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Wrong answers Flashcards

1
Q

Policy switching if interest rates fall

A

switch from low duration to high duration
rates down - prices up - yield down
switch to long as more sensitive to rates

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2
Q

Rates relationship with bond price

A

rates down - price up
LT more sensitive to changes in rates

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3
Q

Types of nominee and why

A

Nominee appears on share register and is legal owner of shares - beneficial ownership resides with underlying client
e.g. asset managers, institutional investors

pooled nominee - indiv clients groups within single nominee registration - no separate voting entitlement
designated nom - nominee iname includes unique identifies for each indiv client
sole nonimee - each client has own nominee
corp nom - issuing comp forms nominee for smaller holders

grpouped noms may lose perls - too much admin
sole or designated - can mandate div to particular acc

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4
Q

Effect of interest rate reduction

A

bond, eq, and property - positive effect - prices rise - financing cheap

cheap money = decrease in purchasing power = currency devalues

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5
Q

ratio analysis
tech analysis

A
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6
Q

long call short call
long put short put

A

long call, short put - bullish - make money in rising markets
long call - profit from exercising @ strike and selling at market
short put - profit from premium collected as holder wont exercise

short call long put - bearish -make money in falling markets
short call -make money from prem as holder wont exercise
long put - profit from selling and rebuying at market

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7
Q

how do ratings agencies rate issuers of bonds

A

assess whether CF due to be generated by borrower will comfortably service debts

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8
Q

standard settlement

A

usually T+2 with exceptions

Gilts, T bonds, JGBs - T+1
Money market instruments T+1
repo and secs lending can be T+0
certificated stcoks T+1

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9
Q

callable / putable bonds

why would you want to exercise option?

A

callable bonds - can be called back early at discretion of issuer
- if rates go down
- higher yield and lower price than reg as adds val to issuer

putable bonds - cann be put back at discretion of holder
-if rates go up
-higher price lower yield than straight bond as adds val to holder

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10
Q

quant fund stock selection

A

actively managed fund
selection process driven by computer models solely

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11
Q

enhanced cash fund vs money market fund

A

money market = highly liquid near term instruments
certificates of deposit, interbank loans, commercial paper; T-bills, repos

enhanced cash = same but also higher yielding less liquid asssets e.g. low rated bonds, longer maturity, foreign currency debt, ABCP, MBS (mortgaged backed secs), SIVs(special investment vehicles)

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12
Q

purpose of diluted EPS on balance sheet

A

to warn of future earnings changes as result of
-convertible loan stock or pref shares being exercised
- options or warrants being exercised

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13
Q

what is a municipal bond
tax?

A

In US - state and local gov issue thes the finance local borrowing
often tax efficient, particularly for those who live in the municipality
free from fed tax and local state tax

often guaranteed by 3rd party known as monoline issuer

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14
Q

what happens to warrants on takeover

A

often exercise date is accelerate to takeover date - destroys any time val
investor could suffer big loss
if waarant is out of money e.g. just issued - it may become worthless

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15
Q

SETS order book price moves from accepted tolerance

A

causes AESP - automatic execution suspension period
to allow investors time to react
price tolerance varies from 5-25% depending on share

AEP lasts for 5 mins + 0-30 secs - no tades executed but orders can be places
then auto execution resumes after uncrossing auction program is run

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16
Q

buy side and sell side analyst

A

buy side - work at asset management firms
sell side - work at brokerage firms

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17
Q

when is FX trading most volatile

A

at release of key economic data
- Non farm pay rolls report - 1st fri month @8.30 EST
-Publication of personal consumpton expenditure price index - monthly
fed fund target rates - 8x a year

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18
Q

what is a reverse split

A

aka consolidation
comp reduces no. of shares and share price goes up proportionally
smaller shareholders may be cashed out and recieve cash for holdings e.g. if consol is 20 to 1 and u own less than 20 shares
will increase EPS

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19
Q

what can share premium reserve be used for

A

share prem reserve = capital reserve account
- cannot be distributed as divi
can be used to

-write off initial costs of issuing share/listing
to fund increase in called up share cap caused by bonus/scrip

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20
Q

what can share premium reserve be used for

A

share prem reserve = capital reserve account
- cannot be distributed as divi
can be used to

-write off initial costs of issuing share/listing
to fund increase in called up share cap caused by bonus/scrip

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21
Q

money market instruments

A

T bills, eligible bills, certificates of deposit, commercial paper, repos

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22
Q

what is a pip

A

a pip = 5th figure of a quote

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23
Q

what is a carry trade

A

borrowing safe low interst currency - converting into risky comoodity currency - investing in higher yielding assets

potential double return - high yield + appreciation of original currency

times of uncertainty - these are unwound and flows go from commodity currency to safe haven

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24
Q

certificates of deposit

A

negotible bearers secs
issued by commercial banks in exchanged for fixe dterm deposit with lower rate than equiv bank deposit
can be issued for up to 5 years
tradable

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25
Q

NFA
CFTC
ESMA

A

NFA = national futures association - self reg orginisation or US futures. mandatory for any brokers in US - independt no ties to specific marketplace

