Final Study Questions

Question 1

Dealers on stock exchanges act as:

Answer 1

• Investment banks

Question 2

A company announces an increase in the dividend that it will pay out to shareholders in response to continued profit growth. Assuming all of the following securities are in issue, which of the following is most likely to benefit from this increase in income?

Answer 2

Depositary receipt holder

Question 3

Who decides whether a company’s shares are admitted to both the official list and the LSE?

Answer 3

UKLA

Question 4

The market is showing signs of unrest. If an investor wishes to pursue a flight to quality, which of the following bonds might they choose?

Answer 4

Recently issued 10-year US T-bond

Question 5

What are the rules for stripping UK exchequer bonds?

Answer 5

Only designated gilts can be stripped and only by the DMO, Bank of England and GEMMs

Question 6

Stock borrowing and lending was created to address which of the following?

Answer 6

Settlement risk

Question 7

Eurobonds, as bearer documents, typically need to be kept safe. They would normally be

Answer 7

held in depositaries

Question 8

Which is NOT on the income statement?

Answer 8

Investment income

Question 9

Which of the following is true of a capital investment in a structured investment?

Answer 9

There are penalties if redeemed early

Question 10

Which of the following is a corporate debt instrument backed by a particular company asset?

Answer 10

Fixed charge bond

Question 11

Which of the following types of corporate debt would most likely have the lowest coupon?

Answer 11

Guaranteed bonds

Question 12

Bill is a closed ended fund manager and Andy is an authorised open ended fund manager. Which of the following is TRUE?

Answer 12

Both funds can invest in quoted companies

Question 13

Which of the following has the largest impact upon the price of a corporate bond?

Answer 13

The yield of the benchmark government bond

Question 14

A risk-averse investor looking to invest in bonds would most likely choose to invest in:

Answer 14

Putable bonds

Question 15

An investor, after receiving excellent returns on her equity investments, switches to bonds. Which of the following is the most likely reason?

Answer 15

To capitalise on the gains before a downturn

Question 16

Which of the following is true of capital reserves and revenue reserves?

Answer 16

Capital reserves can be converted into a bonus issue of shares

Question 17

The ratio EV/EBIT represents:

Answer 17

The cost of purchasing the company over operating revenue

Question 18

Company X increases its holdings in company Y and yet does NOT trigger disclosure under the Takeover Code, which of the following would BEST explain this?

Answer 18

X is a major supplier of Y

Question 19

Which of the following is a key feature of exchange-traded funds?

Answer 19

They must not be closed-ended

Question 20

If an investor has diversified their risk exposure by asset class, they have:

Answer 20

increased the number and range of their holdings

Question 21

increased the number and range of their holdings

Answer 21

Stock exchanges

Question 22

What is the main purpose of a dividend paid by a UK company?

Answer 22

To distribute profits to the owners of the company

Question 23

Money market funds aim to achieve maximum returns while minimising credit, market and liquidity risks. These funds typically invest in:

Answer 23

Government securities, short-term bonds, commercial paper, repurchase agreements or even other money market funds

Question 24

To whom do regulatory news or information services process and disseminate information?

Answer 24

Secondary information providers

Question 25

Which of the following would be a result of an increase in the equity risk premium on a share?

Answer 25

The price of the share falls

Question 26

For which of the following reasons might an investment bank submit a stabilisation notice?

Answer 26

Share price has fallen below a certain level

Question 27

A dealer acting as principal will perform which of the following?

Answer 27

Buying and selling securities with clients

Question 28

A trade has moved to the confirmation stage with a central counterparty. Which of the following has occurred immediately prior to this?

Answer 28

The trade has been executed on an exchange

Question 29

Why would a company choose to do a rights issue?

Answer 29

To fund a takeover

Question 30

Which of the following could result in a 'rebate' in a stock lending situation?

Answer 30

Cash is used as collateral

Question 31

Who makes the decision of whether a company meets the requirements of size, control, free float and trading history for a listing on the official market?

Answer 31

The FCA

Question 32

Who recognises the London Stock Exchange?

