LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client's portfolio is entirely in Canadian holdings. The risk the analysis should name is:
- ACredit risk, since Canadian issuers are more likely to default than foreign ones
- Concentration in one economy and one currency, which global exposure would reduce
- CCurrency risk, since holding only Canadian assets exposes the client to exchange rate movements
- DLiquidity risk, since Canadian markets are too small to sell a portfolio quickly
Correct answer: B) Concentration in one economy and one currency, which global exposure would reduce
A single national market is a narrow slice of global activity and is heavily weighted to a few sectors, so diversifying beyond it reduces the dependence on one economy.
Why the other options are wrong
- ANothing suggests Canadian issuers are more prone to default.
- CHolding only domestic assets removes currency exposure; adding foreign assets creates it.
- DCanadian markets are liquid for retail-sized holdings.
Exam tip
Home bias is concentration, not safety.
Common mistake
Describing an all-Canadian portfolio as conservative.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.