DETAIL CSC2 EXPLANATION & CSC2 100% EXAM COVERAGE

Detail CSC2 Explanation & CSC2 100% Exam Coverage

Detail CSC2 Explanation & CSC2 100% Exam Coverage

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CSI Canadian Securities Course Exam2 Sample Questions (Q50-Q55):

NEW QUESTION # 50
What market condition is typically evident during the late contraction to end of contraction phases?

  • A. Stock prices fall.
  • B. Tight monetary policy
  • C. Inverter yield curve.
  • D. Interest rates fall

Answer: D

Explanation:
During the late contraction to the end of contraction phase in the business cycle, the economy typically begins to show early signs of recovery, leading to shifts in monetary policy and interest rate trends. This period is marked by declining interest rates. Here's a breakdown of the conditions evident in this phase:
* Economic Context:
* As the economy contracts, unemployment may still be relatively high, consumer and business confidence is weak, and production is below potential output. These conditions prompt monetary authorities to adopt accommodative policies.
* The central bank, such as the Bank of Canada, reduces interest rates to stimulate borrowing, investment, and spending, aiding in economic recovery.
* Interest Rate Dynamics:
* Falling interest rates are a hallmark of the late contraction phase. These declines occur as central banks aim to provide economic support and lower the cost of capital.
* Lower interest rates tend to support a recovery in equity markets and encourage investment activity, setting the stage for the next phase of growth.
* Yield Curve Observation:
* During this phase, the yield curve, which may have inverted during earlier contraction stages, starts to steepen. This steepening is indicative of improving economic expectations.
* Elimination of Tight Monetary Policies:
* Tight monetary policies, which involve high interest rates to curb inflation, are generally not present in this phase. Instead, monetary easing is observed.
References to Study Documents:
* Canadian Securities Course Volume 2, Chapter 13, "Fundamental and Technical Analysis," discusses the business cycle and its implications on market conditions.
* Volume 1, Chapter 4, "Overview of Economics," explains how interest rates influence the economy and describes their behavior during different phases of the business cycle.


NEW QUESTION # 51
In which type of ETF does the portfolio manager select securities and their weighting to best match the performance of an index?

  • A. Synthetic.
  • B. Full replication
  • C. Sampling
  • D. Rules-based

Answer: B

Explanation:
In ETFs, portfolio management involves selecting securities to match an index's performance. Full replication is a method where the portfolio manager buys all the securities in the index in their exact proportions.
* Full Replication:
* Involves holding every security in the index.
* Ensures minimal tracking error and high fidelity to the benchmark.
* Suitable for highly liquid and straightforward indexes like the S&P/TSX Composite.
* Sampling:
* Used for large, complex indexes where holding all securities is impractical.
* Selects a representative sample to approximate the index's performance.
* Rules-Based and Synthetic ETFs:
* Employ predefined rules or derivatives rather than physical securities.
Types of ETF Management ApproachesWhy D is CorrectOption D reflects the primary method of mirroring an index's performance through full replication, ensuring accuracy and minimal tracking error.
References:
* Volume 2, Section 19: Exchange-Traded Funds-Full Replication vs. Sampling.
* Volume 2, Section 13: Efficient Market Hypothesis-Implications for Passive Management.


NEW QUESTION # 52
What is the difference between sinking funds and purchase funds concerning the redemption of bonds poor to maturity?

  • A. Sinking funds can redeem bonds only if they trade below a stipulated price while purchase runes do not have such a requirement.
  • B. Sinking funds have mandated redemptions while purchase funds can redeem only upon certain market conditions.
  • C. Sinking funds can redeem fie bones any time while purchase funds follow a prearranged schedule.
  • D. Sinking funds involve the issuer determining when bonds are redeemed while purchase funds Involve the investor determining when the bonds are redeemed.

Answer: B

Explanation:
* Sinking fundsrequire the issuer to redeem a specified portion of the bond issue at regular intervals. This ensures systematic debt reduction and is mandated regardless of market conditions.
* Purchase funds, however, allow the issuer to buy back bonds only if they are available in the market at or below a stipulated price, making redemption conditional on market conditions.
* B. Sinking funds can redeem bonds only if they trade below a stipulated price: This applies to purchase funds, not sinking funds.
* C. Sinking funds involve the issuer determining when bonds are redeemed while purchase funds involve the investor determining when the bonds are redeemed: Investors have no role in determining bond redemption under either method.
* D. Sinking funds can redeem the bonds any time while purchase funds follow a prearranged schedule:
Sinking funds follow a schedule, and purchase funds rely on market conditions.


NEW QUESTION # 53
What is the meaning of ex-ante return?

  • A. The expected return of the security.
  • B. The return of the security based on the risk-free rate.
  • C. The real return on the security.
  • D. The historical return of the security.

Answer: A

Explanation:
Ex-ante return refers to the anticipated or expected return of an investment, based on forecasts rather than historical performance. This concept is critical in portfolio management and investment decision-making:
* Forecasting Returns:
* Ex-ante return estimates are derived from market conditions, expected economic performance, and specific security characteristics.
* Analysts use models like the Capital Asset Pricing Model (CAPM) to estimate expected returns based on the asset's risk profile and the risk-free rate.
* Differentiation from Historical Returns:
* Unlike ex-post (historical) returns, which reflect actual past performance, ex-ante returns guide future investment decisions.
* Importance in Portfolio Management:
* Portfolio managers rely on ex-ante returns to construct portfolios aligned with investment objectives, considering risk and return trade-offs.
* Real vs. Nominal Returns:
* Ex-ante returns can be adjusted for inflation to reflect real expected returns, providing a more accurate picture of purchasing power gains.
References to Study Documents:
* Volume 2, Chapter 15, "Introduction to the Portfolio Approach," explores the estimation of expected returns and their role in portfolio management.
* Volume 1, Chapter 7, "Fixed-Income Securities: Pricing and Trading," includes calculations and applications related to expected and realized returns.


NEW QUESTION # 54
Which type of mutual funds tend to have the lowest management fees?

  • A. Small cap
  • B. Index
  • C. Bond
  • D. Asset allocation

Answer: B

Explanation:
Index mutual funds are structured to replicate the performance of a market index, such as the S&P/TSX Composite Index. Since these funds do not require active management, their management fees are among the lowest compared to other types of mutual funds. Active management in asset allocation, small-cap, or bond funds involves more frequent trading and research, increasing operational costs.
References:
* CSC Volume 2, Chapter 18: "Mutual Funds: Types and Features," discusses indexing as a fund management style and highlights its low costs compared to actively managed funds.


NEW QUESTION # 55
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