Financial Intermediaries and Investment Dealers

Questions and Answers

What is the primary role of an agent in securities transactions?

To execute trades on behalf of a client (correct)

To provide capital for new issues

To make independent investment decisions

To act as a market maker

In the context of debt securities, what is the typical role of an investment dealer in secondary trading?

Acting solely as an agent in every transaction

Always selling securities to maintain market prices

Mostly acting as principal while occasionally facilitating agency trades (correct)

Exclusively issuing new securities

What service do investment dealers provide by maintaining an inventory of outstanding securities?

They restrict market activity to prevent volatility

They restrict access to new issues

They only act as brokers for institutional clients

They enhance market liquidity by facilitating transactions (correct)

What is one way investment dealers assist during new money market issues?

By offering informed advice based on secondary market conditions Signup and view all the answers

Which statement accurately reflects a broker's role?

A broker typically acts as an agent for clients Signup and view all the answers

How do investment dealers contribute to smoothing out price distortions in the market?

By taking active positions in assigned stocks as market makers Signup and view all the answers

Which of the following banks is NOT considered one of Canada's Big Six Banks?

HSBC Bank Canada Signup and view all the answers

What distinguishes the role of an investment dealer from that of an agent?

Investment dealers act as principals and sometimes as agents Signup and view all the answers

What is the maximum percentage of voting shares that a single shareholder can control in a Schedule I bank?

20% Signup and view all the answers

Which of the following is NOT a typical feature of the investment dealer's services?

Providing investment management services to individuals Signup and view all the answers

When an investment dealer acts as a principal in a securities transaction, what does this imply?

The dealer retains ownership of the securities in their inventory Signup and view all the answers

What is the ownership restriction for medium-sized banks in Canada?

Single shareholder can own up to 65% Signup and view all the answers

Which of the following services is generally NOT offered by Canadian banks?

Real estate development Signup and view all the answers

What is a common misconception about the role of brokers in securities transactions?

Brokers have no influence in the secondary market Signup and view all the answers

How must the remaining 35% of voting shares in a medium-sized bank be handled?

Publicly traded Signup and view all the answers

What is a characteristic of small banks in Canada regarding ownership?

Can be fully owned by one person or organization Signup and view all the answers

What insurance coverage does the Canada Deposit Insurance Corporation (CDIC) provide?

Deposit insurance for savings deposits Signup and view all the answers

Which of the following is a way the Big Six Banks have expanded their operations?

By acquiring or investing in foreign financial institutions Signup and view all the answers

Which characteristic is true for all Schedule I banks in Canada?

They must have widely held voting shares Signup and view all the answers

Which Canadian bank is part of the Big Six and is known as TD Bank Group?

Toronto-Dominion Bank Signup and view all the answers

What primary market activity is associated with the initial public offering (IPO)?

Issuance of stocks for the first time by a private company Signup and view all the answers

Which of the following accurately describes the role of investment dealers as principals?

They act on their own account rather than on behalf of clients. Signup and view all the answers

Which type of investment dealer offers a do-it-yourself approach to investing?

Self-directed brokers Signup and view all the answers

What role do investment dealers primarily play in the securities industry's secondary markets?

Maintaining markets for previously issued securities Signup and view all the answers

Which of the following statements best describes the function of retail firms in investment dealing?

They provide full financial advice and a variety of investment products. Signup and view all the answers

What is the primary market primarily concerned with?

Underwriting and distributing new securities Signup and view all the answers

Among the following, which entity is NOT categorized as a financial intermediary?

Venture capital firms Signup and view all the answers

What distinguishes institutional firms from retail firms in the investment dealer category?

Institutional firms engage in larger volume security trades only. Signup and view all the answers

What is a key function of investment dealers in the distribution of new securities?

Underwriting new offerings and ensuring market access Signup and view all the answers

What is one of the main functions of the fintech industry?

To leverage computer technology for financial products Signup and view all the answers

Which year marked a significant increase in the popularity of robo-advisors in the United States?

2012 Signup and view all the answers

What is a characteristic feature of portfolios managed by robo-advisors?

They primarily consist of exchange-traded funds. Signup and view all the answers

In which year did online investment advice platforms start to proliferate in Canada?

