Chapter 1-3 Question
Auction Market
TSX, ME, TSX Venture Major stock markets in Canada Transactions are between brokers acting as agents for the buyers and sellers Listing requirements to trade on this market
what is chartered bank?
A chartered bank refers to banks that are regulated by the Bank Act.
Bethany decides to quit her job as an Investment Advisor and return to school full-time. She does not intend to work for another dealer member. Identify the notification requirement for her dealer member regarding her departure from employment. ——Immediate report to administrators and Self Regulatory Organizations.
A dealer member is required to immediately report to the administrators and SROs to which it belongs the termination of an IA.
What is a deposit taking institution?
A deposit taking institution refers to those institutions that are allowed to accept deposits from people like you and me. A bank, for example, is allowed to accept my deposits. They hold my deposits in a chequing account or savings account.
Identify a characteristic of a liquid market. —Narrow price spreads in bid/ask prices.
A liquid market has the following characteristics: frequent trades; narrow price spread between bid and ask prices; and small price fluctuations from trade to trade.
Identify the term used to refer to the difference between what banks pay as interest on deposits and what they charge as interest on loans. —Spread
A major activity of the banks is to loan funds to businesses and consumers at interest rates higher than those which they must pay in interest on deposits and other borrowings. The spread between the two sets of interest rates covers the banks operating costs (rent, salaries, administration, appropriations for loan losses, etc.), as well as providing a margin for the banks' profits.
Difference between a pension and an annuity?
A pension usually refers to a retirement benefit that an employee receives from an employer pension plan. The pension benefits are the result of the employer either ensuring that a specified pension will be paid for specified services or the employer and employee set money aside each year that grows tax-free until the employee retires or reaches a specified age. In either case, the employer is a major contributor to the retirement plan. An annuity is a contract purchased by an investor from an insurance company. The annuity investment grows at a fixed rate over time and pays out specified amounts over specified intervals of time to the investor.
Difference between a retail investor and an institutional investor.
A retail investor is someone who buys securities for their own investment account. Example of retail investor: you or I buying for our investment accounts. Institutional investors are organizations that trade extremely large volumes of shares, and tend to make purchases on someone else's behalf. Examples of institutional investors: banks, insurance companies.
Identify a characteristic of dealer markets. —Primary market for bonds and debentures.
Almost all bonds and debentures are sold through the dealer market. These dealer markets are less visible than the auction markets for equities; so many people are surprised to learn that the volume of trading on the dealer market for debt securities is several times larger than the equity market.
Select the electronic fixed-income trading system that operates a retail and an institutional fixed-income marketplace. —CBID/CBID Institutional.
CBID, also a member of IIROC and an ATS, operates two distinct fixed-income marketplaces: retail and institutional. The retail fixed-income marketplace is accessible by registered dealers on behalf of retail clients. The institutional fixed-income marketplace is accessible by registered dealers, institutional investors, governments and pension funds.
Monique asks her Investment Advisor for information about the insurance protection available to her for her Canadian chartered bank-issued Guaranteed Investment Certificates (GICs). Choose the organization's brochure that her IA should send her. ——CDIC
CDIC is the organization that insures GIC's issued by Canadian banks. If her IA sends her a CDIC brochure, she will have information regarding the protection offered to GIC holders.
Identify the alternative trading system where an investment dealer can locate real time bid and offer quotations from a range of dealers for Government of Canada bonds and treasury bills. — CanPx.
CanPx is a joint venture between several Canadian investment dealers and inter-dealer brokers. It combines digital feeds from participating dealers to provide a composite display of real time bid and offer quotations, in price and yield terms and volume information. The service covers Government of Canada bonds and treasury bills.
Difference between an equity and a security?
A security refers to an investment issued by a corporation, government or other organization. Some typical securities include equity (e.g., common stock) and debt (e.g., bonds).
How are over-the-counter trades settled?
According to CDS: "The settlement process for securities not traded directly on exchanges (over-the-counter) is similar [to those traded on an exchange], except that these trades are usually executed by phone between the buyer and seller. Trade confirmations are transmitted directly to CDS for settlement."
