Canadian Securities Course (CSC) Level 2 Practice Exam

What is the purpose of a Guaranteed Investment Certificate (GIC) according to the text?

1. To maximize short-term returns

2. To provide high-risk investment options

3. To offer a guaranteed rate of return over a fixed period of time

4. To invest in speculative markets

The correct answer is: To offer a guaranteed rate of return over a fixed period of time

The purpose of a Guaranteed Investment Certificate (GIC) is to offer a guaranteed rate of return over a fixed period of time. GICs are considered low-risk investment vehicles primarily used by investors who prioritize the security of their capital. They are issued by financial institutions and provide predictable interest income, allowing investors to know how much they will earn by the end of the investment term. This feature makes GICs an appealing option for conservative investors looking to preserve their assets while ensuring a stable return. Short-term returns are not the main focus of GICs since they often have fixed terms ranging from a few months to several years. Additionally, GICs do not cater to high-risk investment opportunities or speculative markets, which generally aim for higher potential returns but come with increased risk. Therefore, the correct understanding of GICs aligns with their purpose of providing security and a reliable return over a specified duration.