Canadian Securities Exam Fast-Track Study Guide

W. Sean Cleary

• Publisher: Wiley
• Year: 2017
• Print ISBN: 9781118605684
• eBook ISBN: 9781118629642
• Edition: 4
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

A concise and practical guide to preparing for the Canadian Securities Exam

For anyone dreaming of a career in the Canadian finance industry, whether in banking, brokerage, financial planning, or mutual funds, passing the Canadian Securities Exam is the first step on the path to success. But there's a lot of material to know and almost everyone needs a helping hand. Thankfully, the Canadian Securities Exam Fast-Track Study Guide is the perfect quick-review tool covering all the basics you need to know. It includes "quick hits" of the key points in language that's straightforward and easy to understand. Fully updated to cover the latest topics added to the CSC curriculum, this is the perfect study guide for staying cool under pressure and getting the best score you can. An ideal way to prepare for the Canadian Securities Exam, this handy guide will have you fully prepped and ready to go in no time flat.

• An affordable, compact study guide that simply summarizes must-know information
• Features 400 sample questions, including multiple choice chapter review questions and two full practice exams, as well as cross-referencing to the CSC textbook
• Written by a professor of finance and the Director of the Master of Management in Finance program at Queen's School of Business, Queen's University
• Ideal for finance students who need a quick review of the vital information they need to pass the Canadian Securities Exam

Chapter 1
THE CAPITAL MARKET

CSC EXAM SUGGESTED GUIDELINES:

15 questions combined for Chapters 1–3

INTRODUCTION

! The vital function served by financial markets is the transfer of wealth from those who have extra wealth to those who need capital. In other words, financial markets drive economic growth by transforming savings into investments.

• The three components of this process of wealth transfer are
  1. financial instruments;
  2. financial markets; and
  3. financial intermediaries.

SUPPLIERS AND USERS OF INVESTMENT CAPITAL

Investment Capital

! Capital incorporates the savings of individuals, corporations, governments, and other entities. It is scarce and valuable; however, it is only economically significant when it is properly utilized.

! Capital can be utilized through

1. 1. direct investment in real assets that generate wealth directly (e.g., land, buildings, equipment, human capital); or
   2. indirect investment in financial assets (e.g., stocks, bonds, treasury bills), which allows issuers of these securities to invest funds directly in wealth generating assets.

! Capital is mobile, scarce, and sensitive—efficient allocation promotes economic growth, while inefficient allocation can constrain economic growth. As a result of these characteristics, capital is selective and tends to flow toward attractive economic environments.

• Capital tends to flow into and out of countries in response to several variables, such as
  1. the political environment;
  2. economic trends;
  3. fiscal policy;
  4. monetary policy;
  5. investment opportunities and risk-return opportunities; and
  6. labour force characteristics.
• The availability of capital is critical to any nation. It is necessary to promote economic output, improve productivity, encourage innovations, and improve the competitive position of a nation in general.

Sources of Capital

! Investors, both retail and institutional, provide investment capital. Retail refers to investors who invest for their own account, while institutional investors are organizations such as pension funds or mutual funds that buy and sell securities on behalf of the underlying entity—which in turn is set up to serve its plan members, unit holders, etc.

• Individuals represent a significant source of investment capital in Canada.
• Corporations tend to retain a large portion of their earnings to finance operations and growth and are not an important source of capital.
• Canadian governments have generally been net borrowers in recent years to fund their deficits.
• Foreign investment has grown in importance in Canada and has been necessary to fund deficits and growth. The benefit of this fact is that it helps to expand our international trading relationships, while the cost is that this may take long-term cash flows out of the country. It is an issue that will be debated for some time to come.
• Nonresidents can invest in Canada through Canadian firms (which may be located at home or abroad), or through bonds or stocks that are listed on foreign ex-changes or over-the-counter markets (such as the NASDAQ stock market in the United States).
• The two main categories of international bond issues are
  1. foreign bonds: which are offered and denominated in the currency of a country other than the borrower; and
  2. Eurobonds: which may be denominated in one of several currencies and are sold in countries other than the currency in which they are denominated.

