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mock 2 Flashcards

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SIE Exam flashcards
1
Q

A prime broker has created exposure to particular securities by using derivatives. This is known as:

A

Synthetic financing

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2
Q

The conversion ratio in relation to a corporate bond describes the:

A

Number of shares the bond can convert into

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3
Q

A bond’s dirty price is the same as its clean price. Which of the following would help explain this situation?

A

The settlement date is the same as the coupon date

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4
Q

Which of the following most likely describes the features and benefits of a putable bond?

A

The holder of a putable bond has the right, but not the obligation, to demand early repayment of the principal, usually exercisable on specified dates, which is good for the holder usually when interest rates are rising

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5
Q

A household contents insurance company is most likely to invest in:

A

T-Bills

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6
Q

Debt with a high interest cover will subsequently affect:

A

Market valuation

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7
Q

Which of the following is the settlement agency for German equity?

A

Clearstream

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8
Q

Which of the following statements would be least likely in relation to a pension fund?

A

Pension funds will have significant holdings in money market instruments

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9
Q

If an investor is interested in dark liquidity on the London Stock Exchange, on which platform would they be looking to trade?

A

Order driven

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10
Q

Stakebuilding may be undertaken for which of the following purposes?

A

To bring about a possible acquisition

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11
Q

Which of the following is the lowest ranking form of debt?

A

PIK

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12
Q

In an order driven platform what is the order of priority for ‘on the book’?

A

Price followed by time

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13
Q

In a new share issue the syndicate is typically appointed by whom?

A

Lead manager

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14
Q

Which of the following would NOT be considered an advantage of using a central counterparty?

A

Reduced initial margin payments

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15
Q

On a company’s statement of financial position (balance sheet), there may be liabilities based on past events for which there is an obligation but the exact amount is yet to be established. How is this commonly referred?

A

Provision

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16
Q

Diversification is best described as:

A

Reducing specific risk

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17
Q

Who are usually the direct issuers of Commercial Paper?

A

Financial companies

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18
Q

A company has made an operating profit of £8m. If raw materials increased by £3m and both payables and receivables increased by £2m, what would be the firm’s net cash flow?

A

£5m

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19
Q

Which of the following would be considered an advantage, for the nominee, of individual registration within designated nominee accounts?

A

It helps with aspects of auditing and good control mechanisms, where identical trades are executed for different clients

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20
Q

Which of the following is true regarding hedge funds?

A

They usually charge high performance fees

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21
Q

The non-displayed or hidden nature of the buy and sell orders that reside in a crossing platform is best observed in which of the following?

A

Dark pool

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22
Q

Which exchange has a mix of open outcry and electronic trading platforms?

A

New York Stock Exchange

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23
Q

What is the repo rate?

A

The implied interest paid for borrowing money

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24
Q

Company X is completing its accounts and is forced to account for company Y. What is the likely reason for this?

A

Company X has a significant holding in company Y

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25
Q

Which of the below cash flows incorporate a company’s debt obligations?

A

Equity cash flow

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26
Q

If an investor has diversified their risk exposure by asset class, they have:

A

increased the number and range of their holdings

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27
Q

Which of the following corporate actions would never be made available to an American depositary receipt holder?

A

The right buy new shares in proportion to existing shares

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28
Q

Which of the following would most likely be considered when assessing the credit rating of a bond?

A

The issuer’s current credit rating

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29
Q

Which of the following is the best definition of a bond ‘on the run’?

A

The most recently issued Treasury bond

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30
Q

Which of the following is a reason for diversifying a portfolio? To reduce:

A

Unsystematic risk

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31
Q

Which of the following statements is most likely to be FALSE regarding a company with a low P/E ratio relative to its sector?

A

It is likely to have a low dividend yield

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32
Q

A UK company raises capital via a sterling debt issue in continental Europe. What is the most likely way it would do this?

A

Eurobond

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33
Q

Consider two companies, one big and the other small. Which of the following would be most likely with regards to P/E ratio and dividend yield?

