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Securties CISI > Content Questions > Flashcards

Content Questions Flashcards

1
Q

How is a building society different to a bank?

A

Similar to a retail bank but mutually owned

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2
Q

Characteristic of an ordinary share?

A

Rights to vote
Receive dividends if declared
Balance of assets after all other payouts in the event of a wind-up

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3
Q

What are A / B shares?

A

Some companies give different rights to tranches of shareholders

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4
Q

What are redeemable shares?

A

Shares issued in terms that the company, will or may buy them back in the future

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5
Q

What are partly paid shares?

A

Shares whose full par value has not been paid by their holders, issuing firm has a call to collect remaining amount

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6
Q

What is the nominal value of a share?

A

Legal face value of the share

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7
Q

What is the share issue price?

A

Price the share initially is sold for

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8
Q

What is a share Premium

A

Excess of issue price over nominal value

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9
Q

What is the share market value?

A

Live trading price of a share

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10
Q

What is the market cap?

A

Market price of share * number issued

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11
Q

What is the share free float?

A

Actual availability of share stock for public investment

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12
Q

Characteristics of a preference share?

A
  • Normally no voting rights (can be activated through non payment of dividend)
  • Dividend priority over ordinary shareholders
  • dividend is fixed % of nominal value
  • priority over ordinary shares in a wind-up
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13
Q

What is a cumulative share?

A

Unpaid dividend accumulate in the share

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14
Q

What is a participating share?

A

Entitled to more than a fixed dividend per a profit formula

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15
Q

Convertible share

A

Can be converted from preference to ordinary at shareholders discretion

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16
Q

What is a 0 dividend share?

A

Pay no income, redeemable above the price at which they were issued

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17
Q

When is a security part of the Money market?

A

Life of less than 1 year, these are bills

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18
Q

When is a security part of the debt market?

A

Life over 1 year, called a bond

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19
Q

What is the flat yield of a bond and how is it calculated?

A

Gross annual coupon / market price * 100%

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20
Q

Who is interested in the flat yield calc of a bond?

A

Investor wanting regular income and who doesn’t pay tax

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21
Q

Other names for flat yield calc on a bond?

A

Simple yield
Interest yield

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22
Q

How is the gross redemption yield of a bond calculated?

A

Flat yield % + Profit at redemption

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23
Q

How is the profit at redemption of a bond calculated?

A

((Nominal value - market value)
/ years remaining) )
/ market value

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24
Q

Who looks at gross redemption yield on a bond?

A

Measure of total return on a bond, useful to a non tax payer who will bond the bond to redemption

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25
Q

How is the net redemption yield calculated?

A

( Flat yield x adjustment for tax ) + profit at redemption

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26
Q

How to calculate simple interest on corporate debt?

6%. 20 years.
Market price - £108
NV - £100
Investor Buys 40

A

40 x 100 = £4,000
400 x 6 = £240

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27
Q

What is convertible loan stock?

A

Debt security with an option to convert into equity at a later date

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28
Q

How to calculate the conversion ratio?

A

Par value of bond / conversion price

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29
Q

What is a clean bond price?

A

Priced quoted excludes accrued interest

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30
Q

What is a dirty bond price?

A

Price actually paid, including accrued interest

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31
Q

What is spread analysis?

A

Comparing yield difference of asset vs a benchmark e.g. bond vs libor

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32
Q

What is a yield curve?

A

Relationship between maturity and bond yields

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33
Q

What is a normal yield curve?

A

Preference for liquidity e.g longer term interest are less than short term ones e.g. paid to hold for longer

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34
Q

How to calculate the Present value of a bond?

A

Coupon / (1 + r)

+

(coupon + £red val) / (1+r)^n

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35
Q

What is the nominal value of a GILT?

A

Capital payment the holder receives at redemption

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36
Q

What is the coupon on a GILT?

A

% of nominal value to be paid

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37
Q

What is an index linked GILT?

