A, B, C, D

Question 1

Accredited investor

Answer 1

Institutional investors that have net assets
of at least $5 million; or individual
investors that (alone or with a spouse) have
an aggregate realizable value exceeding $1
million or net income before taxes
exceeding $200,000 (or $300,000, if
combined with spouse) in each of the two
most recent years, and a reasonable
expectation of exceeding that same income
in the current year.

Question 2

Active bond management

Answer 2

A bond management style that tries to
profi t from interest-rate risk by predicting
the direction or magnitude of rate changes.

Question 3

Active portfolio management

Answer 3

A portfolio management style that
recognizes that securities markets are not
effi cient and adjusts a portfolio through
sector rotation, timing or momentum
strategies, or by the search for undervalued
stocks.

Question 4

Advisors

Answer 4

Those people or companies that advise
clients on which investments to hold in
their portfolios.

Question 5

Alpha

Answer 5

The measure of a manager’s skill in adding

value by taking active risk

Question 6

Alternative investments

Answer 6

Investments that have different
performance characteristics from traditional
assets such as stocks and bonds; that are
rarely traded in the public capital markets;
that are relatively illiquid; that are relatively
uncommon in investment portfolios; that
have a relatively limited investment history;
and that require unconventional investment
skills on the part of the manager.

Question 7

Asset mix committee

Answer 7

A committee, usually composed of the chief
investment offi cer and the heads of the
various asset class groups, which establishes
the target asset mix for the various
balanced-fund portfolios the fi rm manages.

Question 8

Asset-backed securities (ABSs)

Answer 8

A type of bond whose cash fl ows are
supported by the cash fl ows from a specifi ed
pool of discrete assets

Question 9

Audit

Answer 9

Verifying that all functions of the fi rm are
conducting their affairs and activities in
conformance with the operational
procedures established for the fi rm
(basically, that the rules established by the
compliance and the legal functions are
being followed).

Question 10

Back-testing

Answer 10

The retrospective analysis of a potential

investment product.

Question 11

Barbell portfolio

Answer 11

In a barbell portfolio, bonds are initially
purchased at both ends of the term
structure that is, the portfolio consists of
30-year and 1-year bonds.

Question 12

Basis risk

Answer 12

The risk that the basis (the price difference
between an asset and its derivative) will not
behave as expected over the life of a hedge

Question 13

Bearer form

Answer 13

Investments that were in bearer form meant
that the security certifi cate being exchanged
was negotiable and payable to the bearer
(this is referring to a time when transactions
were settled by the exchange of cheques
rather than electronically).

Question 14

Benefi ciary

Answer 14

In a fi duciary relationship, the benefi ciary is
the person to whom a fi duciary owes a
fi duciary duty

Question 15

Beta

Answer 15

The systematic risk or the extent to which
an investment moves with the overall
market

Question 16

Board of trustees

Answer 16

An independent committee established to

oversee the operation of a pension plan

Question 17

Bond swap

Answer 17

Normally involves the purchase of one
bond and the simultaneous sale of another
related or unrelated bond

Question 18

Bottom-up approach

Answer 18

An investing style that focuses on the merits
of an individual security. It can take the
form of either a value-oriented or a
growth-oriented approach.

Question 19

Box trade

Answer 19

Involves the simultaneous execution of a

pair of related fi xed-income security swaps

Question 20

Buy-and-hold strategy

Answer 20

Purchasing bonds with available funds and
holding each bond to its maturity, thereby
avoiding the interest-rate risk on an early
sale.

Question 21

Canadian Securities

Administrators (CSA)

Answer 21

A working group of regulators from each
provincial and territorial regulator; the CSA
is charged with forging uniformity in
regulation where possible.

Question 22

Cash-collateralized debt obligation

Answer 22

A specifi c type of asset-backed security in
which the originator sells the collateral
(assets) for cash to a Special Purpose Vehicle
(SPV). The collateral can consist of
mortgage-backed securities, corporate
bonds, other ABSs or CDOs.

Question 23

Cash-secured put option

Answer 23

Where the fund has adequate cash to
purchase the shares if the put option is
exercised.

Question 24

Cellular sampling

Answer 24

A strategy used to recreate a fi xed-income
index portfolio where each of a bond’s three
dimensions—maturity, coupon and credit
risk—is applied to the total capital for the
fund and representatives of each cell are
bought in proportion to the total index

Question 25

Chief compliance offi cer (CCO)

Answer 25

The person who is responsible for designing
and implementing a supervision system that
will provide the board of directors with
reasonable assurance that compliance
standards are being met.