Does the canadian unlisted board only apply to companies that operate in Ontario?
According to SRO notices from the Ontario Securities Commission, the obligation to report a trade to CUB is based on purchases and sales where either (1) the person to whom the trade is confirmed is a resident of Ontario; or (2) the user's trader or sales representative handling the trade is acting from an Ontario office.
Dealer Market
Bond and debenture markets CUB Transaction between principals (market makers) Network of dealers trading with each other over telephones or computers Less regulation for companies traded on this market Higher volume of trading No listing requirements for companies trading on this market
Difference between corporae debt and corporate commercial paper?
Corporate debt refers to corporate bonds and debentures. Commercial paper refers to short-term debt where the issuer promises to pay the investor a return in exchange for the short term loan. Commercial paper is issued at a discount and redeemed by the issuer at face value. The gain is considered to be interest income. Commercial paper is generally issued to raise capital for short term loans, typically no more than 270 days. Commercial paper generally has a limited secondary market.
Select the exchange in Canada that deals exclusively with financial futures and options. —The Bourse de Montreal (MX).
The Bourse de Montreal (MX) is the only exchange in Canada that deals exclusively with financial futures and options.
Identify the typical role of foreign investors in Canadian Capital markets. —Direct investment in Canadian industries.
Foreign investors, both corporate and individual, have long regarded Canada as a good place to invest. Canada, in turn, has traditionally relied on foreign savings for direct investment in Canadian industries, as well as indirect portfolio investment in Canadian securities.
what is a trust company and its function?
A Trust Company is an institution that abides by the Trust and Loan Companies Act and provides a variety of services including help with wills, power of attorney, estate planning, financial management, setting up and administering inter vivos and testamentary trusts, safekeeping of assets, tax planning, etc. In addition, your trust and its beneficiaries will have the benefit of our professional advice in taxation, the management of private businesses and real estates, and charitable trusts. Executor Assistance; Estate Planning and Your Will; Trust Services; Financial Care and Management; Powers of Attorney; Tax Planning and Preparation; Business Advisory Services
What is the difference between an angent and a dealer?
An agent acts as a go-between and receives a commission for their services. The traditional role of the stock broker who brings buyers and sellers together and receives a commission is a good example of an agent. A dealer acts on behalf of their firm rather than acting as a go-between. So rather than matching up buyers and sellers, the dealer acts as a principal and is buying or selling stock for the dealer's own inventory. So when you buy a bond from your dealer, it's likely that the dealer is selling you bonds that the dealer owns. The dealer makes money by selling securities for a higher price than they paid.
Identify the role of capital investment in the economy. —Creating growth
Capital investment affects the economy by creating growth when it is used productively, through either direct or indirect investment. An adequate supply of capital is essential for Canada's well-being. In manufacturing, for example, capital supplies the means to expand facilities, improve productivity, increase competitiveness in domestic and foreign markets, and develop innovative, sought-after new products. When capital investment is deficient, industry slackens, unemployment rises, and living standards decline.
Identify a characteristic of capital. —Mobility
Capital is mobile, scarce, and sensitive to its environment.
Identify the document that a dealer member must provide to all clients that includes details of reporting timelines, product offerings, and terms of the client's account. ——relationship disclosure document
Dealer members must provide to all clients a relationship disclosure document that includes, among other items, terms of account relationships, details of suitability assessment, fees, charges, complaint handling procedures and details of reporting.
Identify the market a dealer uses to purchase existing securities for its inventory. —Secondary
Dealers act as principals in secondary markets by maintaining an inventory of already issued, outstanding securities. In these transactions, the dealer buys securities in the open market, holds them in inventory for varying periods of time, and subsequently sells them.
What is a debt security?
Debt means a company borrowed money and must pay back that money. In some cases, a company will borrow money from investors and issue bonds or debentures. Bonds and debentures would be considered debt securities. Investors would buy debt securities in exchange for cash and would be entitled to receive interest payments from the company that issued the securities. Debt securities are covered in full in the Fixed Income Securities chapter in your text.