A

Coupon and redemption value can be linked to RPI (3 months prior value)

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38
Q

What does STRIPS stand for?

A

Separate trading of registered interest and principal securities

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39
Q

Permitted STRIPS parties?

A

GEMMS
HM Treasury
Bank of England

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40
Q

How many 0 coupon bonds can a 5yr strippable GILT be stripped into?

A

11

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41
Q

What does STRIPS do?

A

Separates the repayment of the principal from the interest

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42
Q

Which gov bonds settle T+2?

A

France
Germany

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43
Q

Which gov bonds settle T+1?

A

UK
USA
Japan

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44
Q

How do French and German gov bonds settle?

A

Euroclear, Clearstream

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45
Q

How do UK gov bonds settle?

A

Crest

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46
Q

How do US gov bonds settle?

A

DTCC

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47
Q

How do Japan’s gov bonds settle?

A

Tokyo stock exchange

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48
Q

How often is the coupon paid on French and German gov bonds?

A

Annual

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49
Q

How often is the coupon paid on UK, US and Japan gov bonds?

A

Semi- annual

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50
Q

All main gov bonds quote 1/100 except?

A

US. 1/32

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51
Q

Life time of Japanese gov bonds?

A

Long - 10
Super long - 20

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52
Q

Life time of US gov bonds?

A

T-notes: 2 - 10 years
T- Bonds: 10+

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53
Q

Life time of OATS?

A

2 - 50 years

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54
Q

Life time German gov bonds and their names?

A

Schwartz - up to 2
Bobl - 5 years
Bund > 10

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55
Q

Life time of UK gov bonds?

A

Short < 7
Medium 7 - 15
Long > 15

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56
Q

Legal form for French and German gov bonds?

A

Bearer

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57
Q

Legal form for UK and US gov bonds?

A

Registered

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58
Q

Legal form for Japan’s gov bonds?

A

Registered or bearer

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59
Q

What is a debenture?

A

Secured debt instruments such that the holder can enforce the security should the company default on payment

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60
Q

What is loan stock?

A

Unsecured debt instrument, lenders have no legal charge over the companies assets

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61
Q

Difference between UK and US debenture?

A

UK - Secured debt transaction
US - loan agreement no security

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62
Q

What is the role of a trustee for secured debt?

A

Fulfil the requirements of the trust deed and protect the assets on beneficiaries behalf

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63
Q

Order of repayment waterfall?

A

Liquidator
Fixed charge holders
Preferential creditors (employees)
Floating charge holders
Unsecured creditors
Subordinated loan stock
Preference shareholders
Ordinary shareholders

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64
Q

What is an exchangeable bond?

A

Holder has the right to convert into shares of another company, usually a subsidiary of the bond holder

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65
Q

When interest rates rise, what happens to bond prices?

A

They fall

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66
Q

What is the pull to redemption for a bond?

A

Price fluctuates less the closer the old is to its redemption date

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67
Q

Features of high coupon, short dates bonds?

A

Less volatile and less risky

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68
Q

2 segments of the money market?

A

Inter bank market
Money market securities

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69
Q

Features of US government T-Bills?

A

Less than 1 year (3 months most common)
Issued weekly
No coupon paid, issued at a discount

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70
Q

Typical expiry for commercial paper?

A

7 days to 12 months (270 days in the US)

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71
Q

Features of commercial paper?

A

Discount instruments, no coupon and redeemed at par

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72
Q

What is the repo rate?

A

Difference between sale and repurchase price, interest paid for borrowing the money

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73
Q

Difference with a Eurobond vs corporate bond?

A
  • International bond offered in several countries
  • Usually has a internal syndicate to co lead the management
  • Fixed price re offer often applies
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74
Q

What makes it a Eurobond?

A

Nationality of the issuer, the bond denomination and the country of issue are all different

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75
Q

Who regulated Eurobonds?

A

ICMA

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76
Q

How do Eurobonds settle and report?

A

T+2, reporting through TRAX

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77
Q

What is a depository receipt?

