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AFM 121 MIDTERM EXAM LATEST
EXAM 2024 | ALL QUESTIONS
AND CORRECT ANSWERS |
ALREADY GRADED A+ | BRAND
NEW VERSION
What is CSI? ------CORRECT ANSWER---------------Canadian Securities Institute Offers courses required for licensing by regulators Different types of investment dealers? ------CORRECT ANSWER--------------
- Big 6 banks Small boutiques Different departments within an investment dealer? ------CORRECT ANSWER---------------Underwriting Trading Investment Banking Brokerage What are the two different types of brokers? ------CORRECT ANSWER------ ---------Full-service (offers high touch service and advice) Discount brokers (limited servces, no advice)
What is leverage? ------CORRECT ANSWER---------------Short term borrowing finances long term investments Are there any risks with borrowing short and lending long? ------CORRECT ANSWER---------------People can default Short term rates can be high and long term rates can be low What is Eurobonds or eurocurrencies? ------CORRECT ANSWER------------- --Euro denotes a security trading outside of its home jurisdiction (US dollar circulating outside USA) How do investment dealers act as principals in the primary markets? ------ CORRECT ANSWER---------------Investment dealer agrees to a price with the issuer and buys all of the shares / bonds (bought deal) Then dealer sell shares or bonds to investors How do investment dealers act as agents in the primary market? ------ CORRECT ANSWER---------------Investment dealer markets the shares or bonds to investors on a best efforts basis; the investment dealer does not purchase Charge commission How do investment dealers act as principals in the secondary markets? ---- --CORRECT ANSWER---------------Invest their own capital and earna spread between purchase and sale prices
What is OSFI? ------CORRECT ANSWER---------------The Office of the Superintendent of Financial Institutions Regulates and supervises banks, insurance, trust and loan companies, and pension plans What is CDIC? ------CORRECT ANSWER---------------Canadian Deposit Insurance Corporation Insures deposits up to 100k per bank account Does each province have its own securities commission? ------CORRECT ANSWER---------------Yes What is CSA ------CORRECT ANSWER---------------Canadian Securities Association Formed by all 13 securities commissions to provide a national umbrella group to co-ordinate provincial activities What is the vital function of financial markets? ------CORRECT ANSWER--- ------------Help facilitate transfer of capital What are the three components of the wealth transfer process? ------ CORRECT ANSWER---------------Financial instruments (what is actually bought / sold)
Financial markets (facilitating / buying financial instruments) Financial intermediaries (people / companies involved in financial instruments and markets) What is capital made up of? ------CORRECT ANSWER---------------Capital is made up of governments, corporations and individuals How is capital transferred? ------CORRECT ANSWER---------------Direct investment (land, real estate) Indirect investment (stocks, bonds, t-bills) When will people transfer capital? ------CORRECT ANSWER--------------- When it is easy, cheap, and generates a good return What does capital flow depend on? ------CORRECT ANSWER--------------- Political environment Economic trends Fiscal and Monetary policy Investment opportunities Labour force (highly educated / laws governing rights of labour force) Who provides capital? ------CORRECT ANSWER---------------Retail investors (individuals that buy retail) Institutional Investors (pension funds and mutual funds) Foreign investors (can include foreign retail, institutional and government investors)
How are regulations set for financial intermediaries? ------CORRECT ANSWER---------------Regulations are meant to be structured such that market efficiency is a by-product of this self interest What are auction markets? ------CORRECT ANSWER---------------Where all transaction converge in one location (TSX, TSX Venture Exchange) How does a stock exchange make money? ------CORRECT ANSWER------- --------Transaction fees Initial listing fees What is the latest trend in stock exchanges? ------CORRECT ANSWER----- ----------Physical locations to trading systems Speed and cost efficiency are crucial What are dealer markets? ------CORRECT ANSWER---------------Over the counter markets Trade directly with one another over the phone Mostly used for bonds What are ATS? ------CORRECT ANSWER---------------Computerized systems that execute orders outside traditional exchanges Buyers / sellers often contract each other directly Costs / fees are lower
Is securities regulations a provincial responsibility? ------CORRECT ANSWER---------------Yes What are SROs and what do they do? ------CORRECT ANSWER--------------