Identify the security that has its value based on an underlying instrument. — Derivatives
Derivatives are products based on or derived from an underlying instrument, such as a stock or an index. They include such products as options and futures.
Sharif, an Investment Advisor, listens to a business report about positive growth for ABC Corporation. He reviews the information and decides to purchase 1,000 shares for his personal account. Before he places the trade, a client calls with a request to purchase shares in ABC Corporation. Identify the action Sharif must take. ——Enter his client's order for the shares before he enters his own order.
Effecting a trade for the advisor's own account prior to effecting a trade for a client (front running) is an unethical practice. He must enter the client order first.
What if the investment I buy declines in value? What organization protects me? —No protection
Eva has protection only from a financial institution or mutual fund going bankrupt. She does not have any protection if the value of her investment falls.
"Who protects me if the bank goes bankrupt? —CDIC
Eva will be protected, up to specific limits, by CDIC if her bank goes bankrupt. CDIC insures eligible deposits up to $100,000 per depositor in each member institution (banks, trust companies and loan companies), and reimburses depositors for the amount of any insured deposits if a member institution fails. It does not apply to dealer member accounts.
What if I lose money because a mutual fund dealer I invest through goes bankrupt? —MFDA
Eva would have protection from the Mutual Fund Dealer Association Investor Protection Corporation (MFDA IPC). MFDA IPC was created in 2005 to provide protection for eligible customers of insolvent MFDA member firms. This IPC does not cover customers' losses that result from changing market values, unsuitable investments, or the default of an issuer of a mutual fund. Following the structure of the CIPF, customer accounts are covered either as part of a general account or as a separate account. Each account is eligible for up to $1 million in coverage.
Examples of investment houses?
Examples: CIBC Wood Gundy, BMO Nesbitt Burns, TD Waterhouse
Thuy's firm develops more efficient online financial planning applications for investors and investment advisors. Identify the type of firm Thuy owns. —Fintech
Financial technology companies, known collectively as the fintech industry, take advantage of computer technology to provide more efficient financial products and services.
Jagmeet is unhappy with the way he has been treated by his IA. He feels he lost close to $400,000 due to trades suggested by his IA. He has been unable to resolve this with the IA or his IA's firm and has asked for arbitration. Neither his IA nor the IA's firm are willing to agree to arbitration. How will this be resolved? —The IA's firm is obligated to accept arbitration.
If a client requests arbitration from an SRO, the securities dealer must accept both the process and the arbitrator's decision. This applies to all disputes under $500,000. Over that amount, both parties must agree to arbitration.
Identify the action of a dealer as principal in an underwriting. A. Purchase the issue anticipating to resell at a profit.
In an underwriting, the dealer acts as a principal and purchases new securities from an issuer. The dealer intends to resell these securities immediately at a profit.
Choose the system that the Ontario Securities Commission requires firms to use to report unlisted trades in Ontario. —Canadian Unlisted Board.
In most of Canada, there is no requirement for firms to report unlisted trades. Ontario is the exception. The Ontario Securities Commission (OSC) requires trades of unlisted securities to be reported utilizing an automated system. The Canadian Unlisted Board Inc. (CUB) was launched as this automated system after the reorganization of the equity markets in Canada.
Indicate the organization that all employees of dealer members of the Investment Industry Regulatory Organization of Canada (IIROC) who deal with the investing public must register with. Applicable administrator
In the case of dealer members of the Investment Industry Regulatory Organization of Canada (IIROC), employees who deal with the investing public must register with the applicable administrator as well as IIROC.
Gareth asks his Investment Advisor to purchase $50,000 in new corporate bonds that are being issued to raise funds to build a new processing facility. Select the term that would refer to this type of capital investment. —Indirect investment
Indirect investment occurs when the saver buys the securities issued by governments and corporations, who in turn use the funds for direct productive investment-equipment, supplies, etc. Such investment is normally made with the assistance of the retail or institutional sales department of the investment advisor's firm.
What are integrated firms?
Integrated firms are firms that carry on multiple types of investment services including retail, institutional and investment banking services.