A

Bearer certificate representing a holding in shares

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78
Q

What in an ADR?

A

American depositary receipt, allows US investors to invest in overseas companies

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79
Q

Benefit of ADR?

A
  • Avoid fcy conversion on capital and dividends
  • Voting is carried out on ADR holders behalf
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80
Q

What is sponsored vs unsponsored ADR?

A

Sponsored - From issue of company
Unsponsored - FI (Bank) issued

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81
Q

How long can the grey-market for ADRs (pre release) be open?

A

Up to 3 months

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82
Q

What collateral is used for pre release ADRs?

A

Cash only

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83
Q

What is the tax treatment for ADRs?

A

No stamp duty
1.5% HMRC creation fee on the conversion of UK shares into DRs

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84
Q

ADR settlement time?

A

T+2

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85
Q

What is a warrant?

A

Security issued by a complaint entitling the holder to buy new shares in the company at a fixed price on a future date

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86
Q

What is the Conversion premium equation for warrants?

A

(Strike price + warrant price ) - current share price

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87
Q

What is a covered warrant?

A

Warrant issued by investment bank, so claim is against the bank not the company for the shares

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88
Q

Standard way to quote for FX?

A

Over the counter, quote driven

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89
Q

If $ is the base currency which side of the FX equation is it placed?

A

Left side

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90
Q

Where is the counter or quote currency in the FX quote?

A

Right side

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91
Q

Settlement time for spot FX?

A

T + 2

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92
Q

What is a bid / quote offer in FX?

A

Buy / Sell

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93
Q

How are forward adjustments shown to an FX Forward bid/quote?

A

Spot price, plus a bid/offer adjustment in pips

10/20 - add to spot
15/10 - subtract

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94
Q

Interest rate parity equation?

A

Forward / Spot = (1 + Rv) / (1+ Rb)

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95
Q

What factors affect FX rates?

A

Supply / demand
- international trade
- speculation
-purchase rate parity

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96
Q

What is a unit trust?

A

Collective investment scheme
Trust not a company

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97
Q

Are unit trusts closed?

A

No open ended

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98
Q

What are the Trust deeds for a unit trust?

A

Constitution of the unit trust, drawn up by manager and trustee

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99
Q

Types of unit trust?

A

Regulated - can promote to retail clients

Unregulated - not allowed to promote to retail clients

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100
Q

What is an NMPI?

A

Non-mainstream pooled investments, any unregulated pooled scheme e.g. hedge fund

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101
Q

How are units in a unit trust sold?

A

Units issued at an initial price, stated in the prospectus. If further demand, more units can be created

When cashing units, investor can cancel or redeem

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102
Q

Who can buy / sell units?

A

Unit manager - there is no secondary market

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103
Q

How is the unit price in a unit trust calculated?

A

Underlying assets / number of units in issue

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104
Q

What is a single priced unit trust?

A

Charges added for purchases and deducted for sales

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105
Q

What is two way pricing?

A

Spread between bid and offer is retained by the fund manager

106
Q

How is income distributed in a unit trust?

A

Income units - capital paid out
Accumulation - income added into fund

107
Q

What tax is paid on unit trusts?

A

Corporation tax on income (except UK dividends) at 20%

108
Q

What is an ICVC?

A

Investment company with variable capital

109
Q

Who is responsible for investment decisions in an ICVC?

A

Authorised corporate director - like a fund manager

110
Q

What is a depositary in ICVC?

A

Custodian of the scheme assets and ensure they act within the regulatory framework

111
Q

How is an ICVC taxed?

A

Corporation tax on income (except UL dividends) at 20%. Gains exempt from tax

112
Q

What is an ITC?

A

Investment trust, a company with fixed share capital listed on LSXE

113
Q

Nature of investment trust?

A

Closed ended

114
Q

Who regulated investment trusts?

A

Not FCA regulated, governed by companies act and LSE

115
Q

What is gearing?

A

Process of companies borrowing money to expand

116
Q

Tax rate on Investment trust?

