Letter c

Question 1

Call feature

Answer 1

A clause in a bond or preferred share agreement that allows the issuer the right to “call back” the securities prior to maturity. The company would usually do this if they could refinance the debt at a lower rate (similar to refinancing a mortgage at a lower rate). Calling back a security prior to maturity may involve the payment of a penalty known as a call premium.

Question 2

Call option

Answer 2

The right to buy a specific number of shares at a specified price (the strike price) by a fixed date. The buyer pays a premium to the seller of the call option contract. An investor would buy a call option if the underlying stock’s price is expected to rise. See also Put Option.

Question 3

Callable preferred

Answer 3

May be redeemed (called in) upon due notice by the security’s issuer

Question 4

Callable bond

Answer 4

May be redeemed (called in) upon due notice by the security’s issuer.

Question 5

Call protection period

Answer 5

For callable bonds, the period before the first possible call date.

Question 6

Call price

Answer 6

The price at which a bond or preferred share with a call feature is redeemed by the issuer. This is the amount the holder of the security would receive if the security was redeemed prior to maturity. The call price is equal to par (or a stated value for preferred shares) plus any call premium. See also Redemption Price.

Question 7

Canada Deposit Insurance Corporation (CDIC)

Answer 7

A federal Crown Corporation providing deposit insurance against loss (up to $100,000 per depositor) when a member institution fails.

Question 8

Canada Education Savings Grant (CESG)

Answer 8

An incentive program for those investing in a Registered Education Savings Plan (RESP) whereby the federal government will make a matching grant of a maximum of $500 to $600 per year of the first $2,500 contributed each year to the RESP of a child under age 18

Question 9

Canadian Derivatives Clearing Corporation (CDCC)

Answer 9

The CDCC is a service organization that clears, issues, settles, and guarantees options, futures, and futures options traded on the Bourse de Montréal (the Bourse).

Question 10

Canada Savings Bonds (CSBs)

Answer 10

A type of savings product that pays a competitive rate of interest and that is guaranteed for one or more years. They may be cashed at any time and, after the first three months, pay interest up to the end of the month prior to being cashed.

Question 11

Canada Premium Bonds (CPBs)

Answer 11

A relatively new type of savings product that offers a higher interest rate compared to the Canada Savings Bond and is redeemable at any time throughout the year with the bondholder receiving the face value plus interest earned up to the last anniversary date of issue at the time of redemption.

Question 12

Canada Pension Plan (CPP)

Answer 12

A mandatory contributory pension plan designed to provide monthly retirement, disability and survivor benefits for all Canadians. Employers and employees make equal contributions. Québec has its own parallel pension plan Québec Pension Plan (QPP).

Question 13

Canadian Investor Protection Fund (CIPF)

Answer 13

A fund that protects eligible customers in the event of the insolvency of an IIROC dealer member. It is sponsored solely by IIROC and funded by quarterly assessments on dealer members.

Question 14

Canadian Life and Health Insurance Association Inc. (CLHIA)

Answer 14

The national trade group of the life insurance industry, which is actively involved in overseeing applications and setting industry standards.

Question 15

CanPx

Answer 15

A joint venture of several IIROC member firms and operates as an electronic trading system for fixed income securities providing investors with real-time bid and offer prices and hourly trade data.

Question 16

CanDeal

Answer 16

Provides institutional investors with electronic access to federal bond bid and offer prices and yields from its six bank-owned dealers.

Question 17

Canadian Unlisted Board (CUB)

Answer 17

An Internet web-based system for investment dealers to report completed trades in unlisted and unquoted equity securities in Ontario.

Question 18

Canadian Securities Exchange (CSE)

Answer 18

Launched in 2003 as an alternative marketplace for trading equity securities and emerging companies.

Question 19

Canadian Securities Administrators (CSA)

Answer 19

The CSA is a forum for the 13 securities regulators of Canada’s provinces and territories to co-ordinate and harmonize the regulation of the Canadian capital markets.

Question 20

Capital

Answer 20

Has two distinct but related meanings. To an economist, it means machinery, factories and inventory required to produce other products. To an investor, it may mean the total of financial assets invested in securities, a home and other fixed assets, plus cash.

