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1
Q

Who is governed by and what are the two types of Privacy Law?

A

Privacy Act: for gov of canada, cities, crown corps like CBC and CMHC and gov institutions.

PIPEDA: Corps like banks and other financial institutions, partnerships, trusts.

2
Q

What is FINTRAC?

A

Set of regulations regarding financial tracking of money laundering operations.

Rules: Report cash trans of 10k or more within 24hr., Collect ID on account open/transaction. Report suspicious activity. If 3rd person is opening the account, collect ID from third person and letter from the account holder.

3
Q

What is a politically exposed Individual?

A

Reported to FINTRAC is someone has significant power within another country - leader, judge, head of military, etc.

4
Q

What is the regulation structure for investments?

A

Federal Level: CSA - Canadian Securities Commission.

Provincial Level: Provincial Securities commission/Territorial

Self Reg: SRO which includes reps form the distribution side of the investment industry. MFDA - regulates dealers and the advisors in the industry. The IIROC is responsible for regulating dealers and brokers in the investment industry.

5
Q

What are the details of NI 81-101 Prospectus Disclosure?

A

Prospectus: Legal document detailing an investment. Must be written before being offered to the public and must be approved.

6
Q

What are the 3 parts of a mutual fund prospectus?

A

Simplified Prospectus
Annual Information form - must be delivered to the client on request.
Financial Statements: must be delivered on request.

7
Q

What is a simplified prospectus?

A

One of the 3 parts of a MF prospectus.

Part A: Fees, Commissions and other charges, General risks of investing in MF, The mgmt structure of the mutual fund - the company, manager, fund custodians, transfer agent, dealer.

Part B: The organizational structure - corp/trust, special risks of the fund, investment objectives and starts of individual fund.

Must be provided within 2 days of sale. Client has 2 days to pull funds. If not delivered, up to 180 days.

8
Q

What is an Annual Information Form, Financial Statements and Management Reports of Fund Performance?

A

Investment Restrictions
Fund Governance - Structure of the Independent Review Committee - oversees the conflicts of interest of the fund managers.
Renumeration of IRC - how that committee is paid.

Financial Statements: Statements of changes in net assets and related notes.

Management Reports: Annual and interim reports of the fund performance including data on MER and past performance.

9
Q

What are some of the other disclosure documents?

A

Quarterly portfolio disclosures which describes the investments in the fund, Annual proxy voting record, Material change report - also known as continuous disclosure.

10
Q

What is the national exemption rule?

A

Some investments do not need a prospectus. Much more dangerous due to lack of liquidity, disclosure, type - futures, commodities, options, lack of protection.

Only sold by accredited investor, higher then 10k only, Investor is investing more than 150k min.

11
Q

What is the definition of an Accredited Investor?

A

Individuals: financial assets over 1m, total assets above 5m, net income over 200k or with spouse over 300k.

Institutions: Canadian financial instuations and Schedule II banks, registered advisors and dealers, registered charities, corps, limited partnerships, trusts and estates over 5m, entities of Accredited Investors.

Funds: Public and private investment funds, Pension funds purchasing as principals.

12
Q

What is the details of NI 81-102 Mutual Funds?

A

Deals with the structure. Investments in a single company must not exceed 10% of the shares of a company. No more than 10% of assets in one company.

Deals with Sales Communications: Advertisement of Mutual Funds - newspaper, corporate. Not Gov programs, corp fund managers, business cards.

MUST include: returns aren’t guaranteed, past performance does not reflect future, fees and commissions may apply, info is found in the prospectus and how to get that prospectus.

13
Q

What are the rules of Performance Data in Sales Communication?

A

Date of performance data must be quoted, can’t be older than 45 days. For Money market, 7 day yield and effective yield are needed. If not Money Market then use 1,3,5,10 year rates of return. Less than 1 year is not reported.

14
Q

What are the details of NI 81-103 Registration Requirements and Referal Arrangements?

A

A referral is anytime a referral fee is paid.

  • Must be an agreement between the firm, rep and person making referral - presented to client.
  • Must be recorded
  • Must get disclosure forms before account is opened.
15
Q

What is Prescribed Disclosure Document?

A

Includes: Names of parties, purpose of referral and duties to be preformed, conflicts of interest, calculation of referral fee, type of registration of each party, activities to be preformed, and activities excluded from performance.

16
Q

What is Registration in terms of mutual funds?

A

You must be registered the followed: Where you practice, where your clients live, passport system - if you register at home, recognized by other provinces except ON. Registration does not have to be renewed unless you are suspended or termination, must be paid for annually.

17
Q

What is NI 81-104 Commodity Pools?