A

19% corporation tax, not on UK Dividends

117
Q

What is an ETF?

A

Exchange traded fund, track indices with open ended fund investment

118
Q

Common features of hedge funds?

A
  • Tend to be unregulated
  • Hire investment entry levels
  • flexible with assets
  • gearing
  • liquidity constraints with lock in periods
119
Q

What is a structured product?

A

Product created by combining 2 or more individual financial instruments, often a derivative with securities or cash

120
Q

Features of structured products?

A

Income or growth
Defined risks and returns
Linked to an external measure
Defined term

121
Q

What is an underwriting offer?

A

Where a bank guarantees the minimum level of proceeds on an issue

122
Q

What is stabilisation in bond market?

A

Where issuing house purchase stock on the secondary market post issue to maintain prices

123
Q

What is green shoe?

A

Option to increase the number of shares an issuing house will market to the public

124
Q

Types of follow on offerings?

A

Non-dilutive - issued share capital sold not from free float

Dilutive - increase share float to sell more equity into the company

125
Q

What is an open offer for shares?

A

Only open for existing shareholders

126
Q

What is an offer for subscription?

A

Company issuing shares direct to the public

127
Q

What is an offer for sale for shares?

A

Bank (issuing house) buys up the shares before offering them to the public

128
Q

Why would a company do a fixed price offer?

A

Lower to generate goodwill amongst purchasers

129
Q

What is book building?

A

When the book runner assesses interest from IR presentations and constructs a demand curve to ascertain possible offer prices

130
Q

What is a placing?

A

Similar to offer for sale, when an issuing house only sells to institutional clients - no need for a prospectus

131
Q

What is an introductions for shares?

A

Company obtains a listing without issuing new share capital

132
Q

What is the syndicate group for an equity offering?

A

Underwriting firm helps a company determine the security to issue, price, time to market etc

133
Q

What are the managers in an issuance?

A

Manage the issuance, e.g coordinate across geographies

134
Q

What are the listing rules?

A

Sponsor
3 years of audited accounts

135
Q

What are the stock exchange rules for securities listed?

A

Minimum requirements on equity and debt, depending on whether it’s on the main / junior market

136
Q

How big the free float need to be for a stock exchange listing?

A

25%

137
Q

What are the continuous obligations for a listed company?

A

Price sensitive info disclosed
Dividends, dealing etc
Financial information

138
Q

Types of bond issuers?

A

Gov
Corporate
Supranational
US state (municipal)
Agency bonds (US)
SPVs

139
Q

2 types of auction for UK GOV bonds?

A

Competitive and Non competitive

140
Q

For competitive UK gov bond auction what are the rules / process?

A

Large investors
GEMMS bid with Debt Management Office
Bid price and volume
£1m minimum
If successful pay the price

141
Q

For non-competitive UK gov bond auction what are the rules / process?

A

Private investors as well
No price bid
£1k minimum, £500k max
Pay average of successful competitive bids

142
Q

Difference between a tender and auction government bond process?

A

Auction - pay bid price
Tender - pay lowest successful price

143
Q

What is an MTN?

A

Medium term note (opportunistic financing) issued through scheduled funding

144
Q

Stages of a bond issue

A

Pitching
Indicative bid
Mandate announcement
Credit rating roadshow
Listing syndication

145
Q

What is a stock exchange?

A

Corporation providing facilities for members to trade company stocks and securities

146
Q

What is an MTF?

A

Multilateral trading facility (trading system facilitating trading instruments) for equities

147
Q

Regulation on MTF?

A

Treated as an exchange. Defined rules for members

148
Q

What is an OTF?

A

Organised trading facility, network for bond and derivative trading

149
Q

What is a dark pool?

A

Exchange trading with OTC confidentiality through hidden orders

150
Q

What is the regulation on a dark pool?

A

Treated as OTC unless volumes are large and then treated as an MTF

151
Q

Benefit of a dark pool?

