do not contribute to a DPSP, and they do not pay taxes on the contributions until they withdraw them. Employers can deduct their contributions to a DPSP from their taxable income, subject to certain limits and conditions.

References = IFSE CIFC Module 6: Registered Plans, page 6-12. Contributing to a deferred profit sharing plan - Canada.ca

Comprehensive and Detailed Explanation From Exact Extract:

A short-term bond fund combines characteristics of money market and bond funds, aiming to preserve capital while generating higher income than a money market fund due to its short duration. The feedback from the document states:

"A short-term bond fund is part money market fund and part bond fund. You would expect its investment objectives to reflect this combination. A short-term bond fund’s objectives are to preserve capital and generate better current income than is likely from a money market fund. Although there is some capital gain potential, you would not expect this to be a key objective given the short duration of this type of fixed-income fund."

Comprehensive and Detailed Explanation From Exact Extract:

Unused RRSP contribution room can be carried forward indefinitely. The carry-forward amount is the unused room minus the current year’s contribution: $46,000 - $15,000 = $31,000. The feedback from the document states:

"Any RRSP contribution room that is not used in a taxation year can be carried forward to be used in future years. There is no limit on the amount that can be carried forward. In this example, $46,000 - $15,000 = $31,000."

A treasury bill is a short-term debt instrument issued by the government at a discount from its face value and redeemed at par value at maturity. The difference between the purchase price and the face value is the interest income earned by the investor. Therefore, Megan treats the $1,800 difference as interest income for tax purposes. Interest income is fully taxable at the investor’s marginal tax rate in the year it is received. Megan does not report any capital gain, dividend, or return of capital from the treasury bill.

A LIF is a type of registered retirement income fund that is used to hold and pay out locked-in pension funds. A LIF has both a minimum and a maximum withdrawal limit for each calendar year, which are determined by the federal or provincial pension legislation, the age of the annuitant, and the value of the fund. The minimum withdrawal limit is similar to that of a RRIF, but the maximum withdrawal limit is intended to ensure that the LIF provides income for the lifetime of the annuitant123

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.4: Life Income Fund (LIF)4 and web search results from search_web(query="maximum withdrawal limit for LIF RRSP RRIF DPSP")123

4: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

Comprehensive and Detailed Explanation From Exact Extract:

To protect against a market decline, purchasing put options on an index fund like the iShares S&P/TSX 60 allows the portfolio to offset losses by gaining value if the market falls. The feedback from the document states:

"A fund manager may have experienced a rapid growth in the value of her portfolio, but is concerned that the market may fall. To protect herself against a fall in value, she purchases put options on the iShares S&P/TSX 60 Index Fund (i60s). If the market declines, the fall in value of the portfolio is offset by an increase in the value of the put options."

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."