CSC Canadian Capital Markets 2 — Questions and Answers
Question 1: What does 'market capitalization' measure?
- Total revenue generated by a company annually
- Total market value of a company's outstanding shares (Correct answer)
- Book value of a company's total assets
- Amount of capital raised in an IPO
Correct answer: Total market value of a company's outstanding shares
Market capitalization equals the current share price multiplied by the total number of shares outstanding.
Question 2: An investor buys a security and simultaneously agrees to sell it back at a specified price and date. This is known as a:
- Short sale
- Repurchase agreement (repo) (Correct answer)
- Margin purchase
- Limit order
Correct answer: Repurchase agreement (repo)
A repurchase agreement (repo) involves selling a security with a simultaneous commitment to repurchase it at a future date and price, effectively a short-term secured loan.
Question 3: Which Canadian body provides investor protection coverage if a CIRO member firm becomes insolvent?
- CDIC
- CIPF (Correct answer)
- OSFI
- AMF
Correct answer: CIPF
The Canadian Investor Protection Fund (CIPF) protects eligible customer accounts held at insolvent CIRO member firms up to specified limits.
Question 4: A 'prospectus' is required in the primary market primarily to:
- Set the final price of the security after trading begins
- Provide full, true, and plain disclosure of material facts to investors (Correct answer)
- Register the issuer with provincial tax authorities
- Guarantee a minimum return to purchasers
Correct answer: Provide full, true, and plain disclosure of material facts to investors
A prospectus is a legal document that discloses all material information about a new securities offering so investors can make informed decisions.
Question 5: What is the role of a 'market maker' on an exchange?
- Setting regulatory policy for listed companies
- Auditing financial statements of public issuers
- Continuously quoting bid and ask prices to provide liquidity (Correct answer)
- Managing IPO allocations for institutional clients
Correct answer: Continuously quoting bid and ask prices to provide liquidity
Market makers stand ready to buy or sell a security at quoted prices, ensuring continuous liquidity and narrower bid-ask spreads.
Question 6: Which term describes the difference between the price an underwriter pays for a new issue and the price at which it is offered to the public?
- Gross spread (underwriting discount) (Correct answer)
- Accrued interest
- Redemption premium
- Dividend yield
Correct answer: Gross spread (underwriting discount)
The gross spread is the underwriter's compensation, representing the difference between the public offering price and the amount paid to the issuer.
CSC Canadian Capital Markets 2
What does 'market capitalization' measure?