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FM (Test) > B Rote > Flashcards

B Rote Flashcards

1
Q

What does a financial intermediary do?

A

Acts as the middleman between two parties in a financial transaction

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2
Q

What does a credit rating agency provide?

A

Assessments of default risk on commercial and/or sovereign debt

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3
Q

Which type of shares have the highest risk?

A

Ordinary shares

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4
Q

Which is riskier, preference shares or unsecured loan notes?

A

Preference shares

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5
Q

What is meant by commercial paper?

A

Unsecured short-term loan notes issued by companies

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6
Q

How long are maturities for commercial paper?

A

Rarely range any longer than 270 days

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7
Q

What is commercial paper used to finance?

A

Accounts receivable, inventories and meeting short-term liabilities

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8
Q

What is the focus of fiscal policy?

A

Increase tax revenue

Reducing public expenditure

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9
Q

What effect if imports exceed exports for currency?

A

Supply of the home currency will exceed demand

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10
Q

Effect on exports if imports exceed exports for currency?

A

Boosts demand for exports and corrects trade imbalance

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11
Q

What is meant by supply side economic policy?

A

Designed to make markets and industries operate more efficiently and contribute to a faster underlying-rate of growth of real national output

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12
Q

What if consumers increase the proportion of income that they save?

A

They will demand less goods and services.

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13
Q

What is meant by an inverted yield curve?

A

Investors exhibit a preference for long-dates loan notes

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14
Q

What is a normal yield curve?

A

Long-term interest rates are higher than short-term. Explained by liquidity preference theory

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15
Q

Share prices for a market that is semi-strong?

A

Share prices quickly react to new publicly available information

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16
Q
A
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17
Q

What If the stock market operates at strong form pricing efficiency?

A

Investors have all information about each company

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18
Q

Prices and a weak-form efficient capital market?

A

Prices would only reflect historic data and fundamental analysis of a company’s performance could predict future share price movements

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19
Q

Which is higher, long-term or short-term interest rates?

A

Long-term interest rates

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20
Q

Why are long-term interest rates higher than short-term? (compensation)

A

Lenders require higher compensation for deferring their liquidity for a longer period

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21
Q

Why are long-term interest rates higher than short-term? (default)

A

The risk of default is higher on a long-term loan

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22
Q

What if imports exceed exports?

A

Supply of the home currency will exceed demand. Boosting demand for exports

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23
Q

Currency effect on imports exceeding exports?

A

Home currency depreciates

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24
Q

Is lending for periods of greater than one year?

A

No

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25
Q

Is lending securitised?

A

Yes

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26
Q

Are borrowers for mainly small companies

A

No

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27
Q

Types of dealings for a strong-form efficient market?

A

None as all private info would be reflected in the share price

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28
Q

Can the market be outperformed in a strong-form efficient market?

A

Outperformed by individual investors, but only by luck and not consistently

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29
Q

What determines share price in a weak-form efficient market?

A

Past information

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30
Q

Movements of share price in a weak-form efficient market?

A

In a random walk

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31
Q

How are discounted instruments originally sold?

A

For a price below their nominal value and do not pay interest

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32
Q

Is commercial paper secured or unsecured?

A

It is an unsecured money market instrument

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33
Q

What is a security token?

A

A digital representation of ownership or economic rights

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34
Q

What is meant by a first offering of shares in a company?

A

An IPO in which securities are share certificates

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35
Q

Do security tokens have a legal status of currency?

A

No

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36
Q

Are security token offerings unregulated or regulated?

A

Regulated

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37
Q

What market is needs to convert foreign currency into domestic currency?

A

Foreign exchange market

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38
Q

What market is needed to issue new ordinary shares?

A

Primary capital market

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39
Q

What market is needed to purchase short-term over-the-counter derivatives

A

Primary money market

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40
Q

What market is needed to new long-term loan notes?

A

Capital market

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41
Q

Effect of interest rates and inflation on a contractionary fiscal policy?

A

Higher taxes and lower government subsidies

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42
Q

What does expansionary monetary policy typically affect a business?

A

Higher demand from customers and lower interes rates on loans/ Increased availability of credit

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43
Q

Which policy involves changing tax rates?

