Canadian Securities Course Exam 1 & 2 New 2024-
2025 Version Best Studying Material with All
Questions and Answers
How do you determine the real interest rate? ----------- Correct Answer ----------- It is the
Nominal interest rate minus the inflation rate.
What is the Consumer Price Index (CPI) and what is the formula for it? ----------- Correct
Answer ----------- CPI measures the price of a basket of goods and services against a base year
(2002 where CPI was 100).
Inflation Rate = ((CPI Current period - CPI Previous period) / CPI Previous period)) x 100
What is the difference between shares registered in street-form vs shares registered in the name
of the true beneficial owner? ----------- Correct Answer ----------- Street form shares are
registered in the name of a bank, investment dealer, or the CDS. Beneficial owner shares are
registered to the actual person that owns them.
What is the purpose of a voting trust and how does it work? ----------- Correct Answer -----------
It is used when a corporation is undergoing a restructuring because of financial difficulties.
Voting control is given to a Trustee
What are some of the costs of inflation? ----------- Correct Answer ----------- It can erode the
standard of living, especially for people on fixed incomes.
It reduces the real value of investments
It usually brings rising interest rates and recessions.
What is the difference between the nominal interest rate and real interest rate? ---------- Correct
Answer ----------- Nominal interest rate is where the effects of inflation bhave not been removed
- for example, the rate charged by a bank on a loan, or the quoted rate on an investment such as
Guaranteed Investment Certificate (GIC). This higher the inflation rate, the higher the nominal
interest rate will be.
The real interest rate is the nominal interest rate minus the expected inflation rate.
Can you recall the CPI formula? ---------- Correct Answer ----------- Inflation rate = (CPI
(current) - CPI (previous)/CPI (previsous))x 100
What does the CPI measure? ---------- Correct Answer ----------- It is an indicator of inflation and
is considered a measure of the cost of living in Canada.
Can you distinguish between demand-pull inflation and cost-push inflation? ---------- Correct
Answer ----------- Demand-pull inflation:
Inflation that occurs when demand is an economy outpaces supply.
Cost-push inflation:
,A type of inflation that develops due to an increase in the costs of production. For example, an
increase in the price of oil may contribute to higher input costs for a company and could lead to
higher inflation.
How would you describe the difference between deflation and disinflation? ---------- Correct
Answer ----------- Deflation:
A decrease in the genreal price level of goods and services in a country. Deflation occurs when
the inflation rate falls below 0%.
Disinflation:
A decline in the rate at which prices rise - i.e., a decrease in the rate of inflation. Prices are still
rising, but at a slower rate.
What is monetary policy? ---------- Correct Answer ----------- Refers tri regulations of the money
supply and availible credit for the purpose of promoting sustained economic growth and price
stability. The goal of monetary policy is to maintain the value of our currency and our economic
health.
What is the difference between deflation and disinflation? ----------- Correct Answer -----------
Deflation is a sustained fall in prices where the annual change in CPI is negative. Disinflation is
a decline in the rate in which prices rise. Prices are still rising but slower.
What are the causes of inflation? ----------- Correct Answer ----------- demand pull inflation and
cost push inflation
What is the balance of payments? What are its components? ----------- Correct Answer -----------
It is a statement of a country's economic transactions with the rest of the world. It has a Current
account which records the imports and exports between Canada and foreign countries. It also has
capital and financial accounts which record the capital flows between Canada and foreign
counties related to investments.
What are the determinate of the exchange rate? ----------- Correct Answer ----------- Commodities
Inflation rate (Lower inflation = higher currency rate)
Interest rate (higher interest rate = higher currency)
Trade (more exports =higher currency value)
Economic performance (strong economy = high $)
Public debts and deficits (Higher debt = weak $)
Political stability
What is the Large Value Transfer System? ----------- Correct Answer ----------- It is an electronic
system that allows participating financial institutions to conduct large transactions with each
other.
Describe fiscal policy. ----------- Correct Answer ----------- It informs government decisions
around the use of its spending and taxation powers. It influences economic activity, employment
levels, and sustained long-term growth. Most fiscal policy is about balancing taxes and spending.
