Canadian Securities (CSC) PASSED Exam
Questions and CORRECT Answers
Fundamental analysis - CORRECT ANSWER- looks at everything to best determine if the
security's price will change. It is a method of analyzing the ST, MT, and LT prospects of
different industries to shed light on security prices.
Technical analysis - CORRECT ANSWER- focuses on the stock market. It uses charts and
patterns of the past to predict future performance.
Program trading - CORRECT ANSWER- a computer assisted trading strategy of buying or
selling a large number of securities simultaneously. It can have an unintended effect on
market prices in a way that is unrelated to the expected earnings of the stocks or historical
price movements.
Efficient market hypothesis - CORRECT ANSWER- the market price of a security is fully
reflected by all available information, so it is difficult to outperform the market.
Weak form efficient market hypothesis - CORRECT ANSWER- assumes all past market
information is fully reflected in current prices. Technical analysis has little value.
Semi-strong form efficient market hypothesis - CORRECT ANSWER- assumes all publicly-
available information is fully reflected in current prices. Both technical and fundamental
analysis have little value.
Strong form efficient market hypothesis - CORRECT ANSWER- assumes all information
(both public and insider) is fully reflected in current prices. No single investor has
information that provides an advantage over any other investor.
Random walk theory - CORRECT ANSWER- new information concerning a stock is
disseminated randomly over time. Price changes are random and bear no relation to previous
prices.
,Rational expectations hypothesis - CORRECT ANSWER- people are rational and have
access to all necessary information. People use information intelligently in their own self-
interests and make intelligent decisions after weighing all available information.
Fundamental macroeconomic analysis - CORRECT ANSWER- analyses Fiscal policy
(taxation, govt. spending, govt. debt); Monetary policy (int. rates, bond market, yield curve,
flow of cash); and Inflation
Emerging growth industries - CORRECT ANSWER- new industries that are continually
developing to provide products/services that meet society's changing demands. They are
typically unprofitable at first.
Growth industries - CORRECT ANSWER- industries in which sales and earnings are
consistently expanding at a faster rate than in most other industries. Companies should have
an above-average rate of earnings over a period of several years.
Mature industries - CORRECT ANSWER- usually experience slower, more stable growth in
sales and earnings that more closely match the overall rate of economic growth.
Declining industries - CORRECT ANSWER- industries that tend to stop growing and begin
to decline. Cash flow may be large because there is no need to invest in PPE.
Cyclical industries - CORRECT ANSWER- reserved for industries in which the effect on
earnings is most pronounced. It includes large international exporters of commodities such as
lumber, metals, or oil. They are sensitive to global economic conditions.
Defensive industries - CORRECT ANSWER- have a relatively stable return on investor
equity and tend to do relatively well during recessions.
Blue chip - CORRECT ANSWER- denotes shares of top investment-quality companies,
which maintain earnings and dividends through good times and bad.
Speculative industries - CORRECT ANSWER- applies to industries in which risk and
uncertainty are unusually high because analysts lack definitive information.
,Chart analysis - CORRECT ANSWER- the analysis of graphic representations of market
data. They help analysts project where the market might be going.
Bar chart - CORRECT ANSWER- the most common type of chart is one that graphs the
high, low, and close of a particular asset. Activity may be tracked hourly, daily, weekly,
monthly, or even yearly. It displays the volume of trading at the bottom.
Support level - CORRECT ANSWER- the bottom price of the trading range for a security. It
is the price at which most investors sense value and are willing to buy the security, therefore
demand begins to grow. Existing shareholders are most likely unwilling to sell at this price,
therefore supply is low and prices tend to rise.
Resistance level - CORRECT ANSWER- the top price of the trading range, where most
investors are willing to sell a security and most buyers are unwilling to buy it. At this point,
supply exceeds demand and prices tend to fall.
Reversal patterns - CORRECT ANSWER- formations on charts that usually precede a
sizeable advance or decline in stock prices. The most frequently observed pattern is the head-
and-shoulders formation.
