CSI Updated CSC2 Exam Questions and Answers by tate

An advisor’s duty of care requires recommendations and accepted orders to be suitable for the client based on know-your-client information, investment objectives, time horizon, risk tolerance, financial circumstances, and investment knowledge. Even when a client requests a trade, the advisor cannot ignore suitability obligations. If the order is unsuitable, the advisor must warn the client, document the concern, and may be required to refuse or escalate the transaction depending on firm policy and regulatory obligations. Compliance refers to following laws and internal rules, but the core ethical breach in this scenario is failing to protect the client’s interests. Integrity involves honesty, and professionalism involves proper conduct. The direct violation is the advisor’s duty of care.

When acting as a principal, investment dealers buy and sell securities for their own account. They generate revenue by earning a spread, which is the difference between the price at which they buy securities (bid price) and the price at which they sell them (ask price). This is distinct from their role as an agent, where revenue is earned through commissions on trades executed on behalf of clients.

A. Through commissions: Commissions are earned when acting as an agent, not as a principal.

B. Through tracers: This term does not apply to revenue generation.

C. Through brokerage charges: Brokerage charges relate to fees imposed on client accounts, not principal trading spreads.

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.

Option D reflects the primary method of mirroring an index ' s performance through full replication, ensuring accuracy and minimal tracking error.

The shares held by institutional investors, along with other shares available for trading by the public, are referred to as the public float shares . These are the issued shares of a company that are actively traded in the market, excluding restricted shares held by insiders or strategic investors.

Other options:

Issued shares : Includes all shares a company has issued, including restricted shares.

Outstanding shares : Includes all shares held by all shareholders, including restricted shares and shares not available for trading.

Market capitalization shares : Not a term used to describe shares; market capitalization is a measure of a company ' s total value based on its stock price and outstanding shares.