A

Reducing market impact of large orders, better pricing and lower execution costs

152
Q

What is dual capacity?

A

Member forms can trade on their own account (principal) or for someone else (agent)

153
Q

Special roles broker dealers can play?

A

Market makers
Stock borrowing and lending
Algorithmic trading

154
Q

What is an inter dealer broker?

A

Anonymity for forms who wish to offload a position without giving away their trading position to a competitor

155
Q

What is an SBLI? And what do they do?

A

Stock borrowing and lending intermediary, can help a short seller by arranging the loan of security from a fund

156
Q

What happens to voting rights during stock lending?

A

Seller loses their voting rights for the period

157
Q

What is a quote driven exchange?

A

Price controller by market makers
Bid/offer spreads
Firm pieces up to a specified level
Screen / phone based

158
Q

What is an order driven exchange and their features?

A

Prices determined by buy and sell orders
Orders in execution on an order book
Electronic trading

159
Q

What is traded on SETS?

A

FTSE all share
Most liquid AIM and Irish sticks
ETFs and commodities

160
Q

How does SETS settle orders? Features

A
  • automated order driven trading
    systems
  • prioritised by price and then time of entry
  • Anonymous
161
Q

What is Novation in SETS?

A

LCH, Clearnet and SIX act as central buyer and seller of all stocks making it anonymous

162
Q

When is the opening auction call period on SETS?

A

7:50 to 8am

163
Q

Types of orders that can be placed in opening auction call period?

A
  • limit order (volume and no worse than price)
  • iceberg order (limit order hiding some of the order)
  • market order (size order but no specified price)
164
Q

When do trades begin to execute on SETS?

A

8am matching algorithm is run

165
Q

Timing of continuous order book trading on SETS?

A

8am - 4:30pm

166
Q

Types of orders during continuous order book trading?

A

Limit orders
Execute and eliminate
Market order
Fill or kill
Iceberg
All or nothing

167
Q

What is an all or nothing order?

A

Order sits on the books until all can be executed at the desired price or nothing will occur. If not executed it’s deleted at the end of the day

168
Q

What is a fill or kill order?

A

Specified price and volume, if not completely filled then the whole order is cancelled

169
Q

What is an execute and eliminate order?

A

Limit order but any unfilled portion is cancelled

170
Q

Can a limit order be deleted?

A

Yes during the auction period

171
Q

What is the uncrossing algorithm?

A

Run at end of each auction period and selects an uncrossing price enabling the max volume of trades

172
Q

Which orders get added to order book if not filled

A

Limit
Iceberg

173
Q

Problem with High frequency trading?

A

Can cause flash crashes with the systemic risks from algo trading

174
Q

Benefits of central counterparty service?

A

Reduced counterparty risk
Total anonymity
Less admin
Netting of transaction
Better pricing

175
Q

French trading, clearing and settlement systems?

A

Euronext, NSC
LCH. Clearnet
Euroclear France

176
Q

German trading, clearing and settlement systems?

A

Deutsche Borse
Clearstream
Clearstream

177
Q

Japan trading, clearing and settlement systems?

A

Tokyo stock exchange
JSCC
JASDEC

178
Q

US trading, clearing and settlement systems?

A

NASDAQ, NYSE, Euronext, SuperDot
NSCC
DTC

179
Q

Equities market settlement time

A

T+2

180
Q

Costs of trading, types of fees

A

Broker commission
Account fee
Exchange, regulatory and clearing fees

181
Q

What is a market value weighted index?

A

Index weighted towards market cap of each company tracked

182
Q

What are the two main price weighted indices?

A

Nikkei 225
Dow Jones

183
Q

What is a total return index?

A

Performance of stocks tracked assuming dividends are reinvested

184
Q

Main UK indices?

