Free CSI CSC1 Practice Exam with Questions & Answers | Set: 2

Discount brokers fall under the category ofretail firms. Retail firms cater to individual investors and often provide services such as executing trades at reduced commission rates, but they typically do not offer financial advice or portfolio management. Discount brokers provide online platforms for self-directed investors.

A. Institutional firms: These firms serve large-scale investors such as pension funds or mutual funds, not individual investors.

C. Integrated firms: These firms operate in both retail and institutional markets, but discount brokers are specifically associated with retail services.

D. Boutique firms: These firms specialize in niche markets or services, such as wealth management or specific industry securities, rather than general retail brokerage.

The gain is calculated as:

Buying Price:5,000 shares purchased at $15.20 = $76,000.

Selling Price:5,000 shares sold at $15.25 = $76,250.

Profit Calculation:$76,250 - $76,000 =$1,000.

This reflects the gain from executing the market orders at the respective bid-ask prices.

Aninvestment bankerin a sell-side firm is responsible for structuring new debt issues and bringing them to the primary market. This involves determining the appropriate structure for the debt offering, pricing it based on market conditions, and marketing it to potential investors. Investment bankers play a key role in the capital-raising process for issuers.

References:

Volume 1, Chapter 1:The Canadian Securities Industry, section on "The Role of Investment Dealers," outlines the roles of investment bankers in the primary markets, including structuring and underwriting securities​.

When a security price increases in a long margin position, the equity in the margin account increases. The investor gains additional buying power and may withdraw excess margin, which represents the difference between the current equity and the margin requirement.

Option A:Incorrect; the investor would incur gains, not losses.

Option B:Incorrect; interest is charged on borrowed amounts, not excess margin.

Option C:Incorrect; additional funds are not required when equity rises.

Ashort form prospectusis a streamlined disclosure document that companies can use to raise funds more efficiently under specific conditions. The issuer must meet specific eligibility criteria outlined in Canadian securities regulations to qualify for filing a short form prospectus.

Key Conditions for Filing a Short Form Prospectus:

Listed Securities Requirement: The company must have its securities listed and actively traded on an eligible stock exchange (e.g., TSX or another recognized exchange). This requirement ensures that the company already complies with reporting obligations and has a history of providing transparent information to investors.

Continuous Disclosure History: The company must be a reporting issuer in one or more Canadian jurisdictions for at least 12 months, providing continuous disclosure (e.g., financial statements, material changes).

No Principal Asset Restriction: The company must not primarily rely on cash or cash equivalents as its principal asset, as this does not provide a sufficient operational track record.

Domestic Reporting Requirement: The company must not rely solely on foreign jurisdiction reporting; it must fulfill Canadian reporting requirements.

Review of Options:

Option A:Incorrect. While the prospectus may be used for financing purposes, it is not a condition specific to the short form prospectus.

Option B:Correct. A company must have securities listed and actively traded on an eligible exchange to use the short form prospectus​​.

Option C:Incorrect. Companies whose principal assets are cash or cash equivalents are typically not eligible for a short form prospectus.

Option D:Incorrect. The company must not exclusively be a reporting issuer in foreign jurisdictions; it must comply with Canadian reporting requirements.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 12: Financing and Listing Securities. Discussion on eligibility for short form prospectus filings and reporting issuer status​.

National Instrument 44-101: Short Form Prospectus Distributions.

When an investor feels unfairly treated by a stockbroker, and the issue is not resolved through direct discussion with the member firm, the next step often involves pursuing a formal dispute resolution mechanism. The options available in the Canadian securities industry for handling such disputes include:

Rescission of the objectionable trades:

This would involve canceling or reversing the trades in question. However, rescission is rarely granted and typically occurs only if there is clear evidence of fraud or legal impropriety. It is not the best initial course of action for dispute resolution.

Payment from the Canadian Investor Protection Fund (CIPF):

The CIPF protects clients of member firms in the event of the firm’s insolvency, not disputes over trades or treatment by a broker. Therefore, this is not applicable in this case.

Independent arbitration:

Arbitration is a widely recognized method of resolving disputes in the securities industry. It involves an independent arbitrator reviewing the case and issuing a binding decision. It is particularly suitable for cases where discussions between the investor and the firm have not resolved the issue.

Investigation by the Ombudsman for Banking Services and Investments (OBSI):

OBSI offers a dispute resolution service for clients of financial institutions, including investment dealers. However, OBSI’s findings are non-binding, meaning they cannot compel the member firm to act or pay compensation. Arbitration, on the other hand, provides a binding resolution.

Why Arbitration is the Best Option:

Independent arbitration is a more definitive course of action because it results in a binding decision that both the investor and the broker must adhere to. Arbitration is designed to handle precisely the type of disputes described in the question and ensures a fair process overseen by an impartial third party.

References:

Canadian Securities Course Volume 1:

Section on Dispute Resolution and Investor Protection: Arbitration is discussed as a key method for resolving disputes where the investor seeks a binding resolution​.

Role of the Canadian Investor Protection Fund: The CIPF is explained as providing coverage for insolvency, not dispute resolution​.

Role of the Ombudsman for Banking Services and Investments (OBSI): OBSI is explained as offering non-binding recommendations, making it less suitable for cases where binding decisions are needed​.

When acting as aprincipal, investment dealers buy and sell securities for their own account. They generate revenue by earning aspread, which is the difference between the price at which they buy securities (bid price) and the price at which they sell them (ask price). This is distinct from their role as an agent, where revenue is earned through commissions on trades executed on behalf of clients.

A. Through commissions: Commissions are earned when acting as an agent, not as a principal.

B. Through tracers: This term does not apply to revenue generation.

C. Through brokerage charges: Brokerage charges relate to fees imposed on client accounts, not principal trading spreads.

Chartered banks are generally considered primary derivative dealers in the over-the-counter (OTC) markets. They act as intermediaries and market makers for derivatives like swaps, options, and forwards, facilitating trades between other financial institutions, corporations, and investors.

Their extensive resources, expertise, and regulatory compliance capabilities make them dominant players in the OTC derivatives market.

Study Document References:

Volume 1, Chapter 10:Primary Derivative Dealers and OTC Markets, explaining the role of chartered banks in derivatives​​.

Profit from a short sale is calculated as the difference between the selling price and the covering price, multiplied by the number of shares:

Profit=(12.75−10.15)×1,500=2.60×1,500=3,900\text{Profit} = (12.75 - 10.15) \times 1,500 = 2.60 \times 1,500 = 3,900Profit=(12.75−10.15)×1,500=2.60×1,500=3,900

References:Volume 1, Chapter 9 ("Short Selling")​.

To calculate the first coupon payment for Brice's real return bond, we follow these steps:

Step 1: Determine the adjusted principal.

The bond is a real return bond, meaning its principal is adjusted for inflation based on the Consumer Price Index (CPI). The initial principal is$10,000, and CPI increases by0.8%over six months.

Step 2: Calculate the semi-annual coupon payment.

The coupon rate is5% annual, paid semi-annually, so each coupon payment is based on half the annual rate:

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Conclusion:

The first coupon payment Brice will receive is$252.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities – Features and Types. Discussion on real return bonds and their adjustment mechanism for inflation​.

Canadian Securities Course (CSC), Volume 1, Chapter 7: Fixed-Income Securities – Pricing and Trading. Calculation methodologies for bond payments​.