Answer 32

The Financial Conduct Authority

Question 33

In a stock borrowing and lending agreement, the borrower will provide collateral to the lender. Where the fee has been has been quoted as a rebate this would mean, it is where:

Answer 33

cash has been placed as collateral and the lender will earn all of the interest that accrues on the cash collateral and an agreed rate will rebated to the borrower

Question 34

Short selling market developed to:

Answer 34

Cover settlement failure

Question 35

An investor receives a provision allotment letter from a company performing an offer for sale. What does this confirm about the investor?

Answer 35

She is an existing shareholder

Question 36

Company A and Company B have announced a merger. Company A's shares would be:

Answer 36

Exchanged for new shares

Question 37

Where a bond is repaid in a single lump sum at the maturity date, this is an example of:

Answer 37

Bullet bond

Question 38

Which of the following is the prime role of the primary markets?

Answer 38

To enable surplus funds to be matched against investment opportunities

Question 39

The UK Debt Management Office announces the results of an auction, upon which of the following will it have an immediate impact?

Answer 39

Interest rates

Question 40

In relation to equity issued by companies, which of the following is best defined as 'registered title'?

Answer 40

The name of the legal owner of the share

Question 41

Capital employed can be defined as:

Answer 41

Total equity plus non-current liabilities

Question 42

Which of the following is a characteristic of coupons on convertible bonds?

Answer 42

They have a lower coupon compared with coupon on an otherwise identical bond

Question 43

UK T-Bills and stripped gilts ALWAYS have:

Answer 43

Zero coupon

Question 44

High frequency trading (HFT) creates which of the following risks?

Answer 44

Systemic

Question 45

Investor uses an index weighted by dividend yields, an example of:

Answer 45

Smart beta

Question 46

Which of the following is true of companies that use GAAP?

Answer 46

Standardises how particular transactions are shown

Question 47

An institutional investor is looking to invest in a 'carry trade'. Which of the following describes such a trade?

Answer 47

They would need to borrow funds in a currency where there is a relatively low borrowing rate, and will invest those funds, after converting to another currency where there is a higher rate of interest available for short-term deposits

Question 48

A convertible bond that gives the holder the right to convert into 100 shares has a conversion price of £1.00. If the current share price is £3.00 and this market price falls, we would expect which of the following?

Answer 48

The market price of the bond to fall

Question 49

Eurozone investor buys a US T-bond denominated in Euros. For which reason will they need to sacrifice the risk free return commonly associated with government debt?

Answer 49

Euros can only be printed in the Eurozone

Question 50

The diluted EPS figure is:

Answer 50

A theoretical calculation based on assumptions about future events, which may or may not actually take place, and its importance to the reader of the accounts and any potential investor

Question 51

On receipt of rights to buy new shares, which of the following can a shareholder NOT do?

Answer 51

Sell the rights to the issuer

Question 52

Dirty Price

Answer 52

Clean price + accrued interest = Dirty Price

Question 53

Which of the following is false in relation to cryptocurrency?

Answer 53

It is heavily regulated

Question 54

Which two do companies need/have to follow according to listing obligations when an issuer is planning on having its securities listed?

Answer 54

Reporting and good corporate governance

Question 55

An investment bank has successfully completed a book-build for a company wishing to issue shares. What does this suggest?

Answer 55

They have allocated available shares to willing buyers

Question 56

Which of the following describes how corporate bonds being traded, along with their prices, can be discovered?

Answer 56

Dealers give prices within separate pools of liquidity

Question 57

The providers of which of the following services would be considered a participant in the wholesale market?

Answer 57

Derivatives trading

Question 58

Where there is a sub-custody agreement, which of the following describes the correct set of relationships?

Answer 58

The client is the client of the global custodian, whereas the local custodian is the agent of the global custodian

Question 59

A bank is assisting a client to issue securities in emerging and frontier markets. Which considerations should specifically be stated in relation to the client?

Answer 59

There is likely to be less liquidity in the primary markets

Question 60

A 30 year old person who is in good health would have predominately which of the following investments within their personal pension?

Answer 60

Medium risk equities

Question 61

Who is the legal owner of the shares that underlie an ADR?

Answer 61

The depositary bank

Question 62

How frequently does a STANDARD listed UK company need to produce accounts?

Answer 62

Every 6 months

Question 63

The analysis of risk and return is best done in which of the following way?