A

FTSE 100
FTSE All-share

185
Q

Main US indices

A

Dow Jones (30 industrial companies)
NASDAQ
S&P 500
Russell 2000

186
Q

Worldwide indices

A

MSCI World
Dow Jones Stoxx
NASDAQ Composite
NASDAQ 100

187
Q

European Indices

A

FTSE Eurofirst 300
DAX 30
CAC 40

188
Q

Asian Indices

A

Nikkei Stock 225 - Japan
Hang Seng - Hong Kong

189
Q

Difference between value and price weighted indices?

A

Value weighted is on market cap and price assumes 1 share per company

190
Q

What is a total return index?

A

Measures fluctuations in price and the income

191
Q

What is authorised share capital?

A

Amount of shares a company can issue in total

192
Q

What is issued share capital?

A

Shares sold by a company to its shareholders

193
Q

What is included in the share free float?

A

All shares held by investors other than
- owners with more than 5%
- restricted stock (execs)
- insider holdings

194
Q

What must GEMMS do?

A

Quote on gov bonds to give liquidity
Obliged to quote to broker dealers
Register with the treasury

195
Q

How do corp bonds trade?

A

Over the counter
- Phone
- Dealer system
- electronic trading platforms

196
Q

Examples of B2B corp bond platform?

A

MTS cash and Brokertec

197
Q

Examples of B2C corp bond platform?

A

MTS bond vision and Trade web

198
Q

Examples of OTF corp bond platform?

A

Bloomberg bond trader

199
Q

What is a sinking fund?

A

When principal is paid in part of full before the end

200
Q

What is a scrip issue?

A

Free issue of shares to existing shareholders. Used to reduce share prices

201
Q

What does a 1:2 scrip issue mean?

A

For every 2 shares you get 1 free

NEW ON LEFT

202
Q

Effect on market from a scrip issue?

A

Share price down
Number of shares up

203
Q

Effect on the market from a stock split?

A

Share price down
Number of shares increased

204
Q

Effect on the balance sheet of a scrip issue?

A

NV - Flat
Share capital - Increases
Share premium account - Falls

205
Q

Effect on balance sheet of a stock split?

A

NV - Lowered
Share capital - Flat
Share premium account - Flat

206
Q

How to calculate nil price paid?

A

Ex rights price calc, if new shares taken. Add all / new shares.

Nil price paid is saving or difference between the full price and new price

207
Q

Why would a company buy back shares?

A

Rationalise capital structure
Substitute dividend payouts
Give excess cash back to shareholders

208
Q

Why would an investor build a stake in a company?

A

Own shares
Strategic link
Acquire target company

209
Q

What method is used for settlement usually in Europe

A

Transfer securities/funds trade by trade on a gross basis. Delivery and payment at the same time

210
Q

Method used for settling trades in US?

A

Transfer instructions on a gross basis with delivery of security. Funds netted with payment at the end of the cycle

211
Q

What is net settlement method in the system?

A

Delivery and payment netted and sent end of the cycle

212
Q

All securities settle T+2 except

A

Equity +10
New issue +1
GILTS / T Bonds / Japan Gov +1
Rep +0
MMF +1
FX Forwards

213
Q

Services of a custodian?

A

Segregate and protect assets
DvP
Corp actions
Link with registers
Market info
Regulator link

214
Q

What is a global custodian?

A

Manage custody arrangements across foreign markets

215
Q

What is a sub custodian?

A

Employed by global custodian as it’s local agent

216
Q

What is a prime brokerage?

A

Bundled package of services offered by investment banks to hedge funds

217
Q

What is rehypothication?

A

Banks use assets they don’t own for collateral - leverage cycle

218
Q

Types of UK registered securities?

A

UK equities, gilts and debentures

219
Q

Examples of bearer securities?

A

Bank notes, Eurobonds and depository receipts

220
Q

What is a broker nominee account?

A

Broker holds investors shares in a nominee account in the investors name or in a pooled accountx

221
Q

For pooled nominee accounts whose name reflects on the register?

A
  • Name of one pooled nominee not all investors
  • if a named nominated it will show the nominee name
222
Q

What is the ex dividend date?

A

Date from which all transfers of the security are contracted without the right to the dividend

223
Q

What is the record date for shares?

