Underlying Markets

Question 1

Which of the following is NOT a characteristic of a warrant?

Answer 1

Warrants can only be issued to existing shareholders

Question 2

Which of the following is most likely to drive oil prices up?

Answer 2

War in the Middle East

Question 3

Banks accepting deposits in the inter bank market use which of the following as the average rate quote?

Answer 3

LIBID

Question 4

The graph of a yield curve is the representation of which of the following?

Answer 4

Yields and maturities

Question 5

Which of the following might explain why sugar prices would be less affected by bad weather in a region than cocoa prices?

Answer 5

Sugar is produced in more than one region

Question 6

When there is a normal yield curve, which of the following is TRUE?

Answer 6

A short-dated 5% coupon gilt will have a lower-yield than a long-dated 5% coupon gilt

Question 7

Bonds are used to fund the:-

Answer 7

Budget deficit

Question 8

For which of the following is the Bank of England responsible?

Answer 8

Setting sterling interest rates

Question 9

What is the standard settlement for UK corporate bonds in CREST after the trade?

Answer 9

Two business days

Question 10

The US equivalent of LIBOR is:

Answer 10

Fed funds rate

Question 11

Which organisation has been given the responsibility for the administration of LIBOR?

Answer 11

ICE Benchmark Administration

Question 12

What rate is derived from a gilt sale and repurchase?

Answer 12

Repo rate

Question 13

The highest expected gearing to share price movements would be:

Answer 13

Warrants exercisable until 2019

Question 14

Which of the following is the best description of a collateralised debt obligation (CDO) squared?

Answer 14

A CDO that is created from a basket of CDOs

Question 15

bid/offer

Answer 15

left/right

Question 16

What is represented by the yield curve?

Answer 16

The maturity range of a bond series against their respective yields

Question 17

Forward adjustments are always expressed in pips (also known as FX points).

Answer 17

A pip is usually the fifth significant figure of the rate

Question 18

An investor purchases a call covered warrant. What type of investment have they bought?

Answer 18

Option to buy existing shares issued by a third party

Question 19

JGBs normally have a maturity

Answer 19

of ten years.

Question 20

How are T-bills usually issued?

Answer 20

By tender offer

Question 21

Investing in preference shares is similar to investing in bonds because:

Answer 21

Dividends on preference shares are usually fixed

Question 22

FX quotes are typically quoted to 5 significant figures.

Answer 22

A pip is the fifth significant figure.

Question 23

A time deposit commonly offered to consumers by banks and other financial institutions for a period of 3 to 6 months is the best description of which of the following:

Answer 23

Certificate of Deposit

Question 24

The adjustment to the spot rate

Answer 24

is quoted in ticks

Question 25

A bond is currently trading as a 4% Treasury 2029 aft. How would the LSE classify this gilt?

Answer 25

An undated gilt

Question 26

Which of the following is true concerning US T-bonds?

Answer 26

They are all registered

They are not issued with a zero-coupon

Question 27

In relation to warrants, which of the following is FALSE?

Answer 27

They must be exercised on expiry

Question 28

Which of the following should happen when a credit rating on a bond goes down by a ‘notch’, assuming all other things being equal?

Answer 28

The bond’s price drops

The bond’s yield increases

Question 29

A report of supply problems for North Sea gas would result in which of the following for gas futures?

Answer 29

Prices would increase

Question 30

If a client suggested that he felt the yield curve was steepening, what would he most likely mean?

Answer 30

Longer-yields are rising

Question 31

Japanese government bonds are issued with a normal maturity of how many years?

Answer 31

10

Question 32

Which ONE of the following best represents ten basis points?

Answer 32

0.1%

Question 33

Which yield curve reflects prices and yields moving in the same direction for different maturities?

Answer 33

Neither

Question 34

If an investor expects the Japanese interest rates to rise faster than the Euro rates which spread transaction should he undertake?

Answer 34

Sell the Japanese government bond future, buy the German government bond future

Question 35

Which is true regarding cumulative preference shares?

Answer 35

Dividends are paid from undistributed profits

Shareholders’ rights are governed by the issuing company’s articles of association

Question 36

Which of the following ARE characteristics of US Treasury bonds?

Answer 36

They have a life in excess of ten years
They are registered instruments
They always pay a coupon
They are the US equivalent of gilts

Question 37

Which of the below is the best description of a Hybrid derivative?

Answer 37

Combining two different types of derivatives in one contract

Question 38

Which of the following would cause an increase in the price of emission rights?

Answer 38

The announcement by the government of the closure of nuclear power stations

Question 39

Which of the following is the largest user of silver?

Answer 39

Jewellery

Question 40

Which of the following credit ratings is assigned to a bond in default by Fitch?

Answer 40

D

Question 41

Which metal is used in the production of galvanisation brass?

Answer 41

Zinc

Question 42

Which of the following best describes the repo rate?

Answer 42

The interest rate implied by the difference between the sale and repurchase price of an asset

Question 43

Gilts are:

Answer 43

UK government bonds

Question 44

Which of the following is NOT one of the cryptocurrencies?

Answer 44

Bitripple