mock 1

Question 1

Where the lender of stock wishes to cast their vote on a special resolution, which of the following statements is TRUE?

Answer 1

The lender should recall the stock in good time

Question 2

A corporate bond is often quoted against a benchmark bond. Which one of these most likely a benchmark bond?

Answer 2

A government bond in the same currency with a similar maturity

Question 3

A credit rating is normally applied to a company’s:

Answer 3

Debt

Question 4

Regulators suggests that portfolio managers use diversification to reduce which type of risk?

Answer 4

Specific

Question 5

What is the function of a trustee in a debenture issue?

Answer 5

To ensure the issuer complies with the terms of the issuance

Question 6

Which of the following would be a consequence of an increase in the equity risk premium?

Answer 6

A fall in the price of equity

Question 7

Which of the following would explain why a company would buy shares in another company to forge a strategic link?

Answer 7

Protect supplies

Question 8

A Global custodian finds itself in financial difficulty. What should it do to protect its client’s assets?

Answer 8

Continue as before segregating its clients’ assets in internal accounts

Question 9

What is the best definition of gearing?

Answer 9

A measure of the proportion of debt to equity that a company raises

Question 10

An investor is entitled to a rights offer. They ask their broker to prepare a split allocation letter. This suggest that they intend to:

Answer 10

Sell some of the rights in order to be able to fund the purchase of the remaining shares at nil cost

Question 11

In normal market conditions which of the following statements about interest rates and inflation is most likely?

Answer 11

Inflation would be expected to be lower than interest rates

Question 12

When can an investor sell an OEIC?

Answer 12

Any period specified by the OEIC prospectus

Question 13

An investor has a portfolio of UK bond holdings. What would be the main reason for adding overseas bonds?

Answer 13

Diversification

Question 14

Investing in a REIT will remove which risk normally associated with direct property investments?

Answer 14

Liquidity risk

Question 15

Which of the following would not be found on the statement of financial position under intangible non-current assets?

Answer 15

Work in progress

Question 16

Why would an underwriting firm performing an offer for sale decide to use a fixed price rather than a tender?

Answer 16

To ensure that the issue is fully subscribed

Question 17

Which of the following would account for UK government debt being considered risk free?

Answer 17

The UK itself controls the printing of money

Question 18

A company wishes to raise capital cheaply. From the company’s point of view, which of the following would be seen as the BEST advantage of issuing warrants?

Answer 18

To delay the payment of dividends until some time in the future

Question 19

Which of the following would be MOST associated with rollover risk?

Answer 19

Commercial paper

Question 20

When trading in the UK government bond market and cash bargains which of the following statements is TRUE?

Answer 20

The cash settlement will take place following the acquisition of the bargain and by the end of the next business day

Question 21

Which of the following reserves can a company use to pay a dividend to shareholders?

Answer 21

Profit and loss reserve

Question 22

All of the following have been deducted prior to calculating earnings per share, except:

Answer 22

Equity dividends

Question 23

When a trade settles DvP where does the seller get their confidence in the settlement of the trade from?

Answer 23

That both sides of the trade are settling concurrently

Question 24

The price of a company’s bond increases. This is most likely to have happened because of:

Answer 24

An upgrade in its credit rating by a ratings agency

Question 25

ADR dividends are paid to the holder in:

Answer 25

US dollars

Question 26

In which of the following funds would you expect to see commercial paper?

Answer 26

Money market fund

Question 27

A company's free float increases from 1.44 to 1.8. Which of the following is most likely?

Answer 27

The correct answer is: D - A greater number of shares are now available for the investing public The free-float of a public company is an estimate of the proportion of shares that are not held by large owners and that are not stock with sales restrictions (restricted stock that cannot be sold until it becomes unrestricted stock).

Question 28

Which is the best description of the Enterprise Value to EBITDA ratio?

Answer 28

The cost to buy a company against an adjusted operating profit

Question 29

When a company announces its intention to pay a specified dividend on a specified future date this is called the dividend declared date. What is the minimum number of business days between the declaration and the proposed record date?

Answer 29

6

Question 30

Who is primarily responsible for organising a roadshow for potential investors in a new issue?

Answer 30

The underwriting firm appointed by the issuer

Question 31

If interest rates rise, which ONE of the following is TRUE of the Treasury 6.75% 2028 stock? Its price and yield will:

Answer 31

Fall and rise

Question 32

Why would an investor want to deal special-ex?

