Chapter 1 Canadian Securities Industry RQ Flashcards
Identify a characteristic of large Schedule I bank voting shares.
A. All voting shares can be owned by one individual or organization.
B. Minimum of 35% of shares publicly traded.
C. Single shareholder or group of shareholders may own up to 20%.
D. Single shareholder may own up to 65%.
C. Single shareholder or group of shareholders may own up to 20%.
Currently, voting shares of large Schedule I banks must be widely held, with the control of any single shareholder or group of shareholders restricted to no more than 20 per cent. In contrast, a single shareholder, including a company, can control a medium-sized bank (shareholder equity of less than $12 billion) by owning up to 65% of the voting shares, provided that the remaining shares remain publicly traded. A small bank (shareholder equity of less than $2 billion) can be owned by one individual or organization.
Identify the action of a dealer as principal in an underwriting.
A. Purchase the issue anticipating to resell at a profit.
B. Hold the issue in inventory as collateral.
C. Acquire the issue if there are client orders for the securities.
D. Sell as much of the issue as possible and return unsold securities to the issuer.
A. Purchase the issue anticipating to resell at a profit.
In an underwriting, the dealer acts as a principal and purchases new securities from an issuer. The dealer intends to resell these securities immediately at a profit.
Select the term that is used to refer to the controls that inhibit information sharing between various businesses and business units.
A. Clearing.
B. Credit and compliance.
C. Firewall.
D. Segregation.
C. Firewall.
While banks are permitted under current legislation to take part in diverse sectors of the financial services industry, there are controls on how they do so and on the sharing of customer information between subsidiaries. Controls that inhibit information sharing between various businesses and business units are referred to as Information Barriers or “Firewalls.”
Identify the type of investment fund that continually issues shares to investors and redeems these shares on demand.
A. Closed-end fund.
B. Mutual fund.
C. Primary distribution.
D. Private placement.
B. Mutual fund.
Open End Funds or Mutual Funds continually issue shares to investors and redeem these shares on demand.
Identify the federally regulated foreign bank subsidiaries that have been authorized under the Bank Act to do banking business in Canada.
A. Chartered bank.
B. Schedule I banks.
C. Schedule II banks.
D. Schedule III banks.
C. Schedule II banks.
Schedule II banks are incorporated and operate in Canada as federally regulated foreign bank subsidiaries. These banks can engage in all the types of business that are permitted to Schedule I Banks. Schedule III banks are federally regulated foreign bank branches of foreign institutions (rather than foreign bank subsidiaries) that have been authorized under the Bank Act to do banking business in Canada. Schedule III banks, in practice, tend to focus on corporate and institutional finance and investment banking.
Indicate the role that an investment dealer is taking when the firm does not assume ownership of securities at some stage in the buying and selling transaction with investors.
A. Agent.
B. Market maker.
C. Principal.
D. Underwriter.
A. Agent.
When a broker acts as an agent, it acts for or on behalf of a buyer or a seller, but does not itself own title to the securities at any time during the transaction. The broker’s profit is the commission charged for each transaction. When a securities firm acts as a dealer or principal, it owns securities as part of its own inventory at some stage in the buying or selling process with investors. The difference or spread between buying and selling prices is the dealer’s gross profit or loss.
Identify the term used to refer to the difference between what banks pay as interest on deposits and what they charge as interest on loans.
A. Credit.
B. Margin.
C. Return.
D. Spread.
D. Spread.
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.
Kuy, a very successful and knowledgeable investor, has inherited $200,000 and wants to create a diversified portfolio while minimizing costs. Determine the type of investment firm that is best suited for this client.
A. Full-service investment dealer.
B. Self-directed broker.
C. Integrated firm.
D. Institutional firm.
B. Self-directed broker.
Self-directed brokers, also known as discount brokers, execute trades for clients at reduced rates but do not provide advice. Self-directed brokers are more popular with those investors who are willing to research individual companies themselves in exchange for lower commission rates.
A large furniture store wants to sell its consumer instalment contracts to generate cash. Determine the financial intermediary the store should contact.
A. Chartered bank.
B. Insurance company.
C. Investment dealer.
D. Sales finance company.
D. Sales finance company.
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.
Which department is responsible for the portfolio management activities in a securities firm?
A. Back office.
B. Front office.
C. Middle office.
D. Underwriting.
B. Front office.
The front office usually includes all staff functions pertaining directly to portfolio management activities. Accordingly, all portfolio management and trading would be part of the front office.
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.
C. Netting.
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.
Identify the investment service that features portfolios created using algorithms based on modern portfolio theory and online client questionnaires.
A. Execution only brokers.
B. Integrated firms.
C. Robo-advisors.
D. Self-directed brokers.
C. Robo-advisors.
Robo-advisors are an alternative to self-directed execution only (discount) brokers. Portfolios are created using algorithms based on modern portfolio theory and on online client questionnaires.
Thuy’s firm develops more efficient online financial planning applications for investors and investment advisors. Identify the type of firm Thuy owns.
A. Financial intermediary.
B. Fintech.
C. Robo-advisor.
D. Self-directed broker.
B. Fintech.
Financial technology companies, known collectively as the fintech industry, take advantage of computer technology to provide more efficient financial products and services.
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.
C. Integrated.
Integrated firms offer products and services across the industry and participate fully in both the retail and institutional markets. Most integrated firms underwrite all types of federal, provincial, and municipal debt, as well as corporate debt and equity issues.
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.
B. Market maker.
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.