Question 21

Capital and financial account

Answer 21

Account which reflects the transactions occurring between Canada and foreign countries with respect to the acquisition of assets, such as land or currency. Along with the current account a component of the balance of payments.

Question 22

Capital Pool Company (CPC)

Answer 22

A company that is permitted to seek financing through an IPO prior to having any assets or commercial operation. The CPC uses the funds raised from the IPO to evaluate and acquire an existing business or significant assets in a qualifying transaction

Question 23

Capital market

Answer 23

Financial markets where debt and equity securities trade. Capital markets include organized exchanges as well as private placement sources of debt and equity.

Question 24

Capital loss

Answer 24

Selling a security for less than its purchase price. Capital losses can only be applied against capital gains. Surplus losses can be carried forward indefinitely and used against future capital gains. Only 50% of the loss can be used to offset any taxable capital loss.

Question 25

Capital gain

Answer 25

Selling a security for more than its purchase price. For non-registered securities, 50% of the gain would be added to income and taxed at the investor’s marginal rate.

Question 26

Capital shares

Answer 26

One of the components of split shares. Capital shares receive the majority of capital gains from the underlying common shares.

Question 27

Capital stock

Answer 27

All shares representing ownership of a company, including preferred as well as common. Also referred to as equity capital.

Question 28

Cash account

Answer 28

A type of brokerage account where the investor is expected to have either cash in the account to cover their purchases or where an investor will deliver the required amount of cash before the settlement date of the purchase.

Question 29

Carrying charges

Answer 29

Deductible expenses for tax purposes.

Question 30

Carry forward

Answer 30

The amount of RRSP contributions that can be carried forward from previous years. For example, if a client was entitled to place $13,500 in an RRSP and only contributed $10,000, the difference of $3,500 would be the unused contribution room and can be carried forward indefinitely.

Question 31

Capitalization or capital structure

Answer 31

Total dollar amount of all debt, preferred and common stock, and retained earnings of a company. Can also be expressed in percentage terms.

Question 32

Capitalizing

Answer 32

Recording an expenditure initially as an asset on the statement of financial position rather than as an expense on the statement of comprehensive income, and then writing it off or amortizing it (as an expense on the statement of comprehensive income) over a period of years. Examples include interest, and research and development.

Question 33

Cash flow

Answer 33

A company’s profit for a stated period plus any deductions that are not paid out in actual cash, such as depreciation. For an investor, any source of income from an investment including dividends, interest income, rental income, etc.

Question 34

Cash flow-to-total debt outstanding ratio

Answer 34

A financial ratio that gauges a company’s ability to repay the funds it has borrowed. Short-term borrowings must normally be repaid or rolled over within a year.

Question 35

Cash-secured put write

Answer 35

Involves writing a put option and setting aside an amount of cash equal to the strike price. If the cash-secured put writer is assigned, the cash is used to buy the stock from the exercising put buyer.

Question 36

CBID

Answer 36

An electronic trading system for fixed-income securities operating in the retail market.

Question 37

Cash value

Answer 37

The current market value of a segregated fund contract, less any applicable deferred sales charges or other withdrawal fees.

Question 38

Custodian

Answer 38

A firm that holds the securities belonging to a mutual fund or a segregated fund for safekeeping. The custodian can be either the insurance company itself, or a qualified outside firm based in Canada.

Question 39

Cycle analysis

Answer 39

Used to you forecast when the market will start moving in a particular direction and when it will ultimately reach its peak or trough. The theory of cycle analysis is based on the assumption that cyclical forces drive price movements in the marketplace.

Question 40

Cyclical stock

Answer 40

A stock in an industry that is particularly sensitive to swings in economic conditions. Cyclical Stocks tend to rise quickly when the economy does well and fall quickly when the economy contracts. In this way, cyclicals move in conjunction with the business cycle. For example, during periods of expansion auto stocks do well as individuals replace their older vehicles. During recessions, auto sales and auto company share values decline.

