WEAK AREAS

Question 1

Which participant allows firms to focus on the core areas of their business, and not investment?

Answer 1

Third-Party-Administrators

Question 2

What is a rights issue?

Answer 2

Approaching existing shareholders with an offer to purchase new shares, before offering to open market. This means that their position won’t be diluted if they choose to hold.

Question 3

What does renounceable mean in terms of rights issues?

Answer 3

A shareholder can sell the rights on to another investor. Rights issues can be offered at a discount to market price.

Question 4

How are bonus issues formatted in the UK?

Answer 4

1:2 means 1 for 2. So 1 bonus share for every two held. X new shares for every Y held.

Question 5

What is the ex-dividend date?

Answer 5

The date after which the dividend won’t be paid.

Question 6

How are bonus issues formatted in the US?

Answer 6

First number is the final holding, second number is the original number of shares. E.g. 5:4, for every 4 shares you hold, you now will own 5.
X:Y, X/Y * Nominal

Question 7

What does FRN stand for?

Answer 7

Floating rate note, bonds with variable rates of interest.
Linked to a benchmark rate such as the bank lending rate (SONIA/SOFR)

Question 8

How many cash flows could you break a 3 year gilt into?

Answer 8

7. 6x semi annual coupon payments, 1x maturity repayment. These are known as gilt strips.

Question 9

What does a company wanting to gain admission to AIM have to appoint?

Answer 9

A nominated advisor (NOMAD), they advise directors of their responsibilities in complying with AIM rules.

Question 10

What are the 3 different requirement between a AIM and a Full Listing?

Answer 10

No trading history vs. 3 years trading history
No min market cap vs. £30m min market cap
No min float vs. 10% min float

Question 11

How does a Quote-Driven system differ to an Order-Driven system?

Answer 11

Quote-driven employs market makers to provide liquidity, whereas Order-Driven is orders by market participants.

Question 12

What does SEAQ stand for?

Answer 12

Stock Exchange Automated Quotation (Quote-Driven System)

Question 13

What 2 exchanges use SEAQ?

Answer 13

NASDAQ and LSE. LSE uses two systems.

Question 14

What does SETS stand for?

Answer 14

Stock Exchange Electronic Trading Service (Order-Driven System)

Question 15

What two exchanges use Order-Driven Systems?

Answer 15

NYSE and LSE

Question 16

What system is used for less liquid stocks on the LSE?

Answer 16

SETSqx

Question 17

What does a call provision enable the issuer of a bond to do?

Answer 17

Buy back the bond early.

Question 18

What does a puttable provision enable the purchaser of a bond to do?

Answer 18

The holder can redeem early.

Question 19

What is an example of a domestic bond?

Answer 19

GILTs, U.S Treasury Bills

Question 20

What is a foreign bond?

Answer 20

Issued by a foreign entity, into a domestic market with the domestic currency.
E.g. German company offering GBP Bond to UK Investors

Question 21

What is a defining characteristic of Eurobonds?

Answer 21

They are denominated in a different currency from that of the financial centre from where they are issued.
E.g. British company offering USD/GBP bond to Japanese investors

Question 22

What is a unit trust?

Answer 22

A CIS in the form of the trust. Trustee legal owner, unitholders beneficial owners

Question 23

What does the manager do in a unit trust?

Answer 23

Decide which investments to take

Question 24

What does a trustee do in a unit trust?

Answer 24

Monitors actions of manager, legal owner of assets.

Question 25

What is a OEIC?

Answer 25

A CIS structured as a company, with investors holding shares.

Question 26

How do OEIC's differ from conventional companies?

Answer 26

They can create and redeem existing shares

Question 27

What two individuals are appointed in an OEIC?

Answer 27

ACD (Authorised Corporate Director) and a Depository

Question 28

What does the ACD do in an OEIC?

Answer 28

Manages the fund, pricing, selecting investments

Question 29

What does the depository do in an OEIC?

Answer 29

Looks after the investments, monitors actions of the ACD

Question 30

What is the difference between single and dual pricing?

Answer 30

Single uses a mid-market quote of the assets. For buying and selling Dual pricing uses the bid/ask of the underlying to produce quotes.

Question 31

How can single pricing funds make up for losses in spread?

Answer 31

Using a dilution levy

Question 32

What figure are UCITS funds required to publish?

Answer 32

OCF, Ongoing Charges Figure

Question 33

What is the settlement period for funds?

Answer 33

T+4

Question 34

What advantages does a REIT provide?

Answer 34

Single taxation, a REIT pays no tax on income or capital gains on property disposals. Providing 90% of income is distributed each year.

Question 35

What advantages does a REIT provide?

Answer 35

Single taxation, a REIT pays no tax on income or capital gains on property disposals. Providing 90% of income is distributed each year.

Question 36

What are the three stages of money laundering?

Answer 36

Placement - criminal cash into bank account Layering - mixing it around Integration - integrated into financial system as clean money

Question 37

What are the 3 levels of dividend income tax?

Answer 37

1. 7.5% lower rate 2. 32.5% higher rate 3. 38.1% additional rate £2000 tax free

Question 38

How are benefits from critical illness policies paid?

Answer 38

Tax-free lump sum

Question 39

What investment fund is not required to pay stamp duty on?

Answer 39

ETFs

Question 40

Which organisations rules govern unit trust pricing?

Answer 40

FCA

Question 41

Who can a unit trust investor sell their units through?

Answer 41

Broker, financial adviser, manager

Question 42

Which organisation classifies investment trusts?

Answer 42

The Association of Investment Companies (AIC)