CSC Canadian Capital Markets 1 — Questions and Answers
Question 1: Which market is where newly issued securities are sold to investors for the first time?
- Secondary market
- Primary market (Correct answer)
- Over-the-counter market
- Derivatives market
Correct answer: Primary market
The primary market is where issuers sell new securities directly to investors through mechanisms like IPOs and new bond offerings.
Question 2: The Toronto Stock Exchange (TSX) is best described as which type of market?
- Primary market
- Derivatives market
- Secondary market (Correct answer)
- Private placement market
Correct answer: Secondary market
The TSX is a secondary market where previously issued securities are bought and sold between investors.
Question 3: Which organization regulates the conduct of investment dealers and their registered representatives across Canada?
- OSFI
- CIPF
- CIRO (Correct answer)
- Bank of Canada
Correct answer: CIRO
The Canadian Investment Regulatory Organization (CIRO) oversees investment dealers and mutual fund dealers and their registered individuals.
Question 4: What is the primary function of an investment dealer acting as an underwriter?
- Providing margin loans to investors
- Guaranteeing the purchase of a new securities issue from the issuer (Correct answer)
- Managing client portfolios on a discretionary basis
- Executing secondary market trades on behalf of clients
Correct answer: Guaranteeing the purchase of a new securities issue from the issuer
An underwriter buys the new securities issue from the issuer and resells them to the public, taking on the risk of distribution.
Question 5: A 'best efforts' underwriting agreement means the investment dealer will:
- Guarantee the full proceeds to the issuer
- Purchase all unsold shares at a discount
- Use maximum effort to sell the issue but does not guarantee full sale (Correct answer)
- Provide a bridge loan if the issue is undersubscribed
Correct answer: Use maximum effort to sell the issue but does not guarantee full sale
Under a best efforts agreement, the dealer acts as agent and tries to sell as much of the issue as possible but returns unsold securities to the issuer.
Question 6: Which of the following instruments trades on the Bourse de Montréal?
- Common shares of Canadian companies
- Government of Canada treasury bills
- Exchange-traded options and futures (Correct answer)
- Canadian corporate bonds
Correct answer: Exchange-traded options and futures
The Bourse de Montréal is Canada's derivatives exchange, specializing in equity, index, interest rate, and currency derivatives.
CSC Canadian Capital Markets 1
Which market is where newly issued securities are sold to investors for the first time?