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CANADIAN SECURITIES COURSE EXAM QUESTIONS
AND CORRECT ANSWERS (ALREADY GRADED A+) |
VERIFIED ANSWERS | UPDATED VERSION (ALL
CHAPTERS COVERED)
What are the 5 commodities that underlie derivative contracts? ------ CORRECT ANSWER---------------1) Grains and oil seeds
- Livestock and meat
- Forest, fiber, and food
- Precious and industrial metals
- Energy products What type of financials underlie derivative contracts? ------CORRECT ANSWER---------------Equities, Interest rates, and currencies. Who are the 4 main participants in derivative contracts? ------CORRECT ANSWER---------------1) Individual Investors
- Institutional Investors
- Business and Corporations
- Derivative Dealers What is the difference between an American-style option and a European Style option? ------CORRECT ANSWER---------------American style options can be exercised any time. European style can only be exercised on expiration date. What is Time Value? ------CORRECT ANSWER---------------It is the value of uncertainty. Calculated as The option's premium minus the intrinsic value.
What is Intrinsic Value? ------CORRECT ANSWER---------------The value of certainty aka the portion of the option contract that is ITM. How do you calculate IV? ------CORRECT ANSWER----------------Iv for an ITM call = Price of underlying security - Strike Price
- Iv for an ITM Put = Strike price - Price of underlying security. Who would write call options? ------CORRECT ANSWER---------------people who won the underlying stock (Covered calls) and people who think the stock will not go above a certain price (naked call writers) What is the maximum risk of writing naked calls vs puts? ------CORRECT ANSWER---------------Naked call writers risk is theoretically unlimited. The max loss for put writers is limited because the stock could only go to $0. What is a cash secured put? ------CORRECT ANSWER---------------Writing a put, while putting aside an equal amount of cash in a short term liquid investment like a T-bill so if you are assigned you can use the proceeds from that to pay for it. What is the difference between a forward and a future? ------CORRECT ANSWER---------------When traded on an exchange, it is called a future. When traded OTC it is a forward. When is a cash-settled future used? ------CORRECT ANSWER--------------- When futures are based off of assets that are difficult or impossible to
What is the formula for the IV of a right during the ex-rights period? ------ CORRECT ANSWER---------------(Stock price - Subscription price) / (Number of rights to buy 1 share +1) Why do investors buy warrants? ------CORRECT ANSWER---------------To leverage their potential gains since the market price of a warrant is usually much lower than the price of the underlying security. What are the main differences between a sole proprietorship and a partnership? ------CORRECT ANSWER---------------In sole props, only 1 person runs the business and is responsible for all the liabilities. There is no difference between the business's assets and the person's assets. In a partnership two or more people run the business. It can be a general partnership where their assets are the same as the business or it can have limited liability. What does an Investment Dealer do? ------CORRECT ANSWER--------------- Acts as intermediaries between investors and users of capital. When a Investment Dealer is acting as Primary, what are they doing? ------ CORRECT ANSWER---------------Selling securities from their own inventory. Make money via spread/underwriting. When an investment dealer is acting as agents, what are they doing? ------ CORRECT ANSWER---------------Facilitating a trade between a buyer and seller, without owning the security. They make money via commissions.
What are the three types of Investment dealers? ------CORRECT ANSWER---------------Retail firms, Institutional firms, and Integrated firms. Give a brief description of retail firms. ------CORRECT ANSWER--------------- Includes full service investment dealers and self directed brokers. Give a brief description of Institutional firms. ------CORRECT ANSWER------ ---------They serve institutional clients and organizations that trade large volumes like pension funds. Give a brief description of Integrated firms. ------CORRECT ANSWER-------- -------Offer products and services that participate in both retail and institutional markets. Most firms underwrite debt and equity issues and are active in the secondary markets. What are the roles of front, middle, and back offices of an investment dealer firm? ------CORRECT ANSWER---------------Front Office: Portfolio management, Trading, Sales, Marketing. Middle Office: Compliance, Accounting, Audits, Legal Back Office: Trade settlement. What services do investment dealers provide? ------CORRECT ANSWER--- ------------They provide advice about new issues, They act as market makers, They buy stocks as principal becoming more competitive in serving their institutional clients, They add liquidity to secondary markets which enhances the primary markets.
