Score: 1/1
62.
If the Bank of Canada's operating band is 4.5% to 5.0%, and the overnight rate is 5.2%, recommend what the Bank of Canada should do.
Student Value Correct Answer Feedback
Response A. Change
the target range to 4.8% to 5.3%.
B. Raise the bank rate to 5.3%.
C. Offer to borrow money from financial institutions at 4.5%
overnight.
D. Offer to lend money to financial institutions at 5.0%
overnight.
100%
General
Feedback: The Target for the Overnight Rate is the upper limit of the operating band- 5% in this example. Special Purchase and Resale Agreements (commonly referred to as SPRAs or “Specials”) are used by the Bank of Canada to relieve undesired upward pressure on overnight financing rates. If overnight money is trading above the target of the operating band, the Bank may believe that the higher rate will dampen economic activity. To combat this, the Bank intervenes and offers to lend at the upper limit of the operating band. Text reference: Chapter 5: Economic Policy.
Score: 1/1
63.
What is the term for an investment order in which the client will accept all stock in odd, broken or board lots up to the full amount of the order?
Student
Response Value Correct Answer Feedback A. Any part
order. 100%
B. All or none order.
C. At the market order.
D. Open order.
General
Feedback: Any Part Order: The exact opposite of an all or none order in which the client will accept all stock in odd lot or standard trading units up to the full amount of the order.
Text reference: Chapter 9: Equity Securities: Equity Transactions.
Score: 1/1
64.
Which of the following statements is true regarding short selling?
Student
Response Value Correct Answer Feedback A. The short
seller believes the shares will
increase in price.
B. The short seller cannot be forced to close out the position.
C. The short seller may have difficulty borrowing the
shares.
100%
D. The short seller must close out the position before the end of the month.
General
Feedback: There can be difficulties in borrowing a sufficient quantity of the security sold short to cover the short sale. If the short seller’s dealer finds at some point that there is no replacement stock it can borrow to maintain or carry a client’s short position, then the client must buy the necessary shares and cover the short sale. This has to be done whether the short seller wants to buy back the shorted security or not, and regardless of the prevailing market price of the shorted security. The short seller
believes the price of the shares will decline. Text reference: Chapter 9: Equity Securities: Equity Transactions.
Score: 1/1
65.
In which of the following activities does the Investment Industry Association (IIAC) of Canada participate?
Student
Response Value Correct Answer Feedback A. It monitors
the financial compliance of its members.
B. It monitors trading activities of its
members.
C. It oversees the
education of the
employees of members.
D. It
represents the views of its members to the
government.
100%
General
Feedback: The IIAC is a member-based professional association that represents the interests of market participants. The membership base consists of a broad cross-section of the securities industry, including full service securities firms, institutional and retail
boutique firms, and discount brokerages. The IIAC provides support and services that contribute to the success of their members. It also represents the investment
industry’s views and interests to federal and provincial governments and their agencies, and to other SROs in such areas as securities and capital markets
legislation and regulation and fiscal and monetary policy. Text reference: Chapter 3: The Canadian Regulatory Environment.
Score: 1/1
66.
What is the best environment to own variable-rate preferred shares?
Student
Response Value Correct Answer Feedback A. When
interest rates are declining.
B. When interest rates are increasing.
100%
C. When stock prices are climbing rapidly.
D. When stock markets are very volatile.
General Feedback:
From the standpoint of the purchaser, variable rate preferred shares provide higher income if interest rates rise, but lower income if interest rates fall. Text reference:
Chapter 8: Equity Securities: Common and Preferred Shares.
Score: 1/1
67.
Select the correct description about a stock that trades on the over-the-counter (OTC) market.
Student
Response Value Correct Answer Feedback A. Considered
a
speculative security.
100%
B. Highly visible to all participants.
C. Likely experienced a halt in trading.
D. Traded by an auction process.
General Many junior issues trade OTC, but so to do the shares of a few conservative industrial
Feedback: companies whose boards of directors have for one reason or another decided not to seek stock exchange listing for one or more issues of their equities. The unlisted market does not set listing requirements for the stocks traded on its system (hence the term “unlisted market”) nor does it attempt to regulate the companies. Many of the stocks sold on the unlisted market are more speculative, and in most cases offer lower liquidity, than listed securities. Text reference: Chapter 1: The Capital Market.