,When is the government considered to be operating at a surplus, and at a deficit? -----------
Correct Answer ----------- Surplus = Revenue> Spending.
Deficit = Spending > Revenue.
What is the National Debt? ----------- Correct Answer ----------- It is the amount of money the
government owes which consists of accumulated past defects minus accumulated past surpluses.
How do governments finance the national debt? ----------- Correct Answer ----------- By issuing
debt instruments such as bonds and T-bills, as well as borrowing from the markets.
What is crowding out? ----------- Correct Answer ----------- When governments borrow
significantly from the markets, so less capital remains for businesses to borrow which leaves a
negative effect on the economy.
How does Government spending effect the economy? ----------- Correct Answer ----------- A
government increase in spending can stimulate the economy. A decrease in spending can reduce
activity in the economy when inflation is a concern.
How does government taxation effect the economy? ----------- Correct Answer ----------- The
government can lower taxes which gives consumers more money to spend which stimulates the
economy. It can increase taxes if inflation is getting too high
What are the Bank of Canada's 4 main responsibilities? ----------- Correct Answer ----------- -
Monetary Policy
- The Canadian financial system
- Physical currency
- Funds management.
What is monetary policy? ----------- Correct Answer ----------- Policies that are set with the goal
of preserving the value of money in the economy by keeping inflation low.
What is the target inflation rate? ----------- Correct Answer ----------- 1-3%
What are the key monetary policy tools? ----------- Correct Answer ----------- Interest Rates and
Money Supply.
How would the bank of Canada implement monetary policy if Inflation was rising? -----------
Correct Answer ----------- It would increase interest rates which would decrease
consumer/business spending/investments. It would reduce the money supply which would
decrease consumer/business investments.
How would the Bank of Canada implement monetary policy during a recessions and
unemloyment? ----------- Correct Answer ----------- It would lower interest rates to make
borrowing more affordable which increases consumer and business spending/investments. It
would increase the money supply which increases business and consumers
spending/investments.
, What is the Bank rate? ----------- Correct Answer ----------- The interest rate set in the overnight
market where major Canadian financial institutions lend each other money in the form of
overnight loans.
How wide is the operating band of the bank rate? ----------- Correct Answer ----------- 50 basis
points wide.
What is the bank rate based off? ----------- Correct Answer ----------- The upper limit of the
operating band.
What is the overnight rate set at? ----------- Correct Answer ----------- The midway point between
the operating bands.
Describe the Special Purchase and Resale Agreement (SPRA). ----------- Correct Answer ---------
-- Is used to decrease the interest rate. The bank lends on an overnight basis with the loan being
paid back the next day. The bank purchases T-bills from another financial institution, the
financial institution sells the T-bills to the bank. The banks purchase increases the money supply.
The next day the transaction is reversed.
Describe the Sale and Repurchase Agreement (SRA). ----------- Correct Answer ----------- Works
similar to and SRPWA except the goal is to increase the interest rate. The bank borrows money
by selling T-bills to another financial institution. The financial institution buys the B-bills from
the bank which reduces the money supply. The transaction is reversed the next day.
What is a drawdown and what effect does it have on interest rates? ----------- Correct Answer ----
------- It is the transfer of deposits to the Bank from the chartered banks which effectively drains
the supply of available cash balances from the banking system. This causes interest rates to rise.
What is a redeposit and what effect does it have on interest rates? ----------- Correct Answer ------
----- It is the transfer of funds from the bank to the chartered banks which increases deposits and
increases the money supply which decreases interest rates.
What are some challenges of implementing government policy? ----------- Correct Answer -------
---- Timing lags, political considerations, future expectations, coordination of federal, provincial,
and municipal policies.
Why do corporations and governments issue debt instruments? ----------- Correct Answer ---------
-- To finance operations or growth, and to take advantage of financial leverage.
Describe the terms of a debt instrument. ----------- Correct Answer ----------- It is a promise by
the issuer to repay the principal value of the issue on the maturity date, as well as the interest at
stated intervals over the life of the security or at maturity.,
What is the difference between a bond and a debenture? ----------- Correct Answer ----------- A
bond is secured to a physical asset. A debenture is secured by something other than a specified
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