Definitions

Question 1

what`s an alternative investment?

Answer 1

An alternative investment refers to investment options that fall outside the traditional asset classes of stocks, bonds, and cash. These can include:

• Real estate (such as REITs or direct property investments)
• Private equity (investing in private companies)
• Commodities (like gold, oil, or agricultural products)
• Hedge funds
• Venture capital
• Collectibles (such as art or rare coins)

These investments often have a different risk-return profile and can offer diversification benefits, though they may be less liquid and harder to value than traditional investments.

Question 2

what is a commodity

Answer 2

a material that is often used to create other products, so examples are wheat, gold, copper, etc.

Question 3

what is a sales communication?

Answer 3

A sales communication includes any communication relating to a mutual fund that induces the public to invest in that mutual fund.

This includes printed material, audio and visual displays, and personal endorsements. Part 1.1 of NI 81-102 specifically excludes the prospectus, the annual information form, financial statements, trade confirmations, and statements of account.

Question 4

what is a national instrument? and while we are here, who creates them?

Answer 4

A National Instrument is an instrument that has been adopted in all thirteen Canadian provinces and territories. A Multilateral Instrument is an instrument that has been adopted in more than one, but not all Canadian provinces and territories.

CSA

Question 5

what does hedging mean?

Answer 5

going against.
e.g. hedge fund goes against the market
hedging your risk means preventing risk

Question 6

what is REIT

Answer 6

real estate investment trust

Question 7

what is a bond rating?

Answer 7

A bond rating is an evaluation of the creditworthiness of a bond issuer, which helps investors assess the risk of default on the bond. It is assigned by credit rating agencies like Moody’s, Standard & Poor’s (S&P), and Fitch. The rating reflects the issuer’s ability to repay the principal and interest on the bond.

Bond ratings range from high-quality investment-grade ratings to lower-quality, higher-risk ratings:

• Investment-grade bonds (e.g., AAA, AA, A) are considered lower risk and have a lower likelihood of default.
• Non-investment-grade bonds (e.g., BB, B, CCC) are considered riskier and are often referred to as “junk bonds.”

A higher rating means the issuer is seen as financially stable and less likely to default, while a lower rating indicates higher risk.

Question 8

what is YTM

Answer 8

Yield to maturity (YTM) represents the total return an investor can expect if the bond is held until maturity, considering both the bond’s current price, coupon payments, and the face value to be received at maturity.

Question 9

what is growth investing?

Answer 9

Growth investing involves buying securities, typically stocks, in the hope that their prices will increase over time due to the company’s growth potential

Question 10

What is a bear market?

Answer 10

A market in which stock prices are falling. A bear market refers to a period when the overall market or a specific asset class experiences a decline of 20% or more from its recent highs.

bear because bears swat their prey downward

Question 11

whats a bull market?

Answer 11

In contrast, a bull market refers to rising prices, as bulls attack by thrusting their horns upward, which is symbolically linked to the upward trend in stock prices.

Question 12

what is value investing?

Answer 12

The primary goal of value investing is: To invest in companies that are undervalued compared to their intrinsic value. Value investors look for stocks that they believe are trading for less than their true worth, hoping that the market will eventually recognize their value

Question 13

what is systematic risk

Answer 13

Systematic risk affects the entire market or economy, such as risks from interest rates, inflation, or economic recessions, and cannot be eliminated through diversification.

Question 14

whats systemic risk?

Answer 14

Systemic risk is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy. Systemic risk was a major contributor to the financial crisis of 2008. Companies considered to be a systemic risk are called “too big to fail. (google)

Question 15

difference between systematic & unsystematic risks. also whats another name for systematic risk?

Answer 15

Systematic risk (aka market risk) refers to the risk that affects the entire market or economy, such as economic downturns, changes in interest rates, or natural disasters. It’s different from unsystematic risk, which is specific to an individual company or industry and can be reduced through diversification.

Understanding how to manage both systematic and unsystematic risk is key to making informed investment decisions.

Question 16

what are junk bonds?