Score: 1/1
68.
Select the situation that might cause the retained earnings of a company to increase in future years, all else being equal.
Student
Response Value Correct Answer Feedback A. New shares
are issued.
B. The board of directors cuts the dividend rate.
100%
C. The company authorizes a 2-for-1 share split on all outstanding common shares.
D. The price of the
common shares is expected to rise over the next several years.
General
Feedback: Retained earnings are profits earned over the years that have not been paid out to shareholders as dividends. These retained profits accrue to the shareholders, but the directors have decided for the present time to reinvest them in the business.
Retained earnings provides a record of the total comprehensive income kept in the business year after year. Text reference: Chapter 12: Corporations and their Financial Statements.
Score: 1/1
69.
Calculate the yield on a 182-day Government of Canada Treasury bill purchased at a price of 97.50.
Student
Response Value Correct Answer Feedback A. 4.95%
B. 5.01%
C. 5.07%
D. 5.14% 100%
General
Feedback: (100-97.5)/97.5 x 365/182 x 100= 5.14% Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading.
Score: 1/1
70.
What is an example of a business cycle leading indicator?
Student
Response Value Correct
Answer Feedback A. Gross
Domestic Product.
B. Housing starts. 100%
C. Private sector plant and equipment spending.
D. Unemployment rate.
General
Feedback: Housing starts are a leading indicator because it signals confidence in employment, income levels and the ability of consumers to spend on such items as appliances, furniture, and other household ‘big ticket’ items and these purchases have a broader positive impact over the entire economy. The unemployment rate is a lagging
indicator, GDP is a coincident indicator, and private sector spending is a coincident indicator. Text reference: Chapter 4: Economic Principles.
Score: 1/1
71.
How could Delia use options to purchase stock at a price lower than the current market price?
Student Response
Value Correct Answer Feedback A. Exercise
an in-the-money put.
B. Exercise an out-of-the money call.
C. Write a cash-secured put.
100%
D. Write a covered call.
General
Feedback: Some investors write cash-secured puts as a way to buy the stock at an effective price that is lower than the current market price. The effective price is equal to the strike price minus the premium received. Text reference: Chapter 10:
Derivatives.
Score: 1/1
72.
What decision is at the sole discretion of the board of directors?
Student
Response Value Correct Answer Feedback A. Appointment
of an
independent auditor.
B. Appointment of directors of the corporation.
C. Composition of the
board.
D. Declaration
of dividends. 100%
General Directors are normally responsible for the appointment and supervision of officers
Feedback: and signing authorities for banking, the approval of budgets, financing and plans for expansion; the decision to issue shares; and the declaration of dividends and other dispositions of profits. Text reference: Chapter 11: Financing and Listing Securities.
Score: 1/1
73.
Identify the impact on the balance of payments if Canada exported $150 billion of goods and imported $80 billion of goods over the same period, holding all other factors constant.
Student Response
Value Correct Answer Feedback A. Balance of
trade deficit.
B. Capital account deficit.
C. Current account surplus.
100%
D. Transfer payments surplus.
General
Feedback: Exports represent the sale of goods and services to consumers outside of Canada while imports are the purchases of goods and services Canadians make. During a given year, if Canada buys more goods and services from abroad than it sells, it will run a current account deficit for the year. The opposite is true, if Canada sells more goods and services from abroad than it buys, it will run a current account surplus for the year. Text reference: Chapter 4: Economic Principles.
Score: 1/1
74.
Mike is a shareholder of a listed Canadian company that is having its annual general meeting (AGM) in two weeks. The meeting involves changes to the Board of Directors and is considered to be an important meeting. If Mike is unable to attend the AGM but wants to vote, what can he do?
Student
Response Value Correct Answer Feedback A. Complete
a proxy ballot prior to
100%
the AGM.
B. Send a letter to the Board of
Directors directly, specifying his
choices.
C. Send his wife to attend the AGM with a letter specifying his
choices.
D. Vote only if he attends the AGM himself.
General Feedback:
A proxy is a power of attorney given by a shareholder that gives a designated person the authority to vote the shareholder’s stock at a shareholders’ meeting. Text
reference: Chapter 11: Financing and Listing Securities.
Score: 1/1
75.
Rita, a client of DAS Inc., invests in and receives a prospectus for an IPO on Tuesday, June 7.