2014 Signup and view all the answers

What type of investment management do robo-advisors typically provide?

Goal-based online investment management Signup and view all the answers

How do robo-advisors determine the suitability of a portfolio for a client?

Using algorithms and client questionnaires Signup and view all the answers

What aspect of service do robo-advisors offer to intermediaries?

Advisory services for financial intermediaries Signup and view all the answers

Which of the following statements about regular portfolio rebalancing is true for robo-advisors?

It is regularly performed to maintain investment strategy. Signup and view all the answers

What was the total amount of assets managed by robo-advisors by 2015?

$45 billion Signup and view all the answers

What is a distinguishing factor of traditional financial institutions in comparison to the fintech industry?

They are less reliant on technology. Signup and view all the answers

What is a primary function of investment dealers?

Bring new issues of securities to the primary markets Signup and view all the answers

Which type of banking institution is designated as having the most restrictive rules and regulations?

Schedule I banks Signup and view all the answers

How do self-directed brokers primarily differ from full-service firms?

They do not provide financial advice Signup and view all the answers

What type of investment vehicles can investment funds sell to the public?

Both closed-end and open-end funds Signup and view all the answers

Which of the following services is typically NOT provided by financial intermediaries?

Real estate investment management Signup and view all the answers

Pension plans primarily serve which group of clients?

Employees of various organizations Signup and view all the answers

Study Notes

Role of Financial Intermediaries

Intermediaries include investment dealers, banks, credit unions, trust companies, and insurance companies.
Investment dealers facilitate the transfer of financial instruments between investors, acting as agents or principals.

Functions of Investment Dealers

Capital Transfer: Underwrite and distribute new securities in the primary market through primary offerings.
Initial Public Offering (IPO): The first sale of stock by a private company to the public.
Secondary Market: Enable trading of previously issued securities, exemplified by stock exchanges like the Toronto Stock Exchange.

Types of Investment Dealers in Canada

Retail Firms: Comprise full-service investment dealers offering comprehensive services, and self-directed brokers providing reduced-rate trades without advice.
Institutional Firms: Exclusively serve large institutional clients trading significant volumes of securities.

Principal vs. Agent Transactions

An agent acting for a client is often referred to as a broker, which is a broader term encompassing various roles in investment dealings.
Investment dealers usually operate as principals in trading debt securities, although agency trades can occur.

Services Provided by Investment Dealers

Offer informed advice on new issues based on secondary market conditions.
Enhance market liquidity by managing an inventory of outstanding securities.
Act as market makers, holding positions in assigned stocks to smooth price distortions.

Canada's Big Six Banks

Dominant banks by asset size: Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), Scotiabank, Toronto-Dominion Bank, National Bank of Canada.
Built extensive networks of branches and ATMs to centralize consumer savings.
Voting shares of Schedule I banks must be widely held, with shareholder control limited to 20%.

Canadian Banking Services

Provide a variety of consumer and commercial products, including mortgages, loans, and investment services.
Savings deposits insured by the Canada Deposit Insurance Corporation (CDIC).

Financial Technology (Fintech)

Fintech companies leverage technology to create various financial products and services, challenging traditional institutions.
Include online loans, electronic wallets, and automated financial planning tools.

Emergence of Robo-Advisors

Robo-advisors offer algorithm-based investment management and financial advice, gaining popularity post-2008 financial crisis.
By 2015, U.S. robo-advisors managed $45 billion in assets; gained traction in Canada from 2014.
Provide goal-based portfolio management, with services often built around exchange-traded funds, and regular rebalancing.

Overall Market Dynamics

Investment dealers play a crucial role in primary and secondary markets, acting as agents or principals.
Canadian chartered banks, categorized as Schedule I, II, or III, provide vast financial services that overlap with those from investment dealers.
Financial intermediaries also include investment funds and pension plans, representing significant players in the savings and investment landscape.

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Description

Explore the crucial role financial intermediaries play in the economy, specifically focusing on investment dealers. This quiz covers functions like capital transfer, IPOs, and the distinction between retail and institutional firms in Canada. Test your knowledge on these key concepts related to financial markets.