CSC2 Exam Questions and Answers | Exam-Dumps (Page: 4)

QUESTION: 25

For institutional trading, when does the investor need to provide trade-matching elements?

After the dealer issues a trade execution notice.
One the custodian confirms the trade.
With the initial order.
Once the trade clears.

Answer(s): A

Explanation:

Trade-matching is a critical process in institutional trading, ensuring that details of a trade (e.g.,

price, quantity, and settlement terms) align among the involved parties, including the investor, dealer, and custodian. In Canada, institutional trade matching must occur within a specific timeline, and the investor is responsible for providing trade-matching elements after the trade execution notice is issued by the dealer.

Step-by-Step Explanation;
What is Trade Matching?
Trade matching involves the comparison of trade details between the buyer and seller (and their intermediaries) to confirm accuracy and reduce settlement risks.

When Does the Investor Provide Trade-Matching Elements?

After the dealer executes the trade, the dealer issues a trade execution notice to the investor.

The investor must then provide the necessary trade-matching details, such as account information, settlement instructions, and any other required confirmations.

This process ensures that the trade can move seamlessly through to settlement.

Why Not Other Options?

Option B (Once the custodian confirms the trade): Incorrect. The custodian's role is typically involved in the final settlement process and not in providing trade-matching details.

Option C (With the initial order): Incorrect. Trade-matching details are provided after the trade is executed, not at the time the order is placed.

Option D (Once the trade clears): Incorrect. Trade matching occurs before the trade clears to ensure settlement.

Reference to Canadian Securities Course Exam 2 Study Materials:

Volume 2, Chapter 27 Institutional Clearing and Settlement

Highlights the process of institutional trade matching, the roles of the investor, dealer, and custodian, and the required timelines.

Volume 2, Chapter 27 The Sell Side and the Buy Side of the Market

Explains trade execution and the responsibilities of institutional clients and their intermediaries in completing trades.

Final Answer; A

Option A (After the dealer issues a trade execution notice): Correct.

Other options are incorrect based on the standard processes for institutional trade matching in Canada.

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QUESTION: 26

Which factors tends to increase when inflation increases?

Corporation price-earnings multiples.
Labour costs for manufactures.
Common share prices.
Corporate bond prices.

Answer(s): B

Explanation:

Inflation represents the overall rise in prices across the economy. As inflation increases, the costs of raw materials and wages typically rise. Labour costs for manufacturers increase because employees demand higher wages to compensate for the loss of purchasing power caused by inflation. Additionally, higher labour costs directly impact the profit margins of companies, particularly in manufacturing industries.

Other options are incorrect because:

A . Price-earnings multiples tend to decrease as inflation rises due to reduced earnings growth expectations and higher discount rates.

C . Common share prices may decline as inflation reduces consumer spending and corporate earnings.

D . Corporate bond prices tend to fall as inflation erodes the fixed interest payments and leads to higher interest rates.

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QUESTION: 27

How is the ex-port real rate of return calculated?

The ex-ante nominal rate of return adjusted by portfolio beta.
The ex-post nominal rate of return minus the risk-free rate.
The ex-ante nominal rate of return minus the annual inflation rate.
The ex-post nominal rate of return minus the annual inflation rate.

Answer(s): D

Explanation:

The ex-post real rate of return is a backward-looking measure calculated after the fact, using historical data. It reflects the actual nominal rate of return adjusted for the actual rate of inflation over the same period. The formula is:

Ex-postrealreturn=Nominalreturn-Inflationrate\text{Ex-post real return} = \text{Nominal return} - \text{Inflation rate}Ex-postrealreturn=Nominalreturn-Inflationrate

This measure helps assess the purchasing power of returns after accounting for inflation.

Other options are incorrect:

A and C describe ex-ante measures (forward-looking expectations).

B calculates the nominal excess return above the risk-free rate, not the real return.

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QUESTION: 28

What do the returns on treasury bills often represent?

Bank prime rate.
Inflation rate
Risk-free rate
Federal funds rate

Answer(s): C

Explanation:

Detailed Explanation; Treasury bills (T-bills) are short-term government debt instruments with minimal risk of default. Their returns are often used as a proxy for the risk-free rate in financial analysis, as they represent the theoretical return on an investment with zero credit risk. The risk-free rate is critical for discounting cash flows and comparing returns on various investments.

Other options:

A . Bank prime rate is the interest rate commercial banks charge their most creditworthy customers.

B . Inflation rate is unrelated to the direct return on T-bills, though it impacts real returns.

D . Federal funds rate applies in the U.S. to interbank lending, not directly to T-bills.

Reference:

CSC Volume 1 (2023 Edition): Chapter on the financial markets, inflation, and trade settlement.

CSC Volume 2 (2024 Edition): Sections on portfolio analysis and risk-free securities.

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QUESTION: 29

An advisor to explain the benefits of labour sponsored funds (LSVCC) to some of his clients.

With which client should the advisor have this discussion?

Client 2
Client 4
Client 1
Client 3

Answer(s): C

Explanation:

Labour Sponsored Venture Capital Corporations (LSVCCs), or labour-sponsored funds, are high-risk investments designed to stimulate job creation and economic growth. They provide tax benefits in the form of federal and, in some cases, provincial tax credits, making them attractive to investors in higher income brackets who are comfortable with the following:

Increased portfolio risk

Reduced liquidity due to long lockup periods

High potential tax incentives

Analysis of Clients:

Client 1:

In their prime earning years and comfortable with higher risk and long lockup periods.

