Canadian Securities Course (CSC) Level 2 Practice Exam

Which asset class is crucial for providing safety and stable income according to the portfolio management process?

1. Equities

2. Cash equivalents

3. Other assets

4. Fixed income securities

The correct answer is: Fixed income securities

Fixed income securities are indeed crucial for providing safety and stable income within the portfolio management process. This asset class includes instruments such as bonds and debentures, which typically offer regular interest payments and return of principal upon maturity. Because of their predictable cash flows and lower risk relative to equities, they serve as a stabilizing force in a diversified investment portfolio. Investors often rely on fixed income securities during market volatility or economic downturns, as they are less sensitive to fluctuations compared to other asset classes. The regular income from these securities also helps to preserve capital, making them a foundational element for those seeking stability and consistency in their investment returns. This characteristic aligns well with the objectives of risk-averse investors or those nearing retirement who prioritize capital preservation and a reliable income stream.