Pass the CSI Canadian Securities Course CSC1 Questions and answers with ExamsMirror

At the end of the five-year term, if the issuer does not redeem the rate-reset preferred shares, the shareholder can choose to:

Continue holding the shares at the reset fixed rate.

Convert them intofloating-rate preferred shareswith rates tied to a benchmark (e.g., prime or LIBOR).

This conversion offers flexibility to the shareholder based on market conditions.

A. Exchange for a specified number of common shares: Rate-reset preferred shares do not have this feature.

B. Exchange for a fixed-rate preferred share: The fixed-rate component is reset, not exchanged.

C. Exchange for an unsecured bond: This is not a feature of rate-reset preferred shares.

Theexchangethat lists and trades the futures contract sets theminimum initial margin rate. This margin is required as collateral to ensure performance under the contract. The exchange determines this rate based on the volatility and risk of the underlying asset, and it is subject to adjustment depending on market conditions.

Other options:

Investment dealer: Acts as a facilitator but does not set the margin rates.

Buyer/Seller: Must meet the margin requirements but do not set them.

References:

Volume 1, Chapter 10:Derivatives, section on "Futures Contracts" describes the role of exchanges in setting margin requirements​.

Timing lags refer to delays between the implementation of fiscal policy measures (such as tax cuts or increased government spending) and their impact on the economy. In this case, the politician's government was unable to implement the promised fiscal policies due to the high debt level, which delayed or negated the planned economic measures.

This reflects the challenge of timing lags in fiscal policy, where structural constraints (such as debt levels) prevent timely execution.

References:

Volume 1, Chapter 5:Economic Policyunder "Challenges of Government Policy" discusses timing lags in implementing fiscal measures (CSC Volume 1, Chapter 5)​.

TheCanada Deposit Insurance Corporation (CDIC)insures eligible deposits (e.g., term deposits) up to a maximum of$100,000 per depositor per member institution. In this case:

Keith has $150,000 in ABC Trust Company → $100,000 is insured.

Keith has $75,000 in XYZ Trust Company → Entire $75,000 is insured.

Total insured amount = $100,000 (ABC) + $75,000 (XYZ) = $200,000.

References:Volume 1, Chapter 3 ("Investor Protection Funds and Insurance")​.

In a general partnership, all partners share the responsibility of managing the business and are personally liable for its debts. This contrasts with a limited partnership, where limited partners have liability restricted to their investment.

Option A:Describes a limited partnership.

Option B:General partnerships do not issue equity to raise funds.

Option C:General partnerships are not distinct legal entities; liability is shared.

Warrants are securities issued by a company to existing shareholders, giving them the right to purchase additional shares at a predetermined price, often over a longer period (years). Warrants are typically used as an incentive or as part of financing arrangements.

This differs from rights, which are similar but usually have a shorter exercise period, often weeks.

Study Document References:

Volume 1, Chapter 8:Warrants and Rights, discussing their features and purposes​​.

Retained earningsrepresent the portion of a company’s annual profit that is retained and not paid out as dividends. It is used to reinvest in the business or pay down debt.

B. Comprehensive incomeincludes all changes in equity except those from owner contributions or distributions.

C. Share capitalrefers to funds raised by issuing shares.

D. Gross profitis revenue minus the cost of goods sold, not the portion retained.

References:Volume 1, Chapter 11 ("Corporations and Their Financial Statements")​.

The investor's goal is to gainexposure to the Canadian stock marketwhile maintainingminimal risk exposure. Among the provided options, anindex-linked guaranteed investment certificate (GIC)is the most suitable choice.

Key Characteristics of an Index-Linked GIC:

Capital Protection:

Index-linked GICs guarantee the principal investment amount, offering the security of a GIC while tying returns to the performance of a stock index (e.g., the S&P/TSX Composite Index).

This ensures no loss of capital regardless of market performance.

Market Exposure:

The return on an index-linked GIC is linked to the performance of the underlying index, providing exposure to the stock market. However, this comes without the downside risk associated with direct stock or fund investments.

Low Risk:

The combination of principal protection and market exposure makes it ideal for risk-averse investors seeking growth potential.

Review of Other Options:

A. Canadian Bank Preferred Shares:

While preferred shares provide stable dividends and relatively low volatility compared to common shares, they still carry market risk and are not as secure as GICs.