A

The smaller company would have a higher P/E ratio and lower dividend yield

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34
Q

Which of the following statements regarding trading halts is true?

A

The LSE can halt a listed security at its discretion and for as long as necessary

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35
Q

Which of the following BEST describes a feature of quote-driven markets?

A

Market makers quoting bid/offer spreads

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36
Q

The effect on a company’s accounts of borrowing money would be to:

A

Increase current assets and increase liabilities

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37
Q

When issuing equity a company will appoint a sponsor, who will provide all of the following services EXCEPT:

A

Facilitating the marketing of the share to interested parties

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38
Q

The price of shares in Firm A change relative to those in Firm B. What risk would this represent?

A

Specific Risk

39
Q

Which of the following institutional investors is MOST likely to invest in commercial paper?

A

Money market fund

40
Q

Which of the following would be considered as passive bond strategy?

A

Duration Immunisation

41
Q

Why would an investor want to deal special-ex?

A

For tax planning purposes

42
Q

A company is considering a follow-on offer of securities, which of the following would most likely dissuade the company?

A

The prospect of a bear market

43
Q

A UK listed equity trade settles through the CREST settlement system. Which of the following taxes will apply to the buyer only?

A

Stamp duty reserve tax

44
Q

The coupon on a bond is best described as:

A

Interest paid

45
Q

A broker might use which one of the following system to trade bonds with an investor?

A

BondVision

46
Q

Which of the below would be a consideration when calculating earnings per share of a company?

A

Profit after tax

Shares excluding preference shares

47
Q

Why might an investor be more interested in using net debt to equity ratio instead of total debt to equity?

A

To see if the company holds substantial cash and short term investments

48
Q

A broker holds the shares of a client in a pooled nominee account. Which of the following would be true?

A

The client is entitled to receive the benefits of ownership

49
Q

Company C wishes to issue and engages the help of Company A and Company B. Company A is responsible for 75% of the issuance and placing through to large companies and institutional investors. Company B issues to the other 25% and deals with smaller companies. Which BEST describes Company B’s role.

A

Co-lead manager

50
Q

Which one of the following is not a reason for a company wanting to buy back its own shares?

A

A company has announced a capitalisation issue

51
Q

What is the settlement system for German equity?

A

Clearstream

52
Q

A bond with a 2-10 year maturity is created from securitised public sector loans and mortgages, where the investor has recourse against the issuer should default occur. The assets backing the bond remain on the issuer’s consolidated statement of financial position (balance sheet). This would BEST describe which of the following bonds?

A

Covered bond

53
Q

Which of the following is true with regard to the dividend on a preference share?

A

Fixed and paid at the discretion of the board

54
Q

ABC plc’s 3 year bond has a yield of 4.5% and its 10 year bond is yielding 6.5%. If an investor believes that the yield spread between the two bonds will increase to 250 basis points. If he is correct, which of the following strategies would be profitable?

A

Buy the 3 year and sell the 10 year

55
Q

Participants in a dark pool are MOST LIKELY to have chosen this type of execution venue because of:

A

Ability to execute trades at efficient prices

56
Q

Which of the following would enable an investor to benefit from future growth in the share price of a company?

A

Convertible loan stock

57
Q

PE ratio

A

PE ratio = share price / EPS

58
Q

EPS

A

EPS = profit / number of shares

59
Q

The best description of an inter-dealer broker would be:

A

Acts as agent between dealers

60
Q

Which of the following would be the most likely response in bond and equity prices when interest rates rise, or are expected to rise?

A

Bond prices will go down and equity prices will go down

61
Q

Where a cum-dividend equity trade fails to settle on contractual settlement what will happen?

A

The broker of the client buying will make a claim on the broker of the client selling

62
Q

Which of the following is TRUE of an omnibus nominee account?

A

Only one holding appears on the company register

63
Q

A company wishes to raise new capital to fund long term expansion. It does not expect to make profit in the early years of this expansion so does not want to be tied down to funding obligations.
Which of the following would be the best to issue?

