Chapter 1 - Questions Flashcards
What is the main purpose of issuing securities?
A) To increase product sales
B) To raise capital for business expansion
C) To reduce company expenses
D) To distribute profits to shareholders
To raise capital for business expansion
How do preference shares differ from ordinary shares?
A) They provide higher voting rights
B) They always have a higher share price
C) ) They have fixed dividends and priority in liquidation
D) They are only issued by government entities
They have fixed dividends and priority in liquidation
What are the benefits of investing in bonds?
A) They provide regular interest income and return of principal
B) They guarantee higher returns than equities
C) They are only available to institutional investors
D) They do not have maturity dates
They provide regular interest income and return of principal
What distinguishes a Eurobond from a domestic bond?
A) It is issued in the issuer’s home currency
B) ) It is issued in a foreign currency and traded internationally
C) It is only issued by European companies
D) It offers higher yields than all domestic bonds
It is issued in a foreign currency and traded internationally
How do warrants differ from options?
A) Warrants have shorter expiration periods than options
B) Warrants are always more expensive
C) ) Warrants give long-term purchase rights, while options are short-term contracts
D) Warrants are only issued by government institutions
Warrants give long-term purchase rights, while options are short-term contracts
What rights does an ADR holder have?
A) Full voting rights in the foreign company
B) ) They receive dividends and potential sale proceeds but have limited voting rights
C) They have no financial rights to the company
D) They can directly influence company board decisions
They receive dividends and potential sale proceeds but have limited voting rights
What is the significance of an ISIN?
A) It is used for identifying and tracking securities globally
B) It represents a security’s price fluctuations
C) It is only used for stock exchanges in Europe
D) It determines the tax rate on securities
It is used for identifying and tracking securities globally
How does a stock split affect share price and investor holdings?
A) It reduces share price and increases the number of shares held
B) It increases share price and decreases the number of shares
C) It does not affect the number of shares held
D) It forces shareholders to sell some of their holdings
It reduces share price and increases the number of shares held
Why do companies conduct a rights issue?
A) To raise additional capital
B) To increase share price
C) To distribute company profits
D) To reduce market liquidity
To raise additional capital
What is the difference between a GDR and an ADR?
A) ADRs are traded in the U.S., while GDRs are traded on multiple global exchanges
B) ADRs offer higher dividend payments than GDRs
C) GDRs are only issued in European markets
D) ADRs can only be purchased by institutional investors
ADRs are traded in the U.S., while GDRs are traded on multiple global exchanges
How do ETFs differ from mutual funds?
A) ETFs trade like stocks, while mutual funds are priced once a day
B) Mutual funds have lower expense ratios than ETFs
C) ETFs can only be bought at market close
D) Mutual funds are always actively managed
ETFs trade like stocks, while mutual funds are priced once a day
- What are the risks of investing in hedge funds?
A) Hedge funds use risky strategies and are less regulated
B) Hedge funds offer guaranteed returns
C) Hedge funds are required to be publicly traded
D) Hedge funds invest only in government bonds
Hedge funds use risky strategies and are less regulated
What does “market capitalization” indicate?
A) The amount of dividends a company pays annually
B) The total value of a company’s shares in the market
C) The minimum capital required to list on a stock exchange
D) The company’s total assets
The total value of a company’s shares in the market
What is the role of a clearinghouse in securities trading?
A) It facilitates trade settlement and reduces counterparty risk
B) It determines stock prices
C) It acts as a direct investor in the market
D) It provides funding for IPOs
It facilitates trade settlement and reduces counterparty risk
Why do traders engage in short selling?
A) To profit from falling share prices
B) To increase dividend income
C) To purchase shares at a lower price in the future
D) To avoid paying transaction fees
To profit from falling share prices
What is a derivative security?
A) A financial contract whose value is based on an underlying asset
B) A share in a technology company
C) A fixed-income security
D) A security issued by banks only
A financial contract whose value is based on an underlying asset
How does an IPO benefit a company?
A) It allows companies to access public funding for growth
B) It reduces company expenses
C) It guarantees higher earnings
D) It limits shareholder rights
It allows companies to access public funding for growth
What are the advantages of algorithmic trading?
A) It increases trade efficiency and reduces transaction costs
B) It eliminates all market risks
C) It guarantees profit in trading
D) It requires manual trade execution
It increases trade efficiency and reduces transaction costs
How does a nominee account function?
A) It holds securities on behalf of investors
B) It acts as a company’s investment portfolio
C) It determines stock market index levels
D) It is used to issue company loans
It holds securities on behalf of investors
- What are the key characteristics of a bond?
A) Bonds pay periodic interest and return principal at maturity
B) Bonds represent ownership in a company
C) Bonds have no maturity dates
D) Bonds only provide fixed interest payments
Bonds pay periodic interest and return principal at maturity
What is a zero-coupon bond?
A) A bond that pays no interest but is issued at a discount
B) A bond with a zero risk level
C) A bond that provides quarterly dividends
D) A bond that is tax-free
A bond that pays no interest but is issued at a discount
Why do investors use index funds?
A) To gain low-cost, passive market exposure
B) To engage in high-risk speculative trading
C) To guarantee above-market returns
D) To invest only in government bonds
Index funds provide low-cost, passive market exposure.
What is a share buyback?
A) When a company repurchases its own shares to reduce supply
B) When shareholders sell shares to institutional investors
C) When a company issues additional shares
D) When a company merges with another company
A company repurchasing its own shares to reduce supply.
How does insider trading affect market integrity?
A) It undermines fairness and investor trust
B) It increases stock market efficiency
C) It is encouraged by financial regulators
D) It is a legal practice if profits are reinvested
It undermines market fairness and investor trust.
What is the role of an investment bank in securities issuance?
A) It underwrites and facilitates securities offerings
B) It determines share prices on the stock market
C) It acts as a central clearinghouse
D) It directly invests in all new IPOs
Investment banks underwrite and facilitate securities offerings.