Question 26

Chief investment offi cer

Answer 26

The person within an investment
management fi rm who has overall
responsibility for the fi rm’s portfolio
management activities.

Question 27

Clearing (of trades)

Answer 27

The process of confi rming and matching

security trade details.

Question 28

Client services

Answer 28

Services offered by an investment 
management fi rm that provide current 
investors with timely and relevant 
information about their portfolios under 
management.

Question 29

Closet indexing

Answer 29

The tendency of active managers to build a 
portfolio that is close enough to a 
performance benchmark so that the 
portfolio neither underperforms nor 
outperforms the benchmark by very much.

Question 30

Code of ethics

Answer 30

Is an integral part of ensuring that a
discretionary portfolio manager’s fi duciary duty is performed and that all clients and
investors are treated fairly and
appropriately

Question 31

Collateralized debt obligation

CDO

Answer 31

A security that repackages a collection of
underlying assets and sells multiple classes
(tranches) of the asset pool’s interest to
investors. A CDO can take a cash or
synthetic form.

Question 32

Collective investment vehicles

Answer 32

See Pooled investment vehicles.

Question 33

Commodities

Answer 33

An alternative investment class that offers
diversifi cation benefi ts when combined
with a traditional portfolio containing
equities and bonds

Question 34

Commodity pools

Answer 34

Funds that buy and sell commodity futures

contracts

Question 35

Compliance

Answer 35

Making sure the fi rm is running in such a
way that it is abiding by the rules and
regulations set by the securities regulators,
the terms set out in the fi rm’s investment
management agreements with investors,
and the fi rm’s own established best
practices.

Question 36

Contingent immunization

Answer 36

Where a manager is willing to risk some of
the value of the portfolio in the practice of
active management, but at a certain lower
level would want to protect himself or
herself against further losses; often used as a
compromise between passive and active
bond management.

Question 37

Corporate governance

Answer 37

The set of processes, customs, policies, laws
and institutions affecting the way an
investment management fi rm is directed,
administered or controlled.

Question 38

Covered call option

Answer 38

A call that is sold with the underlying asset

already owned in the portfolio

Question 39

Credit default swap

Answer 39

A type of credit derivative where an
exchange of two cash fl ows occurs: a fee
payment made by the buyer and a
conditional payment made by the seller,
made only if a credit event is triggered.

Question 40

Credit derivatives

Answer 40

Financial instruments that derive their value
from an underlying credit asset or pool of credit assets, such as bonds or mortgages,
and are designed to transfer and manage
credit risk.

Question 41

Currency cross-hedge

Answer 41

A transaction in which the mutual fund
substitutes its exposure to one currency risk
for exposure to risk from another currency,
as long as neither is the currency in which
the mutual fund’s net asset value is
determined.

Question 42

Dealers

Answer 42

Individuals or companies who actually

trade securities.

Question 43

Deferred sales charges (DSCs)

Answer 43

Alternative sales commission arrangements
where investors can pay the sales
commission on a deferred basis over time

Question 44

Defi ned benefi t (DB) plan

Answer 44

A pension plan where entitlements are
typically calculated on the basis of the
employee’s salary profi le and tenure of
employment; these entitlements represent
liabilities of the sponsor.

Question 45

Defi ned contribution (DC) plan

Answer 45

A pension plan where the benefi ciary is 
typically provided with a menu of 
investment choices (including mutual 
funds) among which to allocate regular 
contributions; the investment risk is borne 
entirely by the benefi ciary.

Question 46

Delta

Answer 46

The price sensitivity of an option to

changes in the price of the underlying asset

Question 47

Derivatives

Answer 47

A fi nancial contract whose value is derived
from, or depends on, the value of some
other asset.

Question 48

Directional strategy

Answer 48

A hedge fund strategy that bets on
anticipated movements in the market prices
of equity securities, debt securities, foreign
currencies and commodities

Question 49

Distributors

Answer 49

The investment dealers and mutual fund
dealers that employ the advisors who sell
PPNs.

Question 50

Due diligence

Answer 50

The reasonable investigation of a proposed
investment and its principals with the goal
of ascertaining the investment’s worthiness
and appropriateness for particular types of
investors.