Equities/Stocks Flashcards
1
Q
Invested money in a company is called what?
A
Shares, stock or equity.
2
Q
What are the two types of shares?
A
Ordinary and preference.
3
Q
What does registered form mean?
A
Where a share register is held and a share certificate is issued.
4
Q
What does bearer form mean?
A
No register and whoever holds the share certificate is the owner.
5
Q
Where are bearer certificates held to prevent financial crime?
A
In vaults.
6
Q
What are ordinary shares also known as?
A
Common shares/stock.
7
Q
Are ordinary share holders aloud to vote?
A
Yes.
8
Q
If a company is wound up who gets paid last?
A
Ordinary shareholders.
9
Q
Preference shares are a hybrid of what?
A
Debt and equity.
10
Q
Which shares have credit ratings?
A
Preference shares.
11
Q
Are preference share holders aloud to vote?
A
No.
12
Q
How are dividends paid to preference shareholders?
A
Fixed dividend set on issue date.
13
Q
How are dividends paid to ordinary shareholders?
A
Twice a year.
14
Q
Which shares may be cumulative and or participatory?
A
Preference.
15
Q
What is a cumulative preference share?
A
Dividend entitlement accumulates even if no dividend was paid out that year.
16
Q
What is a participatory preference share?
A
Entitled to a basic dividend but can also participate in bumper profits if the directors decide to.
17
Q
What is a convertible preference share?
A
Carry an option to convert into an ordinary share at set intervals.
18
Q
What is a redeemable share?
A
Have a date at which they may be redeemed
19
Q
What is a dividend?
A
The return an investor gets for providing risk capital for a business.
20
Q
Where are dividends paid out from?
A
Profits.
21
Q
How can a dividend be made out if not enough profit was made that year?
A
By using undistributed profits from previous years.
22
Q
What is a naked/uncovered dividend?
A
A dividend paid out by using undistributed profits from previous years.
23
Q
What calculation is used to generate the dividend yield?
A
Dividend / market capital x 100
24
Q
What are the reasons for a company to have a high dividend yield?
A
If the company is mature, low share price, restricted growth due to government regulations.
25
What are the reasons for a company to have a low dividend yield?
Share price is high, viewed to have high growth prospects or a large proportion is put back into the company.
26
How are capital gains made on shares?
If the share prices increase over time.
27
If the capital gain made on a share is unsold what is this called?
Unrealized gain.
28
The financial return on shares is evenly split between what?
Dividends and capital gains.
29
What is the difference between capital gain and a dividend?
Capital gains build up whereas dividends need to be reinvested.
30
What are pre-emptive rights?
The right for existing shareholders to subscribe for new shares.
31
What could happen if a company issues new shares to new shareholders?
The existing shareholders could lose control.
32
What is the right of first refusal?
Where a new share offering is given to existing shareholders before being offered to the public.
33
Which country has the toughest constraints on rights of first refusal?
The UK.
34
Are new share offerings common in the US?
No.
35
What does a rights issue allow a company to do?
Raise additional capital.
36
How many votes does an ordinary shareholder get?
1 vote per share.
37
How can ordinary shareholders vote?
In person or by proxy.
38
What are the main risk factors regarding shares?
The management team, industry and country of operation.
39
Are market wide falls frequent?
Yes.
40
When was Black Monday?
Oct 1987.
41
What does volatile shares mean?
When shares are exposed to global economic trends.
42
What types of companies have defensive shares?
Utility companies.
43
What is the liquidity risk of shares?
That they are unable to sell at a reasonable price.
44
What is a thinly traded company?
A smaller company with not a lot of trading activity.
45
What is a bid price?
The price at which dealers will buy shares.
46
What is an offer price?
The price at which dealers will sell shares.
47
What happens to the worth of shares if a company collapses?
They become worthless.
48
What is the FX risk of shares?
The currency movements will have a negative affect on the value of shares.
49
What is a corporate action?
When a company does something that affects its capital.
50
What is a mandatory corporate action?
One that does not require any intervention.
51
What is an example of a mandatory corporate action?
The payment of a dividend.
52
What is a mandatory with options corporate action?
One that has a default option if the shareholder does not intervene.