What type of bank has strict ownership rules? ------CORRECT ANSWER---- -----------Schedule I banks ( a single shareholder cannot own more than 20%). What is a credit union? ------CORRECT ANSWER---------------They often cater to member-savers from common interest groups and provide deposit taking services, lending, mortgages, insurance, mutual funds, debt and credit cards. What role do insurance companies play in the financial markets? ------ CORRECT ANSWER---------------They offer term deposits and GIC's, segregated funds and other investment products. What is the most important aspect of insurance companies? ------ CORRECT ANSWER---------------Underwriting (the business of evaluating risk). What other things do insurance companies have to offer? ------CORRECT ANSWER---------------Life insurance, home, auto, and commercial insurance. What is a trust company? ------CORRECT ANSWER---------------They act as a trustee in charge of corporate and individual assets such as property. stocks, and bonds. What is the purpose of an investment fund? ------CORRECT ANSWER------ ---------They are companies or trusts that sell shares or units to the public and invest the proceeds in a diverse securities portfolio.
What are the two types of government-related pension funds? ------ CORRECT ANSWER---------------Defined Benefit (provides employees with a pre-determined specified payment amount when they retire) and Defined Contribution plans (Allows employees to contribute to a plan that invests funds over time). What is a Robo-Advisor? ------CORRECT ANSWER---------------It provides clients with advice with goal based online investment management, creates portfolios using algos based on theory and questions. Usually built with ETF's. What is a direct investment? ------CORRECT ANSWER---------------An investment into an asset. Such as buying a house, Or the Government investing in a new highway What is an indirect investment? ------CORRECT ANSWER---------------When you buy representational items such as stock, or depositing into a savings account. What does an investment advisor do? ------CORRECT ANSWER--------------
- Helps individuals or entities invest in indirect investments. What are the 3 characteristics of capital? ------CORRECT ANSWER---------- -----Mobility, sensitivity, and scarcity.
What other ways can the capital market be categorized as? ------ CORRECT ANSWER---------------Primary, secondary, and auction markets. What is the purpose of primary markets? ------CORRECT ANSWER---------- -----It is where newly issued securities are sold. What is the purpose of secondary markets? ------CORRECT ANSWER------ ---------Where investors trade securities that are already been issued by companies. What is an auction market? ------CORRECT ANSWER---------------Where investment dealers act as agents execute buy & sell orders on behalf of their clients. What is a Dealer (OTC) market? ------CORRECT ANSWER---------------It is a negotiated market where market makers post bid-ask quotes. Consists of banks and investment dealers who act as principal. Almost all bonds and debentures are sold here. What are the 5 exchanges in Canada? ------CORRECT ANSWER------------- --TSX, TSX.V, Montreal Exchange, Canadian securities exchange, NEO Exchange.
What is an Alternative Trading System (ATS)? ------CORRECT ANSWER--- ------------Are electronic marketplaces that provide automated matching and execution of trades in both equity and fixed-income markets. What is CanDeal? ------CORRECT ANSWER---------------It is a joint venture between Canada's 6 largest bank-owned investment dealers. What is CBID? ------CORRECT ANSWER---------------It is an ATS that operates 2 types of fixed-income marketplaces, retail and institutional. What is CanPX? ------CORRECT ANSWER---------------It is a joint venture between several Canadian investment dealers that provides real time Bid and ask quotes in price and yield terms for Government of Canada Tbills. Who regulates the financial sector in Canada? ------CORRECT ANSWER--- ------------The Office of the Superintendent of Financial Institutions (OSFI). What is the job of the Canadian Securities Administration (CSA)? ------ CORRECT ANSWER---------------It is an umbrella organization of Canada's securities regulators designed to harmonize regulation of the Canadian capital markets. What is a Self Regulatory Organization(SRO)? ------CORRECT ANSWER-- -------------SRO's are private industry organizations that provincial regulatory bodies have granted the privilege of regulating their own members. They have their own rules and requirements.
What is the role of the Canadian Investor Protection Fund (CIPF)? ------ CORRECT ANSWER---------------The primary role is investor protection, Its secondary role is to oversee the self-regulatory system. Who does the CIPF protect and what does it cover for them? ------ CORRECT ANSWER---------------It protects eligible customers in the event of the insolvency of an IIROC dealer member. It offers coverage of up to $1,000,000 for each accounts. Accounts are separated into different categories and each category can receive up to$1M. What does the MFDA Investor Protection Corporation (MFDA IPC) protect? ------CORRECT ANSWER---------------It provides protection for eligible customers of insolvent MFDA member firms. What type of coverage does the MFDA IPC have? ------CORRECT ANSWER---------------Up to $1,000,000 for each account. What does the Canadian Deposit Insurance Corporation (CDIC) do? ------ CORRECT ANSWER---------------It is a federal crown corporation that provides deposit insurance. What coverage does the CDIC have? ------CORRECT ANSWER--------------
- Insures eligible deposits of up to $100,000 per depositor and reimburses depositors for the amount of any insured deposits if a member institution fails.