A

Specialized mutual funds that require a special license for selling. Sold under a full prospectus, bus may invest in commodities. Only Accredited investors can invest in commodity pools.

18
Q

What are the details of NI 81-105 Sales Practices?

A

Describes how you are allowed to interact with your clients during the sales process. Describes what kind of client freebies are ok and not ok.

19
Q

What are the details of NI 81-106 Continuous Disclosure?

A

When a structure is changed, must be reported online. Management reports, quarterly portfolio disclosures and Material change report are all included.

20
Q

What are the details of NI 81-107 Independent Review Committee?

A

IRC and its functions overseeing fund mgmt conflict of interests. Issue annual report which also includes information about the conflict within the IRC.

21
Q

What is the Six Step Investment Planning Process?

A
  1. Establish Engagement
  2. Establish Objectives, gather data.
  3. Clarify Present status, identify problems and opportunities
  4. Identify strategies and present plan.
  5. Implement Plan
  6. Monitor and update.
22
Q

What are some considerations for knowing your client?

A

Age - for contract, horizon, risk tolerance.
Income and Net Worth, Occupation and pay type, objectives of investment - growth, income, safety of capital, tax benefits
Investment knowledge and experience.
Risk Tolerance - increased by long time, strong pension, comfort in investments, required growth.

23
Q

What are the key benefits of investing in Mutual Funds?

A

Diversification, professional mgmt, liquidity - usually t+3, or t+1 for money market. Exception - real estate, evaluated every 3 months usually.

24
Q

What is a closed end fund?

A

Fund company as a corporation would issue a set number of shares, sold directly from the fund company to investors. After, the company used the investment capital to purchase shares. Could sell shares or buy on secondary stock market based on NAVPS.

25
Q

What is an open ended fund?

A

Trust structure. Investor chooses how much to invest, shares are manufactured based on NAVPS at the end of the day.

Shares are redeemed through the MF company only. Called the primary market.

26
Q

What are the primary differences between open and closed ended funds?

A

How shares are traded: Bought from fund company, sold to fund company vs. bought and sold of the stock exchange.

Share Price: Based on NAVPS: Assets-Liabilities/Shares vs. Based on the bid/ask of the stock exchange.

27
Q

What are the two types of buying?

A

Lump Sum purchases: not good usually, but sometimes good opp.

Dollar cost averaging: Same amount of money, invested int he same time period in the same investment. Cheaper average cost of ownership this way.

28
Q

What are the selling methods?

A

Lump sum withdrawal - timing the market, usually dangerous.

Systematic Withdrawal Plans: Danger is always the depletion of capital.

Ratio Withdrawal: certain percentage of shares redeemed on a regular basis.

Fixed Dollar: same amount withdrawn on a regular basis.

Fixed Period: If the fund is designed to be depleted after a certain period of time. Can also be used for life expectancy.

29
Q

What are the different loads?

A

Front - end - paid at the start. Commission increases the cost per share - Called the adjusted cost base. NAVPS/1-Com

Back-end/DSC- A decreasing % over time. Can be based on purchase price, or redemption value of the fund. DSC is deducted before value is paid
out.

Also other fees: Trailers to encourage constant service, Short term - account and trading fees.

30
Q

What are the different Fund Series?

A

A Series: Advisor funds, sold with a front or back end com. For Investors that make small changes in their funds.
F Series: Fee based funds, sold with no com, but annual fee as a percentage of total fund value - for people that make a lot of changes and don’t need advice.
I Series: For large institutional investors.
T Series: Similar to Ratio withdrawal. T6 means 6%

31
Q

How are mutual funds taxed?

A

Taxed on a capital gain or loss calculated by FMV - ACB.

32
Q

What are the different management expenses and realities of them?

A

Calculated by costs/Average net asset value.

Actively traded fund have higher MERs than passive. Small cap funds have higher MER than Large Cap. Small funds have bigger MER than large. Intl funds have higher MER than domestic.

33
Q

What are the 4 Supplies and Demands of Investment Capital?

A

Supply: Household savings, corporate retained earning, government budget surpluses, Foreign investments.

Demand: Household borrowing, corporate borrowing, gov borrowing, foreign companies borrowing from canada.

34
Q

What are the characteristics of Investment Capital?

A

Scarcity
Sensitivity
Mobility

35
Q

What is a debt investment?

A

When one party lends to another.
Person borrowing for a house, called a mortgage.
A corp borrowing for the short term - called a paper. When a bank cosigns a short term corp debt, called a Bankers Acceptance. Long term in the form of a bank loan or bond issue.
A Gov - short term called T-bills, long term called a bond - two types - Canada Savings bond, gov of canada bonds.