53
What is an example of a mandatory with options corporate action?
A rights issue.
54
What is a voluntary corporate action?
An action that requires intervention by the shareholders.
55
What is an example of a voluntary corporate action?
A takeover bid.
56
What are the types of corporate actions in the US?
Mandatory and voluntary.
57
What is a securities ratio?
How the terms of a corporate action are expressed.
58
What is the securities ratio for a bonus issue where each investor will hold 1 new share for every 4 existing shares?
1:4
59
How are securities ratios expressed in the US?
X(final holding) : Y (original shares)
60
What is a cash call?
Where a company can approach existing shareholders and ask if they would like to buy more shares.
61
What is a rights issue?
An offer of new shares to existing shareholders, pro rata to their initial holding.
62
How are rights issue options trade-able?
Shareholders can sell their right to subscribe for new shares, as the buyer would subscribe at a discount.
63
What will happen to the price of existing shares during a rights issue?
It will adjust to reflect the effects, will usually fall until investor confidence grows later on.
64
Why might a cash call flop?
If the price of new shares is too high.
65
What do underwriters do doing a rights issue?
Agree to buy any portion of the unsold shares
66
What is the difference between a rights issue and an open offer?
The right to buy is not transferable and cannot be sold.
67
Can shareholders apply for more than their pro rata amount in an open offer?
Yes
68
What is an open offer?
The offer made to existing shareholders however the right to buy cannot be sold.
69
What is a bonus issue also known as?
A scrip or capitalization issue.
70
What is a bonus issue?
Where a company gives shareholders extra shares without any further funds.
71
What type of corporate action is a bonus issue?
A mandatory one.
72
What is the purpose of a bonus issue?
To lower the share price and to increase liquidity.
73
What is an alternative to a bonus issue to reduce share prices?
A stock split
74
What is the difference between a stock split and a bonus issue?
A bonus issue does not alter the nominal value.
75
What is a reverse stock split also known as?
A consolidation.
76
Why would a company conduct a consolidation of it shares?
If the share price fell too low.
77
What type of corporate option is a dividend payment?
A mandatory one.
78
How many times a year do companies typically pay out dividends?
Twice.
79
What is the dividend called when paid halfway through the year?
An interim dividend.
80
Where and who agrees on the final dividend?
Shareholders at the AGM.
81
When can shares be bought and sold with the right to the next dividend?
Till the date the dividend is declared.
82
What is the period called between the declaration and payment of a dividend?
Ex-dividend.
83
What does cum-dividend mean?
The period up until a dividend is declared.
84
When a share is ex-dividend is the shareholder entitled to the next dividend?
No.
85
What is the standard settlement period in Europe for dividends?
T+2.
86
What is the record date?
The date t which the shareholder register is closed for the next dividend.
87
What is the record date also known as?
The register date and the book closed date.
88
What day is the LSE ex-dividend date?
Thursday.
89
What happens during the ex-dividend period regarding the share price?
It will fall to reflect the dividend payment.
90
What are the two types of takeovers?
Friendly and hostile.
91
What happens in a successful takeover?
The predator will acquire more than 50% of the target company.
92
When does a predator company have control over the target?
When they hold more than half the targets shares.
93
How will a predator company pay for the shares of the target company?
With cash and or its own shares.
94
What is a merger?
When companies of a similar size agree to merge their interests.
95
How do companies pay in a merger?
Exchange their own shares.
96
Who must hold AGMs?
Public companies.
97
What are the other names for an AGM?
General meeting, assembly or stockholders meeting.
98
What is the name for the process of a company listing its shares on an exchange?
Becoming listed/quoted, floating on the stock market, going public or an initial public offering.
99
What does IPO stand for?
Initial public offering.
100
What is a primary market for?
The marketing of new shares to investors for the first time.
101
What is a secondary market for?
Where investors who bought shares off the primary market can dispose of them.
102
What is the purpose of a primary market?
To raise capital and enable a supply of funds to be matched with investment opportunities.
103
What is the purpose of a secondary market?
Allows the primary market to function effectively by facilitating two way trade.
104
What is a stock exchange?
An organised marketplace for issuing and trading securities by members of that exchange.