- Self Regulatory Organizations Owned by its members that regulate and police themselves IIROC, TSX, TSX Venture Exchange What does CDS stand for and do? ------CORRECT ANSWER--------------- Canadian Depository for Securities Clears or settles trades (owned by TMX) What is IIROC and what does it do? ------CORRECT ANSWER--------------- Oversees all investment dealer and trading activity in the Canadian debt and equity market Formulates standards and policies for Canadian debt and equity markets What is capital adequacy? ------CORRECT ANSWER---------------It is the amount of money that firms must set aside when holding bank deposits / making loans / raising capital What is MFDA? ------CORRECT ANSWER---------------Mutual Funds Dealers Association
Three basic methods are used to protect investors? ------CORRECT ANSWER---------------Registration of securities dealer and advisors Disclosure of material facts Enforcement of the laws and policies How to become an IA? ------CORRECT ANSWER---------------Must pass CSC and CPH Complete a 90 day training course Be subject to supervision for 6 months Complete the CSI's course within 30 months of becoming an IA What is fiduciary obligation? ------CORRECT ANSWER---------------They must operate in the best interest of their clients and not their own Member firms and IA's must: ------CORRECT ANSWER---------------Not reveal confident info Avoid conflict of interests Ensure that all representations to clients are made honestly and in good faith Follow client instruction
What are the 3 areas of market regulation? ------CORRECT ANSWER------- --------Market surveillance (tracking whether there is insider trading) Investigation enforcement and regulatory / market policy Where all transactions converge in one location What is a takeover bid? ------CORRECT ANSWER---------------If an acquiring firm acquires greater than 20% of voting securities of another company, it is defined as a 'takeover bid' and must abide with takeover bid legislation At what percentage must a press release or early warning report be released? ------CORRECT ANSWER---------------10% What are the insiders defined as? ------CORRECT ANSWER--------------- Directors or senior officers (CEO or CFO) A person or company controlling more than 10% of voting securities A reporting issuer that has acquired any of its own securities (buying back its own shares) insiders are required to file reports reporting their trading activity in the company for which they are an insider What do fixed income securities include? ------CORRECT ANSWER---------- -----Bond Debentures Mortgages Swaps Preferred Shares
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- If a transaction is conducted in the secondary market, who receives the proceeds from the sale?
- What type of bond requires the issuer to buy back the bonds over time?
- A car loan hasa an APR = 7.5% and is com- pounded annually what is the effective annual rate?
- Which country does not have a federal/ national securities regulator?
- Who is most likely to participate in a bought deal? The shareholder who owned the share prior to selling them Sinking fund 7.50% Canada An investment dealer as principal in the primary market?
- The royal bank of Canada is an example of which Schedule 1 Bank of the following?
- Securities in Canada are regulated by? province
- A bond covenant is intended to do the following: restrict the behaviour of the borrower
- What is a portable risk to a bank borrowing short long-term interest and lending long?
- Which of the following is an example of a capital market that is efficient and liquid?
- What is one area of banking regulation that like- ly reduced the negative impact of the 2007 - 2009 financial crises in Canada? rates decreases while short-term interest rates increases Many buyers and sellers Rules relating to capital adequacy
- $151.
2 / 3 Today, you invested $100 in a GIC that pays an EAR of 3%. What is the value of investment in 14 years?
- Which of the following is not a way that a stock exchange makes money?
- What is the rate of return on a one-year, zero coupon bond that is purchases for $92, and has a face value of $100? Fees from companies making capital structure changes 8.70%
- Interlisted securities refer to securities that: Trade on more than stock exchange
- The % coupon rate is typically less than % YTM on a bond
- Which of the following is not a reasonable ratio- nale for which a company would sell shares to the public? False Pay dividends
- IIROC is an example of? An SRO
- If the current price of a bond (PV) is less than the face value (FV), the bond is said to be trading at a: Discount
- Insider trading that is illegal involves? Buying or selling shares on the basis of materi- al information that is not publicly available
- When investment dealers market a new security Agents, primary for an issuer on a best efforts basis they are acting as a what in the market?
- An investor owns $1000 convertible debenture that she purchased for $850. It is convertible into 25 common shares at $40 per share. The She realizes a profit of $
