Topic 7 - Other Direct Investements

Question 1

What are equities

Answer 1

Also known as shares issued by companies and bought by private investors.

Question 2

Securities meaning

Answer 2

Financial assets that can be traded. Either owned (equities) or debt (gilts and bonds)

Question 3

Factors affecting share prices

Answer 3

1- company profitability

2- strength of market sector

3- strength of UK and global economy

4- supply and demand for shares

Question 4

How are shares bought and sold

Answer 4

The London stock exchange

Question 5

The main market

Answer 5

To be listed on main market, must conform to listing rules by FCA

• must be trading 3 years
• 25% of share capital must be in public hands

Question 6

Alternative investment market (AIM)

Answer 6

For smaller companies looking for growth by offering shares to public. Rules for joining aren’t as strict

Question 7

Market capitalisation

Answer 7

The market value of company.

Number of shares * share price

Question 8

Financial returns from shares

Answer 8

Growth in share price

Dividends they receive

Question 9

How to asses the success of company shares

Answer 9

Earnings per share - company’s post tax net profit / number of shares

Dividend cover - how much of profit is paid out as dividend

Price/earnings ratio - share price / earnings per year. Usually to find out future potential.

Question 10

Other ways of investing in companies

Answer 10

Right issues
Scrip issues
Preference shares
Convertible preference shares
Warrant

Question 11

Money market instruments

Answer 11

A form of short term debt.

Treasury bills
Certificate of deposit
Commercial paper

Question 12

Treasury bills

Answer 12

Short term redeemable securities issued by debt management office.

No interest but give you a discount on face value. Usually for 91 days

Suitable for large organisations seeking secure investment

Question 13

Certificate of deposit

Answer 13

A receipt from banks and building societies confirming that a substantial deposit (£50k +) has been made for a fixed period at a fixed rate of interest

Question 14

Bearer securities

Answer 14

Securities that are owned by whoever possesses the document that confirms ownership. Rather than an entry on register

Question 15

Commercial paper

Answer 15

For company borrowing. Purchasers are large organisations. Between 4-45 days

Paper exchanged when company promises to pay funds.