Neckline - CORRECT ANSWER- the line joining the two recovery points in a head-and-
shoulders formation. When the market breaks through, it means there is a reversal or new
trend.
Continuation pattern - CORRECT ANSWER- a pause in the price charts before the
prevailing trend continues. They typically appear in the form of sideways price movements.
These patterns are quite normal and healthy in a trending market and are referred to as a
consolidation of an existing trend.
Symmetrical triangle - CORRECT ANSWER- represents a fairly even struggle between
buyers and sellers. Activity repeats itself back and forth until one side proves stronger and it
breaks out.
Moving average - CORRECT ANSWER- a device for smoothing out fluctuating values in an
individual stock or in the aggregate market as a whole.
, - If the overall trend has been down, the moving ave. line will be above current individual
prices.
- If the price breaks through from below, and if the moving ave. line itself starts to move
higher, it means that the declining trend has reversed (buy signal)
- If the price breaks through from above and if the moving ave. line itself starts to fall, it
means that the upward trend has reversed (sell signal)
Sentiment indicators - CORRECT ANSWER- a measure of investor expectations. Contrarian
investors use these indicators to determine what investors expect prices to do in the future.
Cycle analysis - CORRECT ANSWER- can help forecast when the market will start moving
in a particular direction and when it will ultimately reach its peak or trough.
- Long term (2 years +)
- Seasonal (1 year)
- Primary/Intermediate (9-26 weeks)
- Trading (4 weeks)
Trend ratio calculations - CORRECT ANSWER- select a base period, treat the figure or ratio
as 100, and then divide it into comparable ratios for subsequent periods.
Working capital (current) ratio - CORRECT ANSWER- the company's ability to meet its
obligations, expand the business, and take advantage of financial opportunities.
= CA/CL
Quick (acid test) ratio - CORRECT ANSWER- more stringent than current ratio, measures
liquidity but does not include inventory or prepaid expenses in current assets, due to the fact
that they are less liquid then other current assets
CA - Inventory/CL
Questions and CORRECT Answers
Fundamental analysis - CORRECT ANSWER- looks at everything to best determine if the
security's price will change. It is a method of analyzing the ST, MT, and LT prospects of
different industries to shed light on security prices.
Technical analysis - CORRECT ANSWER- focuses on the stock market. It uses charts and
patterns of the past to predict future performance.
Program trading - CORRECT ANSWER- a computer assisted trading strategy of buying or
selling a large number of securities simultaneously. It can have an unintended effect on
market prices in a way that is unrelated to the expected earnings of the stocks or historical
price movements.
Efficient market hypothesis - CORRECT ANSWER- the market price of a security is fully
reflected by all available information, so it is difficult to outperform the market.
Weak form efficient market hypothesis - CORRECT ANSWER- assumes all past market
information is fully reflected in current prices. Technical analysis has little value.
Semi-strong form efficient market hypothesis - CORRECT ANSWER- assumes all publicly-
available information is fully reflected in current prices. Both technical and fundamental
analysis have little value.
Strong form efficient market hypothesis - CORRECT ANSWER- assumes all information
(both public and insider) is fully reflected in current prices. No single investor has
information that provides an advantage over any other investor.
Random walk theory - CORRECT ANSWER- new information concerning a stock is
disseminated randomly over time. Price changes are random and bear no relation to previous
prices.
,Rational expectations hypothesis - CORRECT ANSWER- people are rational and have
access to all necessary information. People use information intelligently in their own self-
interests and make intelligent decisions after weighing all available information.
Fundamental macroeconomic analysis - CORRECT ANSWER- analyses Fiscal policy
(taxation, govt. spending, govt. debt); Monetary policy (int. rates, bond market, yield curve,
flow of cash); and Inflation
Emerging growth industries - CORRECT ANSWER- new industries that are continually
developing to provide products/services that meet society's changing demands. They are
typically unprofitable at first.