B. Index Exchange-Traded Fund (ETF):

ETFs track stock indices and offer diversification, but they expose investors to the full market risk of the underlying index, making them unsuitable for those seeking minimal risk exposure.

C. Call Option:

Call options are speculative derivatives that provide leverage for market exposure but carry significant risk of loss, making them inappropriate for a low-risk investor.

Why D is Correct:

Anindex-linked GICbalances the investor's objective of gaining exposure to the Canadian stock market with the need for minimal risk by guaranteeing principal protection while offering potential returns tied to market performance.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities – Features and Types. Discussion on index-linked GICs and their suitability for risk-averse investors​.

Explanation of risk characteristics of preferred shares, ETFs, and derivatives in Chapter 8 and 10 of Volume 1​.

Ashort form prospectusis a streamlined disclosure document that companies can use to raise funds more efficiently under specific conditions. The issuer must meet specific eligibility criteria outlined in Canadian securities regulations to qualify for filing a short form prospectus.

Key Conditions for Filing a Short Form Prospectus:

Listed Securities Requirement: The company must have its securities listed and actively traded on an eligible stock exchange (e.g., TSX or another recognized exchange). This requirement ensures that the company already complies with reporting obligations and has a history of providing transparent information to investors.

Continuous Disclosure History: The company must be a reporting issuer in one or more Canadian jurisdictions for at least 12 months, providing continuous disclosure (e.g., financial statements, material changes).

No Principal Asset Restriction: The company must not primarily rely on cash or cash equivalents as its principal asset, as this does not provide a sufficient operational track record.

Domestic Reporting Requirement: The company must not rely solely on foreign jurisdiction reporting; it must fulfill Canadian reporting requirements.

Review of Options:

Option A:Incorrect. While the prospectus may be used for financing purposes, it is not a condition specific to the short form prospectus.

Option B:Correct. A company must have securities listed and actively traded on an eligible exchange to use the short form prospectus​​.

Option C:Incorrect. Companies whose principal assets are cash or cash equivalents are typically not eligible for a short form prospectus.

Option D:Incorrect. The company must not exclusively be a reporting issuer in foreign jurisdictions; it must comply with Canadian reporting requirements.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 12: Financing and Listing Securities. Discussion on eligibility for short form prospectus filings and reporting issuer status​.

National Instrument 44-101: Short Form Prospectus Distributions.

When an investor feels unfairly treated by a stockbroker, and the issue is not resolved through direct discussion with the member firm, the next step often involves pursuing a formal dispute resolution mechanism. The options available in the Canadian securities industry for handling such disputes include:

Rescission of the objectionable trades:

This would involve canceling or reversing the trades in question. However, rescission is rarely granted and typically occurs only if there is clear evidence of fraud or legal impropriety. It is not the best initial course of action for dispute resolution.

Payment from the Canadian Investor Protection Fund (CIPF):

The CIPF protects clients of member firms in the event of the firm’s insolvency, not disputes over trades or treatment by a broker. Therefore, this is not applicable in this case.

Independent arbitration:

Arbitration is a widely recognized method of resolving disputes in the securities industry. It involves an independent arbitrator reviewing the case and issuing a binding decision. It is particularly suitable for cases where discussions between the investor and the firm have not resolved the issue.

Investigation by the Ombudsman for Banking Services and Investments (OBSI):

OBSI offers a dispute resolution service for clients of financial institutions, including investment dealers. However, OBSI’s findings are non-binding, meaning they cannot compel the member firm to act or pay compensation. Arbitration, on the other hand, provides a binding resolution.

Why Arbitration is the Best Option:

Independent arbitration is a more definitive course of action because it results in a binding decision that both the investor and the broker must adhere to. Arbitration is designed to handle precisely the type of disputes described in the question and ensures a fair process overseen by an impartial third party.

References:

Canadian Securities Course Volume 1:

Section on Dispute Resolution and Investor Protection: Arbitration is discussed as a key method for resolving disputes where the investor seeks a binding resolution​.

Role of the Canadian Investor Protection Fund: The CIPF is explained as providing coverage for insolvency, not dispute resolution​.

Role of the Ombudsman for Banking Services and Investments (OBSI): OBSI is explained as offering non-binding recommendations, making it less suitable for cases where binding decisions are needed​.