Question 41

Cyclical industry

Answer 41

An industry that is particularly sensitive to swings in economic conditions. Cyclical industries tend to rise quickly when the economy does well and fall quickly when the economy contracts.

Question 42

Current ratio

Answer 42

A liquidity ratio that shows a company’s ability to pay its current obligations from current assets. A current ratio of 2:1 is the generally accepted standard. See also Quick Ratio.

Question 43

Current yield

Answer 43

The annual income from an investment expressed as a percentage of the investment’s current value. On stock, calculated by dividing yearly dividend by market price; on bonds, by dividing the coupon by market price. See also Yield.

Question 44

Cyclical unemployment

Answer 44

The amount of unemployment that rises when the economy softens, firms’ demand for labour moderates, and some firms lay off workers in response to lower sales. It drops when the economy strengthens again.

Question 45

Current account

Answer 45

Account that reflects all payments between Canadians and foreigners for goods, services, interest and dividends. Along with the capital and financial account it is a component of the balance of payments.

Question 46

Current assets

Answer 46

Cash and assets which in the normal course of business would be converted into cash, usually within a year, e.g. accounts receivable, inventories. A statement of financial position category.

Question 47

Current liabilities

Answer 47

Money owed and due to be paid within a year, e.g. accounts payable. A statement of financial position category.

Question 48

Covered writer

Answer 48

The writer of an option who also holds a position that is equivalent to, but on the opposite side of the market from the short option position. In some circumstances, the equivalent position may be in cash, a convertible security or the underlying security itself. See also Naked Writer.

Question 49

Creation unit

Answer 49

The block of ETF shares provided by an ETF issuer to the designated broker.

Question 50

Cumulative preferred

Answer 50

A preferred stock having a provision that if one or more of its dividends are not paid, the unpaid dividends accumulate in arrears and must be paid before any dividends may be paid on the company’s common shares

Question 51

Cum rights

Answer 51

With rights. Buyers of shares quoted cum rights, i.e., before the ex-rights date, are entitled to forthcoming already-declared rights. If shares are quoted ex rights (without rights) the buyer is not entitled to receive the declared rights.

Question 52

Cum dividend

Answer 52

With dividend. If you buy shares quoted cum dividend, i.e., before the ex dividend date, you will receive an upcoming already-declared dividend. If shares are quoted ex-dividend (without dividend) you are not entitled to the declared dividend.

Question 53

Creditor protection

Answer 53

Segregated funds offer protection from creditors in the event of bankruptcy, because segregated funds are an insurance product, and the insurance proceeds generally fall outside the provisions of bankruptcy legislation.

Question 54

Crowdfunding

Answer 54

The process of raising start-up capital by soliciting contributions from the public at large, usually aided by online or Internet-based systems.

Question 55

CUB

Answer 55

Canadian Unlisted Board – a web-based trade reporting system for unlisted securities.

Question 56

Cost-push inflation

Answer 56

A type of inflation that develops due to an increase in the costs of production. For example, an increase in the price of oil may contribute to higher input costs for a company and could lead to higher inflation.

Question 57

Coupon bond

Answer 57

A bond with coupons attached that represent the regular interest payments the issuer is obligated to pay.

Question 58

Coupon rate

Answer 58

The rate of interest that appears on the certificate of a bond. Multiplying the coupon rate times the principal tells the holder the dollar amount of interest to be paid by the issuer until maturity. For example, a bond with a principal of $1,000 and a coupon of 10% would pay $100 in interest each year. Coupon rates remain fixed throughout the term of the bond. See also Yield.

Question 59

Covered call ETF

Answer 59

ETFs that employ covered calls to enhance the yield and reduce the volatility of owning the underlying stock or portfolio.

Question 60

Coverage trader

Answer 60

Manages trades on behalf of institutional clients and does not trade the dealer member’s capital. Also known as an agency trader.

Question 61

Covenant

Answer 61

A pledge in a bond indenture indicating the fulfilment of a promise or agreement by the company issuing the debt. An example of a covenant may include the promise not to issue any more debt.

Question 62

Cover

Answer 62

Buying a security previously sold short. See also Short Sale.

