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International Introduction to Investment > Equities/Stocks > Flashcards

Equities/Stocks Flashcards

1
Q

Invested money in a company is called what?

A

Shares, stock or equity.

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2
Q

What are the two types of shares?

A

Ordinary and preference.

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3
Q

What does registered form mean?

A

Where a share register is held and a share certificate is issued.

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4
Q

What does bearer form mean?

A

No register and whoever holds the share certificate is the owner.

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5
Q

Where are bearer certificates held to prevent financial crime?

A

In vaults.

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6
Q

What are ordinary shares also known as?

A

Common shares/stock.

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7
Q

Are ordinary share holders aloud to vote?

A

Yes.

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8
Q

If a company is wound up who gets paid last?

A

Ordinary shareholders.

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9
Q

Preference shares are a hybrid of what?

A

Debt and equity.

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10
Q

Which shares have credit ratings?

A

Preference shares.

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11
Q

Are preference share holders aloud to vote?

A

No.

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12
Q

How are dividends paid to preference shareholders?

A

Fixed dividend set on issue date.

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13
Q

How are dividends paid to ordinary shareholders?

A

Twice a year.

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14
Q

Which shares may be cumulative and or participatory?

A

Preference.

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15
Q

What is a cumulative preference share?

A

Dividend entitlement accumulates even if no dividend was paid out that year.

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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.

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17
Q

What is a convertible preference share?

A

Carry an option to convert into an ordinary share at set intervals.

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18
Q

What is a redeemable share?

A

Have a date at which they may be redeemed

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19
Q

What is a dividend?

A

The return an investor gets for providing risk capital for a business.

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20
Q

Where are dividends paid out from?

A

Profits.

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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.

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22
Q

What is a naked/uncovered dividend?

A

A dividend paid out by using undistributed profits from previous years.

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23
Q

What calculation is used to generate the dividend yield?

A

Dividend / market capital x 100

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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.

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25
Q

What are the reasons for a company to have a low dividend yield?

A

Share price is high, viewed to have high growth prospects or a large proportion is put back into the company.

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26
Q

How are capital gains made on shares?

A

If the share prices increase over time.

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27
Q

If the capital gain made on a share is unsold what is this called?

A

Unrealized gain.

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28
Q

The financial return on shares is evenly split between what?

A

Dividends and capital gains.

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29
Q

What is the difference between capital gain and a dividend?

A

Capital gains build up whereas dividends need to be reinvested.

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30
Q

What are pre-emptive rights?

A

The right for existing shareholders to subscribe for new shares.

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31
Q

What could happen if a company issues new shares to new shareholders?

A

The existing shareholders could lose control.

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32
Q

What is the right of first refusal?

A

Where a new share offering is given to existing shareholders before being offered to the public.

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33
Q

Which country has the toughest constraints on rights of first refusal?

A

The UK.

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34
Q

Are new share offerings common in the US?

A

No.

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35
Q

What does a rights issue allow a company to do?

A

Raise additional capital.

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36
Q

How many votes does an ordinary shareholder get?

A

1 vote per share.

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37
Q

How can ordinary shareholders vote?

A

In person or by proxy.

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38
Q

What are the main risk factors regarding shares?

A

The management team, industry and country of operation.

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39
Q

Are market wide falls frequent?

A

Yes.

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40
Q

When was Black Monday?

A

Oct 1987.

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41
Q

What does volatile shares mean?

A

When shares are exposed to global economic trends.

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42
Q

What types of companies have defensive shares?

A

Utility companies.

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43
Q

What is the liquidity risk of shares?

A

That they are unable to sell at a reasonable price.

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44
Q

What is a thinly traded company?

A

A smaller company with not a lot of trading activity.

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45
Q

What is a bid price?

A

The price at which dealers will buy shares.

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46
Q

What is an offer price?

A

The price at which dealers will sell shares.

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47
Q

What happens to the worth of shares if a company collapses?

A

They become worthless.

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48
Q

What is the FX risk of shares?

A

The currency movements will have a negative affect on the value of shares.

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49
Q

What is a corporate action?

A

When a company does something that affects its capital.

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50
Q

What is a mandatory corporate action?

A

One that does not require any intervention.

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51
Q

What is an example of a mandatory corporate action?

A

The payment of a dividend.

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52
Q

What is a mandatory with options corporate action?

A

One that has a default option if the shareholder does not intervene.

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53
Q

What is an example of a mandatory with options corporate action?

A

A rights issue.

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54
Q

What is a voluntary corporate action?

A

An action that requires intervention by the shareholders.

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55
Q

What is an example of a voluntary corporate action?

A

A takeover bid.

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56
Q

What are the types of corporate actions in the US?

