:

To reduce a national deficit, governments can increase taxation to generate more revenue. This

measure, combined with controlled spending, helps reduce the shortfall between revenues and

expenditures.

Why Other Options are Incorrect:

B . Increase government spending: This would increase the deficit further unless matched by revenue

increases.

C . Decrease taxation: This would reduce revenue and worsen the deficit.

D . Increase interest rates: This impacts monetary policy and borrowing costs but does not directly

reduce a fiscal deficit.

Reference:

CSC Volume 1, Chapter 5, "Fiscal Policy – Addressing Budget Deficits" discusses how governments

use taxation to manage deficits​.

:

:

Investment dealers play a unique role in the institutional market due to their dual capability of

operating on both the buy side and the sell side:

The Buy Side

Investment dealers assist institutional investors like pension funds, mutual funds, and hedge funds in

acquiring securities to meet their investment objectives. These clients aim to optimize returns on

their invested assets, and the dealers provide them with access to securities markets, investment

advice, and execution services.

The Sell Side

On the sell side, investment dealers facilitate the issuance of new securities. They underwrite and

distribute these securities, providing liquidity to the market. They also produce research reports and

provide trade execution services to institutional and retail clients. This dual operation is critical for

maintaining market efficiency and ensuring the smooth functioning of capital markets.

This dual-role capacity makes investment dealers pivotal in bridging gaps between the needs of

securities issuers and institutional investors. They enhance market liquidity, efficiency, and

transparency through their intermediary functions.

Reference:

Canadian Securities Course, Volume 1, Chapter 1: The Investment Dealer’s Role as a Financial

Intermediary​​

Canadian Securities Course, Volume 2, Chapter 27: Working with the Institutional Client​.

The ex-post real rate of return is a backward-looking measure calculated after the fact, using

historical data. It reflects the actual nominal rate of return adjusted for the actual rate of inflation

over the same period. The formula is:

Ex-post​real​return=Nominal​return−Inflation​rate\text{Ex-post real return} = \text{Nominal return} -

\text{Inflation rate}Ex-post​real​return=Nominal​return−Inflation​rate

This measure helps assess the purchasing power of returns after accounting for inflation.

Other options are incorrect:

A and C describe ex-ante measures (forward-looking expectations).

B calculates the nominal excess return above the risk-free rate, not the real return​​.

When an investor or portfolio manager adheres to the belief in market efficiency—specifically the

strong form of the Efficient Market Hypothesis (EMH)—it implies that all information (public and

non-public) is fully reflected in security prices. This belief diminishes the value of active investment

strategies, such as fundamental or technical analysis, as these approaches presume the possibility of

identifying undervalued or overvalued securities.

As such, the logical approach in this scenario would be to adopt a passive investment strategy. This

includes constructing a portfolio of exchange-traded funds (ETFs) or index funds that replicate the

performance of a broad market index, such as the S&P/TSX Composite Index. A passive approach

aligns with the principle of market efficiency, as it avoids attempts to outperform the market, which

are considered futile under the EMH.

Reference:

Volume 2, Chapter 13: Fundamental and Technical Analysis, Efficient Market Hypothesis, Canadian

Securities Course​​.

:

:

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.

Types of ETF Management Approaches

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.

Why D is Correct

Option D reflects the primary method of mirroring an index's performance through full replication,

ensuring accuracy and minimal tracking error.

Reference:

Volume 2, Section 19: Exchange-Traded Funds—Full Replication vs. Sampling​.

Volume 2, Section 13: Efficient Market Hypothesis—Implications for Passive Management​.