Final Study Questions Flashcards
Dealers on stock exchanges act as:
- Investment banks
A company announces an increase in the dividend that it will pay out to shareholders in response to continued profit growth. Assuming all of the following securities are in issue, which of the following is most likely to benefit from this increase in income?
Depositary receipt holder
Who decides whether a company’s shares are admitted to both the official list and the LSE?
UKLA
The market is showing signs of unrest. If an investor wishes to pursue a flight to quality, which of the following bonds might they choose?
Recently issued 10-year US T-bond
What are the rules for stripping UK exchequer bonds?
Only designated gilts can be stripped and only by the DMO, Bank of England and GEMMs
Stock borrowing and lending was created to address which of the following?
Settlement risk
Eurobonds, as bearer documents, typically need to be kept safe. They would normally be
held in depositaries
Which is NOT on the income statement?
Investment income
Which of the following is true of a capital investment in a structured investment?
There are penalties if redeemed early
Which of the following is a corporate debt instrument backed by a particular company asset?
Fixed charge bond
Which of the following types of corporate debt would most likely have the lowest coupon?
Guaranteed bonds
Bill is a closed ended fund manager and Andy is an authorised open ended fund manager. Which of the following is TRUE?
Both funds can invest in quoted companies
Which of the following has the largest impact upon the price of a corporate bond?
The yield of the benchmark government bond
A risk-averse investor looking to invest in bonds would most likely choose to invest in:
Putable bonds
An investor, after receiving excellent returns on her equity investments, switches to bonds. Which of the following is the most likely reason?
To capitalise on the gains before a downturn
Which of the following is true of capital reserves and revenue reserves?
Capital reserves can be converted into a bonus issue of shares
The ratio EV/EBIT represents:
The cost of purchasing the company over operating revenue
Company X increases its holdings in company Y and yet does NOT trigger disclosure under the Takeover Code, which of the following would BEST explain this?
X is a major supplier of Y
Which of the following is a key feature of exchange-traded funds?
They must not be closed-ended
If an investor has diversified their risk exposure by asset class, they have:
increased the number and range of their holdings
increased the number and range of their holdings
Stock exchanges
What is the main purpose of a dividend paid by a UK company?
To distribute profits to the owners of the company
Money market funds aim to achieve maximum returns while minimising credit, market and liquidity risks. These funds typically invest in:
Government securities, short-term bonds, commercial paper, repurchase agreements or even other money market funds
To whom do regulatory news or information services process and disseminate information?
Secondary information providers
Which of the following would be a result of an increase in the equity risk premium on a share?
The price of the share falls
For which of the following reasons might an investment bank submit a stabilisation notice?
Share price has fallen below a certain level
A dealer acting as principal will perform which of the following?
Buying and selling securities with clients
A trade has moved to the confirmation stage with a central counterparty. Which of the following has occurred immediately prior to this?
The trade has been executed on an exchange
Why would a company choose to do a rights issue?
To fund a takeover
Which of the following could result in a ‘rebate’ in a stock lending situation?
Cash is used as collateral
Who makes the decision of whether a company meets the requirements of size, control, free float and trading history for a listing on the official market?
The FCA
Who recognises the London Stock Exchange?
The Financial Conduct Authority
In a stock borrowing and lending agreement, the borrower will provide collateral to the lender. Where the fee has been has been quoted as a rebate this would mean, it is where:
cash has been placed as collateral and the lender will earn all of the interest that accrues on the cash collateral and an agreed rate will rebated to the borrower
Short selling market developed to:
Cover settlement failure
An investor receives a provision allotment letter from a company performing an offer for sale. What does this confirm about the investor?
She is an existing shareholder
Company A and Company B have announced a merger. Company A’s shares would be:
Exchanged for new shares
Where a bond is repaid in a single lump sum at the maturity date, this is an example of:
Bullet bond
Which of the following is the prime role of the primary markets?
To enable surplus funds to be matched against investment opportunities
The UK Debt Management Office announces the results of an auction, upon which of the following will it have an immediate impact?
Interest rates
In relation to equity issued by companies, which of the following is best defined as ‘registered title’?
The name of the legal owner of the share
Capital employed can be defined as:
Total equity plus non-current liabilities
Which of the following is a characteristic of coupons on convertible bonds?
They have a lower coupon compared with coupon on an otherwise identical bond
UK T-Bills and stripped gilts ALWAYS have:
Zero coupon
High frequency trading (HFT) creates which of the following risks?
Systemic
Investor uses an index weighted by dividend yields, an example of:
Smart beta
Which of the following is true of companies that use GAAP?
Standardises how particular transactions are shown
An institutional investor is looking to invest in a ‘carry trade’. Which of the following describes such a trade?
They would need to borrow funds in a currency where there is a relatively low borrowing rate, and will invest those funds, after converting to another currency where there is a higher rate of interest available for short-term deposits
A convertible bond that gives the holder the right to convert into 100 shares has a conversion price of £1.00. If the current share price is £3.00 and this market price falls, we would expect which of the following?