CFTC - commodities futures trading comission - independent agency to issue forex regs for financial markets in US

WSMA - european secs markets authority 0 independent EU authority promotes alignment between regs in EU

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26
Q

who can participate in the interbank markets

A

commercial banks, instit investors or large corporate depositing at least 500k for term of 1 night - 1 yr

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27
Q

what interest is notifyable according to UKLA disclosure and transparency rules

A

3% interst in form of voting rights for PE
fund manager = 5% voting rights

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28
Q

developed markets requirements by FTSE

A

cleaning and settlement T+3 or less
frontier = t+7
formal stock regulatory authorities
high income economy(measured by world bank GNI per capita)

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29
Q

difference between offer for sale and subscription

A

sale involves issuing house
subscription does not

issuing house usually IB
both @fixed prices

30
Q

warrant conversion premium

A

= price of warrant + exercise price - share price

31
Q

3 probs with bearer secs

A

money laundering regs are useless
issuing company has probs paying divi
physical security of shares v important - increases cost

32
Q

exempt persons frot stamp duty/SDRT
exempt instruments?

A

persons: intermediaries e.g. LSE member firms, registered charities and gifts

instruments: gilts, non convertible loan bonds (£), bearers stocks, foreign registered stocks, rights issues, CFDs, some derivatives, ETF

33
Q

Active bond strats

A

riding yield curve - upwards sloping - buy bonds with mats longer than investment horizon, hold to end of period then sell

anomaly swtiching - switch between bonds with similar characteristics but prices/yields our of line
– substitution switches - differ only in terms of price and yield
–pure yield pickup switch - switching based on increased yield to maturity

policy switching - switch between 2 diff bonds to take advantage of anticipated changes in rates, rating, sector

inter market spread switch - corp to gov (flight to quality), gilt to corp if yield difference is excessiv

34
Q

passive bond selection strats

A

immunization/duration matching
- matches price and reinvestment rate matched at point of duration to libaility

CF matching - bond redemption proceeds meet liability as it falls due

combination matching - mixture of CF matching in short term and immunisation in long term

35
Q

SAFE

A

synthetic agreement for forward exchange
- variation on short term currency swap
- no actual exchange of principal at inception or nat - basically a CFD on notional cash sums

36
Q

types of custodian

A

global - 1 stop shop across range of foreign markets

sub-custody - appointing of local agent to global custonian
- lower credit rating than global and regional

local custodian = country specialist
regional custodian - multiple markets in a region
-mid range between local and gloal in terms of benefits

37
Q

exchangeable bond

A

straight bond + embedded option to convert into equity of company other than issuer (usually subsidiary)

38
Q

asset backed securities (ABS) and SPVs

A

ABS = debt secured against a pool of assets
SPV sits between lender (for mortgages) and investment company) and create Asset backed bond which they sell to bank
bank can then issue these bonds - does not appear on the balance sheet of bank
bankcrupty remote - since SPV is stand alone with pool of assets to service debt

39
Q

lead manager?
issuing house?
underwriter?
syndicate?
spomsor?
corp broker?

A

lead manager: aka lead underwirters - given responsibility to lead syndicate and coordinate issuance of secs

underwirter: firm who guarantees min level of proceeds from a share issue - will take onto own books then sell to market
if fails to be taken up will purchase “ discount

ussuing house - invites apps from public at higher price than they paid the issying company

syndicate - group of investment banks and stockbrokers who collectively issue secs of a company

sponsor - may be same comp and lead manager
asesses suitability for listing
asesses best method of bringing comp to market
coordinates prospectus production

corp broker - facilitates marketing of shares

40
Q

who writes the prospectus in IP0

A

sponsor - coordinates production
legal advisor - ensures relevant matters are covered
accountants - validates financial statements

41
Q

offer for subscription vs offer for sale

A

subscription = straigh to investor - will be knowledgable company e.g. ITC

sale = via an issuing house to investor

42
Q

UKLA conditions for listing and ongoing obligations

A

conditions :
- pub company
-freely transferable shares with pre emptions rights
- 25% free float
limit of 30% ownership (not hard)
-min market val 700k eq, 200k debt
-3 years audited accounts
- 12 months working cap

continuing:
- disclosure of price sensitive info through RIS

43
Q

AIM roles and conditions for entry

A

Nom advisor - applies to LSE
Broker - liquidity provider
must maintain both
shares susspended if either lost and removed from AIM if not replaced in a month

conditions: accounts
and additional reqs for yound companies

continuing reqs:
must disclose info through RIS

44
Q

weighting of indices

A

price weighted - assumes 1 share per comp + biased towards higher share prices
e.g. DJIA

value weighted (market cap)
- biases towards large companies
SP500, NASDAQ, FSTE100

45
Q

Dow divisor

A

adjusts price weighted index for bonus issues, splits, consolidations such that events dont alter numerical val of DJIA

DJIA = sum of component stocks/ dow divisor

currently a dow multiplier

46
Q

RPI and CPI
gilts?

