Chapter 1

Question 1

What is the difference between user and supplier of capital?

Answer 1

User: Borrower, entrepreneurs
Supplier: Investor

Question 2

Who is in charge of regulating Canadian securities industry?

Answer 2

They can enforce their laws through securities commissions (aka securities administrators). They also delegate some powers to SROs such as IIROC.

Question 3

What does IIROC stand for

Answer 3

Investment Industry regulatory organization of Canada

Question 4

What do SRO’s do

Answer 4

Enfore industry regulations, protect investors, maintain fair, equitable ethical practices

Question 5

What is CDS

Answer 5

It is the clearing and depository services. Clearing is the process of confirming and matching security trade details. settlement is the irrevocable money when cash and securities are exchanged

Question 6

What is a financial intermediary

Answer 6

Any org that facilitates the trading or movement of financial instruments. Include investment dealers, banks, credit unions, trust companies, insurance companies

Question 7

What is the difference between primary and secondary market

Answer 7

Primary: When company goes public and issues stock for first time (IPO)
Secondary: When previously issued or outstanding securities can be traded

Question 8

What are the three categories of investment dealers make up the Canadian economy?

Answer 8

1. Retail firms: separated between full service (offer products and services, give advice) and self-directed brokers/discount brokers (Execute trades at reduced rate)
2. Institutional firms: exclusively institutional clients which trade large volumes of securities, such as pension funds, mutual funds, foreign institutional investors. (foreign firms = 1/3 of institutional clients)
3. Integrated Firms: Offer both retail and institutional. generally Underwrite all types of federal, provincial, municipal debt, and corporate debt/equity

Question 9

What is an investment boutique

Answer 9

Smaller retail or investment dealer whcih specialize in a specific segment.

Question 10

What is the organization within firms

Answer 10

Senior management: chairperson, president, vice-president, directors and vice-presidents
Front office: All staff functions directly related to portfolio management (portfolio management, trading, sales, marketing)
Middle Office: Performs functions critical to the efficient operation of the firm (Compliance, accounting, audit, legal)
Back Office: settlement of trades

Question 11

What is generally largest unit in firm’s front office

Answer 11

Sales department

Question 12

Describe principal transactions

Answer 12

The dealer owns the security in their inventory at some stage of buying and selling. difference between buy-sell price is profit/loss. They also act as underwriters by purchasing share issuances then sell at a profit. Most secondary trading of debt securities is generally a principal transaction

Question 13

Describe Agency transactions

Answer 13

The dealer does not own the security, but charge a commission for each trade

Question 14

What is the process of Netting done by CDS

Answer 14

Establishing a credit or debit position balance for each dealer member.

Question 15

What is a chartered bank? What are the three types?

Answer 15

All banks operating under the bank act.
1. Schedule I: Domestic bank, attract and centralize most Canadian savings. Large ( >12b) max 20% holdings, Medium (2b<Medium<12b) max 65% holdings, small (<2b) can be fully owned
2. Schedule 2: incorporated and operate in Canada, federally regulated, might be elibigle for CDIC insurance. Permitted to engage in all types of business Schedule 1 banks do. derive most revenue from retail banking and electronic financial services
3. Schedule 3: federally regulated, foreign bank branches, tend to focus on corporate and institutional finance and investment banking

Question 16

What is a credit union and caisse populaire

Answer 16

Offer wide variety of banking services. Provide: deposit taking, lending, mortgages, mutual funds, insurance, invesmtne dealer services, debit/credit cards. Often cater to members from common interest groups (same neighbourhoods, ethinic background, same business, etc)

Question 17

What federal legislation governs credit unions

Answer 17

The Cooperative Credit Assocaition Act. Limit activities of credit unitoons, they can provide financial services to their members, entities in which they have a substantial investment and certain cooperative institutions. Can also provide admin, education and other services to cooperative institutions. Must Follow a “prudent portfolio approach”: prohibits acquiring substantial investments in entities other than financial and quasi-financial entities

Question 18

What is a trust/loan comapany

Answer 18

Federally/provincially incoporated trust companies are the only ones allowed to engage in trust business. They are in charge of individual assets, they can also provide estate planning and asset management

Question 19

What are the main lines of business of an insurance company

Answer 19

1. life insurance
   - Health and disability
   - Term and whole life insurance
   - pension plan
   - RRSP
   - Annuities
2. Property and casualty insurance
   - home
   - auto (largest premiums)
   -commericla business

Question 20

What is the most important aspect of insurance business in canada

Answer 20

Underwiitng (evaluation the risk and associated contractual responsibility that the company is willing to accept)

2nd most important is reinsurance (exchanging risk between insurance companies)

Question 21

What closed/open-end funds

Answer 21

They sell units/shares to invest in well diverse securities portfolio

closed: only 1 issuance of shares at startup and other infrequent periods
open: also called mutual funds, consistently issues shares (makes up 95% of aggregate funds)

Question 22

What is a consumer finance company

Answer 22

make direct cash loans to consumers who cant get bank loan, higher rates for higher risk

Question 23

What is sales finance companies

Answer 23

instalment sales contracts from retailes and dealers at a discount for things such as cards, appliances, home improvements

Question 24

What is fintech

Answer 24

financial technology companies, ie. online loans, electronic wallets, automated financial planning. Challeges traditional financial services instituitons

Question 25

What is robo-advisor

Answer 25

Hold more than 700bil of assets in Canada, offer goal based invesmtnets, uses algorithms creates computer-generated portfolio, etc

Question 26

What is the largest generation of canadians

Answer 26

millenials

Question 27

What are the recommendations for savings

Answer 27

• Retirees need 70% of income to retire
• recommended to save 10%-20% of pre-tax income during working years (fallen to 2% in reality)