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Securities - IAD > General > Flashcards

General Flashcards

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SIE Exam flashcards
1
Q

What is Systemic Risk

A

Risk of collapse of the financial system as a whole

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2
Q

What is Systematic Risk

A

(Aka Market Risk) Risk that affects the market as a whole. Eg Interest rate risk, Currency Risk. Cannot be diversified away.

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3
Q

What is Unsystematic Risk

A

(Aka Specific Risk) Relates to specific or particular investments eg, Issuer Risk, Liquidity Risk. Can be diversified away.

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4
Q

What is Beta

A

Beta measures the extent to which price movements of an asset are in line with a benchmark/market (Systematic risk)

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5
Q

What is Standard Deviation

A

How far on average returns deviate from the mean return (volatility)

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6
Q

What does the Sharpe ratio measure?

A

Measures the return above the risk-free rate from an undiversified equity portfolio, for each unit of risk assumed

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7
Q

What does the Treynor ratio measure?

A

Measures the return above the risk-free rate from an diversified equity portfolio, for each unit of risk assumed

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8
Q

What does the Jensen Alpha measure?

A

Evaluates performance of a well-diversified portfolio against a CAPM benchmark (with the same level of BETA as the portfolio)

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9
Q

What is Cash Flow-Matching?

A

Passive Bond Strategy
Purchasing bonds whose redemption proceeds meet a liability as it falls due

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10
Q

What is Immunisation

A

Passive bond strategy
An investor buys a portfolio of bonds with a duration (not maturity) equal to any liabilities - aka Bullet Strategy

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11
Q

What is Combination Matching

A

Passive Bond Strategy
Mix of Cash Matching and Duration Matching. Cash match the near-dated liabilities and duration match the longer-dates liabilities.

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12
Q

What is the minimum bid for UK T-bills and multiples thereafter?

A

£500,000 minimum and multiples of £50,000.
(Secondary trading = multiples of £25,000)

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13
Q

What is a Certificate of Deposit (CD) ?

A

An investor invests a lump sum at a bank which is locked in for a term. A Certificate of Deposit is a tradable instrument which allows the investor to sell the certificate representing the deposit, to allow liquidity.

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14
Q

What is a Repurchase Agreement (Repos) ?

A

A form of (collateralised) borrowing whereby a Gilt is exchanged for cash, with an agreement to repurchase the Gilt at a later date (+ Repo rate)

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15
Q

In FX Forward Rate pip adjustments, what is the rule for subtracting or adding the forward adjustment?

A

Bid < Offer = add
Offer < Bid = subtract

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16
Q

How would you calculate a Forward rate pip adjustment?

A

Spot rate +/- Forward pip adjustment

17
Q

What are the 3 (time) categories of conventional gilts?

A

Shorts = less than 7 years
Mediums = 7 - 15 years
Longs = more than 15 years

18
Q

What is the relationship between bond length and yield

A

The longer the length to maturity, the higher the bond yield

19
Q

Describe the process of Asset Backed Security

A

Mortgages are sold by a lender to a SPV who pools the mortgages and produces ABSs to sell to Investment Firms

20
Q

Explain the role of Inter-dealer brokers (IDB)

A

Where a GEMM does not physically have gilts for delivery to an investor, they can enter a transaction with an IDB, acting as central counterpart, which buys from one GEMM and sells the required gilts to the other GEMM

21
Q

When a bond is priced below par, what is the effect on Flat Yield & GRY in regards to coupon?

A

Flat Yield higher than coupon rate and GRY higher than Flat Yield

Coupon < Flat Yield < GRY

22
Q

When a bond is priced above par, what is the effect on Flat Yield & GRY in regards to coupon?

A

Flat yield is lower than coupon and GRY lower than Flat Yield

Coupon > Flat Yield > GRY

23
Q

What bond’s prices are more sensitive to interest rate changes?

A

Longer dated & smaller coupon

24
Q

What bond’s prices are less sensitive to interest rate changes?

A

Shorter dates & larger coupon

25
Q

What is a Barbell strategy?

A

Where a Bullet strategy matches 10yr liability with 10yr bond duration, a Barbell strategy may be to hold bonds with a duration of 5 & 15yrs

26
Q

What are the differences between CFDs and Spread Bets?

A

•Neither result in physical delivery
•SBs are tax free, CFDs incur CGT
•CFDs may incur financing charges
•CFD are for sophisticated investors
•SBs for less sophisticated investors

27
Q

What is a placing?

A

Selected marketing where shares are being made available to selected clients of a broker/issuing house

28
Q

What is a bought deal?

A

Shares are bought by an issuing house that is re-selling them to the investing community

Securities - IAD (7 decks)

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