ABC Securities offers a wide range of products and services to both retail and institutional clients, as well as underwriting bond and equity issues. Determine the category of firm ABC belongs to. —Integrated firms
Integrated firms offer products and services across the industry and participate fully in both the retail and institutional markets. Most integrated firms underwrite all types of federal, provincial, and municipal debt, as well as corporate debt and equity issues.
Identify the types of firms that serve both retail and institutional clients with a complete offering of products and services. —Integrated
Integrated firms offer products and services across the industry and participate fully in both the retail and institutional markets. Most integrated firms underwrite all types of federal, provincial, and municipal debt, as well as corporate debt and equity issues. They trade actively in secondary markets, including the money market, and on all Canadian and some foreign stock exchanges.
Since investment dealer have the word "dealer" in their title, does that mean investment dealers only act as principals, and not as agents?
Investment Dealers carry out a variety functions and can act as principals or agents, depending on the circumstances. It really depends on the details of the transaction.
XYZ Investments, an investment dealer, regularly takes positions in DEF Inc, a TSX listed equity, with a goal of improving liquidity in DEF while smoothing out unwarranted price fluctuations. Identify the role XYZ likely plays in the stock market. —market makers.
Investment dealers can act as market makers and carry out market making duties by taking positions in assigned listed stocks to enhance market liquidity and smooth out undue price distortions.
What does an investment dealer's own inventory mean?
Just like a manufacturer has inventory of products used in their business, financial companies also have inventories. The inventories of a financial institution are made up primarily of securities that the institution owns. So a firm trading from inventory means the firm is taking some of the securities that they own and selling them to other parties.
Nicolae is considering selling his common shares of DEF Corp. Identify the price Nicolae would most likely receive if he were to enter an order to sell his shares. —Bid price.
Nicolae should focus on the current bid price. The bid represents the highest price that someone is ready to pay to purchase shares from a seller. The ask price represents the lowest price at which someone is willing to sell their shares. The last price (also known as the market price) represents the latest price at which a transaction occurred between a buyer and a seller, but does not necessarily indicate what the current bid and ask price is.
Non-financial domestic corporations are sources of capital. Identify what role these corporations play in the capital markets. — not significant providers of permanent funds.
Non-financial Canadian corporations do generate large savings, mainly in the form of the corporation's earnings. However, these internally generated funds are usually retained by the corporation and are available only for internal use; they are not normally invested in other companies' stocks and bonds. Thus, corporations are not significant providers of permanent funds to others in the capital market.
Identify the responsibility of the Office of the Superintendent of Financial Institutions. Federally regulated pension plans.
OSFI has responsibility for all federally regulated pension plans.
How can I be a trustee if I don't work for a trust company?
Only Trust Companies can carry on an active trust business (i.e., providing professional trust services). However, anyone, including you or I, can be named a trustee or find themselves in a position of acting as trustee on behalf of beneficiaries. To be named a trustee can result from an appointment by a trust, by the settlor, or by the courts. Those that find themselves in a position of trustee according to the various Provincial Trustee Acts, have strict common law fiduciary obligations placed upon their shoulders.
Identify the type of investment fund that continually issues shares to investors and redeems these shares on demand. —Mutual fund.
Open End Funds or Mutual Funds continually issue shares to investors and redeem these shares on demand.
Where are preferred shares traded? Are they only traded over-the-counter?
Preferred shares generally trade through the facilities of a stock exchange. Open a copy of the Globe and Mail business section and you'll see plenty of examples of preferred shares trading on the TSX.
What does reinsurance refer to?
Reinsurance refers to the sharing or risk among insurance companies. When companies agree to share the risk in return for part of the premiums paid by the insured, an individual company is able to offer coverage to a client in an amount that would be too great for the one insurance company to handle.
Identify the transaction that takes place in the secondary market.
Resale of previously issued securities.
Difference between retail banking, commercial banking and corporate banking?
Retail banking - refers to individual clients like you and I. Commercial banking - refers to commercial operations that require similar banking needs to individuals. Corporate banking - generally refers to large corporations and their financing needs.
