CSC Canadian Securities Prep
Practice Test

A. To provide deposit insurance for Canadian bank customers

B. To regulate and supervise all federally chartered banks in Canada

C. To conduct monetary policy and issue currency to promote economic stability ✓

D. To underwrite government securities on behalf of the Department of Finance

Correct — C. The Bank of Canada is Canada's central bank and is responsible for conducting monetary policy, issuing bank notes, and promoting a stable and efficient financial system. It is not a deposit insurer (that is CDIC) nor a banking supervisor (that is OSFI).

A. It will rise above $1,000 because the coupon is fixed

B. It will remain at $1,000 because face value is guaranteed

C. It will fall below $1,000 because new bonds offer higher yields ✓

D. It will rise because investors prefer existing bonds in a rising rate environment

Correct — C. Bond prices and interest rates move inversely. When market rates rise above the bond's coupon rate, the bond becomes less attractive, so its price falls below par to compensate buyers with an effective yield equal to the new market rate.

A. Common shares of a TSX-listed company

B. A 30-year Government of Canada bond

C. A 90-day Treasury bill ✓

D. A convertible debenture maturing in 5 years

Correct — C. Money market instruments are short-term debt securities with maturities of one year or less. A 90-day Treasury bill fits this definition perfectly, whereas bonds, common shares, and long-term debentures are capital market instruments.

A. A greensheet

B. A preliminary prospectus followed by a final prospectus ✓

C. An annual information form only

D. A management discussion and analysis report

Correct — B. Under Canadian securities law, a public offering requires the filing of a preliminary prospectus (for regulatory review) followed by a final prospectus given to investors. This ensures full, true, and plain disclosure of all material facts.

A. Risk that can be eliminated through diversification of the portfolio

B. Risk that arises from the failure of a specific company's management

C. Risk that affects the entire market and cannot be diversified away ✓

D. Risk that results from investing in foreign currencies

Correct — C. Systematic risk (also called market risk) is the risk that affects all securities in the market, such as recessions, interest rate changes, or geopolitical events. Unlike unsystematic risk, it cannot be eliminated through portfolio diversification.

A. The number of years until a bond matures

B. The weighted average time to receive a bond's cash flows, reflecting price sensitivity to interest rate changes ✓

C. The total interest income earned over a bond's life

D. The credit rating assigned to a bond by a rating agency

Correct — B. Duration measures the weighted average time until a bond's cash flows are received and is used as an indicator of a bond's price sensitivity to interest rate changes. The longer the duration, the more sensitive the bond's price is to rate movements.

A. Preferred shareholders have voting rights equal to common shareholders

B. Preferred dividends must be paid before common dividends in any given year ✓

C. Preferred shares offer unlimited capital appreciation potential

D. Preferred shareholders are the first creditors in the event of liquidation

Correct — B. Preferred shareholders have a higher claim on dividends than common shareholders; dividends on preferred shares must be declared before any dividends can be paid on common shares. However, preferred shareholders rank below bondholders in liquidation.

A. Recovery

B. Expansion

C. Recession ✓

D. Peak

Correct — C. A technical recession is defined as two consecutive quarters of negative GDP growth. During a recession, economic output declines, unemployment typically rises, and business investment and consumer spending tend to fall.