IFIC EXAM STUDY GUIDE
holding period return - Answers -A transactional rate of return measure that takes into
account all cash
account closing fees - Answers -A charge levied by some mutual funds when clients
close their accounts.
accredited investor - Answers -An individual or institutional investor who meets certain
minimum requirement relating to income, net worth, or investment knowledge. Also
referred to as a sophisticated investor.
accumulation plan - Answers -A plan offered by a mutual fund company that enables
investors to make automatic periodic purchases of units of a particular mutual fund.
acquisition fee - Answers -See Front-end Load.
active portfolio management - Answers -An investment management style employed by
managers who believe that financial markets present occasional inefficiencies which
can be exploited to earn excess returns. Proponents of this approach will try to add
value through strategies such as market timing and individual security selection.
adjusted cost base - Answers -The deemed cost of an asset representing the sum of
the amount originally paid plus any additional costs, such as brokerage fees and
commissions.
administrative bodies - Answers -Provincial and territorial securities administrators such
as securities commissions or other regulatory bodies that operate within the provincial
and territorial governments. Powers and operations include registration, disclosure, and
investigation and prosecution.
alpha - Answers -A statistical measure of the value a fund manager adds to the
performance of the fund managed. If alpha is positive, the manager has added value to
the portfolio. If the alpha is negative, the manager has underperformed the market.
alternative managed products - Answers -Professionally managed portfolios of basic
asset classes and/or commodities and include segregated funds, hedge funds,
commodity pools, exchange- traded funds, income, trusts, closed- end funds and
principal protected notes (PPN).
annuity - Answers -A sum of money invested with a life insurance company that is paid
out to the investor based on a predetermined formula. The annual payouts are
composed of both the initial amount invested and returns generated.
,appraisal firms - Answers -Firms that engage in the business of collecting mutual fund
performance information and report this information on a regular basis.
arbitrage transactions - Answers -The simultaneous purchase and sale of securities
traded on different exchanges.
arithmetic mean - Answers -A somewhat inaccurate method of calculating average
annual return. It involves adding up the annual returns and dividing by the number of
years.
arrears - Answers -Interest or dividends that were not paid when due but are still owed.
For example, dividends owed but not paid to cumulative preferred shareholders
accumulate in a separate account (arrears). When payments resume, dividends in
arrears must be paid to the preferred shareholders before the common shareholders.
ask price - Answers -The lowest price at which a seller will accept for the financial
instrument being quoted.
asset allocation - Answers -The weight of the various components (cash, debt, equity,
and money market securities) of an investor's portfolio.
assets - Answers -All things of value that are owned by a firm or individual.
Amortization - Answers -Gradually writing off the value of an intangible asset over a
period of time. Commonly applied to items such as goodwill, improvements to leased
premises, or expenses of a new stock or bond issue.
amortization period - Answers -The period during which the entire principal amount of a
mortgage loan is to be repaid to the mortgagee.
amortized cost - Answers -This cost reflects the fact that mortgages might have entered
the portfolio when the market rate for them was different from their fixed rate.
Annual Information Form (AIF) - Answers -A document that contains information not
included in a simplified prospectus or annual financial statements.
annuitant - Answers -The person on whose life insurance benefits are based.
assets under management (AUM) - Answers -The assets managed by an investment
firm.
auction market - Answers -Market in which securities are bought and sold by brokers
acting as agents for their clients, in contrast to a dealer market where trades are
conducted over-the-counter. For example, the Toronto Stock Exchange is an auction
market.
,audit - Answers -A professional review and examination of a company's financial
statements required under corporate law for the purpose of ensuring that the statements
are fair, consistent and conform with International Financial Reporting Standards
(IFRS).
auditor's report - Answers -An independent report on the accuracy and validity of a
company's financial statements.
Autorité des marchés financiers (AMF) - Answers -The body that administers the
regulatory framework surrounding Québec's financial sector: securities sector, the
distribution of financial products and services sector, the financial institutions sector and
the compensation sector.
availability bias - Answers -A method that allows people to estimate the probability of
an outcome based on how prevalent or familiar that outcome appears in their lives.
average - Answers -A statistical tool used to measure the direction of the market. The
most common average is the Dow Jones Industrial Average.
average annual return - Answers -The average of the simple annual returns earned on
an investment over a given number of years.
balance of payments - Answers -Accounts maintained by a country to record
international activities, such as foreign trade and international borrowing and lending.