A

Fiscal policy

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44
Q

What happens when governments adopt a floating exchange rate system?

A

Exchange rate is an equilibrium between demand and supply in foreign exchange market

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45
Q

Which policy seeks to influence economy and economic growth through changing interest rates?

A

Monetary

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46
Q

Which organisation is most likely to benefit from a period of high price inflation?

A

An organisation with a large number of long-term payables

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47
Q

What does a letter of credit involve? (in terms of company)

A

A selling company and a buying company

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48
Q

Why are treasury bills the least risky?

A

They are short-term government borrowing

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49
Q

What is meant by securitisation?

A

Conversion of illiquid assets into marketable securities

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50
Q

What does the reverse yield gap refer to?

A

Yields on shares being lower than on low-risk debt

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51
Q

Why can a reverse yield gap occur?

A

Shareholders are willing to accept lower returns on their investment in the short-term, in exchange for capital gains in the future

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52
Q

When does disintermediation arise?

A

Where borrowers deal directly with lending individuals

53
Q

What type of policy is using official foreign currency reserves to buy the domestic currency?

A

A government policy

54
Q

How are treasury bills bought and sold?

A

On a discount basis

55
Q

Are money market deposits short or long-term?

A

Short-term loans between organisations such as banks

56
Q

What type of instrument is a money market instrument?

A

A certificate of deposit

57
Q

What are capital market securities in terms of assets?

A

An asset to a buyer

58
Q

How can financial markets be classified?

A

Into exchange and OTC markets

59
Q

What is meant by a secondary market?

A

Where securities are bought and sold by investors

60
Q

Effect on demand if a government spends more by borrowing more?

A

Increases demand

61
Q

Effect on government borrowing if demand in an economy is high?

A

Government borrowing will fall

62
Q

UK exporters to US if dollar weakens against poind sterling?

A

Suffers due to worse exchange rate

63
Q

UK importers from US if dollar weakens against poind sterling?

A

Benefit due to better exchange rate

64
Q

First objective of macroeconomic policy (growth)

A

Economic growth

65
Q

Second objective of macroeconomic policy (Stable)

A

Stable inflation

66
Q

Third objective of macroeconomic policy (employ)

A

Unemployment

67
Q

Fourth objective of macroeconomic policy (balance)

A

Balance of payments (between exports and imports)

68
Q

Government actions to raise or lower the amount it spends an example of fiscal policy?

A

YES

69
Q

What is a reverse yield gap?

A

Where the yield on debt is greater than that of equities

70
Q

What is meant by securitisation?

A

Conversion of illiquid assets into marketable securities

71
Q

When does disintermediation arise?

A

Where borrowers deal directly with lending individuals

72
Q

When does cost-push inflation occur?

A

When there are increases in production costsindependent to the state of demand

73
Q

What do coupon bearing securities have?

A

A fixed maturity and a specifiedrate of interest

74
Q

How are funds raised in the discount market?

A

By issuing bills at a discount to their eventual redemption or maturity value

75
Q

What does macroeconomic policy include?

A

Full employment of resources
Price stability
Economic growth

76
Q

Is decreasing interest rates in order to stimulate consumer spending fiscal or monetary policy?

A

Monetary policy

77
Q

Is reducing taxation while maintaining public spending fiscal or monetary policy?

A

Fiscal policy

78
Q

Is using official foreign currency reserves to buy the domestic currency fiscal or monetary policy?

A

Monetary policy

79
Q

Is borrowing money from the capital markets and spending it on public works fiscal or monetary policy?

A

Fiscal policy

80
Q

Is regulating foreign exchange rates fiscal or monetary policy?

A

Monetary policy

81
Q

What do money markets provide?

A

Short-term (< 1 year) debt financing and investment

82
Q

Are shares short- or long-term finance?

A

Long-term

83
Q

Is allowing an organisation to manage its exposure to foreign currency risk and interest rate risk short-term or long-term?

A

Short-term

84
Q

What investments do money markets focus on?

A

Short-term financial instruments

85
Q

Are certificates of deposit a money market instrument?

A

Yes

86
Q

Is commercial paper a money market instrument?

A

Yes

87
Q

Is a treasury bill a money market instrument?

A

Yes

88
Q

Is a corporate bond a money market instrument?