A

inflation indices
Gilts use 3 months prior RPI except those issued pre jun 05 which use 8 months prior

RPI = UK retail PI = 500 goos and services
excludes top 4% earning households
arithmetic avg
RPIX = -mortgage repayments
RPIY = - mortgage repayments and VAT

CPI = globally harmonised index, excludes housing costs, geometric avg, used by MPC, all priv households

RPI typically higher than CPI

47
Q

medium term notes

A
  • issued on a scheduled funding basis
    shelf registration - allows several to be authorised under one registration - letting company roll out issues over next 2 years
    2- 10 yrs
48
Q

What is a dark pool

A

an MTF without any reqs to fulfil MIFID transparency
XC traded liquidity with OTC confidentiality
Treated as MTF/OTF if volumes are huge

49
Q

MTF/OTF

A

MTF - crossing network for equities
OTF - crossing network for bonds

both are alternative to XCs

50
Q

conversion premium of bond

paid £125 per 100 NV
right to covnert to 50 shares
shares trading “2.10

A

Price of bond/no. of shares bond is worth
= price per share of bond

price per share of bond - market price /market price

125/50 = 2.5
2.5-2.1 = 0.4
0.4/2.1 = 19% =answer

51
Q

regulatory framework for aim

A

Companies Act
FCA reqs - e.g. transparency rules
LSE

52
Q

limit orders

A

have price and time limit
sell 1000 shares at 360pby next tues

max time limit = 90 days
can be partially filled
removed at end of trading day if no time limit
oly orders displayed on SETS order book

53
Q

iceberg orders

A

type of limit order
hides size of large order to limit market impact
executes in tranches

54
Q

at market/at best orders

A

no specified price
will fill as much as poss at any available price and remainder cancelled
only during automatic exc

55
Q

fill or kill

A

only during automatic exc
normally have specified price
entire order executed at price or better or cancelled

56
Q

execute and eliminate

A

only during automatic exc
executes as much of trade as poss then eliminates rest
has set price

57
Q

what is a CCP

A

central counterparty
service that can be provided by trading system - e.g LCH for SETS
assumes responsibility for settling with each counterparty - buyer and seller remain anonymous
- helps reduce counterparty risk
- improvement in price

58
Q

financial gearing ratio

A

= debt/equity

59
Q

how would a eurobond list in london

A

admission to listing by FCA
admission to recognised stock exchange e.g. LS=E

60
Q

split capital ITC shares

A

set up for pre specified amount of time - usually 5-10 years then wound up (increasing risk)

zero divi pref shares - cap growth @ pre established redemption price

income shares - entitled to most of income generated from assets of trust, some cap protection

annuity income shares - v high and rising yield with baso no cap protextion

ordinary income shares - high income and share of remaining assets after prior ranking shares

capital shares - entitled to remaining assets on wind up - v high risk

61
Q

equity multiplier

A

total assets/total equity

62
Q

LSE listing reqs

A

market cap must be 700k+, with at least 25% free float
market val of bond issues must be 200k+
all secs must be freely transferable
any subs issue of ordinary shares must be made to existing shareholders 1st unless pre exemption resolution
no holde rover 30%
3 years of audited accounts
must disclose annual accoutns with 4 months of end of FY

63
Q

PV of bond

(val of 6 yr 8% bond with 4.5% interest rates)

A

= £coupon x 1/r x [1-1/(1+r)^n)] +NV/(1+r)^n]

or discount back cash flows usuing
CPV = FV/(1+r)^n

64
Q

unsponsored vs sponsored ADR

A

unspon = issued by depositary bank with no involvement by issuer

largely OTC traded
some shareholder benefits dont apply

65
Q

difference between tactical and strategic cash

A

tactical = shorter term = high interest, over night deposit facility leading high rated banked

strategic - investments in cash and near cash money market instruments or funds

66
Q

difference between auction and tender

A

auction - non IL gilts, T bills
competitive pricing - pay bid price

tender
- IL gilts, corp bonds, US gov bonds
- compet auction ranked by price
everyone pays lowest successful bid

67
Q

compet vs non compet auction UK gilts

A

compet - primary dealers via GEM phone line
min bid = 1mn NV, 500k NV for T bills
pay bid price if successful

non compet - anyone registered with DMO
ax bid = 500k - bid for NV not for price
pay vol weighted avg of compet bid

68
Q

succesful auctions

A

bid to cover ratio

calculated 2 ways:

  1. bids received/bids accepted
  2. $ amount bids received/ $ accepted

above 2.0 = successful

69
Q

US debt auctions

A

singple price auction - 2 options compet and non compet

compet - bidder spec rate, yield or discount margin
non compet - $5m max per auction and accepts rates etc of compet

@close - US treasury awards all non compet bids that comply with auction rules and accepts compet bids in ascending order of rate, yields, discount argin (low to high) - until quant is filled

all receive highest accepted

70
Q

ROCE

A

= EBIT / (equity + LT liabilities)

EBIT / (total assets- current liabilitites)

71
Q

open offer vs rights issue

A

open offer = rights issue but take it or leace it
rights cannot be sold nil paid so investor cannot transfer rights

72
Q

forward rate calc

A

F/S = (1+var) / (1 +base)
remember to divide annual r

SECS (6 decks)

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