A

Ordinary shares

64
Q

An investor is considering the benefits of buying a convertible bond instead of shares in a company. Which of the following would be a benefit of owning the convertible bond?

A

The opportunity to earn interest on the bond while profiting from any gain in the share price

65
Q

A UK investor has substantial holding in European investments. There has not been a significant price change in the companies they are holding yet the investor has seen the total value of the investments change dramatically. Which of the following could be the reason for this change?

A

The change in the value of the Euro

66
Q

Which of the following indices is comprised mainly of the largest companies?

A

FTSE 100

67
Q

Dividend yield

A

Dividend yield = dividend / market price x 100

68
Q

If there is an increase in inflation, what would be expected impact on interest rates and bond prices?

A

Rates would increase, price would fall

69
Q

Which of the following debt instruments would allow the holder to exchange the debt for a set number of shares, not of the issuer but of another company’s shares already held by the issuer?

A

Exchangeable bond

70
Q

Secondary Information Providers are used by whom as source of company information?

A

Brokers and research analysts

71
Q

A request for quote system would usually be used in relation to which one of the following?

A

Lower liquidity, high volatility bonds

72
Q

How many STRIPS could be created from a five year UK government bond?

A

11

73
Q

Which of the following best defines the conversion ratio on a convertible bond?

A

The nominal value of the bond divided by the conversion price of the shares

74
Q

Which one of the following is a major disadvantage of holding property as a direct investment?

A

Property can be an illiquid asset

75
Q

Which of the following best describes commercial paper?

A

Unsecured, discount instrument

76
Q

Two eurozone governments’ bonds are sold in Europe with identical terms of coupon rate, maturity of redemption, and all other standard terms. However, both still sell into the market with different yields. Which is the most likely reason why?

A

Different credit ratings

77
Q

At what percentage of share ownership would an investor be forced to make a mandatory bid?

A

30%

78
Q

A portfolio manager who believes in the pure expectations theory and wants to save money would adopt which of the following positions?

A

Passive

79
Q

Commercial property returns are typically measured in what way?

A

Rental yields

80
Q

Which of the following best describes the features of government bonds?

A

JGBs - Valued in decimals, paying a semi-annual coupon, with an actual over 365 day-count convention and can be either registered or bearer documents

81
Q

Bondvision is a dealer to client electronic trading platform connecting which two parties?

A

Customer to Dealer

82
Q

An investor is looking to switch a large portion of their portfolio from equity to bonds as they believe the markets are going to fall. Which of the following best explains the reason for their actions?

A

They wish to lock in the most possible capital growth before moving into a security that can give a more reliable income

83
Q

A company’s capital consists of a combination of debt and equity. If the company undergoes a stock split, what will be the effect on the debt/equity ratio?

A

No change

84
Q

In which of the following types of issue might a company retain a greenshoe option?

A

A secondary offer

85
Q

Which of the following would be shown as a liability on the statement of financial position (balance sheet)?

A

Debentures

86
Q

BondVision is an example of which of the following?

A

An electronic platform to facilitate dealer-to-customer trading in bonds

87
Q

Which ONE of the following statements about sub-custody agreements is FALSE?

A

Agreements cannot contain specific provisions, only general guidance

88
Q

Which of the following would be considered the difference between commercial paper in the UK and commercial paper in the US?

A

UK commercial paper has a maturity up to 1 year, whereas US commercial paper has a maturity up to 270 days

89
Q

Which instrument would be likely to provide the best indicator of long term interest rates

A

Bond futures

90
Q

‘Over the counter’ (OTC) markets in recent times seem to be converging with exchange traded markets, which of the following is the most likely explanation?

A

Regulatory changes

91
Q

Which of the following best describes an ADR?

A

Represents ownership of non-US shares

92
Q

It is possible to issue shares through private transactions; this does not require compliance with the prospectus regulation or the need for a prospectus. To which type of investors would this offer always be made available?

A

Qualified investors

93
Q

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?

A

Depositary receipt holder

Securities (19 decks)

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