A

No, it’s a capital market instrument as it’s long-term

89
Q

Short-term management of resources a role within the treasury function?

A

Yes

90
Q

Long-term maximisation of shareholder wealth within the treasury function?

A

Yes

91
Q

Risk management within the treasury function?

A

Yes

92
Q

Long-term maximisation of market share within the treasury function?

A

No

93
Q

Management of accounts receivable within the treasury function?

A

No

94
Q

Management of financial reporting within the treasury function?

A

No

95
Q

What are primary capital markets?

A

Relate to the sale of new securities

96
Q

What are secondary capital markets?

A

Where securities trade after their initial offering

97
Q

How can imperfect competition be addressed?

A

Competition regulator to prevent consumersbeing taken advantage of

98
Q

How can social costs or externalities be regulated against?

A

By imposing fines on firms that create them

99
Q

What is meant by interest rate smoothing?

A

Policy of some central banks to move official interest rates in a sequence of relatively small steps in the same direction

100
Q

How can governments wish to influence the amount of money held in the economy?

A

They may attempt to influence the level of interest rate

101
Q

Should the chairperson and CEO be the same individual?

A

NO

102
Q

When does a balanced budget occur?

A

Occurs when total expenditure is matched by total taxation

103
Q

When might demand-pull inflation occur?

A

When excess aggregate monetary demand in the economy and hence demand for particular goods and services enable companies to raise prices and expand profit margins

104
Q

When will cost-push inflation occur?

A

There are increases inproduction costs independent of the state of demand

105
Q

Why are certificates of deposits fully negotiable and attractive to the depositor?

A

They ensure instant liquidity if required and are tradeable

106
Q

Are certificates of deposit evidence of a deposit with an issuing bank?

A

Yes

107
Q

Are certificates of deposit fully negotiable?

A

Yes

108
Q

Do certificates of deposit provide the bank with a deposit for a fixed period at a fixed rate of interest

A

Yes

109
Q

Are certificates of deposit coupon-bearing securities?

A

Yes

110
Q

Certificates of deposit are not tradeable?

A

NO

111
Q

What is the clientele effect for dividends?

A

Fear that many shareholdewrs will view a dividend cut similarly

112
Q

What is dividend signalling for dividends?

A

Cut in dividend may signal to shareholders that the company is now higher risk

113
Q

What does residual theory suggest for dividend?

A

Undertaking all positive NPV investments before paying a dividend

114
Q

What does M&M model suggest for dividends?

A

That the pattern of dividends was irrelevant

115
Q

What is meant by purchasing power parity?

A

PPP suggests that exchange rates will move to compensate for differences in inflation rates

116
Q

Do profits have a good correlation with shareholder value?

A

No

117
Q

What is meant by a fiduciary duty?

A

Agents must act in the best interests of the principals

118
Q

What happens to share price in a semi-strong market?

A

When news is made public

119
Q

What does restricting growth in the money supply will have more impact on (demand pull or cost-push)?

A

Demand pull as restricting money supply directly impacts demand for goods

120
Q

Restricting money supply reduces the ability of banks to?

A

Lend. Meaning smaller businesses have issues obtaining funds

121
Q

What is economic inefficiency?

A

Output is produced at a higher price than necessary

122
Q

What do monetary policy aims to control?

A

The economy by using interest rates and amending the size of the money supply

123
Q

What does fiscal policy aim for?

A

To manage the economy using taxation and government spending

124
Q

How to reduce demand if inflation is high due to rising aggregate demand?

A

Increasing interest rates

125
Q

What does increased government borrowing lead to?

A

Increased government spending

126
Q

What could be the background if a country’s government budget deficit is increasing?

A

An increase in government spending has outweighed an increase in taxation income, leading to increased government borrowing

127
Q

If the new government chooses to increase the rate of corporate taxation levels,which TWO of the following would represent the initial direct effects on earnings pershare (EPS) and return on capital employed (ROCE)?

A

EPS falls
There would be no effect on ROCE

128
Q

Externalities (consumer)

A

Externalities do not directly affect the copnsumer of the product that causes them

129
Q

Externalities (misallocation)

A

Existence of externalities suggests that there is a misallocation of resources

FM (Test) (8 decks)

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