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NEW QUESTION # 99
Which regulatory body is responsible for the surveillance of trading and market-related activities of participants on Canadian equity marketplaces?
Answer: A
Explanation:
TheCanadian Investment Regulatory Organization (CIRO)is responsible for overseeing trading and market-related activities of participants on Canadian equity marketplaces. CIRO conducts surveillance to ensure compliance with rules, regulations, and fair market practices.
Other options:
* OBSI (Ombudsman for Banking Services and Investments): Handles disputes between financial institutions and their clients but does not conduct trading surveillance.
* OSFI (Office of the Superintendent of Financial Institutions): Regulates and supervises federally regulated financial institutions, focusing on their solvency.
* CSA (Canadian Securities Administrators): Coordinates securities regulation across Canada but does not directly monitor trading activities.
References:
* Volume 1, Chapter 3:The Canadian Regulatory Environment, section on "Market Surveillance and Trading Oversight" explains CIRO's role.
NEW QUESTION # 100
What type of risk could theoretically be eliminated completely by buying a portfolio of shares comprising all S & P/TSX Composite Index stocks?
Answer: A
Explanation:
Specific risk, also called unsystematic or diversifiable risk, is the risk associated with individual companies or industries. It includes risks such as poor management decisions, product failures, labour disruptions, litigation, or company-specific earnings weakness. By holding a broadly diversified portfolio such as all stocks in the S & P/TSX Composite Index, an investor can theoretically diversify away company-specific risk because negative events affecting one company may be offset by performance from others. Systematic risk cannot be eliminated through diversification because it affects the whole market, such as interest rate changes, recessions, inflation shocks, or broad market declines. Default risk is more directly associated with credit instruments. Therefore, the risk theoretically eliminated through broad equity diversification is specific risk.
NEW QUESTION # 101
What type of risk were mortgage-backed securities designed to address?
Answer: A
Explanation:
Mortgage-Backed Securities (MBS)are designed to addressprepayment risk, which arises when borrowers pay off their mortgages earlier than expected. Prepayments reduce the interest income investors receive and can affect the expected return on the security.
* Why Prepayment Risk is Addressed:
* Prepayment often occurs when interest rates decline, as borrowers refinance their mortgages. This leaves MBS investors reinvesting at lower yields, which impacts returns.
* Structuring MBS helps mitigate prepayment risk through mechanisms like tranches in Collateralized Mortgage Obligations (CMOs).
* Explanation of Options:
* A. Liquidity: Incorrect. MBS provides liquidity to lenders but is not designed to address liquidity risk directly.
* B. Interest Rate: Incorrect. MBS investors are still exposed to interest rate risk as rates impact prepayment behavior.
* C. Rollover: Incorrect. Rollover risk applies to short-term debt securities, not MBS.
* D. Prepayment: Correct. MBS structures are specifically designed to mitigate the impact of prepayments on investors.
References:
* CSC Volume 2, Chapter 23: Risks of structured products, particularly prepayment risks in MBS.
NEW QUESTION # 102
What is a characteristic of an investment firm's liability traders?
Answer: C
Explanation:
Liability traders use the investment dealer's own capital to facilitate trades, manage inventory, and support market flows. They may take positions to help complete client transactions or provide liquidity when there is not an immediate natural buyer or seller. Because the dealer's capital is at risk, liability trading requires strong risk controls, market knowledge, and inventory management. Option B is incorrect because liability traders often need flexibility to manage positions and market exposure.
Option C describes a possible market benefit but is too general and more closely associated with market-making activity. Option D is not the defining feature; client commitments are more relevant to agency relationships or institutional execution. The central characteristic is managing the dealer's trading capital.
NEW QUESTION # 103
Which is a typical feature of investing in a listed private equity company?
Answer: C
Explanation:
Investing in a listed private equity company offers the benefit of access to a broad array of skills and a large talent pool. Unlike traditional private equity investments, these entities are publicly traded and often operate with extensive resources and expertise to evaluate and manage investment opportunities.
* Key Features of Listed Private Equity Companies
* They provide liquidity compared to traditional private equity, as shares can be traded on public exchanges.
* They leverage a diverse team of analysts, strategists, and operational experts to identify and optimize investment opportunities.
* Evaluating Other Options:
* Average levels of liquidity (A): Listed private equity companies are considered to have higher liquidity relative to traditional private equity funds.
* Controls and Limits (C): These companies may not necessarily impose stricter controls than traditional private equity.
* Ability to act on legitimate insider information (D): Insider trading is strictly regulated and prohibited by law.
* Risk and Return Trade-Off: While providing advantages like transparency and liquidity, listed private equity investments may be subject to market volatility akin to other publicly traded equities.
References:Volume 2, Chapter 22: Alternative Investments - Section on Listed Private Equity.
Volume 2, Chapter 20: Investment Structures and Risks - Private Equity Analysis.
NEW QUESTION # 104
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