Canadian Securities Course (CSC) Level 2 Practice Exam

What aspect of Market-Linked Guaranteed Investment Certificates (GICs) distinguishes them from regular GICs?

1. Linked to specific assets like mortgages or consumer loans for added security.

2. Provide a guarantee of the principal investment regardless of performance.

3. Return based on initial index, ending index, and growth with a performance cap.

4. Linked to an index with a guarantee of principal and some growth potential.

The correct answer is: Return based on initial index, ending index, and growth with a performance cap.

The distinguishing aspect of Market-Linked Guaranteed Investment Certificates (GICs) is that they are designed to provide returns tied to the performance of a specific market index, which includes factors such as the initial index value, the ending index value, and overall growth potential, often with an upper limit or cap on the returns. This structure allows investors to benefit from potential market performance while still enjoying the safety of a principal guarantee. Market-Linked GICs differ from traditional GICs in that the latter typically offer fixed interest rates and predictable returns without any connection to market performance. Investors in regular GICs receive guaranteed interest payments based on a predetermined rate, regardless of market conditions. The option discussing a link to specific assets like mortgages or consumer loans emphasizes a different type of investment and does not capture the unique feature of market linkage associated with Market-Linked GICs. The guarantee of principal regardless of performance highlights a characteristic of many GICs, but it is not what sets Market-Linked GICs apart. The mention of a guarantee of principal with some growth potential also aligns with Market-Linked GICs, but it does not fully encapsulate the complexities involving links to indices and performance caps that are intrinsic to their structure.