CIFC practice question 15 of 30

Charlotte has received proceeds from a deceased family member’s estate. Charlotte decides to visit Malik, who’s a Dealing Representative at her bank…

Charlotte has received proceeds from a deceased family member’s estate. Charlotte decides to visit Malik, who’s a Dealing Representative at her bank. She tells Malik, she does not know much about trading ETFs, but she wants to invest in ETFs. Charlotte says she feels fortunate to have this money and that she’s not worried about losing it because she never planned on having any of it. What element of the Know Your Client (KYC) information has Malik been able to learn?

Answer options

A: Risk Profile

B: Risk Capacity

C: Risk Preference Correct answer

D: Risk Tolerance

Correct Answer:

C. Risk Preference

Explanation

Charlotte’s remark that she is “not worried about losing” the windfall conveys her psychological willingness to accept risk—her risk preference. This reflects attitude toward risk, distinct from her financial ability (capacity) or overall risk profile.

Why Incorrect

A. A risk profile is the composite outcome of all KYC elements, not one comment.
B. Capacity measures financial ability to absorb loss, not emotional attitude.
D. Risk tolerance combines capacity and preference; only preference has been observed.

References

1. IFSE Institute – CIFC Textbook 2023, ch. 3 “Know Your Client,” p. 3-9 to 3-10.

2. MIT OpenCourseWare, 15.433 “Investments,” lecture 2 notes, slide 7 “Risk Preference vs. Capacity.”

3. University of British Columbia Sauder, COMM473 “Wealth Management,” module 4, p. 4.

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