Chapter 7 Flashcards
A consultant has made the following statements about venture capital.
Statement (1): Venture capitalists may realise their investment by selling their shares following
flotation on the stock exchange.
Statement (2): Venture capitalists never sit on the board of a company.
Statement (3): Venture capitalists normally expect a company’s existing owners to bear a substantial
part of the risk.
Requirement
Which of the statements are true?
1 = true
2 = false: want to sit on the board!
3 = true
In which of the following projects would a venture capital organisation be least likely to invest?
A A business start-up
B A management buyout
C Renovation of a production facility
D A rapidly growing company, looking to expand into new markets
least likely : c
VC want a new risky investment!
types of new issues
placings - sell to an invstitutional investor ie insurance Co
offers for sale - sell to an issueing house (ie investment bank) which then sells to the public
offers for subscription - sell directly to the publicti
Which of the following forms of new share issues would normally be underwritten?
A Introduction
B Offer for sale by tender
C Placing
D Rights issue
D
intro = no new shares are issued
sale by tender = issue price reflects the MV of the shares
placing = have sold all to an institutional investor
Which of the following is a function of financial regulators?
A The provision of financial advice and information to businesses
B Reduction of risk for clients via aggregation of funds
C Maturity transformation
D Prudential control of financial institutions
D
What is the following statement a definition of?
‘A document issued by a bank on behalf of a customer, authorising a person to draw money to a
specified amount from its branches or correspondents, usually in another country, when the
conditions set out in the document have been met.’
A Bill of exchange
B Export guarantee
C Payment gateway
D Letter of credit
D
A = drawn by one party on another
B = insurance against defaults on exports
C = used to authorise online payments
4 Sunita Ltd has the choice of two investments carrying similar levels of risk. One is short-term and the
other is a long-term bond. Sunita Ltd should expect the interest on the longer-term bond to be:
A normally higher
B lower
C normally the same
D impossible to tell
A - the long-term interest rate is normally but not always higher than the short-term rate
Which part of the Bank of England is responsible for the stability and resilience of the UK’s financial
system as a whole?
Financial policy committee (FPC)
FCA + FPC = independent from the Bank of England - regulatory regime for the financial services industry
Monetary committee = influence the quantity and price of money in the UK economy
Lion plc is seeking to raise debt finance. It is planning to offer a series of £10,000 loan stock to
investors. The loan stock will each be redeemed at £9,500 and attracts 5% interest per annum.
Requirement
Which of the following statements concerning the loan stock is correct?
A It is a floating rate note which is redeemed at a £500 premium.
B It is a bond which is redeemed at a £500 premium.
C It is a floating rate note which is redeemed at a £500 discount.
D It is a bond which is redeemed at a £500 discount.
D
not floating!!! as the interest rate is fixed
Which two of the following statements about the Green Bond Principles are true?
A It should be stated in the legal documentation that the proceeds of issuing the bond will be
used for projects that should provide clear environmental benefits.
B The finance should only be used for climate change mitigation or climate change adaptation.
C There must be an external review of the bond to ensure that it complies with the Green Bond
Principles.
D The proceeds from the issue of the bond should be kept in a separate account or tracked by the
issuer.
E The bond should be traded on the green exchange in Luxembourg.
can be traded on exchanges
A + D
finance an be used for: climate change mitigation, climate change adaption, natural resource conservation, biodiversity conservation + pollution prevention
no requirement for an external review! although encouraged
do not specify which market the bonds can be traded on