A

Mandatory and voluntary.

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57
Q

What is a securities ratio?

A

How the terms of a corporate action are expressed.

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58
Q

What is the securities ratio for a bonus issue where each investor will hold 1 new share for every 4 existing shares?

A

1:4

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59
Q

How are securities ratios expressed in the US?

A

X(final holding) : Y (original shares)

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60
Q

What is a cash call?

A

Where a company can approach existing shareholders and ask if they would like to buy more shares.

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61
Q

What is a rights issue?

A

An offer of new shares to existing shareholders, pro rata to their initial holding.

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62
Q

How are rights issue options trade-able?

A

Shareholders can sell their right to subscribe for new shares, as the buyer would subscribe at a discount.

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63
Q

What will happen to the price of existing shares during a rights issue?

A

It will adjust to reflect the effects, will usually fall until investor confidence grows later on.

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64
Q

Why might a cash call flop?

A

If the price of new shares is too high.

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65
Q

What do underwriters do doing a rights issue?

A

Agree to buy any portion of the unsold shares

66
Q

What is the difference between a rights issue and an open offer?

A

The right to buy is not transferable and cannot be sold.

67
Q

Can shareholders apply for more than their pro rata amount in an open offer?

A

Yes

68
Q

What is an open offer?

A

The offer made to existing shareholders however the right to buy cannot be sold.

69
Q

What is a bonus issue also known as?

A

A scrip or capitalization issue.

70
Q

What is a bonus issue?

A

Where a company gives shareholders extra shares without any further funds.

71
Q

What type of corporate action is a bonus issue?

A

A mandatory one.

72
Q

What is the purpose of a bonus issue?

A

To lower the share price and to increase liquidity.

73
Q

What is an alternative to a bonus issue to reduce share prices?

A

A stock split

74
Q

What is the difference between a stock split and a bonus issue?

A

A bonus issue does not alter the nominal value.

75
Q

What is a reverse stock split also known as?

A

A consolidation.

76
Q

Why would a company conduct a consolidation of it shares?

A

If the share price fell too low.

77
Q

What type of corporate option is a dividend payment?

A

A mandatory one.

78
Q

How many times a year do companies typically pay out dividends?

A

Twice.

79
Q

What is the dividend called when paid halfway through the year?

A

An interim dividend.

80
Q

Where and who agrees on the final dividend?

A

Shareholders at the AGM.

81
Q

When can shares be bought and sold with the right to the next dividend?

A

Till the date the dividend is declared.

82
Q

What is the period called between the declaration and payment of a dividend?

A

Ex-dividend.

83
Q

What does cum-dividend mean?

A

The period up until a dividend is declared.

84
Q

When a share is ex-dividend is the shareholder entitled to the next dividend?

A

No.

85
Q

What is the standard settlement period in Europe for dividends?

A

T+2.

86
Q

What is the record date?

A

The date t which the shareholder register is closed for the next dividend.

87
Q

What is the record date also known as?

A

The register date and the book closed date.

88
Q

What day is the LSE ex-dividend date?

A

Thursday.

89
Q

What happens during the ex-dividend period regarding the share price?

A

It will fall to reflect the dividend payment.

90
Q

What are the two types of takeovers?

A

Friendly and hostile.

91
Q

What happens in a successful takeover?

A

The predator will acquire more than 50% of the target company.

92
Q

When does a predator company have control over the target?

A

When they hold more than half the targets shares.

93
Q

How will a predator company pay for the shares of the target company?

A

With cash and or its own shares.

94
Q

What is a merger?

A

When companies of a similar size agree to merge their interests.

95
Q

How do companies pay in a merger?

A

Exchange their own shares.

96
Q

Who must hold AGMs?

A

Public companies.

97
Q

What are the other names for an AGM?

A

General meeting, assembly or stockholders meeting.

98
Q

What is the name for the process of a company listing its shares on an exchange?

A

Becoming listed/quoted, floating on the stock market, going public or an initial public offering.

99
Q

What does IPO stand for?

A

Initial public offering.

100
Q

What is a primary market for?

A

The marketing of new shares to investors for the first time.

101
Q

What is a secondary market for?

A

Where investors who bought shares off the primary market can dispose of them.

102
Q

What is the purpose of a primary market?

A

To raise capital and enable a supply of funds to be matched with investment opportunities.

103
Q

What is the purpose of a secondary market?

A

Allows the primary market to function effectively by facilitating two way trade.

104
Q

What is a stock exchange?

A

An organised marketplace for issuing and trading securities by members of that exchange.

105
Q

Which exchanges offer both primary and secondary markets?

A

All.

106
Q

What does ADR stand for?

