Chapter 8 Flashcards
What are the characteristics of ordinary shares?
Perpetual claim
Residual claim
Pre-emptive right
Limited liability
What does returns to ordinary share holders consist of?
Dividends
Capital gains
What risk is there for ordinary share investors?
Value of the shareholding may fluctuate significantly over the short term.
Ordinary shares are the last to recover any value on their shares should the company be wound up
What are the 2 basic structures of ETFs?
Physical or Synthetic
What are physical ETFs?
A financial instruments that represents ownership in an underlying portfolio. They are traded the same way any other shares are traded
What is a synthetic ETF?
A financial instrument that attempts to obtain the return on an index by using OTC derivatives. Usually more cost effective.
What is the equity market?
It is a market that consists of mechanisms and conventions that exists for the issuing, trading, and investing of equity
What rights does a shareholder have?
Rights to:
- Share in profits
- Share in assets if company goes into liquidation
- Appoint directors of the company
- Vote at shareholder meetings
What are the 2 types of new share issues?
SPO’s - Further issuance of shares for companies that already have publicly traded shares
IPO’s - Issuance of share for companies wishing to sell for the 1st time
What are the primary functions of stock exchanges?
To generate capital
To provide an orderly market for trading in shares
What is Strate?
An electronic settlement system
What are the important characteristics of ordinary shares?
Perpetual claim
Residual claim
Pre-emptive right
Limited liability
What are the different type of preference shares?
Cumulative
Non-cumulative
Participating
Redeemable
What are depository receipts?
They are certificates representing ownership in the ordinary shares of a company but are traded and marketed outside of the company’s home country
What are the 2 basic structures for ETFs?
Physical and synthetic
Who are the major participants in the equity market?
Issuers (Limited public companies)
Investment banks ( they underwrite IPOs and SPOs )
Venture capitalists
Brokers and broker dealers
Investors ( individual, companies, asset management firms, insurance companies, pension and retirement funds, collective investment schemes )