Identify the investment service that features portfolios created using algorithms based on modern portfolio theory and online client questionnaires. —Robo-advisors
Robo-advisors are an alternative to self-directed execution only (discount) brokers. Portfolios are created using algorithms based on modern portfolio theory and on online client questionnaires.
Identify the activity of a sales finance company. —Purchase instalment sales contracts from retailers.
Sales finance companies purchase instalment sales contracts from retailers and dealers at a discount, when items such as new cars, appliances, or home improvements are bought on instalment plans by consumers.
A large furniture store wants to sell its consumer instalment contracts to generate cash. Determine the financial intermediary the store should contact. —Sales finance companies
Sales finance companies purchase, at a discount, instalment sales contracts from retailers and dealers when such items as new automobiles, appliances or home improvements are bought on instalment plans.
Identify the federally regulated foreign bank subsidiaries that have been authorized under the Bank Act to do banking business in Canada. —Schedule II banks.
Schedule II banks are incorporated and operate in Canada as federally regulated foreign bank subsidiaries. These banks can engage in all the types of business that are permitted to Schedule I Banks. Schedule III banks are federally regulated foreign bank branches of foreign institutions (rather than foreign bank subsidiaries) that have been authorized under the Bank Act to do banking business in Canada. Schedule III banks, in practice, tend to focus on corporate and institutional finance and investment banking.
Kuy, a very succesful and knowledgeable investor, has inherited $200,000 and wants to create a diversified portfolio while minimizing costs. Determine the type of investment firm that is best suited for this client. —Self-directed brokers.
Self-directed brokers, also known as discount brokers, execute trades for clients at reduced rates but do not provide advice. Self-directed brokers are more popular with those investors who are willing to research individual companies themselves in exchange for lower commission rates.
Identify the Canadian Self Regulatory Organizations (SRO). ——Mutual Fund Dealers Association (MFDA). ——Investment Industry Regulatory Organization of Canada (IIROC)
Some organizations within the securities industry are considered to be self-regulatory organizations (SROs). These organizations include the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association.
XYZ is a producer of technologically advanced experimental electronic devices that has recently experienced rapid growth. Projections are that growth will continue but the market is uncertain at present. Determine the exchange XYZ's investment dealer could recommend for listing of XYZ's initial public offering. —Canadian Securities Exchange (CSE).
The Canadian Securities Exchange (CSE) lists equities of emerging companies. XYZ would be characterized as an emerging company.
Select the type of organization the Canadian Investor Protection Fund provides protection to for eligible investors in the event of insolvency. Investment Industry Regulatory Organization of Canada member firm.
The Fund covers customers' losses of securities and cash balances, in the event of the insolvency of an Investment Industry Regulatory Organization of Canada (IIROC) member.
Choose the main responsibility of the Mutual Fund Dealers Association. ——Regulating the distribution side of the mutual funds industry.
The MFDA is the mutual fund industry's self-regulatory organization responsible for regulating the distribution and sales side of the mutual funds industry.
Shelly has just been hired by an investment firm. Identify what she has to do to register in order to begin working with the investing public. —Register through the NRD
The National Registration Database (NRD) is a web-based system used by investment dealers and employees to file registration forms electronically when applying for approval by a stock exchange, the CSA, or IIROC. The NRD is designed to enable a single electronic submission to satisfy all jurisdictions in Canada, rather than a registrant having to file separate registration forms in each jurisdiction.
Select a function of the National Registration Database (NRD). ——Single submission of registration for all Canadian jurisdictions.
The National Registration Database (NRD) is a web-based system used by investment dealers and employees to file registration forms electronically when applying for approval by any one or more of the stock exchanges, the CSA or IIROC. The NRD is designed to enable a single electronic submission to satisfy all jurisdictions in Canada.
Identify the type of process used to settle trades between member brokers, trading on the TSX. —Trades are netted out through a central clearing system.
The central clearing system (CDSX) uses a process called netting to establish and confirm a credit or debit position balance, in the form of cash or security, for each dealer member. The netting process compiles each firm's clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account. In this way, the number of securities and the amount of cash that must change hands among the various members each day is substantially reduced.