A

American depository receipts.

107
Q

When were ADRs introduced?

A

1927.

108
Q

What is the denomination of an ADR?

A

USD.

109
Q

What type of form are ADRs issued in?

A

Bearer form.

110
Q

Who is the registered owner of an ADR?

A

A depository bank.

111
Q

What is the benefit of an ADR?

A

Enables non US companies to attract US investors.

112
Q

Where are ADRs listed and traded?

A

NYSE, NASDAQ and LSE.

113
Q

What does each ADR represent?

A

An underlying amount of shares or by a fraction of an underlying share.

114
Q

What is a GDR?

A

A global depository receipt.

115
Q

Where are GDRs settled through?

A

Euroclear or the Depository Trust and Clearing Corp. (DTCC)

116
Q

How are voting rights on GDRs/ADRs exercised?

A

Through the depository bank.

117
Q

Are GDR holders aloud to take up rights issues?

A

No, the rights are sold and the cash is distributed.

118
Q

Up to what percentage of a companies voting share capital can be converted into depository receipts?

A

20%.

119
Q

What is a pre-release of depository shares?

A

Where a custodian bank will issue depository receipts before the deposit of the shares.

120
Q

What is an outcry open marketplace?

A

Where traders would meet face to face on a trading floor.

121
Q

Which exchange is partially electronic but also has a trading floor?

A

NYSE.

122
Q

How are trading systems conducted?

A

Either order or quote driven.

123
Q

What does quote driven mean?

A

Where a market maker is employed to provide continuous two way prices throughout the trading day.

124
Q

What does order driven mean?

A

Employs either an electronic order book or an auction process to match buyers with sellers.

125
Q

How are buyers and sellers matched in an order driven system?

A

In chronological order by price then quantity of shares.

126
Q

What type of driven system do most marketplaces operate?

A

Order driven.

127
Q

Where are orders added to in an order driven system?

A

The buy or sell queue or executed immediately.

128
Q

If an order to sell is being executed immediately, which queue will they be trading against?

A

The queue of buyers.

129
Q

If an order to buy is being executed immediately, which queue will they be trading against?

A

The queue of sellers.

130
Q

What does a deep order book mean?

A

There are a lot of orders waiting.

131
Q

How is priority given in an order queue?

A

By price then time.

132
Q

What are 2 main MTFs?

A

BATS Europe and Turquoise.

133
Q

What does off-exchange trading mean?

A

Where trades are taken place directly between market counter-parties.

134
Q

What is the purpose of indices?

A

To provide information on market performance and provide information to investors as they give a realistic benchmark on portfolio performance.

135
Q

What were indices originally designed to do?

A

Give an impressionistic view of the market.

136
Q

What is market timing?

A

Judging the right time to buy and sell.

137
Q

What are the 4 uses of indices?

A
  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
Q

What does DJIA mean?

A

The Dow Jones Industrial Average.

139
Q

How are Dow Jones indices calculated?

A

By price.

140
Q

What do most indices base their calculations on?

A

Price, float adjusted capitalization and relative market capitalization.

141
Q

What does float adjusted capitalization aim to do?

A

Exclude shareholdings held by large investors and govs that are not readily available for trading.

142
Q

How many equity indices are there worldwide?

A

Over 300.

143
Q

Which US index market provides a narrow view?

A

DJIA.

144
Q

Which US index market provides a wider view?

A

S&P500.

145
Q

What does the NASDAQ Composite index market provide a view of?

A

All the shares listed on NASDAQ.

146
Q

What does the FTSE100 cover?

A

The largest UK companies, 80% of the market.

147
Q

What does the FTSE All Share cover?

A

600 UK companies, 98% of the market.

148
Q

Name the 3 Japanese index markets.

A

Nikkei 225, TPOIX and NIKKEI 400.

149
Q

What is the French index market called?

A

CAC40.

150
Q

What is the German index market called?

A

DAX.

151
Q

What is the Indian index market called?

A

BSE Sensex.

152
Q

What is the Chinese index market called?

A

SSE Composite.

153
Q

What is the Singapore index market called?

A

Straits Times Index.

154
Q

What is the Australian index market called?

A

S&P/ASX200.

155
Q

What is the final stage of trading?

A

Settlement.

156
Q

What does DvP mean?

A

Delivery versus payment.

157
Q

How do investors place orders on an exchange?

A

Through brokers.

158
Q

How is a trade matched?

A

When the two sets of instructions match.

159
Q

What happens on settlement day?

A

Sellers are credited with the proceeds of the sale and the securities are delivered to the buyer.

160
Q

What is the typical settlement cycle for European equity trades?

A

T+2.

International Introduction to Investment (9 decks)

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