CSC1 Exam Dumps : Canadian Securities Course Exam 1

Aninterest rate forward agreement (FRA)is anover-the-counter (OTC)derivative contract. Unlike exchange-traded derivatives, OTC contracts are not centrally cleared, meaning there is no intermediary to guarantee performance. This increases counterparty (default) risk, making FRAs inherently riskier than exchange-traded contracts.

A. Individual investor buying shares on an exchange during the ex-rights period: This is a standard transaction involving equity securities, not derivatives, and carries no default risk.

C. Exchange-traded equity option contract between an individual investor and a dealer: Exchange-traded derivatives are backed by a clearinghouse, which mitigates default risk.

D. Individual investor entering a futures contract with an institutional investor: Futures contracts are also exchange-traded and centrally cleared, reducing default risk.

When a corporation issues preferred shares rather than debt, it avoids increasing its leverage (debt-to-equity ratio). Preferred shares are considered equity for financial reporting purposes and do not require the repayment of principal like debt instruments. Although they may have fixed dividend obligations, these are not legally binding in the way interest payments on debt are.

Issuing preferred shares allows the corporation to strengthen its balance sheet while potentially preserving its credit rating. Preferred shares do not directly affect leverage but provide capital without increasing debt.

References:

Volume 1, Chapter 8:Preferred Shares, section on "Why Companies Issue Preferred Shares" explains the advantages of using preferred shares instead of debt​.

Stock index performance is best measured usingpercentage changesrather than absolute values like point changes, relative values, or share price changes. This is because percentage changes provide a normalized measure of performance, allowing for meaningful comparisons over time or between different indexes, regardless of their starting levels or the specific units in which the index is expressed.

Comparative Analysis: Percentage changes allow investors to compare the performance of indexes with vastly different base values or compositions. For example, a 100-point movement on a low-value index might be significant, while the same point movement on a high-value index might be trivial.

Normalized Returns: They normalize the performance, enabling easier tracking of relative gains or losses over time.

International Relevance: With global markets often using indexes based on different currencies or methodologies, percentage changes standardize comparisons across markets.

A. Relative value changes: This term lacks a precise definition in the context of performance measurement and is not commonly used in evaluating index performance.

B. Point changes: While point changes are informative for intraday movements or headlines, they lack context without knowing the index's value. For example, a 50-point drop could represent 0.5% or 5%, depending on the index level.

C. Share price changes: This is specific to individual securities and does not apply to indexes, which aggregate multiple stocks.

Why Percentage Changes?Incorrect Options:Reference from the CSC® Study Material:The Canadian Securities Course explains the role of indexes in tracking market performance and highlights the importance of percentage changes for measuring and interpreting their performance. This is because percentage changes provide consistency and relevance when comparing different periods or indexes with varying base values (CSC Volume 1, Chapter 8, "Stock Indexes and Averages")​.

Key Concepts Related to Index Performance:

Market indexes represent a basket of securities designed to reflect the overall performance of a specific market or sector.

Percentage changes effectively capture market sentiment and performance trends.

Common Canadian market indexes such as the S&P/TSX Composite Index and international indexes like the S&P 500 often report movements in both points and percentages, with the latter providing a more accurate representation of market dynamics​​.

This understanding is fundamental for financial professionals analyzing market trends, investment performance, and conducting portfolio management.

References:

CSC Volume 1, Chapter 8, "Equity Securities: Common and Preferred Shares – Stock Indexes and Averages"​.

CSC Volume 1, Chapter 7, "Fixed-Income Securities: Pricing and Trading – Bond Indexes" for comparative index concepts​.