Answer 32

For tax planning purposes

Question 33

Participants in a dark pool are MOST LIKELY to have chosen this type of execution venue because of:

Answer 33

Ability to execute trades at efficient prices

Question 34

Modified duration shows the expected change in a bond's price, given a specified change in interest rates. Which of the following is most likely?

Answer 34

The higher the modified duration, the more the price of that instrument will move

Question 35

What is the purpose of an ICEBERG order?

Answer 35

To reduce market impact

Question 36

Bloomberg and Thomson Reuters are which type of information provider?

Answer 36

Secondary Information Provider

Question 37

Which of the following could make up part of a company's free float?

Answer 37

Shares held by an institutional investor holding 4% of the company's shares

Question 38

Eurobond

Answer 38

The coupon on a Eurobond is paid Gross

Question 39

What is the aim of portfolio diversification?

Answer 39

To optimise the risk-reward trade-off

Question 40

Which of the following is a capital expenditure?

Answer 40

Equipment for a new office

Question 41

Which ONE of the following is a criteria for entry on to a junior market of the exchange?

Answer 41

All shares freely-transferable

Question 42

Which of the following would be shown as a liability on the statement of financial position (balance sheet)?

Answer 42

Debentures

Question 43

An investor is investigating French and US government bonds, which of the following statements is correct with regards to standard settlement procedures?

Answer 43

French bonds settle within Euroclear, whilst US bonds settle within the DTCC with a shorter settlement time than the French bonds

Question 44

An investor approaches you looking for an investment that can provide capital growth over a long period and the possibility of some income. They are also happy to take on a high-level of risk. What would you recommend?

Answer 44

Equity in a newly-formed company which is traded on a junior market of an exchange

Question 45

A Depositary Receipt may be pre-released however the issuer must deliver the underlying shares for deposit within:

Answer 45

Three months

Question 46

A bond rated AA moves to A-, what will be the effect on price and yield?

Answer 46

Fall, rise

Question 47

What is a key benefit of using an Inter-Dealer Broker (IDB)?

Answer 47

What is a key benefit of using an Inter-Dealer Broker (IDB)?

Question 48

Which of the following is the best definition of the gross redemption yield (GRY)?

Answer 48

The annualised total return for a bond held to maturity

Question 49

An investor bought shares 'cum' but there was a delay in settlement until after the record date. Upon the dividend payment date, which of the following describes the appropriate process?

Answer 49

Buying investor's firm will need to arrange for the dividend claim to be made

Question 50

A company could issue bonds in order to satisfy the needs of investors that wish to invest in it, with the coupon rate and maturity set according to market demand. This is an example of which of the following?

Answer 50

Medium-term notes

Question 51

Where a company wants to improve the liquidity of its shares but not reduce the nominal value of the shares it is most likely to perform which of the following?

Answer 51

Have a scrip issue

Question 52

Modern electronic trading environments lend themselves to algorithmic trading, a negative aspect of high frequency trading is the possibility of a 'flash crash' which can be summarised as which of the following?

Answer 52

Where there has been a rapid decline in the value of the market for it then to recover relatively quickly

Question 53

Revenue expenditure will have an initial impact on the:

Answer 53

income

Question 54

If the yield curve is considered normal which of the following is TRUE?

Answer 54

Long dated yields move inversely to long dated prices

Question 55

Financial ratio analysis can be used to assess many aspects of a company. Which of the following would be used to identify potentially high future growth prospects?

Answer 55

High P/E ratio : low dividend yield

Question 56

Why would a lead manager be LEAST likely to go through a syndication process and, instead, take responsibility for the entire process themselves?

Answer 56

It is a placing

Question 57

Which of the following would be considered the difference between commercial paper in the UK and commercial paper in the US?

Answer 57

UK commercial paper has a maturity up to 1 year, whereas US commercial paper has a maturity up to 270 days

Question 58

Which of the following best differentiates medium term notes (MTNs) from other bond issues?

Answer 58

Issuers use shelf registration

Question 59

A life insurance company that wishes to gain long term capital growth would invest in which asset class?

Answer 59

A life insurance company that wishes to gain long term capital growth would invest in which asset class?

Question 60

Which of the following is a major benefit of a quote-driven market?

Answer 60

Increased liquidity

Question 61

An investor has placed their money into an infrequent actively managed account. Which of the following is most likely?

Answer 61

In the long run the investor could see enhanced returns to the benchmark

Question 62

In terms of the degree of risk, where does mezzanine debt rank in the order of payment should a company be in liquidation?