Question 63

Covered call

Answer 63

A written call option where the writer owns the underlying stock, and uses this position to meet their obligations if assigned.

Question 64

CBID Institutional

Answer 64

An electronic trading system for fixed-income securities operating in the institutional market.

Question 65

CDS Clearing and Depository Services Inc. (CDS)

Answer 65

CDS provides customers with physical and electronic facilities to deposit and withdraw depository-eligible securities and manage their related ledger positions (securities accounts). CDS also provides electronic clearing services both domestically and internationally, allowing customers to report, confirm and settle securities trade transactions.

Question 66

Cost of sales

Answer 66

A statement of comprehensive income account representing the cost of buying raw materials that go directly into producing finished goods.

Question 67

Cost method

Answer 67

Used when a company owns less than 20% of a subsidiary.

Question 68

Correlation

Answer 68

A measure of the relationship between two or more securities. If two securities mirror each other’s movements perfectly, they are said to have a positive one (+1) correlation. Combining securities with high positive correlations does not reduce the risk of a portfolio. Combining securities that move in the exact opposite direction from each other are said to have perfect negative one (-1) correlation. Combining two securities with perfect negative correlation reduces risk. Very few, if any, securities have a perfect negative correlation. However, risk in a portfolio can be reduced if the combined securities have low positive correlations.

Question 69

Correction

Answer 69

A price reversal that typically occurs when a security has been overbought or oversold in the market.

Question 70

Contrarian investors

Answer 70

Contrarian investors use sentiment indicators to determine what the majority of investors expect prices to do in the future, so that they can move in the opposite direction.

Question 71

Consumer Price Index (CPI)

Answer 71

Price index which measures the cost of living by measuring the prices of a given basket of goods. The CPI is often used as an indicator of inflation.

Question 72

Corporation or company

Answer 72

A form of business organization created under provincial or federal statutes which has a legal identity separate from its owners. The corporation’s owners (shareholders) have no personal liability for its debts. See also Limited Liability.

Question 73

Corporate note

Answer 73

An unsecured promise made by the borrower to pay interest and repay the principal at a specific date

Question 74

Core holdings

Answer 74

In the context of ETFs, core holdings are typically passive ETF investments intended to provide the majority of returns, as opposed to satellite holdings which are more focused on riskier sector ETF holdings.

Question 75

Convexity

Answer 75

A measure of the rate of change in duration over changes in yields. Typically, a bond will rise in price more if the yield change is negative than it will fall in price if the yield change is positive.

Question 76

Continuation pattern

Answer 76

A chart formation indicating that the current trend will continue.

Question 77

Continuous public disclosure

Answer 77

The act of a public corporation complying with continuous disclosure requirements set out by the relevant provincial securities act.

Question 78

Convertible arbitrage

Answer 78

A strategy that looks for mispricing between a convertible security and the underlying stock. A typical convertible arbitrage position is to be long the convertible bond and short the common stock of the same company.

Question 79

Convertible

Answer 79

A bond, debenture or preferred share which may be exchanged by the owner, usually for the common stock of the same company, in accordance with the terms of the conversion privilege. A company can force conversion by calling in such shares for redemption if the redemption price is below the market price.

Question 80

Conversion privilege

Answer 80

The right to exchange a bond for common shares on specifically determined terms.

Question 81

Conversion price

Answer 81

The dollar value at which a convertible bond or security can be converted into common stock.

Question 82

Control position

Answer 82

Ownership of sufficient voting stock in a company to materially affect its affairs. In all provinces except Manitoba, New Brunswick and Quebec, a 20% holding is deemed to represent control.

Question 83

Contract holder

Answer 83

The owner of a segregated fund contract.

Question 84

Contraction

Answer 84

Represents a downturn in the economy and can lead to a recession if prolonged.

Question 85

Contribution in kind

Answer 85

Transferring securities into an RRSP. The general rules are that when an asset is transferred there is a deemed disposition. Any capital gain would be reported and taxes paid. Any capital losses that result cannot be claimed.

Question 86

Central bank

Answer 86

A body established by a national Government to regulate currency and monetary policy on a national/international level. In Canada, it is the Bank of Canada; in the United States, the Federal Reserve Board; in the U.K., the Bank of England.