Balance of payments accounts actually comprise two separate accounts: the Current
account and the Capital account.
balanced mutual funds - Answers -Hold a diversified portfolio of different types of
securities: bonds, stocks, and money market securities. Often, the fund manager will
vary the proportions depending on market conditions.
bank rate - Answers -The minimum rate at which the Bank of Canada will lend money
on a short- term basis to the chartered banks and other members of Payments Canada
in its role as lender of last resort.
basis point - Answers -A unit equal to 1/100 of 1%.
bear market - Answers -A sustained decline in equity prices. Bear markets are usually
associated with a downturn (recession or contraction) in the business cycle.
bearer bond - Answers -A bond that is not registered in the name of a particular
investor and can be negotiated by any holder.
behavioural biases - Answers -Systematic errors in financial judgment or imperfections
in the perception of economic reality.
, benchmark index - Answers -An index that reflects a mutual fund's investment universe
and can be used as a standard against which performance can be measured.
beneficiary - Answers -The person who will receive the benefits payable under the
contract upon death of the annuitant.
best practical allocation - Answers -An asset allocation where the risk and return levels
are adjusted based upon a client's behavioural tendencies. A best practical allocation
may slightly underperform over the long term, but is an allocation that the client can
comfortably adhere to over the long run.
beta - Answers -The standard measure of market risk. It shows how much a security or
a portfolio fluctuates when the market as a whole fluctuates.
biases - Answers -Personal beliefs that may lead to irrational or emotional choices and
decisions.
bid price - Answers -The highest price at which a buyer will pay for the financial
instrument being quoted.
board of directors - Answers -Those that hold the ultimate responsibility for a mutual
fund's activities, ensuring that the investments are in keeping with the fund's investment
objectives.
bond - Answers -A bond is a debt security that may be issued by either a government
or a corporation. The issuer of a bond promises to pay a stipulated rate of interest
(coupon rate) and to pay back the principal or par value at maturity.
bond fund - Answers -A fixed-income fund that invests principally in government and
corporate bonds.
behavioural finance - Answers -A field of study that combines psychology and
economics to explain why and how investors act and how that behaviour affects
financial markets.
benchmark - Answers -An index or fund that enables you to compare the success of a
fund or portfolio manager.
Branch Compliance Officer (BCO) - Answers -The person responsible for ensuring
compliance with the regulatory requirements within the branch by monitoring the
conduct of the mutual fund salespeople.
bull market - Answers -A general and prolonged rising trend in security prices. Bull
markets are usually associated with an expansionary phase of the business cycle. As a
memory aid, it is said that a bull walks with his head up while a bear walks with his head
down.
holding period return - Answers -A transactional rate of return measure that takes into
account all cash
account closing fees - Answers -A charge levied by some mutual funds when clients
close their accounts.
accredited investor - Answers -An individual or institutional investor who meets certain
minimum requirement relating to income, net worth, or investment knowledge. Also
referred to as a sophisticated investor.
accumulation plan - Answers -A plan offered by a mutual fund company that enables
investors to make automatic periodic purchases of units of a particular mutual fund.
acquisition fee - Answers -See Front-end Load.
active portfolio management - Answers -An investment management style employed by
managers who believe that financial markets present occasional inefficiencies which
can be exploited to earn excess returns. Proponents of this approach will try to add
value through strategies such as market timing and individual security selection.
adjusted cost base - Answers -The deemed cost of an asset representing the sum of
the amount originally paid plus any additional costs, such as brokerage fees and
commissions.
administrative bodies - Answers -Provincial and territorial securities administrators such
as securities commissions or other regulatory bodies that operate within the provincial
and territorial governments. Powers and operations include registration, disclosure, and
investigation and prosecution.
alpha - Answers -A statistical measure of the value a fund manager adds to the
performance of the fund managed. If alpha is positive, the manager has added value to
the portfolio. If the alpha is negative, the manager has underperformed the market.
alternative managed products - Answers -Professionally managed portfolios of basic
asset classes and/or commodities and include segregated funds, hedge funds,
commodity pools, exchange- traded funds, income, trusts, closed- end funds and
principal protected notes (PPN).
annuity - Answers -A sum of money invested with a life insurance company that is paid
out to the investor based on a predetermined formula. The annual payouts are
composed of both the initial amount invested and returns generated.
,appraisal firms - Answers -Firms that engage in the business of collecting mutual fund
performance information and report this information on a regular basis.
arbitrage transactions - Answers -The simultaneous purchase and sale of securities
traded on different exchanges.
arithmetic mean - Answers -A somewhat inaccurate method of calculating average
annual return. It involves adding up the annual returns and dividing by the number of
years.
arrears - Answers -Interest or dividends that were not paid when due but are still owed.