A client has the following accounts with an investment dealer who becomes insolvent: $0.5 million in a cash account, $0.6 million in a margin account, $0.55 million in RRSP "A", $0.65 million in RRSP "B", $0.70 million in trust for a daughter. Calculate the total amount of her coverage under Canadian Investor Protection Fund. —2.7 mil
The client would have coverage for $1.0 million for the general account (which includes the cash and margin accounts), $1.0 million for the total of the RRSP accounts, $0.70 million for the daughter's trust.
Which department is responsible for the portfolio management activities in a securities firm? —Front office.
The front office usually includes all staff functions pertaining directly to portfolio management activities. Accordingly, all portfolio management and trading would be part of the front office.
Which activity is a requirement of the Gatekeeper Role? —Collect client information that is accurate and complete.
The gatekeeper function is the guarding of markets from possible wrongdoing by unscrupulous clients. IAs must not, through act or omission, facilitate breaches of securities laws or regulations by clients. Information about the client must be accurate and complete.
Select the term used to refer to the securities industry role in monitoring and reporting suspicious transactions. —— gatekeeper
The gatekeeper role is the guarding of markets from possible wrongdoing by unscrupulous clients, and includes collecting and recording client information that is accurate and complete, monitoring activity in client accounts, and reporting any suspicious transactions or proposed transactions in client accounts.
Identify the general principle underlying Canadian securities legislation. —Full, true and plain disclosure.
The general principle underlying Canadian securities legislation is full, true, and plain disclosure of all pertinent facts by those offering the securities for sale to the public.
Identify the role that the Canadian Securities Exchange (CSE) plays in the Canadian marketplace. —Market for emerging companies.
The intent of the CSE is to provide a market for emerging companies.
Identify the process by which the number of securities and the amount of cash that has to change hands among the various exchange members each day is substantially reduced. —Netting
The number of securities and the amount of cash that has to change hands among the various members each day is substantially reduced through a process called netting where the clearing system establishes and confirms a credit or debit cash or security position balance for each member firm, compiles their clearing settlement sheets and informs each member of the securities or funds it must deliver to balance its account. Clearing refers to the process of confirming and matching security trade details. Settlement refers to the moment of irrevocable exchange of cash and securities. Balancing simply refers to balancing a firm's account, where they receive what they are owed and pay what they owe.
Identify a difference between auction and dealer markets. —Price are publicly visible in the auction market but not in the dealer market.
The prices of all transactions are publicly visible in auction markets. In dealer markets, market makers post bid and ask prices, but the transaction price might differ from the posted price.
what does the prudent portfolio approach to investing mean?
The prudent portfolio approach is a flexible approach to investment that calls for prudent investment decisions and allows for more diversification and the use of derivative products for hedging purposes. This is opposed to the previous rules, known as legal-for life, which called for explicit regulation of the quality and types of investments. Basically there are still guidelines as to how an insurance company can invest, but the rules are more accommodating now than in the past. You'd have to check the insurance act for exact details of investment regulations.
Choose the organization that is ultimately responsible for the regulation of the securities industry in Canada. ——Each province and territory
The securities industry in Canada is regulated by the provinces and territories. In several provinces, the day-to-day regulation is delegated to Securities Commissions. In other provinces, securities regulators are appointed by the province.
The current bid price for ABC Inc is $25.75 and the ask price is $25.87, with last trade at $25.77 Calculate the spread. =0.12
The spread is calculated as the difference between the bid and the ask price. In this example, $25.87 - $25.75 = 0.12
What does underwriting mean?
The term 'underwriting' means to assume the risk of something. In the securities industry, underwriting means to agree to buy, for example, stock from an issuer that has not yet been sold to the public (i.e., to take on the risk of buying and then reselling the shares to the public). In the insurance industry, underwriting means to insure someone against losses (i.e., you take on the risk of collecting premiums in exchange for making payment if the insured suffers a loss). The business of underwriting in the insurance industry is a very complicated process of examining as many facets of risk as possible and trying to determine what premiums would be acceptable to the insurance company in exchange for payment if a loss should occur. Some people act as independent brokers or agents in the insurance industry. They sell you insurance but the underwriting (the assumed risk) is actually done by another insurance firm. Independent brokers can often offer you a better price since they can represent a variety of underwriters versus those agents that work for one insurance company alone.