The market price of the bond to fall
Eurozone investor buys a US T-bond denominated in Euros. For which reason will they need to sacrifice the risk free return commonly associated with government debt?
Euros can only be printed in the Eurozone
The diluted EPS figure is:
A theoretical calculation based on assumptions about future events, which may or may not actually take place, and its importance to the reader of the accounts and any potential investor
On receipt of rights to buy new shares, which of the following can a shareholder NOT do?
Sell the rights to the issuer
Dirty Price
Clean price + accrued interest = Dirty Price
Which of the following is false in relation to cryptocurrency?
It is heavily regulated
Which two do companies need/have to follow according to listing obligations when an issuer is planning on having its securities listed?
Reporting and good corporate governance
An investment bank has successfully completed a book-build for a company wishing to issue shares. What does this suggest?
They have allocated available shares to willing buyers
Which of the following describes how corporate bonds being traded, along with their prices, can be discovered?
Dealers give prices within separate pools of liquidity
The providers of which of the following services would be considered a participant in the wholesale market?
Derivatives trading
Where there is a sub-custody agreement, which of the following describes the correct set of relationships?
The client is the client of the global custodian, whereas the local custodian is the agent of the global custodian
A bank is assisting a client to issue securities in emerging and frontier markets. Which considerations should specifically be stated in relation to the client?
There is likely to be less liquidity in the primary markets
A 30 year old person who is in good health would have predominately which of the following investments within their personal pension?
Medium risk equities
Who is the legal owner of the shares that underlie an ADR?
The depositary bank
How frequently does a STANDARD listed UK company need to produce accounts?
Every 6 months
The analysis of risk and return is best done in which of the following way?
Backward-looking analysis of historic returns and forward-looking forecasts
A company wants to do a placing but has already issued shares in a country that insists on pre-emption rights. Which of the following must they do?
Put it to shareholders
If someone uses MTS Cash, what does that tell us about their method of trading?
Dealer to dealer
Which of the following is true of a full-service broker and a discount broker?
The full-service broker will have a higher minimum charge than the discount broker
Why is it important that ‘request for quote’ systems run alongside the dealer-to-customer market?
To achieve better prices
You expect interest rate cuts that have not been anticipated by the market as a whole. You sell short term bonds and buy long term bonds. Which of the following strategies are you following?
Policy switching
Which of the following would show depreciation in the GBP/USD currency rates?
Imports to the UK becoming more expensive than exports
A company has performed well during the course of the year. In which way is it MOST likely to reward its shareholders?
Declare a high final dividend
Which of the following is considered the main risk of investing in emerging/frontier markets as opposed to emerged markets?
Less sophistication
Minority holdings are shown in:
net assets and net income in the consolidated statement of financial position and the group income statement
What should investors be aware of when investing in structured deposits as opposed to structured investments?
That they could benefit from services such as the UK’s compensation scheme
Generally Accepted Accounting Practices (GAAP) are which of the following?
Provide a basis for good practice
Which of the following would NOT be found under non-current assets in the statement of financial position?
Stock
Which of the following could be described as a main benefit of a central counterparty?
Reduction of systemic risk
Which of the following best indicates the returns on money market instruments?
Low risk, variable returns
A company obtains a quotation on an exchange without adjusting their capital structure. How did they achieve this?
An introduction
Why would an investment trust not be allowed to be an exchange-traded fund?
An investment trust is closed-ended
A high frequency trader successfully completes the purchase of a large holding of shares. Which of the following are they likely to do next?
Sell the shares as quickly as possible
An investor bought a convertible preference share. She suddenly starts receiving a variable dividend on the share. Why might this be?
She has utilised the inherent option of the preference share
Why would a company perform a stock split, rather than a capitalisation issue?
To ensure there is no change in the share capital line
A company charges £7,500 as a depreciation charge on an asset using the straight-line method. Which of the following is true?
The book value of the asset will fall £7,500 each year
A company, quoted on the London Stock Exchange’s Alternative Investment Market (AIM) one month ago, ceases to have a corporate broker on the 1st July. Which of the following statements is TRUE?
If by the 31st July the broker has not been replaced the company will be removed from the exchange
Where can authorised participants buy exchange traded funds (ETFs) directly from a fund manager?
In the primary market
Which of the following best reflects the role of the origination team in the quotation of a company?
A broad range of advice
Which one of the following is not an advantage of using as Distributed Ledger?
It can increase the use of a centralised register
How would a trader normally gain dark liquidity?
Multilateral trading facilities
An introduction is used by a company to:
gain extra liquidity
Why do shareholders get to vote on dividends at AGM?
To ratify the directors’ decision on the level of dividend
The role of a gilt inter-dealer broker is to:
ensure market makers remain anonymous
If shares are held in a corporate nominee account, which of the following is true of the name on the register?
It is a single nominee name
Which of the following is key advantage for a portfolio manager to hedge with futures?
It leads to lower portfolio disruption
When would you see goodwill on a company statement of financial position?
Where a subsidiary is bought for more than net asset value
Which of the following would best describe the purpose of index linked gilts?
To provide an inflation protected product
