Definitions from Mocks Flashcards
What ways can a company issue shares for the first time?
name the two types of IPO
1) IPO (Offer for Sale & Offer for Subscription)
2) Placings
3) Introductions
What is the difference between:
1) Offer for Sale
2) Offer for Subscription
1) Public are asked to subscribe - price is decided by the public - only have to pay the final price (no more no less)
2) Shares offered at a fixed price to the public
Points about Limited PE partnerships?
1) Fixed life by contract (10yrs)
2) General Partner invest the capital
3) Low Liquidity
4) Investors have little control over running of investment
5) GPs invest 1% - have industry experience
6) LPs institutional investors who provide bulk of capital
What is perfect competition?
- Free market theory - no buyer or seller can influence price
- Homogeneous product
- infinite number of firms
- normal profits
- no barriers to entry or exit
- perfect information about product available to all
- Supernormal products would be eroded by other firms
Limitations of Financial Ratios
1) Snapshot in time
2) Based on historical figures
3) Cannot compare across industries
4) Accounting policies can differ from firm to firm
5) Can manipulate statements to improve ratios
6) Window dressing
7) Seasonailty of revenue (distortion)
What is a rights issue?
How is it issued?
issue of new shares to existing shareholders for cash, pro-rata their existing holding.
Underwritten by an investment bank
What is a pre-emption right?
Rights issues
1) Right to buy shares and prevent dilution of holding
What are the effects of a right issue?
Share price goes down
Holding diluted if you don’t take up all your rights
What options does an investor in a rights issue have?
1) Decline - received lapsed rights
2) Sell the rights (nil-paid price)
3) Split rights
4) Tail swallow
5 types of ordinary share
1) Normal ordinary shares
2) Not Voting / A Shares
3) Deferred Shares
4) Redeemable
5) Golden Shares
Central Securities Depository - Main Functions:
1) Immobilisation
2) Safekeeping
3) Deposit, Withdrawal and Transfer
4) Corporate Action Processing
5) Pledging
6) (Other services - repo, matching, securities lending)
Benefits of CFDs
1) Margin traded (do not have to deposit full value)
2) No SDRT
3) Losses can offset CGT
4) Stop Loss & Limit Orders
5) Bespoke for hedging
Drawbacks of CFDs
1) Daily financing cost
2) Comission charge on each trade
3) Must maintain marging
4) Leveraged position can cause substantial losses
5) Can lose more than one put in