What do provincial insurance companies do? ------CORRECT ANSWER---- -----------They protect the deposits of credit unions. What are the primary objectives of regulation? ------CORRECT ANSWER--- ------------Consumer protection, fairness, economic stability, and social objectives. Describe the principal-based regulatory model. ------CORRECT ANSWER-- -------------Regulators set objectives for securities dealers and allow firms themselves to decide how best to meet those objectives. What are the differences between a principal based and a rules based system? ------CORRECT ANSWER---------------A primary system set objectives, a rules based imposes detailed rules. A principal based is clearer, simpler, and less costly. What does full, true, and plain disclosure refer to? ------CORRECT ANSWER---------------It is the general principal for Canadian securities legislation of all facts by those offering securities to the public. What is the registration process of an IA vs and IR? ------CORRECT ANSWER---------------IA's are employees of the security dealer they work for and must register with IIROC as well as with the administrator, and complete 90 days training. IR's are employed by self-directed brokerages. Registration is the same except they only have 3 days training.
What are the steps if a client feels that they have been treated unfairly? ---- --CORRECT ANSWER---------------1) Remediation
- Arbitration
- Court What is the Ombudsman for Banking Services and Investments (OBSI) for? ------CORRECT ANSWER---------------For investors who have been unable to resolve their complaints. The process is not binding but financial services that do not agree with it are publicly reported. What is the National do not call list? ------CORRECT ANSWER---------------A list of numbers that telemarketers cannot call if they have been registered for more than 31 days. What are some examples of unethical practices? ------CORRECT ANSWER---------------Deceiving the public of the price of a transaction, high pressure sales tactics, front running, market manipulation, misleading appearance in markets. What is the difference between micro and macro economics? ------ CORRECT ANSWER---------------Marco focuses on broader issues such as employment levels, interest rates, inflation, overall health of the economy. Micro generally applies to individual markets of goods and services, how businesses decide what to produce. Explain supply & demand ------CORRECT ANSWER---------------With regards to demand, the higher the price, the lower the demand, and vice
versa. With regards to supply, The higher the price, the greater the quantity supplied. What is Gross Domestic Product (GDP)? ------CORRECT ANSWER---------- -----The total market value of all the final goods and services produced in a country over a given period. Define Final good ------CORRECT ANSWER---------------Something purchased by the ultimate end user. What are the three ways to measure GDP? ------CORRECT ANSWER------- --------The income approach, the production approach, and the expenditure approach. Describe the income approach ------CORRECT ANSWER---------------Total spending on goods and services should equal the total income generated by producing those goods and services. Adds up all of the income generated by this economic activity. Describe the Expenditure approach. ------CORRECT ANSWER--------------- Adds up everything that consumers, businesses and governments spend during a time frame. This is the more common way. Describe the production approach. ------CORRECT ANSWER--------------- Calculates an industry's output and subtracts the value of all goods and services used to produce the outputs.
What are the characteristics of the Peak phase? ------CORRECT ANSWER---------------Top of the cycle, demand begins to outstrip supply, What are the characteristics of the Contraction Phase? ------CORRECT ANSWER---------------Decline in economic activity, negative GDP, declining profits, unwanted inventory, layoffs. What are the characteristics of trough? ------CORRECT ANSWER------------- --This is the lowest point of the cycle. Interest rates fall triggering bond rally, inflation falls, people spend more money due to low interest rates, stocks rally. What are the characteristics of Recovery? ------CORRECT ANSWER-------- -------GDP returns to its previous peak, firms increase production to meet new demands, unemployment still high, wage pressure restrained, inflation may fall further. Give some examples of leading indicators. ------CORRECT ANSWER-------- -------Stock prices, housing stats, manufacturers new orders. They tend to Peak and trough before the overall economy. Give some examples of lagging indicators. ------CORRECT ANSWER-------- -------Unemployment, inflation, labour costs. Tend to change after the economy has. Important because they act as confirmation. Give some examples of Coincident indicators. ------CORRECT ANSWER--- ------------GDP, personal income, retail sales. Tend to change at the same time the economy is changing.
What are the three steps Stats Canada uses to describe a recession? Describe them. ------CORRECT ANSWER---------------Depth, Duration, Diffusion. The decline must be of substantial depth, The decline must be for more than a couple months, diffusion must feature the whole economy, not just one sector, What does the participation rate represent? ------CORRECT ANSWER------- --------It represents the share of the working-age population that is in the labour force. What is the participation rate formula? ------CORRECT ANSWER--------------
- Participation rate = (Labour force / Working age population) x 100 What is the formula for unemployment rate? ------CORRECT ANSWER------ ---------( # of people not working but looking / labour force) x 100 Describe cyclical unemployment ------CORRECT ANSWER---------------It is tied directly to the fluctuations in the business cycle. Rises when economy weakens, lowers when it strengthens. Describe Seasonal Unemployment. ------CORRECT ANSWER--------------- Typically applies in the winter months at seasonal businesses like farms.
