MCQ - Misc

Question 1

What 4 areas does the Task Force on Climated Related disclosures - suggest reporting be structured around

Answer 1

1) Governance
2) Strategy
3) Risk Management
4) Metrics & Targets

NOT OPERATIONS ! !

Question 2

What is the reason for a protective put?

How does it work?

Answer 2

Protect downside, whilst still being able to make a gain.

Hold shares - buy a put (price falls put limits loss, price rises, profit = gain - premium paid)

Question 3

What is the reason for a covered call?

How does it work?

Answer 3

Neutral / Moderately bullish

Own stock, sell a call.

Share price doesn’t rise to strike = profit from gain & income from premium

Question 4

What is more expensive in backwardation:

1) Long dated futures
2) Close to expiry futures

Answer 4

Close to expiry

therefore, if rolling over same dollar amount, would be able to buy more contracts.

Question 5

What is more expensive in contango:

1) Long dated futures
2) Close to expiry futures

Answer 5

Long dated futures

Therefore, if rolling over, would have to buy fewer (with same dollar amount)

Question 6

4 reasons for issuing convertible debt:

Answer 6

1) Align shareholders/bondholders
2) lower debt financing costs (equity sweetener)
3) Not immeditely dilutive (equity has to rise to dilute)
4) Can issue unsecured debt without a prohibitive coupon (for companies without fixed assets)

Question 7

explain what the term mark to market means

in terms of derivatives trades

Answer 7

Asset prices are “marked” to their market price.

In derivatives trades, at the end of each day, positions are “marked” to their current value.

Therefore losses and gains are made clear daily.

Question 8

What is margin?

Answer 8

Colatteral which must be posted to cover losses.

Safeguard for trader and brokerage

Question 9

What are the 3 main types of margin?

Answer 9

1) Initial
2) Variation
3) Maintenance

initial is based on notional principal

Question 10

What is initial margin?

Answer 10

upfront colatteral required to open a position

Question 11

What is variation margin

Answer 11

Margin which is posted daily in response to market moves.

Based on a marked to market basis

Question 12

Dividend discount formula:

(gordon growth)

Answer 12

Div / (Cost of Capital - Growth)

Question 13

Pros of dividend discount model

Answer 13

1) simple to use / understand
2) Only requires small number of inputs

Question 14

What “active” decisions are a part of “passive” management?

Answer 14

1) Manager Selection
2) Benchmark Choice
3) Investment Universe
4) Bebalancing
5) Risk Management (e.g. replication, use of derivatives etc.)

Question 15

What risks is an investor exposed to from market cap weighted indexes?

Answer 15

1) Momentum Bias
2) Value negative bias
3) Concentration in sectors
4) Concentration in a few big names
5) Exposure to overpriced names
6) No ESG consideration

Question 16

Why might an investor choose a security lower on the SML than an alternative?

Answer 16

1) Diversification vs existing holdings
2) Liquidity constraints
3) ESG constraints
4) Dividend Paid

Question 17

Why are voting shares more expensive?

Answer 17

1) Voting right = can build takeovers stake
2) Can vote and influence corporate governance (e.g. elect directors)

Question 18

Give examples of services that are VAT Exempt

Answer 18

1) XO Management
2) Fund Only Management
3) Clearing & Settlement
4) Stock Lending
5) Global Custody

Question 19

What is the caveat to VAT on Consultancy, Research & Registrar / Depositary Services

Answer 19

VAT Exempt IF - it is provided to an authorised unit trust of OEIC