Free CSI Exempt Market Proficiency Examination (EXMP) Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CSI Exempt Market Proficiency Examination (EXMP) practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1What distinguishes the exempt market within Canada's capital markets?

   1. A.Securities can be sold without a prospectus under an applicable exemption.Correct answer: A
   2. B.Securities can be sold only after a stock exchange approves their listing.
   3. C.Securities can be sold only when the issuer guarantees repayment.
   4. D.Securities can be sold without considering dealer registration requirements.

   Explanation: The OSC explains that securities in the exempt market can be sold "without a prospectus." This describes a prospectus exemption, rather than exchange listing, a repayment guarantee or an automatic exemption from dealer registration.

   Reference: OSC Investor Office — Investing in the exempt market — What is the exempt market?

2. 2Which authorities administer and enforce securities rules in Canada's provinces and territories?

   1. A.The federal department responsible for income tax
   2. B.The central bank responsible for monetary policy
   3. C.The provincial and territorial securities regulatorsCorrect answer: C
   4. D.The deposit insurers responsible for bank deposits

   Explanation: The OSC identifies "Provincial and territorial securities regulators" as bodies that administer and enforce securities rules. Tax administration, monetary policy and deposit insurance are distinct mandates.

   Reference: OSC Investor Office — How regulators protect investors — Provincial and territorial securities regulators

3. 3What must a registered exempt market dealer's compliance system provide under NI 31-103?

   1. A.A guarantee that every client investment will remain profitable
   2. B.A substitute for the individual representatives’ legal obligations
   3. C.A method of delegating regulatory responsibility to clients
   4. D.Controls and supervision supporting compliance and prudent risk managementCorrect answer: D

   Explanation: Section 11.1 requires controls sufficient to "provide reasonable assurance" of compliance and to "manage the risks associated with its business in accordance with prudent business practices." This is a functioning supervisory system, not a performance guarantee or a transfer of legal responsibility.

   Reference: National Instrument 31-103 — BC Laws consolidation — s. 11.1(1)(a)–(b)

4. 4In British Columbia, an issuer relies on NI 45-106 section 2.3 to sell securities to an accredited investor. In what capacity must the purchaser buy?

   1. A.As agent for unidentified future investors
   2. B.As principal for its own accountCorrect answer: B
   3. C.As custodian for any retail purchaser
   4. D.As nominee without identifying the purchaser

   Explanation: Section 2.3(1) requires that the purchaser "purchases the security as principal and is an accredited investor." Merely acting as an agent, custodian or unidentified nominee does not establish that condition.

   Reference: National Instrument 45-106 — Prospectus Exemptions — s. 2.3(1)

5. 5A federally incorporated issuer borrows to purchase property. Who owns the property and incurs the debt?

   1. A.The corporation as a separate legal entityCorrect answer: A
   2. B.The shareholders jointly in their personal capacities
   3. C.The directors personally in proportion to their votes
   4. D.The officers personally in proportion to their salaries

   Explanation: The official guidance states: "A federal corporation is a legal business structure, separate and distinct from its owners." The corporation's separate legal personality permits it to own assets and borrow in its own name. The roles of shareholder, director and officer do not themselves make those assets or debts personal.

   Reference: Government of British Columbia — Choose your business structure — Federal Corporation

6. 6Which cash-flow description matches a REIT that invests in income-producing real estate?

   1. A.The trust earns interest by lending directly to property borrowers.
   2. B.The trust earns brokerage commissions by arranging property loans.
   3. C.The trust earns insurance premiums by covering mortgage defaults.
   4. D.The trust earns property income that can support investor payouts.Correct answer: D

   Explanation: The OSC states: "An investment in a REIT can offer investors income through payouts it receives from the properties it has invested in." Property income supports payouts. Mortgage lending, brokerage and mortgage insurance produce different cash flows and do not describe this property-owning REIT model.

   Reference: OSC Investor Office — Understanding real estate investments — Real estate investment trusts

7. 7What does the flow-through share mechanism transfer from an eligible issuing corporation to investors?

   1. A.A guarantee of repayment by the CRA
   2. B.Ownership of the corporation's mineral leases
   3. C.Eligible resource expenses for tax deductionCorrect answer: C
   4. D.The corporation's obligation to pay all dividends

   Explanation: The CRA states: "The FTS mechanism allows the issuer corporation to transfer the resource expenses to the investor." Renunciation of eligible expenses provides the tax benefit. It does not transfer leases, guarantee capital or require dividends.

   Reference: CRA — Flow-through shares — Flow-through shares — introductory explanation

8. 8An issuer searches for natural gas reservoirs and drills producing wells. In which oil and gas subsector are these activities classified?

   1. A.UpstreamCorrect answer: A
   2. B.Midstream
   3. C.Downstream
   4. D.Retail marketing

   Explanation: The official source states: "involve exploration and production of crude oil and natural gas." Exploration and production are upstream. Transportation/storage and refining/retailing belong to later subsectors.

   Reference: NRCan — Roadmap for the decarbonization of Canada's oil and gas sector — Canada's Oil and Gas Sector — Composition and Emissions; Upstream activities

9. 9Which hedge fund strategy buys some investments while short selling others?

   1. A.Long only
   2. B.Distressed securities
   3. C.Fund of funds
   4. D.Long/shortCorrect answer: D

   Explanation: The OSC Investor Office states: "Buys some investments and short sells others." Long/short combines both position types. Long only excludes short sales; distressed investing targets troubled companies; a fund of funds owns other funds.

   Reference: OSC Investor Office — Hedge funds — 6 types of hedge funds — Long/short

10. 10A client expects to keep capital invested for eighteen months before using it for a home purchase. Which KYC category records that expected investment duration?

    1. A.Investment knowledge
    2. B.Risk profile
    3. C.Investment time horizonCorrect answer: C
    4. D.Financial circumstances

    Explanation: NI 31-103 expressly includes "the client's investment time horizon" in KYC information. The expected eighteen-month duration is the time horizon. Knowledge concerns understanding, risk profile concerns risk, and financial circumstances concern the client's financial position rather than the name of the duration category.

    Reference: National Instrument 31-103 — BC Laws consolidation — s. 13.2(2)(c)(vi)