105
Which exchanges offer both primary and secondary markets?
All.
106
What does ADR stand for?
American depository receipts.
107
When were ADRs introduced?
1927.
108
What is the denomination of an ADR?
USD.
109
What type of form are ADRs issued in?
Bearer form.
110
Who is the registered owner of an ADR?
A depository bank.
111
What is the benefit of an ADR?
Enables non US companies to attract US investors.
112
Where are ADRs listed and traded?
NYSE, NASDAQ and LSE.
113
What does each ADR represent?
An underlying amount of shares or by a fraction of an underlying share.
114
What is a GDR?
A global depository receipt.
115
Where are GDRs settled through?
Euroclear or the Depository Trust and Clearing Corp. (DTCC)
116
How are voting rights on GDRs/ADRs exercised?
Through the depository bank.
117
Are GDR holders aloud to take up rights issues?
No, the rights are sold and the cash is distributed.
118
Up to what percentage of a companies voting share capital can be converted into depository receipts?
20%.
119
What is a pre-release of depository shares?
Where a custodian bank will issue depository receipts before the deposit of the shares.
120
What is an outcry open marketplace?
Where traders would meet face to face on a trading floor.
121
Which exchange is partially electronic but also has a trading floor?
NYSE.
122
How are trading systems conducted?
Either order or quote driven.
123
What does quote driven mean?
Where a market maker is employed to provide continuous two way prices throughout the trading day.
124
What does order driven mean?
Employs either an electronic order book or an auction process to match buyers with sellers.
125
How are buyers and sellers matched in an order driven system?
In chronological order by price then quantity of shares.
126
What type of driven system do most marketplaces operate?
Order driven.
127
Where are orders added to in an order driven system?
The buy or sell queue or executed immediately.
128
If an order to sell is being executed immediately, which queue will they be trading against?
The queue of buyers.
129
If an order to buy is being executed immediately, which queue will they be trading against?
The queue of sellers.
130
What does a deep order book mean?
There are a lot of orders waiting.
131
How is priority given in an order queue?
By price then time.
132
What are 2 main MTFs?
BATS Europe and Turquoise.
133
What does off-exchange trading mean?
Where trades are taken place directly between market counter-parties.
134
What is the purpose of indices?
To provide information on market performance and provide information to investors as they give a realistic benchmark on portfolio performance.
135
What were indices originally designed to do?
Give an impressionistic view of the market.
136
What is market timing?
Judging the right time to buy and sell.
137
What are the 4 uses of indices?
1. )To act as a market barometer
2. )Assist in market performance measurement
3. )Basis for index tracker funds, ETFs and derivatives.
4. )Support portfolio management.
138
What does DJIA mean?
The Dow Jones Industrial Average.
139
How are Dow Jones indices calculated?
By price.
140
What do most indices base their calculations on?
Price, float adjusted capitalization and relative market capitalization.
141
What does float adjusted capitalization aim to do?
Exclude shareholdings held by large investors and govs that are not readily available for trading.
142
How many equity indices are there worldwide?
Over 300.
143
Which US index market provides a narrow view?
DJIA.
144
Which US index market provides a wider view?
S&P500.
145
What does the NASDAQ Composite index market provide a view of?
All the shares listed on NASDAQ.
146
What does the FTSE100 cover?
The largest UK companies, 80% of the market.
147
What does the FTSE All Share cover?
600 UK companies, 98% of the market.
148
Name the 3 Japanese index markets.
Nikkei 225, TPOIX and NIKKEI 400.
149
What is the French index market called?
CAC40.
150
What is the German index market called?
DAX.
151
What is the Indian index market called?
BSE Sensex.
152
What is the Chinese index market called?
SSE Composite.
153
What is the Singapore index market called?
Straits Times Index.
154
What is the Australian index market called?
S&P/ASX200.
155
What is the final stage of trading?
Settlement.
156
What does DvP mean?
Delivery versus payment.
157
How do investors place orders on an exchange?
Through brokers.
158
How is a trade matched?
When the two sets of instructions match.
159
What happens on settlement day?
Sellers are credited with the proceeds of the sale and the securities are delivered to the buyer.
160
What is the typical settlement cycle for European equity trades?
T+2.