Answer 63

Backward-looking analysis of historic returns and forward-looking forecasts

Question 64

A company wants to do a placing but has already issued shares in a country that insists on pre-emption rights. Which of the following must they do?

Answer 64

Put it to shareholders

Question 65

If someone uses MTS Cash, what does that tell us about their method of trading?

Answer 65

Dealer to dealer

Question 66

Which of the following is true of a full-service broker and a discount broker?

Answer 66

The full-service broker will have a higher minimum charge than the discount broker

Question 67

Why is it important that 'request for quote' systems run alongside the dealer-to-customer market?

Answer 67

To achieve better prices

Question 68

You expect interest rate cuts that have not been anticipated by the market as a whole. You sell short term bonds and buy long term bonds. Which of the following strategies are you following?

Answer 68

Policy switching

Question 69

Which of the following would show depreciation in the GBP/USD currency rates?

Answer 69

Imports to the UK becoming more expensive than exports

Question 70

A company has performed well during the course of the year. In which way is it MOST likely to reward its shareholders?

Answer 70

Declare a high final dividend

Question 71

Which of the following is considered the main risk of investing in emerging/frontier markets as opposed to emerged markets?

Answer 71

Less sophistication

Question 72

Minority holdings are shown in:

Answer 72

net assets and net income in the consolidated statement of financial position and the group income statement

Question 73

What should investors be aware of when investing in structured deposits as opposed to structured investments?

Answer 73

That they could benefit from services such as the UK’s compensation scheme

Question 74

Generally Accepted Accounting Practices (GAAP) are which of the following?

Answer 74

Provide a basis for good practice

Question 75

Which of the following would NOT be found under non-current assets in the statement of financial position?

Answer 75

Stock

Question 76

Which of the following could be described as a main benefit of a central counterparty?

Answer 76

Reduction of systemic risk

Question 77

Which of the following best indicates the returns on money market instruments?

Answer 77

Low risk, variable returns

Question 78

A company obtains a quotation on an exchange without adjusting their capital structure. How did they achieve this?

Answer 78

An introduction

Question 79

Why would an investment trust not be allowed to be an exchange-traded fund?

Answer 79

An investment trust is closed-ended

Question 80

A high frequency trader successfully completes the purchase of a large holding of shares. Which of the following are they likely to do next?

Answer 80

Sell the shares as quickly as possible

Question 81

An investor bought a convertible preference share. She suddenly starts receiving a variable dividend on the share. Why might this be?

Answer 81

She has utilised the inherent option of the preference share

Question 82

Why would a company perform a stock split, rather than a capitalisation issue?

Answer 82

To ensure there is no change in the share capital line

Question 83

A company charges £7,500 as a depreciation charge on an asset using the straight-line method. Which of the following is true?

Answer 83

The book value of the asset will fall £7,500 each year

Question 84

A company, quoted on the London Stock Exchange’s Alternative Investment Market (AIM) one month ago, ceases to have a corporate broker on the 1st July. Which of the following statements is TRUE?

Answer 84

If by the 31st July the broker has not been replaced the company will be removed from the exchange

Question 85

Where can authorised participants buy exchange traded funds (ETFs) directly from a fund manager?

Answer 85

In the primary market

Question 86

Which of the following best reflects the role of the origination team in the quotation of a company?

Answer 86

A broad range of advice

Question 87

Which one of the following is not an advantage of using as Distributed Ledger?

Answer 87

It can increase the use of a centralised register

Question 88

How would a trader normally gain dark liquidity?

Answer 88

Multilateral trading facilities

Question 89

An introduction is used by a company to:

Answer 89

gain extra liquidity

Question 90

Why do shareholders get to vote on dividends at AGM?

Answer 90

To ratify the directors' decision on the level of dividend

Question 91

The role of a gilt inter-dealer broker is to:

Answer 91

ensure market makers remain anonymous

Question 92

If shares are held in a corporate nominee account, which of the following is true of the name on the register?

Answer 92

It is a single nominee name

Question 93

Which of the following is key advantage for a portfolio manager to hedge with futures?

Answer 93

It leads to lower portfolio disruption

Question 94

When would you see goodwill on a company statement of financial position?

Answer 94

Where a subsidiary is bought for more than net asset value

Question 95

Which of the following would best describe the purpose of index linked gilts?

Answer 95

To provide an inflation protected product