When a corporation issues preferred shares rather than debt, it avoids increasing its leverage (debt-

to-equity ratio). Preferred shares are considered equity for financial reporting purposes and do not

require the repayment of principal like debt instruments. Although they may have fixed dividend

obligations, these are not legally binding in the way interest payments on debt are.

Issuing preferred shares allows the corporation to strengthen its balance sheet while potentially

preserving its credit rating. Preferred shares do not directly affect leverage but provide capital

without increasing debt.

Reference:

Volume 1, Chapter 8: Preferred Shares, section on "Why Companies Issue Preferred Shares" explains

the advantages of using preferred shares instead of debt​.

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Dividends from foreign corporations are taxed at the taxpayer's marginal tax rate because they are

treated as regular income in Canada. Unlike Canadian dividends, which may qualify for a dividend tax

credit to reduce the effective tax rate, foreign dividends do not receive preferential tax treatment

under Canadian tax law.

Marginal Tax Rate: The rate at which the taxpayer’s last dollar of income is taxed. Since foreign

dividends do not qualify for tax credits, they are taxed as ordinary income.

Double Taxation Relief: While foreign dividends are fully taxable in Canada, tax treaties between

Canada and other countries may allow a foreign tax credit to offset taxes paid to the foreign

jurisdiction. However, this does not alter their treatment under the marginal tax rate.

Other options provided in the

question:

Dividends not eligible for the dividend tax credit (Option C) are usually taxed at a higher rate, but

Canadian non-eligible dividends receive some preferential treatment, unlike foreign dividends.

Foreign property valuation (Options B and D) is relevant for reporting requirements under Canadian

tax laws, such as the T1135 Foreign Income Verification Statement, but does not affect the taxation

of foreign dividends.

Reference:

CSC Volume 2, Chapter 24: "Canadian Taxation," details the treatment of foreign income, including

dividends and foreign tax credits​.

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Within a buy-side firm, the portfolio manager is responsible for executing the portfolio strategy. They

oversee investment decisions, asset allocation, and security selection based on the investment

mandate and client objectives. Other roles:

Head of fixed income (B) specializes in fixed-income securities rather than overall strategy.

Investment advisor (C) interacts with clients, focusing on advice rather than execution.

Trader (D) carries out transactions but does not set the portfolio strategy.

Reference

CSC Volume 2, Chapter 27: Working with the Institutional Client - The Buy-Side Portfolio Manager, p.

27-8​.

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The buy-side portfolio manager is responsible for managing investments on behalf of institutional or

retail clients. A critical responsibility is to provide the buy-side trader with pertinent market

information and analysis of risks to ensure that trades are executed effectively and aligned with the

investment strategy.

Explanation of Options:

A . Maintain Liquidity: Incorrect. This is more relevant to market makers or sell-side dealers who

provide liquidity in the market.

B . Contact with Dealers: Incorrect. While buy-side managers interact with dealers, their primary role

is to strategize, not to maintain constant contact.

C . Informing Traders: Correct. Buy-side managers analyze risks and market conditions and pass this

information to traders for execution.

D . Provide Information to Department Heads: Incorrect. This is not a core responsibility of buy-side

portfolio managers.

Reference:

CSC Volume 2, Chapter 27: Responsibilities of buy-side portfolio managers and their interactions with

traders​.