With respect to derivatives, what is an underlying instrument?
The underlying instrument is the instrument on which the derivative is based. Keep in mind that a definition of derivative is: derived from something else. So the underlying instrument is the instrument from which the derivative was derived. For example, a Manulife stock option is a derivative and Manulife common stock is the underlying instrument. The Manulife stock option is derived from and based on the Manulife stock. If the Manulife common stock did not exist, the derivative would not exist either.
Mia has approached her Investment Advisor and her dealer member with her claim that the IA has provided inappropriate investment advice resulting in a $50,000 loss. The dispute has not been resolved to Mia's satisfaction. Select the next step she can take if she wants to obtain a binding decision without going to court. ——Request Arbitration
There are times when clients feel they have been treated unfairly by a dealer that is a member of an SRO. If, after discussing the problem with the dealer member, they still feel mistreated, clients have the option of suing the dealer or requesting arbitration. Arbitration is binding and less expensive than pursuing the matters through the courts.
difference between a foreign bank branch and a foreign bank subsidiary?
Think of a branch like the bank branch you might visit to deposit money and carry out other banking activities. A subsidiary, in the context of banking, is a company owned by an eligible foreign institution but does not represent or act like a bank branch.
Identify an activity of a trust company. —Can act as trustees in charge of individual assets.
Trust companies are the only corporations in Canada authorized to act as a trustee in charge of corporate or individual assets.
Identify the function a securities firm performs when underwriting new issues. —Principal
Underwriting is generally handled by principals in the primary market because it relates to bringing a new issue of securities, stocks, or bonds to market. Agency transactions generally take place in the secondary market for existing and outstanding securities.
Identify the most important activity of the insurance business. —Underwriting
Underwriting is the most important activity of the insurance business in Canada. Insurance underwriting is the business of evaluating the risk and associated contractual responsibility an insurance company is willing to accept in exchange for its clients' insurance premiums.
How do self-directed firms differ from full service firms?
Unlike full service brokers, self-directed brokers are not licensed to offer any advice. In exchange for fewer services than what's provided by a full service brokerage firm, self-directed brokers offer discounted commissions to investors.
Indicate the role that an investment dealer is taking when the firm does not assume ownership of securities at some stage in the buying and selling transaction with investors. —Agent.
When a broker acts as an agent, it acts for or on behalf of a buyer or a seller, but does not itself own title to the securities at any time during the transaction. The broker's profit is the commission charged for each transaction. When a securities firm acts as a dealer or principal, it owns securities as part of its own inventory at some stage in the buying or selling process with investors. The difference or spread between buying and selling prices is the dealer's gross profit or loss.
Identify the correct statement when the investment dealer is acting as an agent. —Does not own the securities that are being bought or sold.
When acting as an agent, the investment dealer acts on behalf of a buyer or a seller. It does not own title to the securities it deals with at any time during the transactions.
How are debentures secured if there is no specific asset pledged for security?
When the corporation borrows money and issues bonds in exchange, the bond is secured by specific and identifiable assets of the company. If the company defaults on their payment, the lenders may claim the pledged assets to recoup their money. When the corporation borrows money and issues debentures in exchange, the debenture is not secured by specific identifiable assets. If the company defaults on payments, the debenture holder must first wait until all bondholders recoup their money, and then any assets left over that are sold will go toward the debenture holders recouping their investment.
Select the term that is used to refer to the controls that inhibit information sharing between various businesses and business units. —Firewalls
While banks are permitted under current legislation to take part in diverse sectors of the financial services industry, there are controls on how they do so and on the sharing of customer information between subsidiaries. Controls that inhibit information sharing between various businesses and business units are referred to as Information Barriers or "Firewalls."
