Topic 7 Flashcards
What is the ‘main market’?
The London stock exchange
Briefly explain ‘the primary market’ and ‘the secondary market’
- Primary market - This is where companies initially raise finance by selling securities to investors.
- The secondary market - This is where investors buy and sell existing securities. It is much bigger than the primary market.
What is the criteria to get a full listing on the main market?
- The company must have been trading for at least 3 years
- At least 25% of its issued share capital must be in the hands of the public
- A considerable amount of accurate financial and other information must be disclosed.
Explain what a ‘rights issues’ is
If an existing company that already has shareholders wishes to raise further capital by issuing more shares, the new shares must be offered to existing shareholders first.
These are generally offered at a discounted rate
If someone does not want to take the opportunity up, they can sell their rights to someone else.
Explain what ‘preference shares’ are
- Holders still entitled to dividends, however normally at a fixed rate (normally dividends are not fixed or guaranteed)
- Entitled to dividend payments ahead of ordinary shareholders
- Do not normally carry any voting rights
- Preference share holders have a higher claim than ordinary share holders if the company is wound up
How is income from property treated?
It is treated as non-savings income therefore liable for income tax.
On the disposal of any investment property any gain made is liable to CGT
What four things make BTL investments attractive?
- Regular and increasing income stream can provide a hedge against inflation
- Easy access to BTL mortgages
- Well developed market
- Easy access to ancillary services (eg letting and property management agents)
What measures were put in place to reduce the attractiveness of BTL as an investment?
- Tax relief - Tax relief is now limited to a tax credit at the basic rate only
- Wear and tear - Annual wear and tear allowance can no longer be claimed, you can now only claim for replacing furniture
- Stamp duty land tax - second properties are now subject to a SDLT surcharge
What are three checks lenders often do when lending on commercial property?
- Quality of the land and property
- Reputation of the builders, architects and other professionals involved
- Suitability of likely tenants
Briefly explain ‘treasury bills’
- They are issued by the debt management office (DMO)
- Fundraising instrument for the government
- Similar to gilts, the two major differences are:
1. They are short term, normally 91 days
2. They are zero-coupon securities. They do not pay interest, instead they are issued at a discount to their par value - They can be bought and sold on the secondary market.
Briefly explain ‘Certificates of deposit’
- Issued by banks and building societies
- Effectively a receipt to confirm a deposit has been made with the institution for a specified period at a fixed rate of interest.
- Interest is paid with the return of capital at the end of the term
- Terms are typically between 3 and 6 months
- Can be rolled over for a further 3-6 months
- Typically £50,000 or more
- Significant penalties for early withdrawals
- Classed as a ‘bearer security’
What is a ‘bearer security’?
Securities that are deemed to be owned by whoever physically possesses the document that confers ownership, rather than ownership being determined by an entry on a register, etc.
Briefly explain ‘commercial paper’
- Used to borrow for working capital purposes
- Transactions are for very large amounts
- Cheaper borrowing opportunities for companies that have a good credit rating
- Most issued for a period of between 5 - 45 days with an average of 30 - 35 days.
- Firms can roll over their commercial paper two advantages of this are:
1. Flexibility
2. The fact that the rate of interest is not fixed for a long period
