Topic 1 Quiz Flashcards
When a firm raises funds for the first time on a stock exchange it is known as:
A. a share purchase plan
B. an initial public offering
C. a placement
D. a rights issue.
B. an initial public offering
When investors select the most attractive securities without regard to asset allocation they are adopting which of the following?
A. bottom-up approach
B. top-down approach
C. capital allocation
D. security selection
A. Bottom-up approach.
Which of the following statements is correct?
A. Trading occurs through a centralised trading facility in an over-the-counter market.
B. A bid-ask spread is the difference between the highest bid price and lowest ask price.
C. A market order is an order to buy or sell shares at the current market price.
D. Implicit transaction costs are transparent.
C. A market order is an order to buy or sell shares at the current market price.
Short-selling of shares occurs when you do which of the following?
A. Hold money in a trust to buy shares.
B. Sell units in a managed fund.
C. Borrow money to finance the purchase of shares.
D. Sell shares that you have borrowed.
D. Sell shares that you have borrowed.
The share returns on Commonwealth Bank will move in the same direction as the share returns on Telstra when:
A. There is positive covariance.
B. Their expected returns are positive.
C. There is positive variance.
D. There is correlation greater than 1.
A. There is positive covariance.
A company’s framework for identifying who is responsible for decision making and encouraging the efficient use of resources is known as:
A. Corporate Ethics
B. Transparency
C. Corporate Governance
D. Risk Allocation.
C. Corporate Governance
A sell market order on the Australian Securities Exchange (ASX):
A. Will be matched with the highest bid price limit order.
B. Will be matched with a buy order very quickly.
C. Allows the trade to make a profit.
D. Is done over the counter.
B. Will be matched with a buy order very quickly.
A margin call on a short sale of shares in Westpac Banking Corporation:
A. Will increase the profitability of the short sale.
B. Will range between 20% and 60%.
C. Will occur when share prices increase.
D. Can be met using cash or interest rate securities.
D. Can be met using cash or interest rate securities.
What is a financial security?
It is an ownership right to a real asset or income generated by the real asset. A financial security is also referred to as a financial asset or financial instrument.
What is a financial market?
Investors trade financial securities on the financial markets which include the equity market (e.g. ordinary shares), fixed-income market (e.g. bonds), foreign exchange market (e.g. curricies), and derivative market (e.g. options and future contracts.
What is the top down approach?
Decide on the best asset allocation and then decide on the attractive securities to include in each asset class.
Does an investor control the price that they trade at in a limit order or a market order?
It will be a limit order. In an auction market, a limit order is an order that will buy or sell an asset at a set price. A market order is an order to buy or sell an asset at the current market price.
What two costs make up the total cost of a transaction?
- Explicit costs are transparent e.g. brokerage free
- Implicit costs are less transparent and difficult to estimate in advance e.g. bid-ask spread, market impact etc.
What is the margin in a margin trade?
The current value of the investment less the value of the loan used to make the investment.
When will a short sale of shares be profitable?
When share prices decrease to a level where the investors can buy the borrowed shares at a price that is less than the price they sold them for. This difference must also cover the interest charged by the lender of the shares and compensation for any dividends paid during the short sale period.
