B Rote Flashcards
(129 cards)
1
Q
What does a financial intermediary do?
A
Acts as the middleman between two parties in a financial transaction
2
Q
What does a credit rating agency provide?
A
Assessments of default risk on commercial and/or sovereign debt
3
Q
Which type of shares have the highest risk?
A
Ordinary shares
4
Q
Which is riskier, preference shares or unsecured loan notes?
A
Preference shares
5
Q
What is meant by commercial paper?
A
Unsecured short-term loan notes issued by companies
6
Q
How long are maturities for commercial paper?
A
Rarely range any longer than 270 days
7
Q
What is commercial paper used to finance?
A
Accounts receivable, inventories and meeting short-term liabilities
8
Q
What is the focus of fiscal policy?
A
Increase tax revenue
Reducing public expenditure
9
Q
What effect if imports exceed exports for currency?
A
Supply of the home currency will exceed demand
10
Q
Effect on exports if imports exceed exports for currency?
A
Boosts demand for exports and corrects trade imbalance
11
Q
What is meant by supply side economic policy?
A
Designed to make markets and industries operate more efficiently and contribute to a faster underlying-rate of growth of real national output
12
Q
What if consumers increase the proportion of income that they save?
A
They will demand less goods and services.
13
Q
What is meant by an inverted yield curve?
A
Investors exhibit a preference for long-dates loan notes
14
Q
What is a normal yield curve?
A
Long-term interest rates are higher than short-term. Explained by liquidity preference theory
15
Q
Share prices for a market that is semi-strong?
A
Share prices quickly react to new publicly available information
16
Q
A
17
Q
What If the stock market operates at strong form pricing efficiency?
A
Investors have all information about each company
18
Q
Prices and a weak-form efficient capital market?
A
Prices would only reflect historic data and fundamental analysis of a company’s performance could predict future share price movements
19
Q
Which is higher, long-term or short-term interest rates?
A
Long-term interest rates
20
Q
Why are long-term interest rates higher than short-term? (compensation)
A
Lenders require higher compensation for deferring their liquidity for a longer period
21
Q
Why are long-term interest rates higher than short-term? (default)
A
The risk of default is higher on a long-term loan
22
Q
What if imports exceed exports?
A
Supply of the home currency will exceed demand. Boosting demand for exports
23
Q
Currency effect on imports exceeding exports?
A
Home currency depreciates
24
Q
Is lending for periods of greater than one year?
A
No
25
Is lending securitised?
Yes
26
Are borrowers for mainly small companies
No
27
Types of dealings for a strong-form efficient market?
None as all private info would be reflected in the share price
28
Can the market be outperformed in a strong-form efficient market?
Outperformed by individual investors, but only by luck and not consistently
29
What determines share price in a weak-form efficient market?
Past information
30
Movements of share price in a weak-form efficient market?
In a random walk
31
How are discounted instruments originally sold?
For a price below their nominal value and do not pay interest
32
Is commercial paper secured or unsecured?
It is an unsecured money market instrument
33
What is a security token?
A digital representation of ownership or economic rights
34
What is meant by a first offering of shares in a company?
An IPO in which securities are share certificates
35
Do security tokens have a legal status of currency?
No
36
Are security token offerings unregulated or regulated?
Regulated
37
What market is needs to convert foreign currency into domestic currency?
Foreign exchange market
38
What market is needed to issue new ordinary shares?
Primary capital market
39
What market is needed to purchase short-term over-the-counter derivatives
Primary money market
40
What market is needed to new long-term loan notes?
Capital market
41
Effect of interest rates and inflation on a contractionary fiscal policy?
Higher taxes and lower government subsidies
42
What does expansionary monetary policy typically affect a business?
Higher demand from customers and lower interes rates on loans/ Increased availability of credit
43
Which policy involves changing tax rates?
Fiscal policy
44
What happens when governments adopt a floating exchange rate system?
Exchange rate is an equilibrium between demand and supply in foreign exchange market
45
Which policy seeks to influence economy and economic growth through changing interest rates?
Monetary
46
Which organisation is most likely to benefit from a period of high price inflation?
An organisation with a large number of long-term payables
47
What does a letter of credit involve? (in terms of company)
A selling company and a buying company
48
Why are treasury bills the least risky?
They are short-term government borrowing
49
What is meant by securitisation?
Conversion of illiquid assets into marketable securities
50
What does the reverse yield gap refer to?
Yields on shares being lower than on low-risk debt
51
Why can a reverse yield gap occur?
Shareholders are willing to accept lower returns on their investment in the short-term, in exchange for capital gains in the future
52
When does disintermediation arise?
Where borrowers deal directly with lending individuals
53
What type of policy is using official foreign currency reserves to buy the domestic currency?
A government policy
54
How are treasury bills bought and sold?
On a discount basis
55
Are money market deposits short or long-term?
Short-term loans between organisations such as banks
56
What type of instrument is a money market instrument?
A certificate of deposit
57
What are capital market securities in terms of assets?
An asset to a buyer
58
How can financial markets be classified?
Into exchange and OTC markets
59
What is meant by a secondary market?
Where securities are bought and sold by investors
60
Effect on demand if a government spends more by borrowing more?
Increases demand
61
Effect on government borrowing if demand in an economy is high?
Government borrowing will fall
62
UK exporters to US if dollar weakens against poind sterling?
Suffers due to worse exchange rate
63
UK importers from US if dollar weakens against poind sterling?