Answer 16

High-yield (junk) bonds typically have the highest level of risk because they are issued by companies with lower credit ratings, meaning there is a higher risk of default

Question 18

What’s leverage?

Answer 18

It’s the amount of debt . If you’re highly leveraged, it’s because you have more debt than equity. It’s not necessarily bad

Question 19

whats A leading indicator?

Answer 19

A leading indicator is a metric that forecasts future economic activity. These indicators help predict trends in the economy before they actually occur, such as stock market performance, new building permits, or consumer confidence

Question 20

what does Conservative Mutual Funds focus on?

Answer 20

Conservative Mutual Funds focus primarily on maintaining capital and generating steady income with lower risk. These funds typically invest in safer, income-generating assets like bonds and dividend-paying stocks.

Question 21

what is Asset allocation

Answer 21

Asset allocation refers to the strategy of diversifying investments across various asset classes (such as stocks, bonds, and cash) to balance risk and reward according to the investor’s financial goals and risk tolerance.

Question 22

what is MER

Answer 22

The Management Expense Ratio (MER) is a fee typically associated with mutual fund investments. It represents the total cost of managing and operating the fund, expressed as a percentage of the fund’s assets.

Question 23

Which type of income generated from mutual funds is subject to the highest tax rate in Canada?
a) Capital Gains
b) Dividend Income
c) Interest Income
d) Tax-Deferred Income

Answer 23

c

Question 25

What’s fundamental analysis ?

Answer 25

Fundamental analysis focuses on looking at the fundamentals of a company such as revenues, assets, profits, and competitive position. Fundamental analysts use a company’s financial statements as a major source of information. However, they may also speak with its management, customers and suppliers to get a better picture of a company’s situation. They also consider macroeconomic factors such as the economy, inflation and interest rates and how those factors could impact a company’s earning potential.

Question 26

What does the income statement show?

Answer 26

A company’s net profit or loss is shown on its income statement. The purpose of the income statement is to show the revenue and expenses of a company for the fiscal year. If revenues exceed expenses, there will be a net profit. If revenues are less than expenses, the company will show a loss.

Question 27

What’s the difference between systemic and systematic

Answer 27

Systematic risk is like the weather—it affects everyone and can’t be avoided. While systemic risk is the collapse of a part of the system that causes a chain reaction, systematic risk refers to broad, market-wide factors that affect all investments and participants in the market, regardless of the specific company or sector.

Here’s a more detailed analogy:

Systematic Risk: Like bad weather affecting a whole region.

Example: A storm that affects everyone in the region, whether you’re in a house, a store, or a car. It doesn’t matter where you are; the storm impacts everyone, and there’s no way to escape it (like interest rate changes or a recession).

Characteristics: It’s caused by external factors such as economic downturns, changes in government policy, wars, or inflation. These factors influence the entire market or economy, making it impossible to avoid.

Systemic Risk: Like a domino effect or a collapsing building.

Example: Imagine if one house collapsed, causing the neighboring houses to collapse one after another, leading to the entire neighborhood being destroyed. In finance, this would happen when the failure of one institution (like a major bank) causes others to fail, threatening the entire system.

Characteristics: It’s about the interconnectedness of the system. A failure in one part can lead to widespread collapse.

Summary:

Systematic = Broad, unavoidable factors (like the weather)—you can’t escape the effect.

Systemic = A chain reaction (like dominoes)—one event leads to the failure of others.

Question 28

Is unanticipated inflation systemic or systematic

Answer 28

Systematic, because it affects everyone like bad weather

Deflation would be more systemic

Overnight success is systematic

But bad press leading to more bad press is systemic

Question 29

What’s technical analysis?

Answer 29

Technical analysis is also known as charting. Technical analysts rely heavily on charts to identify patterns or indicators to predict future price movements.

Question 30

What’s top down

Answer 30

The top-down approach begins with looking at the overall economy and current market trends to determine the industries, markets and/or countries that are expected to perform well. Then the portfolio manager narrows it down further to pick individual companies that they believe will outperform its competitors.