36
Q

What is the risk profile of a bond?

A

Generally low risk. Affected by interest rate risk. If it goes up, lowers bond value. Duration - longer the riskier. Default risk - if credit rating goes down, bond value goes down.

37
Q

What is Liquidity Perference?

A

Investors prefer liquid investments so higher interest rates are needed for longer investments to compensate for less liquidity.

38
Q

How do government decisions effect the yield curve?

A

Can be altered, or invert. does not reflect long term investor preference, rather just short term interest rates.

39
Q

How are the earning on a debt instrument taxed?

A

100% of the earning or the return on investment times the marginal tax rate. Value changes can cause a capital gain.

40
Q

What are the 4 categories of debt investments?

A

Guaranteed investments- GICS: Fixed rate, variable rate, index linked (ILGIC).
Money Market: Tbills, commercial paper, banker acceptances.
Mortgage Investments: 5 year CMHC guaranteed debt
Bonds: Gov and Corporate.

41
Q

What are the main details of a GIC/Guarenteed Investment?

A

If issued by a bank, protected by CDIC - not marketable and never found in MF. Fixed, Variable, and Index - 0 - 20% where returns are counted as interest income.

42
Q

What are the main details of money market investments?

A

Short term debt investments issued by government and corps. Low risk, small return. Long term exposed to inflation risk.
Types: Tbills - issued at discount, redeemed at face value. Price calculated: portion of year * quoted yield + 1. Considered interest for tax purposes.

Commercial Paper: short term debt issued by corporations. Sold on money market, when cosigned by bank: banker acceptance.

Mortgages: Guarenteed by CMHC. Payments in two forms: interest and return of principal.

43
Q

What are general details of bonds?

A

Debt issued by gov or corp. Amount of interest is printed on the face of the bond. Amount relates to: current market rates, credit rating and term of bond. Longer term higher rate, lower rating, higher rate.

44
Q

What legal documentation is required for a bond?

A

Form of security, needs to pass PSC before bond sales. Prospectus filing with trust indenture detailing the bond.

45
Q

What is a debenture?

A

Debts that don’t include collateral. High risk, associated with Junk Bonds - companies with a bad credit rating. Income Bonds - only pay interest if company makes a profit.

46
Q

What is a normal risk bond?

A

Pays interest based on the market rate and the credit rating of the issuing company. Coupon bonds - pays semi annually. 1/2 the annual interest rate is paid

47
Q

What are some extra bond rights to the issuer?

A

Callable/Redeemable: Right to call back or redeem bond at face value plus accrued interest.

48
Q

What rare some extra bond rights to the purchaser?

A

Retractable: The bondholder has the right to cash in the bond before the maturity date.
Extendable: Bond holder has the right extend the term
Variable Rate: Bond rates float so when interest rates go up in the market, coupon rate on the bond will also go up.
Convertible: Bonds can be converted into common shares of the corporation at the a guaranteed conversion rate.

49
Q

What is current yield?

A

% = $ Return/Market Price *100

Coupon Rate: Market price * Current Yield = $Return / Face Value * 100 = Coupon Rate.

50
Q

What does YTM incorporate?

A

Cost of the bond, maturity value, the stream of interest payments, time to maturity.

51
Q

What are the different types of derivatives?

A

Rights- exercise a right to buy shares first before others. Can use, sell the right or allow it to expire.
Warrants - Allow investors to buy shares at a later date at a certain price.
Call Options- Buy a call - Right to purchase shares for a specific price up to a date. Holder/writer of a call.
Put Options
Futures

52
Q

What are the details of Income Investments?

A

Income Investments: produce steady stream of income. Generally low risk.
Include short term: Money market, com paper, bankers acceptances. AND Long Term - Savings bonds, GIC, Mortgages, Gov bonds, com bonds.

Dividend producing equity investments. Preferred shares that pay regular dividend income - usually callable for a price plus a premium. OR Blue chip - established stocks in big companies. Experience Cap gains and losses

53
Q

What are the details of Growth Investments?

A

Produce opportunity for capital gains. Higher risk. Includes:
Common share: Growth share/equity investment.
Real Estate Investments: Direct real estate investment refer to buying property to flip or rent it. Liquidity Risk.
Options, commodities, Futures also.

54
Q

What types of investments are too risky for mutual funds?

A

Hedge Funds - Options, shorts. Leverage risk, High MER sold under memo of understanding. Min 10k.

Commodity: Leverage risk, called a pooled fund. Sold in separate market to accredited investors. Min 150k.

55
Q

What is a balanced fund?