Growth industries - CORRECT ANSWER- industries in which sales and earnings are
consistently expanding at a faster rate than in most other industries. Companies should have
an above-average rate of earnings over a period of several years.
Mature industries - CORRECT ANSWER- usually experience slower, more stable growth in
sales and earnings that more closely match the overall rate of economic growth.
Declining industries - CORRECT ANSWER- industries that tend to stop growing and begin
to decline. Cash flow may be large because there is no need to invest in PPE.
Cyclical industries - CORRECT ANSWER- reserved for industries in which the effect on
earnings is most pronounced. It includes large international exporters of commodities such as
lumber, metals, or oil. They are sensitive to global economic conditions.
Defensive industries - CORRECT ANSWER- have a relatively stable return on investor
equity and tend to do relatively well during recessions.
Blue chip - CORRECT ANSWER- denotes shares of top investment-quality companies,
which maintain earnings and dividends through good times and bad.
Speculative industries - CORRECT ANSWER- applies to industries in which risk and
uncertainty are unusually high because analysts lack definitive information.
,Chart analysis - CORRECT ANSWER- the analysis of graphic representations of market
data. They help analysts project where the market might be going.
Bar chart - CORRECT ANSWER- the most common type of chart is one that graphs the
high, low, and close of a particular asset. Activity may be tracked hourly, daily, weekly,
monthly, or even yearly. It displays the volume of trading at the bottom.
Support level - CORRECT ANSWER- the bottom price of the trading range for a security. It
is the price at which most investors sense value and are willing to buy the security, therefore
demand begins to grow. Existing shareholders are most likely unwilling to sell at this price,
therefore supply is low and prices tend to rise.
Resistance level - CORRECT ANSWER- the top price of the trading range, where most
investors are willing to sell a security and most buyers are unwilling to buy it. At this point,
supply exceeds demand and prices tend to fall.
Reversal patterns - CORRECT ANSWER- formations on charts that usually precede a
sizeable advance or decline in stock prices. The most frequently observed pattern is the head-
and-shoulders formation.
Neckline - CORRECT ANSWER- the line joining the two recovery points in a head-and-
shoulders formation. When the market breaks through, it means there is a reversal or new
trend.
Continuation pattern - CORRECT ANSWER- a pause in the price charts before the
prevailing trend continues. They typically appear in the form of sideways price movements.
These patterns are quite normal and healthy in a trending market and are referred to as a
consolidation of an existing trend.
Symmetrical triangle - CORRECT ANSWER- represents a fairly even struggle between
buyers and sellers. Activity repeats itself back and forth until one side proves stronger and it
breaks out.
Moving average - CORRECT ANSWER- a device for smoothing out fluctuating values in an
individual stock or in the aggregate market as a whole.
, - If the overall trend has been down, the moving ave. line will be above current individual
prices.
- If the price breaks through from below, and if the moving ave. line itself starts to move
higher, it means that the declining trend has reversed (buy signal)
- If the price breaks through from above and if the moving ave. line itself starts to fall, it
means that the upward trend has reversed (sell signal)
Sentiment indicators - CORRECT ANSWER- a measure of investor expectations. Contrarian
investors use these indicators to determine what investors expect prices to do in the future.
Cycle analysis - CORRECT ANSWER- can help forecast when the market will start moving
in a particular direction and when it will ultimately reach its peak or trough.
- Long term (2 years +)
- Seasonal (1 year)
- Primary/Intermediate (9-26 weeks)
- Trading (4 weeks)
Trend ratio calculations - CORRECT ANSWER- select a base period, treat the figure or ratio
as 100, and then divide it into comparable ratios for subsequent periods.
Working capital (current) ratio - CORRECT ANSWER- the company's ability to meet its
obligations, expand the business, and take advantage of financial opportunities.
= CA/CL
Quick (acid test) ratio - CORRECT ANSWER- more stringent than current ratio, measures
liquidity but does not include inventory or prepaid expenses in current assets, due to the fact
that they are less liquid then other current assets
CA - Inventory/CL