After reading the prospectus that evening, she returns to DAS on June 8 and demands a refund of the money she invested June 7. What statutory right is Rita invoking?
Student
Response Value Correct Answer Feedback A. Right of
action for damages.
B. Right of continuous disclosure.
C. Right of rescission.
D. Right of withdrawal.
100%
General The right of withdrawal gives the purchaser the right to withdraw from an agreement
Feedback: to purchase securities within two business days after the deemed receipt of the company’s prospectus. Text reference: Chapter 3: The Canadian Regulatory Environment.
Score: 1/1
76.
Which statement is correct with respect to jurisdiction of incorporation?
Student
Response Value Correct Answer Feedback A. A federally
incorporated corporation must obey all provincial laws unless they
disagree with federal laws.
100%
B. All
corporations must be registered federally as they have to pay federal tax.
C. It doesn't matter where you incorporate the
company as all laws are the same in every jurisdiction.
D. Only companies registered federally require directors to be Canadian residents.
General
Feedback: Once a decision has been made to incorporate, the jurisdiction of incorporation must be selected. In most cases the choice will be whether to incorporate under the laws of
the province where the corporation’s chief place of business will be located or to incorporate federally under the Canada Business Corporations Act (CBCA).A provincially incorporated corporation can carry on business in the province of incorporation, but may need a further licence or registration to carry on business in other provinces. A federally incorporated corporation is subject to the laws of general application in a province and may have to register there, but no provincial law may discriminate against a federal corporation so as to deprive it of the powers conferred on it by the federal government. Text reference: Chapter 11: Financing and Listing Securities.
Score: 1/1
77.
In which financial statement do companies show outsiders’ non-controlling interest holdings in subsidiary companies?
Student
Response Value Correct
Answer Feedback A. Statement of
Cash Flows.
B. Statement of Changes in Equity.
C. Statement of Comprehensive Income.
D. Statement of Financial Position.
100%
General
Feedback: Non-controlling interest appears when a company uses consolidated financial
statements. Consolidated means that the company combines all the assets, liabilities and operating accounts of the parent company (Statement of Financial Position) with those of its subsidiaries into a single joint statement when a company owns more than 50% of a subsidiary. Even if the parent company owns less than 100% of a subsidiary’s stock, all of the assets and liabilities are combined in the consolidated financial statements. To compensate, that part of the subsidiary not owned by the parent company is shown in the consolidated statement of financial position as non-controlling interest. Text reference: Chapter 12: Corporations and their
Financial Statements.
Score: 1/1
78.
An investor purchased a forward on Canadian dollars and his gain was $50,000. Assuming that the forward has an underlying asset of $1,000,000 Canadian dollars, what was the loss for the investor on the other side of the forward contract?
Student Value Correct Answer Feedback
Response A. $0
B. $50,000 100%
C. $950,000 D. $1,000,000 General
Feedback:
Derivatives can be considered a zero-sum game. In other words, aside from commission fees and other transaction costs, the gain from an option or forward contract by one counterparty is exactly offset by the loss to the other counterparty:
every dollar gained by one party represented a dollar lost by the counterparty on the other side of the contract. Text reference: Chapter 10: Derivatives.
Score: 1/1
79.
What is the term for an investment order that becomes effective as a market sell order when the price of a standard trading unit of stock trades at or below a stated limit?
Student
Response Value Correct Answer Feedback A. Good
through order.
B. Good till cancelled order.
C. Stop buy order.
D. Stop loss
order. 100%
General Feedback:
Stop Loss Order: An order to sell a security when the price of one standard trading unit of the security declines to or falls below a certain amount, thus limiting the loss or protecting a paper profit. Stop loss orders become market orders when the stop price is reached. Text reference: Chapter 9: Equity Securities: Equity
Transactions.
Score: 1/1
80.
Where on the Statement of Financial Position will short-term borrowings, taxes payable and trades payable, appear?
Student
Response Value Correct Answer Feedback Current 100%
A. liabilities.
B. Deferred payments.
C. Intangible assets.
D. Long-term debt.
General
Feedback: Common types of current liabilities are:
Current portion of long-term debt due in one year.
Taxes payable to the government in the near term.
Trade payables for unpaid bills for raw materials, supplies and the like.
Short-term borrowings from financial institutions.
