CSC1 Exam Dumps : Canadian Securities Course Exam 1

Warrants are securities issued by a company to existing shareholders, giving them the right to purchase additional shares at a predetermined price, often over a longer period (years). Warrants are typically used as an incentive or as part of financing arrangements.

This differs from rights, which are similar but usually have a shorter exercise period, often weeks.

Study Document References:

Volume 1, Chapter 8:Warrants and Rights, discussing their features and purposes​​.

The investor's goal is to gainexposure to the Canadian stock marketwhile maintainingminimal risk exposure. Among the provided options, anindex-linked guaranteed investment certificate (GIC)is the most suitable choice.

Key Characteristics of an Index-Linked GIC:

Capital Protection:

Index-linked GICs guarantee the principal investment amount, offering the security of a GIC while tying returns to the performance of a stock index (e.g., the S&P/TSX Composite Index).

This ensures no loss of capital regardless of market performance.

Market Exposure:

The return on an index-linked GIC is linked to the performance of the underlying index, providing exposure to the stock market. However, this comes without the downside risk associated with direct stock or fund investments.

Low Risk:

The combination of principal protection and market exposure makes it ideal for risk-averse investors seeking growth potential.

Review of Other Options:

A. Canadian Bank Preferred Shares:

While preferred shares provide stable dividends and relatively low volatility compared to common shares, they still carry market risk and are not as secure as GICs.

B. Index Exchange-Traded Fund (ETF):

ETFs track stock indices and offer diversification, but they expose investors to the full market risk of the underlying index, making them unsuitable for those seeking minimal risk exposure.

C. Call Option:

Call options are speculative derivatives that provide leverage for market exposure but carry significant risk of loss, making them inappropriate for a low-risk investor.

Why D is Correct:

Anindex-linked GICbalances the investor's objective of gaining exposure to the Canadian stock market with the need for minimal risk by guaranteeing principal protection while offering potential returns tied to market performance.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities – Features and Types. Discussion on index-linked GICs and their suitability for risk-averse investors​.

Explanation of risk characteristics of preferred shares, ETFs, and derivatives in Chapter 8 and 10 of Volume 1​.

Using Moody’s long-term rating scale,Caais assigned to obligations that are speculative and subject to very high credit risk. This rating indicates that the issuer is highly vulnerable to adverse conditions, though it has not yet defaulted.

C (Option A):Indicates obligations that are in default.

B (Option B):Reflects obligations with speculative elements and higher risk than investment-grade ratings.

Ba (Option C):Denotes speculative-grade credit but with lower risk compared to Caa.