A

Invested in both stocks and bonds. Balance is described.

56
Q

What is an asset allocation fund?

A

Can be 100% in either stocks or bonds.

57
Q

What is the Economic cycle?

A

Reptitive, cycle of events that result in highs and low in the biz environment. Approx. every 7 years. Each peak higher than the last. Last was 2008, volatile recovery.

58
Q

What is Gross Domestic Product (GDP)?

A

Is a measure of the total market value of all the final goods and services produced in the economy in a year. Used to evaluate the health of the economy.

59
Q

How is CPI calculated and what does it measure?

A

Measures inflation. Calculated:

CPI1-CPI0/CPI0

60
Q

How is the unemployment rate calculated?

A

During economic down period, unemployment goes up.
The workforce= Employed+Unemployed

Rate: Unemployed/Workforce.

61
Q

What are some of the leading indicators of a cycle change?

A

Housing Starts
Major appliance purchases.
New car sales
Stock Markets

62
Q

What are the two types of policy the government uses to stabilize the economy?

A

Fiscal policy - setting taxes up or down. Spend money and transfer to provinces. Spending usually boosts economy, so does dropping taxes.

Monetary Policy: Interest rate up or down, issue Tbills, buy them back, increase or decrease the money supply. When gov buys back Tbills, reduces interest rates and economy expands.

63
Q

What are the basics of Supply and Demand?

A

When prices are low supply is low. When prices are low demand is high. Cross point is price - called market equilibrium.

Demand curve is effected by other things: Style and rase, complementary products, substitute products.

64
Q

What are the main purpose of financial markets and two types of financing?

A

Channel funds from lenders to borrowers
To facilitates timing of purchases.
To provide mechanism for government policy.

Direct: Borrowing from another person. Indirect: Borrowing through an intermediary like a bank.

65
Q

What are capital markets and the two types?

A

Where long term investments (longer than a year) are bought and sold.

Primary Markets: when investment are sold directly from the company to the investor. Like in an IPO - company to company.

Secondary Markets: Stock exchange: including OTC market. Once released to market place, any investors who want can buy or sell.
OTC - conducted with share in companies that do not comply with stock market. Much less liquid.

66
Q

What are the different types of buy and sell orders?

A

Market order: When buying from the market, you will buy at the next ask price posted. Selling you will sell at the next bid price.

Limit Order: You will give broker a price and not buy unless that price is met. Types: Day - limit that expires and the end of the day. Open - does not expire for a month. Stop loss- sell if the market price drops to a certain point.

67
Q

What is a bid/ask spread?

A

The difference in price between buying and selling prices.

68
Q

What is a leveraged position?

A

Borrowing to take on a bigger position that you could manage without a loan.

69
Q

What is selling short?

A

Borrowing shares and selling them. Investor thinks price with drop, shares can be repurchased and replaced at lower price. Short position are the most dangerous in the market.

70
Q

What are some of the advantages of an ETf?

A

Index funds that are much like Mutual funds but have lower MERs and traded on the stock exchange, during the day. Beta of 1.

71
Q

Insurance company based investments have what main advantage?

A

A beneficiary can be named. Proceeds will be paid directly to the named beneficiary. If there is a named beneficiary in the family class, it is protected from creditors.

72
Q

How is a Non Registered Annuity Taxed?

A

Accrued: Higher interest income to be taxed in early years.
Prescribed: even throughout so higher taxed near the end.

73
Q

What is a cash flow statement?

A

Cash Flows from Operations:
Cash coming in from operations.
Cash going out to fund operations not including
non cash items, like depreciation and amortization
Cash Flows from Financing:
Money coming in from borrowing; money coming in from share issue; going out to repay interest and principal; going out to pay dividends
Cash Flows from Investing
Going out to finance purchase of land and equipment and other capital purchases; coming in from sale of assets

74
Q

Where do some tax deductions come from?

A

Business expenses, child care expenses. To calculate savings multiply the dedication by the marginal rate.

75
Q

What is a tax credit?

A

Tax credits get deducted from the taxes payable. Can draw down to zero but not past it. GST is one type of tax that is refundable.

76
Q

When do deemed depositions occur resulting in a capital gain?

A

At Death, if there is no spouse. Brought into estate and deemed to have been sold.
When an asset is moved from a non registered to RRSP.
When an investor switches between funds can create a tax situation.

77
Q

How do you calculate taxing dividends?`

A

Gross up by factor given * (total marginal tax rate fed and prov) - ( Total tax credit fed and prov.) = total taxes.

78
Q

How can capital losses be carried?

A

Backwards 3 years, or forward indefinitely. Could be used to offset cap gains in the estate.