Question 87

Chart analysis

Answer 87

The use of charts and patterns to forecast buy and sell decisions. See also Technical Analysis.

Question 88

Consumer finance company

Answer 88

Makes direct cash loans to consumers, who usually are unable to secure a loan from a bank. Consumer finance companies typically charge a higher interest rate than banks.

Question 89

Consolidated financial statements

Answer 89

A combination of the financial statements of a parent company and its subsidiaries, presenting the financial position of the group as a whole.

Question 90

Confirmation

Answer 90

A printed acknowledgement giving details of a purchase or sale of a security which is normally mailed to a client by the broker or investment dealer within 24 hours of an order being executed. Also called a contract.

Question 91

Compound interest

Answer 91

Interest earned on an investment at periodic intervals and added to the amount of the investment; future interest payments are then calculated and paid at the original rate but on the increased total of the investment. In simple terms, interest paid on interest.

Question 92

Competitive tender

Answer 92

A distribution method used in particular by the Bank of Canada in distributing new issues of government marketable bonds. Bids are requested from primary distributors and the higher bids are awarded the securities for distribution. See also Non-Competitive Tender.

Question 93

Common shares

Answer 93

Securities representing ownership in a company. They carry voting privileges and are entitled to the receipt of dividends, if declared. Also called common stock.

Question 94

Commodity pools

Answer 94

A special type of mutual fund that can use leverage and engage in short selling using derivatives. Commodity Pools provide an avenue through which retail investors can gain access to some hedge fund strategies.

Question 95

Commodity futures

Answer 95

Futures contracts based on an underlying commodity.

Question 96

Commodity ETF

Answer 96

Commodity ETFs are focused on commodity holdings or holdings that replicate or are related to commodities. Three different types of commodity ETFs include physical-based, futures-based, or equity-based ETFs.

Question 97

Class A and B stock

Answer 97

Shares that have different classes sometimes have different rights. Some may have superior claims over other classes or may have different voting rights. Class A stock is often similar to a participating preferred share with a prior claim over Class B for a stated amount of dividends or assets or both, but without voting rights; the Class B may have voting rights but no priority as to dividends or assets. Note that these distinctions do not always apply.

Question 98

Clearing

Answer 98

The process of confirming and matching security trade details.

Question 99

Commodity

Answer 99

A product used for commerce that is traded on an organized exchange. A commodity could be an agricultural product such as canola or wheat, or a natural resource such as oil or gold. A commodity can be the basis for a futures contract.

Question 100

Commission

Answer 100

The fee charged by a stockbroker for buying or selling securities as agent on behalf of a client.

Question 101

Commercial paper

Answer 101

An unsecured promissory note issued by a corporation or an asset-backed security backed by a pool of underlying financial assets. Issue terms range from less than three months to one year. Most corporate paper trades in $1,000 multiples, with a minimum initial investment of $25,000. Commercial paper may be bought and sold in a secondary market before maturity at prevailing market rates.

Question 102

Collateral trust bond

Answer 102

A bond secured by stocks or bonds of companies controlled by the issuing company, or other securities, which are deposited with a trustee.

Question 103

Clearing corporations

Answer 103

A not-for-profit service organization owned by the exchanges and their members for the clearance, settlement and issuance of options and futures. A clearing corporation provides a guarantee for all options and futures contracts it clears, by becoming the buyer to every seller and the seller to every buyer.

Question 104

Closed-end discretionary funds

Answer 104

Funds that have the flexibility to buy back their outstanding shares periodically. Also known as interval funds.

Question 105

Coincident indicators

Answer 105

Statistical data that, on average, change at approximately the same time and in the same direction as the economy as a whole.

Question 106

Closet indexing

Answer 106

A portfolio strategy whereby the fund manager does not replicate the market exactly but sticks fairly close to the market weightings by industry sector, country or region or by the average market capitalization.

Question 107

Closed-end fund

Answer 107

Shares in closed-end investment companies are readily transferable in the open market and are bought and sold like other shares. Capitalization is fixed. See also Investment Company