Interested in tax benefits in the form of federal tax credits.

Matches the profile of an ideal candidate for LSVCCs.

Answer(s): C

Client 2:

In early earning years and prioritizes liquidity over other factors.

LSVCCs are unsuitable due to their lack of liquidity (e.g., lockup periods).

Incorrect

Client 3:

Focused on investments with offsetting tax credits but insists on tax credits being carried forward.

LSVCC tax credits cannot typically be carried forward, making them unsuitable.

Incorrect

Client 4:

Stable income but sensitive to high fees.

LSVCCs generally have high management fees, making them unsuitable.

Incorrect

Reference to Canadian Securities Course Exam 2 Study Materials:

Volume 2, Chapter 22 Labour Sponsored Venture Capital Corporations

Discusses LSVCCs, their tax advantages, high-risk nature, and reduced liquidity.

Volume 2, Chapter 24 Canadian Taxation

Explains federal and provincial tax credits applicable to LSVCCs and their suitability for higher-income clients.

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QUESTION: 30

When considering the overall investment objectives of liquid alternatives, what time horizon is the most appropriate for retail investors when investing in these funds?

Short-to medium-term
Short-term
Long-term
Medium-term

Answer(s): C

Explanation:

Liquid alternatives, also known as alternative mutual funds, combine features of traditional mutual funds with hedge fund-like strategies. They provide access to alternative investments such as derivatives, short-selling, and leverage while adhering to stricter regulations for retail investors. These funds are designed to achieve diversification and risk-adjusted returns that are less correlated with traditional stock and bond markets.

When considering liquid alternatives, a long-term investment horizon is most appropriate for retail investors. The key reasons include:

Volatility and Complexity: Liquid alternatives can be more volatile than traditional funds due to their use of sophisticated strategies like leverage or derivatives. This requires a long-term outlook to weather short-term fluctuations.

Objective of Absolute Returns: Liquid alternatives are often structured to provide positive returns over a full market cycle, which typically spans several years.

Diversification Benefits: The risk mitigation offered by these funds unfolds over time as they reduce the portfolio's overall exposure to specific market conditions.

Investors seeking short-term gains may not benefit as much due to the time required for the strategies employed to materialize their intended results. Long-term objectives align better with the nature of liquid alternatives and their ability to smooth returns.

Reference:

CSC Volume 2, Chapter 20: "Alternative Investments: Strategies and Performance," discusses the structure and time horizon considerations for liquid alternatives.

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QUESTION: 31

Which will taxed at the taxpayer' marginal tax rate?

Dividends from foreign corporations.
Domestic property valued over $100,00.
Dividends not eligible for the divided tax credit.
Foreign property valued under $100,000

Answer(s): A

Explanation:

Dividends from foreign corporations are taxed at the taxpayer's marginal tax rate because they are treated as regular income in Canada. Unlike Canadian dividends, which may qualify for a dividend tax credit to reduce the effective tax rate, foreign dividends do not receive preferential tax treatment under Canadian tax law.

Marginal Tax Rate: The rate at which the taxpayer's last dollar of income is taxed. Since foreign dividends do not qualify for tax credits, they are taxed as ordinary income.

Double Taxation Relief: While foreign dividends are fully taxable in Canada, tax treaties between Canada and other countries may allow a foreign tax credit to offset taxes paid to the foreign jurisdiction. However, this does not alter their treatment under the marginal tax rate.

Other options provided in the question:
Dividends not eligible for the dividend tax credit (Option C) are usually taxed at a higher rate, but Canadian non-eligible dividends receive some preferential treatment, unlike foreign dividends.

Foreign property valuation (Options B and D) is relevant for reporting requirements under Canadian tax laws, such as the T1135 Foreign Income Verification Statement, but does not affect the taxation of foreign dividends.

Reference:

CSC Volume 2, Chapter 24: "Canadian Taxation," details the treatment of foreign income, including dividends and foreign tax credits.

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QUESTION: 32

A portfolio manager at an investment firm is analyzing the behavior of stocks in various market conditions. They believe markets are efficient and that all public and non-public and non-public available information is fully reflected in current process. How should the construct their investment portfolio?

Create a passive investment portfolio with exchange- traded funds.
Use both fundamental and technical analysis to add value to the portfolio.
Use technical analysis to review all past price movements and trends.
Actively buy and sell stocks in an attempt to beat the stock market's average returns.

Answer(s): A

Explanation:

When an investor or portfolio manager adheres to the belief in market efficiency--specifically the strong form of the Efficient Market Hypothesis (EMH)--it implies that all information (public and non-public) is fully reflected in security prices. This belief diminishes the value of active investment strategies, such as fundamental or technical analysis, as these approaches presume the possibility of identifying undervalued or overvalued securities.

As such, the logical approach in this scenario would be to adopt a passive investment strategy. This includes constructing a portfolio of exchange-traded funds (ETFs) or index funds that replicate the performance of a broad market index, such as the S&P/TSX Composite Index. A passive approach aligns with the principle of market efficiency, as it avoids attempts to outperform the market, which are considered futile under the EMH.

Reference:

Volume 2, Chapter 13: Fundamental and Technical Analysis, Efficient Market Hypothesis, Canadian Securities Course.

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CSI CSC2 Exam (page: 4) CSI Canadian Securities Course 2 Updated on: 09-Feb-2026

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CSI CSC2 Exam (page: 4)
CSI Canadian Securities Course 2
Updated on: 09-Feb-2026