MCQ - Misc Flashcards
What 4 areas does the Task Force on Climated Related disclosures - suggest reporting be structured around
1) Governance
2) Strategy
3) Risk Management
4) Metrics & Targets
NOT OPERATIONS ! !
What is the reason for a protective put?
How does it work?
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)
What is the reason for a covered call?
How does it work?
Neutral / Moderately bullish
Own stock, sell a call.
Share price doesn’t rise to strike = profit from gain & income from premium
What is more expensive in backwardation:
1) Long dated futures
2) Close to expiry futures
Close to expiry
therefore, if rolling over same dollar amount, would be able to buy more contracts.
What is more expensive in contango:
1) Long dated futures
2) Close to expiry futures
Long dated futures
Therefore, if rolling over, would have to buy fewer (with same dollar amount)
4 reasons for issuing convertible debt:
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)
explain what the term mark to market means
in terms of derivatives trades
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.
What is margin?
Colatteral which must be posted to cover losses.
Safeguard for trader and brokerage
What are the 3 main types of margin?
1) Initial
2) Variation
3) Maintenance
initial is based on notional principal
What is initial margin?
upfront colatteral required to open a position
What is variation margin
Margin which is posted daily in response to market moves.
Based on a marked to market basis
Dividend discount formula:
(gordon growth)
Div / (Cost of Capital - Growth)
Pros of dividend discount model
1) simple to use / understand
2) Only requires small number of inputs
What “active” decisions are a part of “passive” management?
1) Manager Selection
2) Benchmark Choice
3) Investment Universe
4) Bebalancing
5) Risk Management (e.g. replication, use of derivatives etc.)
What risks is an investor exposed to from market cap weighted indexes?
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