Text reference: Chapter 12: Corporations and their Financial Statements.
Score: 1/1
81.
NorJet Corp. is experiencing major financial difficulties and will be restructured. Two people will take control of the business through a trust until the company can overcome its difficulties. What is the term for this type of trust?
Student
Response Value Correct Answer Feedback A. Treasury
trust.
B. Income trust.
C. Proxy trust.
D. Voting
trust. 100%
General
Feedback: A corporation that is undergoing a restructuring due to financial difficulties may be placed under the control of a few individuals through a voting trust. The voting trust is usually put into effect for specific periods of time, or until certain results have been achieved. Text reference: Chapter 11: Financing and Listing Securities.
Score: 1/1
82.
What does time value represent in an option premium?
Student
Response Value Correct Answer Feedback A. It
represents how many days left until maturity.
B. It
represents the
difference between the strike price and the market price of the underlying security.
C. It
represents the spread that the option’s market maker demands for acting as the market maker.
D. It
represents the
volatility and
uncertainty of the price of the underlying security.
100%
General
Feedback: The amount that an option is trading above its intrinsic value is known as the option’s time value. Time value represents the value of uncertainty. Text reference:
Chapter 10: Derivatives.
Score: 1/1
83.
A $1,000 par value 10-year bond, with a 10% annual coupon, was issued at par 3 years ago.
Today an investor purchases the bond for $1,150. Select the correct statement.
Student
Response Value Correct Answer Feedback A. The yield
to
maturity is 7.20%, and interest rates have decreased.
100%
B. The yield to
maturity is 7.20%, and interest rates have increased.
C. The yield to
maturity is 11.51%, and interest rates have decreased.
D. The yield to
maturity is 11.51%, and interest rates have increased.
General
Feedback: Since the market value has increased, interest rates must have fallen. In calculating the YTM, the number of years to maturity is 7 not 10. The calculation is FV = 1000, N
= 7, PV = $1150, PMT = 100, I = 7.20%. Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading.
Score: 1/1
84.
An investor purchased a $75,000 face value, annual pay Government of Canada 6.50% bond
due June 1, 2014, at a price of $105.60. The purchase settled 30 days after the last coupon payment. Calculate the amount of accrued interest this investor will pay.
Student Response
Value Correct Answer Feedback
A. $193.66 B. $387.33
C. $400.68 100%
D. $409.02 General
Feedback:
Par Amount X Coupon Rate X Time Period
75000 X 6.5% X 30 divided by 365 = $400.68. Text reference: Chapter 7:
Fixed-Income Securities: Pricing and Trading.
Score: 1/1
85.
Identify the primary reason why Canadian provinces require listed companies to solicit proxies at shareholders’ meetings.
Student
Response Value Correct
Answer Feedback A. To enable the
filing of votes and results with the System for Electronic Document Analysis and Retrieval (SEDAR).
B. To ensure shareholder approval of decisions made at the annual general meeting.
C. To ensure an orderly voting process.
D. To prevent management’s abuse of shareholders’
rights.
100%
General Feedback:
Most provinces require the management of a reporting issuer to solicit proxies from holders of its voting securities whenever it calls a shareholders’ meeting. These regulations were prompted by the realization that effective control of many
companies is achieved through the use of proxies and that management could abuse its position in this area by soliciting proxies without proper disclosure. Text
reference: Chapter 3: The Canadian Regulatory Environment.
Score: 1/1
86.
What is the term for an investment order that is valid for a specified number of days and then is automatically cancelled if it has not been filled?
Student
Response Value Correct Answer Feedback A. Any part
order.
B. Good through order.
100%
C. Limit order.
D. N-C order.
General Feedback:
Good Through Order: An order to buy or sell that is good for a specified number of days and then automatically cancelled if it has not been filled by the end of the trading session on the date specified in the order. Text reference: Chapter 9:
Equity Securities: Equity Transactions.
Score: 1/1
87.
What term describes the process where a new issue of a stock has been given clearance by the regulators to be sold to the public?
Student
Response Value Correct Answer Feedback A. Blue
skyed. 100%
B. Override.
C. Primary.
D. Proxy.
General
Feedback: The regulators review the documents carefully and may require changes before final approval. Once approval of the final prospectus is granted, the issue is then said to be blue skyed and may be distributed to the investing public. Text reference: