Volume 1- Chapter 1 Flashcards
Identify a characteristic of large Schedule l bank voting shares.
Single shareholder or group of shareholders may own up to 20%.
Identify the action of a dealer as principal in an underwriting.
Purchase the issue anticipating to resell at a profit.
Select the term that is used to refer to the controls that inhibit information sharing between various businesses and business units.
Firewall.
Identify the type of investment fund that continually issues shares to investors and redeems these shares on demand.
Mutual fund.
Identify the federally regulated foreign bank subsidiaries that have been authorized under the Bank Act to do banking business in Canada.
Schedule II.
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.
Agent.
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.
Spread.
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.
Self-directed broker.
A large furniture store wants to sell its consumer instalment contracts to generate cash. Determine the financial intermediary the store should contact.
Sales finance company.
Which department is responsible for the portfolio management activities in a securities firm?
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.
Netting.
Identify the investment service that feature portfolios created using algorithms based on modern portfolio theory and online client questionnaires.
Robo-advisors.
Thuy’s firm develops more efficient online financial planning applications for investors and investment advisors. Identify the type of firm Thuy owns.
Fintech.
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.
Integrated.
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.
Market maker.
Identify a characteristic of capital.
Mobility.
Identify the transaction that takes place in the secondary market.
Resale of previously issued securities.
Identify a difference between auction and dealer markets.
Prices are publicly visible in the auction market but not in the dealer market.
Select the exchange in Canada that deals exclusively with financial futures and options.
The Montréal Exchange.
Choose the system that the Ontario Securities Commission requires firms to us to report unlisted trades in Ontario.
Canadian Unlisted Board.
`Identify the role that the Canadian Securities Exchange (CSE) plays in the Canadian marketplace.
Market for emerging companies.
What happens when capital investment is deficient in an economy?
Industry slackens, unemployment rises, and living standards decline.
What are the main characteristics of the Canadian securities industry?
Highly competitive, sophisticated, innovative, and characterized by change and volatility
Market activity is measured by the variety and size of new issues, as well as trading depth and liquidity.
What is the primary regulatory framework for the Canadian securities industry?
Regulated mainly by provinces through securities commissions, which delegate powers to the Canadian Investment Regulatory Organization (CIRO)
CIRO oversees investment dealers and maintains fair market practices.
What are the key roles of the Canadian Investment Regulatory Organization (CIRO)?
Establishes and enforces industry regulations, protects investors, maintains fair practices
Formed by the amalgamation of IIROC and MFDA.
Who are the suppliers of capital in the Canadian securities industry?
Investors
They provide the funds that are used in financial markets.
Who are the users of capital in the Canadian securities industry?
Borrowers
They are entities that seek funding through financial markets.
What is the role of investment dealers in the securities industry?
Act as intermediaries matching investors with users of capital
They facilitate trades and transactions in the market.
What is the difference between clearing and settlement in the context of securities transactions?
Clearing is confirming and matching trade details; settlement is the exchange of cash and securities
Organizations like CDS handle these processes.
What are the three categories of investment dealers in Canada?
- Retail firms
- Institutional firms
- Integrated firms
Each category serves different types of clients and markets.
What defines a retail investment dealer?
Includes full-service and self-directed brokers offering various products and services
Full-service firms provide advice, while self-directed brokers focus on execution.
What is the primary market in securities trading?
Where new securities are issued and sold for the first time
An example is an initial public offering (IPO).
What is the secondary market in securities trading?
Where previously issued securities are traded
Trading occurs on platforms like the Toronto Stock Exchange.
What are principal transactions in the context of investment dealers?
Transactions where dealers own the securities they sell
Includes underwriting new issues.
What are agency transactions in the context of investment dealers?
Transactions where dealers act on behalf of clients without owning the securities
Dealers earn a commission for executing trades.
What is the purpose of the Canadian Investor Protection Fund?
Provides insurance against investment dealer and mutual fund dealer insolvency
Protects investors’ funds in case of dealer failure.
What types of services do investment dealers provide?
- Informed advice on new issues
- Market liquidity
- Market-making duties
- Trading from own accounts
These services enhance market efficiency and investor experience.
What is the function of the central clearing system in Canada?
Handles daily settlement processes between exchange members
Operated by CDS Clearing and Depository Services Inc.
What is the Bank Act in Canada?
Federal legislation governing the operations of chartered banks
Updated regularly to reflect current banking practices.
What differentiates Schedule I banks from Schedule II and III banks?
Schedule I banks are domestic and not foreign subsidiaries; Schedule II and III include foreign banks
Most Canadian-owned banks are Schedule I.
What are the three designations for banks in Canada?
