Sample exam questions Flashcards
What type of derivative is usually used to achieve synthetic replication in an ETF?
Swaps
What price are gilts usually traded and settled at?
Traded - clean
Settled - dirty
In what form do governments tend to issue their short-term (i.e. less than six months) bonds?
As zero coupon bonds
Which is likely to have a higher yield, a puttable bond or a conventional bond?
Conventional
What is the indexation lag for index-linked gilts?
Issued pre-July 2005 - 8 months
Issued post-July 2005 - 3 months
What is the acid test ratio also known as?
Liquidity ratio
What type of share involves a share certificate without the shareholder’s name?
Bearer shares
What type of share will only pay a dividend after all other dividends have been paid?
Deferred shares
What’s the main difference between warrants and call options?
Warrants are generally issued for longer time periods.
Does a warrant provide an investor with the right or obligation to buy shares at a set price in the future?
Right to buy
Between what hours does automatic execution take place on the Stock Exchange Electronic Trading System?
8am-4:30pm
What type of price transparency rules apply to dark pools?
Post-trade only
What is a dual-listed company?
A company that’s listed on two separate stock exchanges, but as two separate entities operating under a group structure
What system establishes that the legal title to a share has changed?
Operator Register
If a trade is executed between 7:15am and 8pm, when is the latest time it can be reported?
8:03am
If a trade is executed within the last three minutes of the trade reporting period, when is the latest time it can be reported?
5:15pm
What is one major difference between depositary receipts and other equities?
DRs aren’t liable for Stamp Duty or SDRT
How many cash flows does a gilt with four years to maturity have?
9 –> 8 coupon payments and one maturity payment
How are gains/losses on STRIPs taxed?
As income on an annual basis
What does the spot curve show?
Plots zero coupon yields against their term to maturity
What is the LSE’s trading service for less liquid securities?
SETSqx
What does the Stock Exchange Electronic Trading System allow participants to do in the last 25 minutes until 5 o’clock?
Delete orders
For how many days can limit orders be displayed on the SETS system?
90
What is an ‘iceberg’ order?
A large limit order where only a specified portion of the order is publicly visible
When is the ex-date for bonds?
7 business days before the coupon date
What is the TRAX system mainly used for?
Bond trades in the OTC market
If there is a 2:3 rights issue at £3 with the shares currently trading at £4, what is the theoretical ex-rights share price?
Pre-issue: (3x£3)=£9
New shares: (2x£4)=£8
Total = £17
ex-rights price = 17/5 = £3.40
Why are regulators keen to promote the use of central counterparties for clearing and settlement?
To spread the risk of default across all participants
When is an investor deemed to have a ‘notifiable interest’ in a public company?
When he owns more than 3% of the voting rights
What does a bond with a put provision allow the holder to do?
Call for early repayment
Find the profit/loss on the following trade:
UK investor buys USD at spot rate 1.4251/56
Sold back at spot rate 1.4065/71
Bought at 1.4256
Sold at 1.4065
Loss of 1.4256-1.4065=0.0191=191 pips
