Chapter 1

Question 1

Financial Intermediaries

Answer 1

Financial intermediary is an institution such as bank that borrows money from suppliers of capital and lend it to users of capital

Question 2

CIRO

Answer 2

Candian Investment Regulatory Organization CSIRO is the National self-regulatory organization (SRO) that overseas all investment dealers,mutual fund dealers, and trading activity on Canada’s debt, equity, and mutual fund market prices. CIRO establishes and enforces industry regulations that protect investors and maintain fair and Equitable and ethical practices

Question 3

Investment dealers

Answer 3

Investment dealers act as an intermediaries by matching investors with the users of capital

Question 4

Clearing and Settlement

Answer 4

Clearing is the process of confirming and matching security details
Settlement is the irrevocable moment when cash and securities are exchanged

Question 5

SRO

Answer 5

SRO sets and enforces rules that govern market activity and monitor the markets to ensure fairness and transparency

Question 6

Investment Dealer

Answer 6

A company that acts as an intermediary by matching investors with the users of capital.

Question 7

Principal

Answer 7

The person for whom a broker executes an order, or a dealer buying or selling for its own account. May also refer to a person’s capital or to the face amount of a bond.

Question 8

Agent

Answer 8

The role of an investment dealer when it acts on behalf of a buyer or a seller of a security and does not itself own title to the securities at any time during the transaction.

Question 9

Clearing

Answer 9

The process of confirming and matching security trade details.

Question 10

Mutual Fund

Answer 10

Investment fund using proceeds from shares and units sold to investors to invest in financial securities, redeemable on demand from the fund at the current net asset value per share.

Question 11

Schedule III

Answer 11

A type of bank that is federally regulated and is a foreign bank branch of a foreign institution.

Question 12

Firewall

Answer 12

Policies intended to separate and isolate investment decision-making persons in a firm from others in the firm who have undisclosed material information that could influence those decisions.

Question 13

discount broker or self-directed broker

Answer 13

Brokerage house that buys and sells securities for clients at a greater commission discount than full-service firms.

Question 14

Integrated Firm

Answer 14

A type of firm that offers products and services across the financial industry and participates fully in both the retail and institutional markets.

Question 15

Closed End Fund

Answer 15

Shares in this investment fund type are readily transferable in the open market and are bought and sold like other shares. Capitalization is fixed.

Question 16

Schedule I

Answer 16

Type of bank that is Canadian-owned and regulated by the Bank Act.

Question 17

Schedule II

Answer 17

Type of bank that is incorporated and operates in Canada as a federally regulated foreign bank subsidiary.

Question 18

Sales Finance Company

Answer 18

A type of financial intermediary that purchases instalment sales contracts from retailers and dealers at a discount.

Question 19

CDS Clearing and Depository Services Inc.

Answer 19

Provides electronic clearing services; physical and electronic facilities to deposit and withdraw depository-eligible securities; management of related ledger positions.

Question 20

Spread

Answer 20

A major activity of the banks is to loan funds to businesses and consumers at interest rates higher than those which they must pay in interest on deposits and other borrowings. The spread between the two sets of interest rates covers the banks operating costs (rent, salaries, administration, appropriations for loan losses, etc.), as well as providing a margin for the banks’ profits.

Question 21

Sales Finance Company

Answer 21

Sales finance companies purchase, at a discount, instalment sales contracts from retailers and dealers when such items as new automobiles, appliances or home improvements are bought on instalment plans.

Question 22

Identify the process by which the number of securities and the amount of cash that has to change hands among the various exchange members each day is substantially reduced.
A. Balancing.
B. Clearing.
C. Netting.
D. Settling.

Answer 22

The number of securities and the amount of cash that has to change hands among the various members each day is substantially reduced through a process called netting where the clearing system establishes and confirms a credit or debit cash or security position balance for each member firm, compiles their clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account. Clearing refers to the process of confirming and matching security trade details. Settlement refers to the moment of irrevocable exchange of cash and securities. Balancing simply refers to balancing a firm’s account, where they receive what they are owed and pay what they owe.

Question 23

ABC Securities offers a wide range of products and services to both retail and institutional clients, as well as underwriting bond and equity issues. Determine the category of firm ABC belongs to.
A. Boutique.
B. Institutional.
C. Integrated.
D. Self-directed.

Question 24

XYZ Investments, an investment dealer, regularly takes positions in DEF Inc, a TSX listed equity, with a goal of improving liquidity in DEF while smoothing out unwarranted price fluctuations. Identify the role XYZ likely plays in the stock market.
A. Agent.
B. Market maker.
C. Principal.
D. Underwriter.

Answer 24

Investment dealers can act as market makers and carry out market making duties by taking positions in assigned listed stocks to enhance market liquidity and smooth out undue price distortions.