Schedule I, Schedule II, Schedule III
What defines a Schedule I bank?
Banks not a subsidiary of a foreign bank, considered domestic even with foreign shareholders
Name the six major Canadian Schedule I banks.
- Bank of Montreal (BMO)
- Canadian Imperial Bank of Commerce (CIBC)
- National Bank of Canada
- Royal Bank of Canada (RBC)
- Scotiabank
- Toronto-Dominion Bank (TD Bank Group)
What is the maximum percentage of voting shares that a single shareholder can control in a large Schedule I bank?
20%
What is the voting share ownership limit for medium-sized banks?
A single shareholder can own up to 65% of the voting shares
What types of services do Schedule I banks offer?
- Mortgages
- Loans
- Accounts
- Investments
What organization provides deposit insurance for savings deposits in Canada?
Canada Deposit Insurance Corporation (CDIC)
What are the two main types of banks under Schedule II and Schedule III?
- Schedule II: Foreign bank subsidiaries
- Schedule III: Foreign bank branches
True or False: Schedule II banks can only engage in retail banking.
False
What is the main focus of Schedule III banks?
Corporate and institutional finance and investment banking
What is the primary federal legislation governing credit unions in Canada?
Cooperative Credit Associations Act (CCAA)
What financial services do credit unions and caisses populaires offer?
- Deposit-taking services
- Lending
- Mortgages
- Mutual funds
- Insurance
- Investment dealer services
Fill in the blank: Trust companies in Canada are authorized to engage in _______.
[trust business]
What are the two main lines of business in the insurance industry?
- Life insurance
- Property and casualty insurance
What is underwriting in the context of the insurance business?
Evaluating the risk and associated contractual responsibility in exchange for insurance premiums
What do investment funds do?
Sell shares or units to the public and invest in a diverse securities portfolio
What is a key characteristic of open-end funds?
They continually issue shares and redeem them on demand
What is the definition of a robo-advisor?
An online investment service that provides clients with goal-based investment management
What percentage of Canada’s population do millennials represent?
27%
What is the primary risk borne by employers in a defined benefit (DB) pension plan?
Pension shortfall
List common sources of retirement income for Canadians.
- Employer pension plan
- Canada Pension Plan
- Old Age Security
- Personal savings
- Liquidation of fixed assets
What is the recommended savings rate for individuals during their working years?
10% to 20% of pre-tax income
True or False: The Insurance Companies Act allows only life insurance companies to offer annuities.
True
What is the trend in Canadian savings rates as of recent studies?
Fallen below 6%
What is household debt defined to include?
- Mortgage debt
- Consumer debt
What percentage of pre-tax income is recommended for individuals to save during their working years?
10% to 20%
According to recent studies, what is the level of Canadian savings as of the latest reports?
Below 6%
How does Statistics Canada define household debt?
Mortgage debt on principal residences, vacation homes, and consumer debt
What types of debt are included in consumer debt?
- Outstanding debt on credit cards
- Personal and home equity lines of credit
- Secured and unsecured loans
- Unpaid bills such as rent and taxes
What has been the debt-to-income level in Canada over the past three years?
Approximately 172% of disposable income
What was the debt-to-income level in Canada in the year 2000?
Closer to 100% of disposable income
What is one potential consequence of an individual’s inability to service debt?
Increased stress levels
What is a key way that financial advisors can distinguish themselves in a competitive market?
Education and designations
What do clients believe multiple designations indicate about financial advisors?
Greater ability to provide a varied range of services
What are cryptoassets?
Assets that exist only in digital form and use cryptography to prevent counterfeiting
What is a popular example of a cryptoasset?
Bitcoin
What was the primary purpose of creating Bitcoin?
An alternative payment system operating outside of central banking control
What does the Bitcoin network create to record all transactions?
A decentralized public transaction ledger called the blockchain
What is the difference between Bitcoin the token and Bitcoin the protocol?
- Bitcoin the token: Represents ownership of a digital concept with financial value
- Bitcoin the protocol: The distributed network that maintains the ledger
What is the trading symbol for Bitcoin?
BTC or XBT
How can investors own bitcoin?
Directly or indirectly through an investment vehicle
What are the two keys contained in a bitcoin wallet?
- Public key
- Private key
What is the function of the private key in a bitcoin wallet?
It serves as the owner’s secret password for transactions
What is the maximum number of bitcoins that can ever exist?
21 million
As of the latest data, how many bitcoins are in circulation?
Around 19.6 million
What was the total value of all bitcoins in circulation as of March 2024?
Around US$1.3 trillion
True or False: Bitcoin is designed to be a deflationary currency.
True
