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CSI
Canadian Securities Course
CSC2
Canadian Securities Course Exam 2 Questions and Answers

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Viewing questions 31-40 out of questions

Questions # 31:

What economic outcome does the government set out to achieve by increasing their own spending?

Options:

To create inflationary pressure.

To increase the spending power of individuals.

To boost business profits and common share prices.

To stimulate the economy in the short run.

Answer

Questions # 32:

Which investment account generally offers the least sophisticated products and has the lowest minimum requirement for investible assets?

Options:

Robo-advisory.

Unified managed.

Non-model-based.

Separately managed.

Answer

Questions # 33:

What is a leveraged ETF?

Options:

A fund that seeks to match the performance returns of the underlying index tracked

An option designed to achieve multiple returns of inverse performance of the tracked underlying index

A contract using borrowed funds to buy the underlying stock or portfolio

A fund that uses an option strategy to reduce the volatility of the underlying portfolio

Answer

Questions # 34:

Which type of ETF is also referred to as smart beta ETF?

Options:

Rules-based

Standard

Synthetic

Index-based

Answer

Explanation

Rules-based ETFs, also known as smart beta ETFs, use predetermined rules or algorithms to select and weight securities in their portfolios. These ETFs aim to outperform traditional market-capitalization-weighted ETFs by targeting specific factors such as value, momentum, quality, or volatility.

Strategic Factor Weighting: Securities are weighted based on fundamental or quantitative factors, not just market capitalization.

Higher Returns Potential: These ETFs are designed to capture excess returns (alpha) relative to a benchmark.

Lower Costs: Smart beta strategies often combine active and passive management elements at a lower cost than traditional active funds.

A. Rules-based: Correct answer. Smart beta ETFs are built on rule-based frameworks designed to achieve specific investment objectives.

B. Standard: Refers to traditional, market-cap-weighted ETFs, not smart beta.

C. Synthetic: Refers to ETFs that use derivatives to replicate returns of an underlying index, unrelated to smart beta.

D. Index-based: Includes standard ETFs tracking an index but does not apply specifically to smart beta.

[References:, CSC Volume 2, Chapter 19: Smart Beta and Rules-Based ETFs, which describes their unique features, benefits, and strategies., ]

Questions # 35:

What is an example of a common feature of robo-advisor services?

Options:

The service is exclusively provided to intermediaries such as advisors and employers

The portfolios are rarely rebalanced

Portfolios are built primarily with individual stocks and bonds.

A telephone call with an advisor verifies that the computer-generated portfolio is suitable for the client.

Answer

Explanation

Many robo-advisors offer a hybrid model where an automated portfolio recommendation is supplemented by human oversight. A telephone call with an advisor ensures the portfolio generated by the algorithm aligns with the client’s risk tolerance and investment objectives. This step helps meet regulatory suitability requirements.

A. The service is exclusively provided to intermediaries such as advisors and employers: Robo-advisors are directly available to retail clients and are not exclusive to intermediaries.

B. The portfolios are rarely rebalanced: Robo-advisors typically offer frequent or automatic rebalancing to maintain target asset allocations.

C. Portfolios are built primarily with individual stocks and bonds: Robo-advisors predominantly use ETFs for diversification and cost-efficiency, not individual securities.

[Reference:CSC Volume 1, Chapter 1, "Financial Technology – Robo-Advisors" highlights the hybrid models and regulatory compliance processes employed by robo-advisors, , ]

Questions # 36:

What risk of investing in split shares is specific to a preferred shareholder?

Options:

Volatility

Dividend cuts

Leverage

Reinvestment

Answer

Questions # 37:

Supriya, an advisor, receives a research service from a dealer in exchange for placing securities transactions with that dealer. What statement best applies to this type of arrangement?

Options:

This arrangement is permissible if it benefits Supriya ' s firm.

This arrangement can only be used for equity transactions.

This arrangement needs to be disclosed to Supriya ' s clients.

This arrangement violates best execution requirements.

Answer

Questions # 38:

According to the life-cycle hypothesis, what is the single most important determinant of a client ' s asset allocation, regardless of stage?

Options:

Anticipating remaining life expectancy.

Psychological willingness to bear risk.

Market expectations.

Current financial burdens.

Answer

Questions # 39:

What actions can a government take to lower a $40 billion national deficit?

Options:

Increase taxation

Increase government spending.

Decrease taxation

Increase interest rates.

Answer

Explanation

To reduce a national deficit, governments can increase taxation to generate more revenue. This measure, combined with controlled spending, helps reduce the shortfall between revenues and expenditures.

B. Increase government spending: This would increase the deficit further unless matched by revenue increases.

C. Decrease taxation: This would reduce revenue and worsen the deficit.

D. Increase interest rates: This impacts monetary policy and borrowing costs but does not directly reduce a fiscal deficit.

[Reference:CSC Volume 1, Chapter 5, "Fiscal Policy – Addressing Budget Deficits" discusses how governments use taxation to manage deficits., ]

Questions # 40:

What is the requirement regarding the discretionary authority in managed accounts?

Options:

The IA can implement the transaction upon approval from the client, or by any person on a client’s behalf.

The discretionary authority must be given by the client in writing and accepted by the IA verbally.

The IA must use a model portfolio due to the short-term nature of these types of accounts.

The discretionary authority must specify the client’s investment objectives in the trading authorization.

Answer

Explanation

A managed account gives a properly authorized portfolio manager discretionary authority to make investment decisions without obtaining client approval for each trade. Because this authority is broad, it must be clearly documented and tied to the client’s investment policy, objectives, risk tolerance, time horizon, and constraints. The trading authorization must specify the client’s investment objectives so the manager’s discretion remains controlled and suitable. Option A describes approval-based trading, not true discretion. Option B is wrong because discretionary authority cannot rely on verbal acceptance; proper written authorization and acceptance are required. Option C is incorrect because managed accounts are not defined by model portfolios or short-term use. The key requirement is documented authority aligned with the client’s objectives.

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