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CSI Canadian Securities Course Exam2 Sample Questions (Q16-Q21):
NEW QUESTION # 16
In Canada, which industries are categorized as defensive?
- A. Banking and utilities.
- B. Energy and utilities.
- C. Baking and materials
- D. Energy and materials.
Answer: A
Explanation:
Defensive industries are less sensitive to economic cycles. They tend to perform consistently regardless of economic conditions because they provide essential goods and services that consumers require regardless of their financial situation. Banking and utilities fall under this category as:
* Bankingensures essential financial services.
* Utilities(e.g., electricity, water) provide necessary services.
Industries like energy and materials are morecyclical, reacting strongly to economic fluctuations. Hence,D.
Banking and Utilitiesis the correct choice.
References:
* Volume 2, Chapter 13, "Classifying Industries by Reaction to the Economic Cycle".
NEW QUESTION # 17
What is the main benefit of investing in preferred shares?
- A. Higher potential for capital appreciation than common shares.
- B. Priority to receive fixed dividends ahead of common shareholders.
- C. Priority to claim assets ahead of debt holders.
- D. Guaranteed dividend payment.
Answer: B
Explanation:
Preferred shares provide investors withpriority to receive fixed dividends ahead of common shareholders.
This fixed income feature makes preferred shares similar to debt instruments but with characteristics of equity. While preferred shareholders have no guaranteed dividend payment (subject to the company's discretion and profitability), they are entitled to receive dividends before any distribution to common shareholders.
Preferred shares do not have a higher potential for capital appreciation compared to common shares, as they are typically designed for income rather than growth. Additionally, preferred shareholders have a lower claim on assets compared to debt holders.
NEW QUESTION # 18
What is the reason for an individual to use an estate freeze?
- A. Eliminate probate fees
- B. Transfer control of the assets.
- C. Limit the tax liability for future growth
- D. Reduces asset price volatility
Answer: C
Explanation:
Anestate freezeis a strategy used to minimize future tax liability by freezing the value of an individual's assets at their current level and transferring future growth to others (e.g., family members). This helps lock in the current value for taxation purposes while passing on potential growth to the next generation without incurring immediate taxes.
* Key Benefits of an Estate Freeze:
* Ensures that future appreciation in asset value is taxed in the hands of beneficiaries rather than the original owner, typically at lower tax rates.
* Facilitates succession planning by transferring control of assets to heirs.
* Limits tax exposure while maintaining flexibility in estate planning.
* Why Other Options Are Incorrect:
* A: An estate freeze does not eliminate probate fees, though it may reduce taxable estate value.
* B: Asset price volatility is unrelated to the purpose of an estate freeze.
* C: While asset control may change, this is not the primary reason for an estate freeze.
References:
* CSC Volume 2, Chapter 24: Estate Planning and Tax Strategies.
NEW QUESTION # 19
Which type of trader specializes in managing block trades on behalf of institution clients?
- A. Liability trader
- B. Agency trader
- C. Market maker
- D. Responsible designated trader.
Answer: B
Explanation:
An agency trader specializes in executing large block trades for institutional clients without taking ownership of the securities. Their role is critical in facilitating liquidity and minimizing market impact during the execution of trades.
* Managing Block Trades:
* Agency traders handle large transactions on behalf of institutions like pension funds or mutual funds, ensuring the trades are completed efficiently.
* They do not use the firm's capital; instead, they act as intermediaries between the buyer and seller.
* Minimizing Market Impact:
* Large trades can significantly impact stock prices if not executed strategically. Agency traders use methods like algorithmic trading or dark pools to mitigate this impact.
* Role vs. Other Traders:
* Liability Trader: Trades using the firm's capital, assuming the risk of the position.
* Market Maker: Provides liquidity by quoting buy and sell prices.
* Responsible Designated Trader: Oversees order flow for specific securities on the exchange.
* The question specifies managing block trades for institutional clients. This matches the role of agency traders, as they focus on executing trades on behalf of clients without taking positions themselves.
Key Responsibilities of Agency Traders:Why Option B Is Correct:References from CSC Study Materials:
* Volume 2, Chapter 27: "Working with the Institutional Client," Section on Roles and Responsibilities in the Institutional Market.
NEW QUESTION # 20
What are examples of primary investment objectives?
- A. Tax minimization and safety of principal.
- B. Growth and preservation of capital
- C. Marketability and tax minimization.
- D. Marketability and growth of capital.
Answer: B
Explanation:
Investment objectives are critical components of a financial plan, guiding both the client and the advisor in creating strategies to achieve desired financial outcomes. These objectives generally fall into primary categories that reflect the investor's goals, risk tolerance, and time horizon.
* Growth of Capital:This objective focuses on increasing the principal value of the investment over time.
It is particularly important for investors with long-term goals, such as retirement or funding a child's education. Growth-oriented investments typically include equities, equity mutual funds, and growth- oriented ETFs.
* Preservation of Capital:This objective ensures that the invested principal remains safe from loss, emphasizing lower-risk investments like government bonds, GICs (Guaranteed Investment Certificates), or money market instruments. Investors prioritizing this objective often have a low tolerance for risk and a shorter time horizon.
Growth and Preservation of CapitalRelevance to Financial PlanningBy combining growth with preservation, the portfolio aims to strike a balance between generating returns and maintaining the invested capital. This dual objective is well-suited for individuals in different life stages:
* Young Investors: Tend to emphasize growth more, leveraging their long time horizons.
* Older Investors: Place greater emphasis on preservation as they near or enter retirement, prioritizing capital safety to fund living expenses.
Why A is CorrectOption A explicitly combines both these objectives, aligning with a widely recognized approach to investing that balances risk and reward depending on the investor's profile and needs.
References:
* Volume 2, Section 15: Portfolio Management Process-Investment Objectives and Constraints.
* Volume 1, Section 4: Overview of Economics-Principles of Risk and Return.
NEW QUESTION # 21
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