Benefit due to better exchange rate
64
First objective of macroeconomic policy (growth)
Economic growth
65
Second objective of macroeconomic policy (Stable)
Stable inflation
66
Third objective of macroeconomic policy (employ)
Unemployment
67
Fourth objective of macroeconomic policy (balance)
Balance of payments (between exports and imports)
68
Government actions to raise or lower the amount it spends an example of fiscal policy?
YES
69
What is a reverse yield gap?
Where the yield on debt is greater than that of equities
70
What is meant by securitisation?
Conversion of illiquid assets into marketable securities
71
When does disintermediation arise?
Where borrowers deal directly with lending individuals
72
When does cost-push inflation occur?
When there are increases in production costsindependent to the state of demand
73
What do coupon bearing securities have?
A fixed maturity and a specifiedrate of interest
74
How are funds raised in the discount market?
By issuing bills at a discount to their eventual redemption or maturity value
75
What does macroeconomic policy include?
Full employment of resources
Price stability
Economic growth
76
Is decreasing interest rates in order to stimulate consumer spending fiscal or monetary policy?
Monetary policy
77
Is reducing taxation while maintaining public spending fiscal or monetary policy?
Fiscal policy
78
Is using official foreign currency reserves to buy the domestic currency fiscal or monetary policy?
Monetary policy
79
Is borrowing money from the capital markets and spending it on public works fiscal or monetary policy?
Fiscal policy
80
Is regulating foreign exchange rates fiscal or monetary policy?
Monetary policy
81
What do money markets provide?
Short-term (< 1 year) debt financing and investment
82
Are shares short- or long-term finance?
Long-term
83
Is allowing an organisation to manage its exposure to foreign currency risk and interest rate risk short-term or long-term?
Short-term
84
What investments do money markets focus on?
Short-term financial instruments
85
Are certificates of deposit a money market instrument?
Yes
86
Is commercial paper a money market instrument?
Yes
87
Is a treasury bill a money market instrument?
Yes
88
Is a corporate bond a money market instrument?
No, it's a capital market instrument as it's long-term
89
Short-term management of resources a role within the treasury function?
Yes
90
Long-term maximisation of shareholder wealth within the treasury function?
Yes
91
Risk management within the treasury function?
Yes
92
Long-term maximisation of market share within the treasury function?
No
93
Management of accounts receivable within the treasury function?
No
94
Management of financial reporting within the treasury function?
No
95
What are primary capital markets?
Relate to the sale of new securities
96
What are secondary capital markets?
Where securities trade after their initial offering
97
How can imperfect competition be addressed?
Competition regulator to prevent consumersbeing taken advantage of
98
How can social costs or externalities be regulated against?
By imposing fines on firms that create them
99
What is meant by interest rate smoothing?
Policy of some central banks to move official interest rates in a sequence of relatively small steps in the same direction
100
How can governments wish to influence the amount of money held in the economy?
They may attempt to influence the level of interest rate
101
Should the chairperson and CEO be the same individual?
NO
102
When does a balanced budget occur?
Occurs when total expenditure is matched by total taxation
103
When might demand-pull inflation occur?
When excess aggregate monetary demand in the economy and hence demand for particular goods and services enable companies to raise prices and expand profit margins
104
When will cost-push inflation occur?
There are increases inproduction costs independent of the state of demand
105
Why are certificates of deposits fully negotiable and attractive to the depositor?
They ensure instant liquidity if required and are tradeable
106
Are certificates of deposit evidence of a deposit with an issuing bank?
Yes
107
Are certificates of deposit fully negotiable?
Yes
108
Do certificates of deposit provide the bank with a deposit for a fixed period at a fixed rate of interest
Yes
109
Are certificates of deposit coupon-bearing securities?
Yes
110
Certificates of deposit are not tradeable?
NO
111
What is the clientele effect for dividends?
Fear that many shareholdewrs will view a dividend cut similarly
112
What is dividend signalling for dividends?
Cut in dividend may signal to shareholders that the company is now higher risk
113
What does residual theory suggest for dividend?
Undertaking all positive NPV investments before paying a dividend
114
What does M&M model suggest for dividends?
That the pattern of dividends was irrelevant
115
What is meant by purchasing power parity?
PPP suggests that exchange rates will move to compensate for differences in inflation rates
116
Do profits have a good correlation with shareholder value?
No
117
What is meant by a fiduciary duty?
Agents must act in the best interests of the principals
118
What happens to share price in a semi-strong market?
When news is made public
119
What does restricting growth in the money supply will have more impact on (demand pull or cost-push)?
Demand pull as restricting money supply directly impacts demand for goods
120
Restricting money supply reduces the ability of banks to?
Lend. Meaning smaller businesses have issues obtaining funds
121
What is economic inefficiency?
Output is produced at a higher price than necessary
122
What do monetary policy aims to control?
The economy by using interest rates and amending the size of the money supply
123
What does fiscal policy aim for?
To manage the economy using taxation and government spending
124
How to reduce demand if inflation is high due to rising aggregate demand?
Increasing interest rates
125
What does increased government borrowing lead to?
Increased government spending
126
What could be the background if a country's government budget deficit is increasing?
An increase in government spending has outweighed an increase in taxation income, leading to increased government borrowing
127
If the new government chooses to increase the rate of corporate taxation levels,which TWO of the following would represent the initial direct effects on earnings pershare (EPS) and return on capital employed (ROCE)?
EPS falls
There would be no effect on ROCE
128
Externalities (consumer)
Externalities do not directly affect the copnsumer of the product that causes them
129
Externalities (misallocation)
Existence of externalities suggests that there is a misallocation of resources