Users of Capital

• Individuals use capital primarily for consumption purposes, with the funds usually being obtained through personal loans, mortgage loans, or charge accounts.
• Businesses use capital to finance day-to-day operations, to maintain and upgrade plant and equipment, and to finance growth. A large proportion of funds are financed internally (through reinvested earnings), with the remainder coming from bank loans and through the issue of securities such as money market, bond, and equity instruments.
• Canadian governments have a long history of deficits, a situation that requires them to borrow to finance their expenditures.
• The federal government finances its debt using
  1. treasury bills (T-bills);
  2. marketable short- and long-term bonds (debentures); and
  3. Canada Savings Bonds and Canada Premium Bonds (which can be sold only to Canadian residents).
  T-bills and marketable bonds may be purchased by foreign investors.
• Prior to 1995, the yields on the Government of Canada's debt were generally higher than on U.S. government debt. Since then, our yields have been lower than those in the United States. This change reflects the improved financial position of the federal government in recent years, as the government reduced, then eliminated, its federal budget deficit.
• Provincial governments may issue non-marketable bonds to the federal government or borrow funds from the Canada Pension Plan (CPP) assets (or QPP for Quebec firms). They may also issue marketable bonds, T-bills, or provincial versions of savings bonds.
• Municipal governments borrow to provide local services such as streets, sewers, waterworks, and police and fire protection. They often do so in the form of serial or installment debentures (which will be discussed in Chapter 6).

THE ROLE OF FINANCIAL INSTRUMENTS

• The broad categories of financial instruments available are discussed below, and they are elaborated upon in subsequent cha...

Table of contents

• Cover
• Titlepage
• Copyright
• ACKNOWLEDGEMENTS
• INTRODUCTION
• CHAPTER 1 THE CAPITAL MARKET
• CHAPTER 2 THE CANADIAN SECURITIES INDUSTRY
• CHAPTER 3 THE CANADIAN REGULATORY ENVIRONMENT
• CHAPTER 4 ECONOMIC PRINCIPLES
• CHAPTER 5 ECONOMIC POLICY
• CHAPTER 6 FIXED-INCOME SECURITIES: FEATURES AND TYPES
• CHAPTER 7 FIXED-INCOME SECURITIES: PRICING AND TRADING
• CHAPTER 8 EQUITY SECURITIES: COMMON AND PREFERRED SHARES
• CHAPTER 9 EQUITY SECURITIES: EQUITY TRADING
• CHAPTER 10 DERIVATIVES
• CHAPTER 11 FINANCING AND LISTING SECURITIES
• CHAPTER 12 CORPORATIONS AND THEIR FINANCIAL STATEMENTS
• CHAPTER 13 FUNDAMENTAL AND TECHNICAL ANALYSIS
• CHAPTER 14 COMPANY ANALYSIS
• CHAPTER 15 INTRODUCTION TO THE PORTFOLIO APPROACH
• CHAPTER 16 THE PORTFOLIO MANAGEMENT PROCESS
• CHAPTER 17 EVOLUTION OF MANAGED AND STRUCTURED PRODUCTS
• CHAPTER 18 MUTUAL FUNDS: STRUCTURE AND REGULATION
• CHAPTER 19 MUTUAL FUNDS: TYPES AND FEATURES
• CHAPTER 20 SEGREGATED FUNDS AND OTHER INSURANCE PRODUCTS
• CHAPTER 21 HEDGE FUNDS
• CHAPTER 22 EXCHANGE-LISTED MANAGED PRODUCTS
• CHAPTER 23 FEE-BASED ACCOUNTS
• CHAPTER 24 STRUCTURED PRODUCTS
• CHAPTER 25 CANADIAN TAXATION
• CHAPTER 26 WORKING WITH THE RETAIL CLIENT
• CHAPTER 27 WORKING WITH THE INSTITUTIONAL CLIENT
• END-OF-CHAPTER REVIEW QUESTIONS ANSWERS
• EXAM #1 CSC PRACTICE EXAMINATION CHAPTERS 1–12
• EXAM #2 CSC PRACTICE EXAMINATION CHAPTERS 13–27
• EXAM #1 CSC PRACTICE EXAMINATION Answers
• EXAM #2 CSC PRACTICE EXAMINATION ANSWERS
• END USER LICENSE AGREEMENT