A

Books closed date, when company reviews register for shareholders eligible for the dividend

224
Q

What is a special ex trade?

A

Special arrangement trade to buy with dividend up to 10 days before ex-dividend date

225
Q

What is a special cum trade?

A

Buying shares cum div in ex div period, ok up to and including dividend date - special arrangement

226
Q

Why is gross settlement of all trades risky?

A

Exposures banks to Herstatt risk as entire value of each deal must be transferred

227
Q

What is CLS?

A

Continuous linked settlement - real time net settlement in a 5 hr window

228
Q

Where can a bonus issue be funded from?

A

Share premium or profit and loss reserve

229
Q

Where are retained profits shown in the income statement?

A

Retained earnings accounts (profit after dividends)

230
Q

Difference between capital and revenue expenditure?

A

Capital - non current assets, shows on balance sheet

Revenue - shows on income statement

231
Q

What is enterprise cash flow?

A

Free cash flow before considering payments made to any of the providers of finance to the firm - both lenders and equity holders

232
Q

What is equity cash flow?

A

Free cash flow after financing costs but before dividends

233
Q

How are depreciation charges shown trading profit?

A

Add to trading profit

234
Q

How are increase to general provisions shown trading profit?

A

Add to trading profit

235
Q

How are increases in inventory shown trading profit?

A

Deduct from

236
Q

How is earnings per share calculated?

A

Profit for ordinary shareholders / number of ordinary shares

237
Q

How is profit available to ordinary shareholders calculated?

A

Profit after tax - preference dividends - minority interest

238
Q

How do you calculate PE ratio?

A

Market price per share / earnings per share

239
Q

How do you calculate gross dividend yield?

A

Div per share / market price *100%

240
Q

What is the dividend cover calculation?

A

Earnings per share / div per share

241
Q

What might a high dividend yield indicate about the growth of a company?

A

Low growth

242
Q

What is the gearing ratio?

A

Interest debt (includes pref shares and ODs) / equity shareholders funds

243
Q

What is net debt to equity calculation?

A

( Debt - cash ) / equity

244
Q

Earnings from highly geared companies can be?

A

Volatile

245
Q

What is the interest cover calc?

A

Profit before Interest and tax / interest payable

246
Q

What is the current ratio calc?

A

Current assets / current liabilities

247
Q

What is the acid test (quick ratio) calculation?

A

(Current assets - inventory ) / liabilities

248
Q

Calc for ROCE?

A

PBIT / capital employed x 100

249
Q

What is ROCE used for?

A

Ration to determine managements success at utilising funds made available to it from debt and equity

250
Q

What is the risk premium?

A

Additional return over a risk free return needed to compensate the investor for taking on the risk

251
Q

What are systematic risks?

A

Risks on whole financial system
- interest / inflation
- reinvestment
- liquidity
- currency
- political and legal

252
Q

What are non systematic risks?

A

Risks specific to a company or sector
- business
- industry
- management

253
Q

How is diversification of risk achieved?

A

Adding stocks that are not perfectly correlated

254
Q

What is a long hedge used for?

A

People with a genuine long term interest in the asset looking to remove uncertainty of potential price movements

255
Q

What is a short hedge used for?

A

Remove uncertainty of owning the asset, e.g. remove the risk of price falling before you sell

256
Q

What is the Efficient Market Hypothesis?

A

Current market price reflects historic price info (stronger version also say it includes current public info)

257
Q

What is a passive style of fund management?

A

Fund manager tries to replicate returns based on a benchmark

258
Q

What is an active fund manager?

A

Trying to outperform a benchmark e.g. beat the market

259
Q

Pro / cons of active fund management

A

Pro: Choice of investments / can avoid riskier sections
Cons: Fees, costs, key man risk

260
Q

Pro / cons of passive fund management

A

Pro: Only exposed to systematic risk, lower expenses
Cons: Lack of control, not likely to make an alpha

Securties CISI (1 decks)

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