Canadian Securities Course (CSC) Level 1 Practice Exam

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What is a red herring prospectus?

  1. A document with detailed financial statements for potential investors

  2. The final prospectus with all offering details

  3. A preliminary prospectus used to gauge public interest

  4. A legal agreement between underwriters and issuers

The correct answer is: A preliminary prospectus used to gauge public interest

A red herring prospectus is a preliminary document used to gauge public interest in an upcoming securities offering. It contains key information about the offering but lacks certain details that are typically included in the final prospectus, such as the offer price and the exact number of securities being offered. This initial document helps potential investors decide if they are interested in the offering before the finalized terms are determined. Therefore, option C is the correct choice in this context.

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