For example, dividends owed but not paid to cumulative preferred shareholders
accumulate in a separate account (arrears). When payments resume, dividends in
arrears must be paid to the preferred shareholders before the common shareholders.
ask price - Answers -The lowest price at which a seller will accept for the financial
instrument being quoted.
asset allocation - Answers -The weight of the various components (cash, debt, equity,
and money market securities) of an investor's portfolio.
assets - Answers -All things of value that are owned by a firm or individual.
Amortization - Answers -Gradually writing off the value of an intangible asset over a
period of time. Commonly applied to items such as goodwill, improvements to leased
premises, or expenses of a new stock or bond issue.
amortization period - Answers -The period during which the entire principal amount of a
mortgage loan is to be repaid to the mortgagee.
amortized cost - Answers -This cost reflects the fact that mortgages might have entered
the portfolio when the market rate for them was different from their fixed rate.
Annual Information Form (AIF) - Answers -A document that contains information not
included in a simplified prospectus or annual financial statements.
annuitant - Answers -The person on whose life insurance benefits are based.
assets under management (AUM) - Answers -The assets managed by an investment
firm.
auction market - Answers -Market in which securities are bought and sold by brokers
acting as agents for their clients, in contrast to a dealer market where trades are
conducted over-the-counter. For example, the Toronto Stock Exchange is an auction
market.
,audit - Answers -A professional review and examination of a company's financial
statements required under corporate law for the purpose of ensuring that the statements
are fair, consistent and conform with International Financial Reporting Standards
(IFRS).
auditor's report - Answers -An independent report on the accuracy and validity of a
company's financial statements.
Autorité des marchés financiers (AMF) - Answers -The body that administers the
regulatory framework surrounding Québec's financial sector: securities sector, the
distribution of financial products and services sector, the financial institutions sector and
the compensation sector.
availability bias - Answers -A method that allows people to estimate the probability of
an outcome based on how prevalent or familiar that outcome appears in their lives.
average - Answers -A statistical tool used to measure the direction of the market. The
most common average is the Dow Jones Industrial Average.
average annual return - Answers -The average of the simple annual returns earned on
an investment over a given number of years.
balance of payments - Answers -Accounts maintained by a country to record
international activities, such as foreign trade and international borrowing and lending.
Balance of payments accounts actually comprise two separate accounts: the Current
account and the Capital account.
balanced mutual funds - Answers -Hold a diversified portfolio of different types of
securities: bonds, stocks, and money market securities. Often, the fund manager will
vary the proportions depending on market conditions.
bank rate - Answers -The minimum rate at which the Bank of Canada will lend money
on a short- term basis to the chartered banks and other members of Payments Canada
in its role as lender of last resort.
basis point - Answers -A unit equal to 1/100 of 1%.
bear market - Answers -A sustained decline in equity prices. Bear markets are usually
associated with a downturn (recession or contraction) in the business cycle.
bearer bond - Answers -A bond that is not registered in the name of a particular
investor and can be negotiated by any holder.
behavioural biases - Answers -Systematic errors in financial judgment or imperfections
in the perception of economic reality.
, benchmark index - Answers -An index that reflects a mutual fund's investment universe
and can be used as a standard against which performance can be measured.
beneficiary - Answers -The person who will receive the benefits payable under the
contract upon death of the annuitant.
best practical allocation - Answers -An asset allocation where the risk and return levels
are adjusted based upon a client's behavioural tendencies. A best practical allocation
may slightly underperform over the long term, but is an allocation that the client can
comfortably adhere to over the long run.
beta - Answers -The standard measure of market risk. It shows how much a security or
a portfolio fluctuates when the market as a whole fluctuates.
biases - Answers -Personal beliefs that may lead to irrational or emotional choices and
decisions.
bid price - Answers -The highest price at which a buyer will pay for the financial
instrument being quoted.
board of directors - Answers -Those that hold the ultimate responsibility for a mutual
fund's activities, ensuring that the investments are in keeping with the fund's investment
objectives.
bond - Answers -A bond is a debt security that may be issued by either a government
or a corporation. The issuer of a bond promises to pay a stipulated rate of interest
(coupon rate) and to pay back the principal or par value at maturity.
bond fund - Answers -A fixed-income fund that invests principally in government and
corporate bonds.
behavioural finance - Answers -A field of study that combines psychology and
economics to explain why and how investors act and how that behaviour affects
financial markets.
benchmark - Answers -An index or fund that enables you to compare the success of a
fund or portfolio manager.
Branch Compliance Officer (BCO) - Answers -The person responsible for ensuring
compliance with the regulatory requirements within the branch by monitoring the
conduct of the mutual fund salespeople.
bull market - Answers -A general and prolonged rising trend in security prices. Bull
markets are usually associated with an expansionary phase of the business cycle. As a
memory aid, it is said that a bull walks with his head up while a bear walks with his head
down.
