General 2

Question 1

What is a Limit Order?

Answer 1

A “no worse than” order. A limit is placed on how much the trader is willing to sell for or buy for (eg. Sell 6,000 at no worse than 210)

Question 2

What is an Iceberg order?

Answer 2

Allows only part of a big order to be displayed. Once the first tranche has been fulfilled, the next lot comes onto the order screen.

Question 3

What is a Market Order (at best)?

Answer 3

Buying/selling at the best price available. Certainty of execution at whatever price is best.

Question 4

What is a Execute and Eliminate Order?

Answer 4

Order has a limit price and will be filled as far as possible at the price specified, then any remaining part of the order will be cancelled

Question 5

What is a Fill or Kill order?

Answer 5

Has a limit order, but cannot be partially filled. If exact price and quantity cannot be matched, the whole order is cancelled.

Question 6

What is an MTF?

Answer 6

Crossing matching engine for equities.

Treated as an exchange

Question 7

What is a OTF?

Answer 7

Crossing matching engine for bonds and derivatives

Operated by Investment Firms

Treated as an exchange

Question 8

What is a Dark Pool?

Answer 8

Off exchange. Exchange liquidity but OTF confidentiality (hidden orders)

Run by Investment Firms

Used by funds

Question 9

What is a Systematic Internaliser?

Answer 9

Firms performing principle or cross trades and matching their own clients orders

From acts as Central Counterparty

Question 10

What are the differences between Warrants and Covered Warrants?

Answer 10

Where warrants are issued by a company, covered warrants are issued by Investment Banks allowing Call and Put warrants from existing shares

Warrants normally mature over a years time whilst covered warrants normally mature within a year

Question 11

What’s are Contracts for Difference (CFDs)?

Answer 11

Cash settled derivative whereby an investor may go long or short against another investor and lose/gain the margin to which the underlyings price moves. Eg. FTSE 100 Index

Essentially, the amount of which the price moves is exchanged.

Question 12

Explain the structure of Unit Trusts

Answer 12

Legally trust
Open-ended
Trades units at NAV
Bid-Offer spread
Supervised by trustee and managed by UTM

Question 13

Explain the structure of ICVCs

Answer 13

Legally company
Open-ended
Trades shares at NAV
Single pricing
Supervised by Depository and managed by ACD

Question 14

Explain the structure of Investment Trust Company’s

Answer 14

Legally company
Closed-ended
Trades shares at market value
Bid-Offer spread
Supervised by independent auditors like a normal company

Question 15

What is Continuous-Linked Settlement (CLS)?

Answer 15

A cross currency settlement system operated by CLS bank which reduces Herstatt Risk (risk of of paying and not receiving payment)

Settlement focused on 5 hour window with Payment V Payment

Question 16

What is a Credit Default Swap (CDS)

Answer 16

Essentially insurance on a bond

Investor pays a premium to a swap bank to protect against the risk of their bond defaulting

Question 17

Who makes up the Origination Team prior to an IPO?

Answer 17

Legal Advisers
Accountants
PR team
Corporate Brokers
Sponsor (Listing agent)

Question 18

When looking at diversification in regards to Correlation Coefficient, what are opposite ends of the scale of what numbers could be recorded?

Answer 18

1 = Perfect Positive Correlation
0 = No Correlation
-1 = Perfect Negative Correlation

Question 19

What is the difference between Fundamental & Technical Analysis?

Answer 19

Fundamental:
•Analysis of a company’s balance sheet, cash flow statement & income statement
•Long term approach

Technical:
•Believes that the fundamentals are already accounted for in the price
•Uses chart data over a shorter period

Question 20

In regards to IAS 33, why is a diluted EPS required to be published by a company and what is it?

Answer 20

The diluted EPS is to warn shareholders of future changes to the EPS figure (at any time), (eg. if holders of convertible loan stock or preference shares exercise or options/warrants are exercised)

IAS 33 requires this theoretical calculation to be published.

Question 21

Explain features of a REIT

Answer 21

Closed-ended
Trades shares at market value
Dividends are considered property income and taxed higher
The property-letting business (which is tax exempt) must comprise 75% of the overall company
90% of profits must be distributed

Question 22

What parts of the Primary and Secondary markets are enforced by the FCA & LSE?

Answer 22

Primary = FCA writes & enforces rules

Secondary = LSE writes & enforces rules * (FCA can still suspend)

Question 23

What is Bid Basis Pricing?

Answer 23

Spread is moved to the left of NAV, making the Bid the ‘cancellation price’

Encourages buying of the fund - cheap

Used when market moving downward

Question 24

What is Offer Basis Pricing?

Answer 24

Spread is moved to the right of NAV, making the Offer the ‘creation price’

Slows buying of the fund - expensive

Used when market moving upward

Question 25

What is Quantitative Analysis?

Answer 25

Uses mathematical models to price & manage products to see if under/overvalued.

Aims to find market inefficiencies. Quantitative funds are actively managed, but stock selection is purely based on computer algorithms.

Question 26

Define Free Float

Answer 26

The percentage of shares held by the public