UoE: Chapter Quiz (Incorrect Answers)

Question 1

Although Structured as Companies, What Distinguishes Investment Trusts from Traditional Companies?

Answer 1

Investment trusts make their profit solely from investments.

Question 2

In Which Market Can You Find STRIPS Created from US Treasuries and TIPS (Treasury Inflation-Protected Securities)?

Answer 2

US government bond market

Question 3

Which Type of Bonds Typically pay Interest Gross, Making the Buyer Responsible for Paying their Own Tax?

Answer 3

Eurobonds

Question 4

What do Regulated Collective Investment Schemes (CISs) in the UK Meet to be Marketed to Retail Investors?

Answer 4

Criteria to prevent complex or risky schemes.

Question 5

What is the Primary use and Benefit of Secondary Markets?

Answer 5

To provide liquidity for investors

Question 6

What is an Example of an Issuer Factor Affecting Bond Pricing?

Answer 6

Prevailing yields on benchmark bonds (spreads)

Question 7

What Term Describes the Process by Which One Investor’s Wish to Buy is Matched with Another Investor’s Wish to Sell on Stock Exchanges?

Answer 7

Price formation process

Question 8

What is the Process Called when the Exchange’s System Matches a Sell Order with the Best Buy Orders?

Answer 8

Execution

Question 9

In the UK, Which Body Oversees the Secondary Market for Dealing in Gilts Once they are Issued?

Answer 9

The London Stock Exchange (LSE) and The Debt Management Office (DMO)

Question 10

Which System is Primarily used for Issuing French Government Securities?

Answer 10

Bid-price system

Question 11

Which Organization Conducts Auctions and Direct Sales of US Government Securities?

Answer 11

The Treasury Department

Question 12

What is the Significance of the Nil-Paid Value in a Rights Issue?

Answer 12

It reflects the theoretical ex-rights price

Question 13

What are Pre-Emptive Rights Designed to Protect?

Answer 13

Minority shareholders

Question 14

What Advantage of DLT Makes it Suitable for Trade Settlement?

Answer 14

Speeding up Settlement and Reducing Costs

Question 15

When Securities are Loaned, who Receives Dividends and Interest Payments?

Answer 15

The borrower

Question 16

In the US, Which Subsidiary of DTCC Provides Clearing Services for US Equities Trades?

Answer 16

NSCC

Question 17

When Does the Ex-Dividend Date Typically Occur in Relation to the Record Date?

Answer 17

One business day before

Question 18

What Environmental Factors can Influence the Assessment of Whether the Overall Market is Overpriced or Under-Priced Based on the P/E Ratio?

Answer 18

Inflation rate

Question 19

How Does the Amount of Profit Earned Impact a Company?

Answer 19

It determines the dividend payments.

Question 20

What Does the Quick Ratio, also Known as the Acid Test, Exclude from its Calculation?

Answer 20

Inventory

Question 21

How is Free Cash Flow Typically Calculated from the Income Statement?

Answer 21

Net income after tax + depreciation and amortization

Question 22

Which Section of the cash Flow Statement Typically Includes Interest PAID!?

Answer 22

Operating activities

Question 23

What Does “Market Timing” Involve in Active Bond Management?

Answer 23

Predicting future interest rate movements.

Question 24

According to the Spectrum of Investing, Which Approach Places the Highest Reliance on the Appointed Investment Manager’s ESG Policies?

Answer 24

Fully delegated approach

Question 25

What Does the Efficient Markets Hypothesis (EMH) Suggest about Stock Prices?

Answer 25

Stock prices always reflect all available information.

Question 26

When must companies pay dividends to preference shareholders?

Answer 26

Before paying dividends to common shareholders

Question 27

What is one key advantage of ADRs for US investors?

Answer 27

ADRs eliminate the need for currency transactions for US investors.

Question 28

How do ETFs replicate their benchmark indices?

Answer 28

Through synthetic replication using derivative contracts.

Question 29

Why might the price at which underwriters guarantee to buy shares be at a discount to the public offering price?

Answer 29

To reduce the risk for underwriters

Question 30

Who participates in stock exchange trading?

Answer 30

Both individuals and institutional investors

Question 31

What are the three major constituents of the regulatory framework surrounding primary and secondary markets in securities?

Answer 31

The law, stock exchanges, and regulatory authorities

Question 32

What document provides potential investors with information required to make an informed decision about a company and its shares?

Answer 32

Investment prospectus

Question 33

What is the primary role of the Debt Management Office (DMO) in the UK?

Answer 33

To oversee gilt issues

Question 34

What term is used to describe the regulated entities where investors' buy and sell orders are matched via middlemen, such as brokers?

Answer 34

Stock exchanges

Question 35

Which type of venue for trading securities was introduced by MiFID II in Europe in 2018 and is used for instruments other than equities?

Answer 35

Organised trading facility (OTF)

Question 36

Which index is used heavily by institutional investors for benchmarking performance on a global scale?

Answer 36

MSCI World

Question 37

Which of the following statements about Gilt Inter-Dealer Brokers (IDBs) is true?

Answer 37

They act as agents and settle transactions as principals.

Question 38

Which entity in the EU issues EU bonds to cover its funding needs?

Answer 38

The European Commission

Question 39

What is the maximum maturity period for Japanese Government bonds (JGBs)?

Answer 39

40 years

Question 40

What is the primary goal of a "best-efforts basis" in an accelerated book build?

Answer 40

To ensure all shares are sold

Question 41

What is the primary purpose of the "pre-settlement and clearing" stage in the clearing and settlement process?

Answer 41

To eliminate credit risk

Question 42

What consensus algorithm is commonly used in blockchain DLT, as seen in Bitcoin?

Answer 42

Proof of work

Question 43

Which organization is responsible for developing high-quality, globally accepted accounting standards?

Answer 43

International Accounting Standards Board (IASB)

Question 44

Which section of the cash flow statement typically includes interest received?

Answer 44

Investing activities

Question 45

What distinguishes defined benefit (DB) pension schemes from defined contribution (DC) pension schemes?

Answer 45

DB schemes define benefits to be paid, while DC schemes depend on contributions and investment performance.

Question 46

What is the main disadvantage of passive management according to the Efficient Markets Hypothesis (EMH)?

Answer 46

Inability to match benchmark returns

Question 47

What is the difference between Debt to equity compared to Net debt to equity?

Answer 47

Debt to equity is all non-current liabilities / total equity (share capital + reserves) Where as Net DE is Debt (less the cash and current assets) / Equity