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CSI Canadian Securities Course Exam 1 Sample Questions (Q77-Q82):

NEW QUESTION # 77
What is margin in an equity transaction?

A. Good-faith deposit to ensure the client will make future financial obligations
B. interest paid by the client to borrows securities.
C. Loan that a dealer extends to a client to buysecurities.
D. Amount paid by a client when he uses credit to buy securities

Answer: C

Explanation:
In an equity transaction,marginrefers to the loan that a dealer extends to a client to facilitate the purchase of securities. The client pays a portion of the purchase price (the margin requirement), while the dealer provides the remainder as a loan. This enables clients to leverage their investments and potentially enhance returns, albeit with increased risk.
Other options:
* Amount paid by a client when using credit to buy securities: Describes the margin requirement but does not fully define margin.
* Good-faith deposit to ensure future financial obligations: Refers to initial margin in derivatives trading, not equity transactions.
* Interest paid by the client to borrow securities: Refers to short-selling, not buying on margin.
References:
* Volume 1, Chapter 9:Equity Transactions, section on "Margin Accounts" explains the mechanics of margin trading and loans.

NEW QUESTION # 78
An investor has earned additional Income and is looking to invest in a security that guarantees returns over.
The next seven years. What is the Best option for purchase?

A. Proffered shares
B. Exchange-traded fund.
C. Common shares
D. Provincial saving bond

Answer: D

Explanation:
Provincial savings bonds are a suitable option for an investor seeking a guaranteed return over a fixed period, such as seven years. These bonds are backed by the credit of the issuing provincial government and provide a stable and secure investment, ensuring predictable returns. They are often issued during specific sales campaigns and offer safety comparable to federal bonds but tailored to provincial residents.
Other options:
* Preferred shares: Provide fixed dividends but do not guarantee returns.
* Common shares: Subject to market risk and do not offer guaranteed returns.
* Exchange-traded funds (ETFs): Can track bonds or equities but are subject to market fluctuations and do not guarantee returns.
References:
* Volume 1, Chapter 6:Fixed-Income Securities, section on "Provincial and Municipal Bonds" explains the features and security of provincial savings bonds.

NEW QUESTION # 79
What order would an investor use to protecta short position?

A. Good till
B. Stop buy
C. Stop loss
D. Market

Answer: B

Explanation:
A stop buy order is used to protect a short position. This type of order instructs the broker to purchase a security if its price rises to a specified level, limiting the short seller's potential loss. It is triggered when the price reaches or surpasses the set stop price, helping the short seller exit the position to avoid unlimited losses.
Study Document References:
* Volume 1, Chapter 9:Order Types and Protecting Short Positions, discussing how stop buy orders function for short sellers.

NEW QUESTION # 80
An investor wants to gain exposure to the Canadian stock market with minimal risk exposure. What is the test financial instrument for this investor?

A. Index exchange-trace fund.
B. Call option.
C. Canadian bank preferred shares.
D. Index-linked guaranteed investment certificate.

Answer: D

Explanation:
The investor's goal is to gainexposure to the Canadian stock marketwhile maintainingminimal risk exposure. Among the provided options, anindex-linked guaranteed investment certificate (GIC)is the most suitable choice.
Key Characteristics of an Index-Linked GIC:
* Capital Protection:
* Index-linked GICs guarantee the principal investment amount, offering the security of a GIC while tying returns to the performance of a stock index (e.g., the S&P/TSX Composite Index).
* This ensures no loss of capital regardless of market performance.
* Market Exposure:
* The return on an index-linked GIC is linked to the performance of the underlying index, providing exposure to the stock market. However, this comes without the downside risk associated with direct stock or fund investments.
* Low Risk:
* The combination of principal protection and market exposure makes it ideal for risk-averse investors seeking growth potential.
Review of Other Options:
* A. Canadian Bank Preferred Shares:
* While preferred shares provide stable dividends and relatively low volatility compared to common shares, they still carry market risk and are not as secure as GICs.
* B. Index Exchange-Traded Fund (ETF):
* ETFs track stock indices and offer diversification, but they expose investors to the full market risk of the underlying index, making them unsuitable for those seeking minimal risk exposure.
* C. Call Option:
* Call options are speculative derivatives that provide leverage for market exposure but carry significant risk of loss, making them inappropriate for a low-risk investor.
Why D is Correct:
Anindex-linked GICbalances the investor's objective of gaining exposure to the Canadian stock market with the need for minimal risk by guaranteeing principal protection while offering potential returns tied to market performance.
References:
* Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities - Features and Types. Discussion on index-linked GICs and their suitability for risk-averse investors.
* Explanation of risk characteristics of preferred shares, ETFs, and derivatives in Chapter 8 and 10 of Volume 1.

NEW QUESTION # 81
What is the impact of a stock split on the number of shares held by the shareholders and theirprice?

A. The number of shares increases and the share price decreases.
B. The number of shares decreases and the share price eases
C. The number of shares Increases and theshare price Increases.
D. The number of shares decreases and the share price decreases.

Answer: A

Explanation:
Stock index performance is best measured usingpercentage changesrather than absolute values like point changes, relative values, or share price changes. This is because percentage changes provide a normalized measure of performance, allowing for meaningful comparisons over time or between different indexes, regardless of their starting levels or the specific units in which the index is expressed.
* Comparative Analysis: Percentage changes allow investors to compare the performance of indexes with vastly different base values or compositions. For example, a 100-point movement on a low-value index might be significant, while the same point movement on a high-value index might be trivial.
* Normalized Returns: They normalize the performance, enabling easier tracking of relative gains or losses over time.
* International Relevance: With global markets often using indexes based on different currencies or methodologies, percentage changes standardize comparisons across markets.
* A. Relative value changes: This term lacks a precise definition in the context of performance measurement and is not commonly used in evaluating index performance.
* B. Point changes: While point changes are informative for intraday movements or headlines, they lack context without knowing the index's value. For example, a 50-point drop could represent 0.5% or 5%, depending on the index level.
* C. Share price changes: This is specific to individual securities and does not apply to indexes, which aggregate multiple stocks.
Why Percentage Changes?Incorrect Options:Reference from the CSC® Study Material:The Canadian Securities Course explains the role of indexes in tracking market performance and highlights the importance of percentage changes for measuring and interpreting their performance. This is because percentage changes provide consistency and relevance when comparing different periods or indexes with varying base values (CSC Volume 1, Chapter 8, "Stock Indexes and Averages").
Key Concepts Related to Index Performance:
* Market indexes represent a basket of securities designed to reflect the overall performance of a specific market or sector.
* Percentage changes effectively capture market sentiment and performance trends.
* Common Canadian market indexes such as the S&P/TSX Composite Index and international indexes like the S&P 500 often report movements in both points and percentages, with the latter providing a more accurate representation of market dynamics.
This understanding is fundamental for financial professionals analyzing market trends, investment performance, and conducting portfolio management.
References:
* CSC Volume 1, Chapter 8, "Equity Securities: Common and Preferred Shares - Stock Indexes and Averages".
* CSC Volume 1, Chapter 7, "Fixed-Income Securities: Pricing and Trading - Bond Indexes" for comparative index concepts.

NEW QUESTION # 82
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Prepare Exam With Latest CSI CSC1 Exam Questions

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CSI Canadian Securities Course Exam 1 Sample Questions (Q77-Q82):

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