Answer 62

Between subordinated debt and preference shareholders

Question 63

Which of the following cash flows would not be listed under operating cash flows in a company's cash flow statement?

Answer 63

Profits realised on disposal of an asset

Question 64

The equity risk premium is:

Answer 64

The total return on a stock over a period minus the risk free rate

Question 65

Repo

Answer 65

A repo is a sale and repurchase agreement normally involving instruments such as Gilts. The asset is sold and then repurchased at a later date. It is a type of secured borrowing that generates a repo rate. The difference between the sale and repurchase price represents the interest paid on the loan of cash. Tripartite repos use a custodian to facilitate the transfer of cash and collateral. Repos can be for any period of time, not just overnight. However overnight repos are the most common.

Question 66

hich one of these items is NOT a non-current asset?

Answer 66

Deferred Tax

Question 67

Which one of the following is not a part of the origination team?

Answer 67

Market maker

Question 68

A large organisation is using publicly available third party research rather than internal research. Why might this be seen in an unfavourable context?

Answer 68

Greater chance of bias

Question 69

When a market maker uses a stock borrowing and lending intermediary to cover a short position by borrowing stock from a fund manager, which of the following best describes the relationship between the SBLI and their counterparties?

Answer 69

Agent with the market maker and agent with the fund manager

Question 70

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

Answer 70

To provide an inflation protected product

Question 71

An authorised unit trust is essentially a unit trust that is allowed to be marketed to the investing public, and must be constituted by a trust deed made between:

Answer 71

The fund manager and the trustee

Question 72

Which of the following is not a consideration in order priority for execution on an exchange order driven system?

Answer 72

Volume

Question 73

All of the following are true regarding UK government bond issues except:

Answer 73

A primary dealer (GEMM) does not have to participate in the auction process

Question 74

A base line for spread measurement, which is based on the rate at which funds for particular currencies are offered between a range of banks, would be called:

Answer 74

LIBOR

Question 75

[1078497] Which of the following is considered as a sell side to sell side electronic trading platform for bonds?

Answer 75

MTS Cash

Question 76

Which of the following is the lowest form of debt?

Answer 76

PIK

Question 77

An investment bank when engaging in a foreign exchange transaction with another investment bank in a different time zone could be exposed to risk. This risk could mitigated by the use of which of the following mechanisms?

Answer 77

Continuous linked settlement

Question 78

When would a company consider issuing a follow-on offer?

Answer 78

When markets are rising

Question 79

The Insolvency Act 1986 and the Enterprise Act 2002 define a strict order of repayment of company debts in liquidation. In the order of repayment, who/what is paid before subordinated loan stock?

Answer 79

Unsecured loans

Question 80

Which of the below is likely to invest more in money market instruments?

Answer 80

Which of the below is likely to invest more in money market instruments?

Question 81

A UK government bond sale takes place 2 days before the 'coupon paid date'. The trade is known as:

Answer 81

- Ex-coupon

Question 82

A prime broker provides a number of services for institutional investors, what would be the purpose of stock lending and borrowing?

Answer 82

Liquidity

Question 83

If the price of the investment falls in a year only to rise again in the next, the fund manager will not become eligible to receive an additional fee, until the previous maximum fund price is surpassed. This would be the best description of which of the following?

Answer 83

High water mark

Question 84

A medium-term note programme benefits from which of the following?

Answer 84

Settlement would take place the day after the bargain

Question 85

Which one of the following is an electronic platform to facilitate dealer-to-customer trading in bonds?

Answer 85

TradeWeb

Question 86

Which of the following is not associated with order-driven trading systems?

Answer 86

Firm quotes during the MQP

Question 87

Which of the following ratios would allow an investor to determine the income returned from equity over the current share price?

Answer 87

Dividend yield

Question 88

Which of the following would determine the credit rating of a company by a credit rating agency?

Answer 88

To assess whether the issuer's cash flow will comfortably service and repay its obligations

Question 89

With respect to government bonds from the US & France, which one of the following is true?

Answer 89

French government bonds have a greater settlement period

Question 90

Hedging with the use of derivatives is a strategy that helps investors with:

Answer 90

Protecting against losses

Question 91

In which of the following types of issue might a company retain a greenshoe option?

Answer 91

A secondary offer

Question 92

Which one of the following would not increase the issued share capital?

Answer 92

A call on partly paid shares