Wrongs/Weak Areas Flashcards
(28 cards)
Recommendation vs. Requirement:
Participating in IPO
Recommend (Priority of Trans):
- Obtaining pre-clearance before participating in IPO - But not req'd to do so
Required (Fair Dealing):
- No participation in oversubscribed IPO - Fairly allocate available shares among all interested accounts
Additional Compensation Arrangements: Req’d to..?
- Get written approval
- Disclose compensation to employer
- And all other details: duration, type of work, etc.
Recommendations to Clients
- Can distribute to all client regardless of suitability
- Can be brief, even just a list of buys
- Must keep records of data/analysis that went into report
Disclosure of Referral Fees: Parties disclosed to
- Must disclose to:
1. Prospects
2. Employer
-Not req’d to disclose to current clients
PV of Perpituity
PV = Pmt / EAR earned on funds
Fibonacci Ratios: Application
ex: Price drops 180 to 100
Dropped 80:
- 1/2: 100 +(1/2*80) = 140
- 5/8: 100 + (5/8*80) = 150
- 2/3: 100 + (2/3*80) = 153.33
SR Equilibrium: Moving above full employment
Employment can increase beyond Full in the SR
- If a catalyst increases AD - e.g. unexpected Tax cuts
Does not sustain into LR
- Above FE leads to upward wage pressures - AS reduces until output returns to FE
Unstable Equilibrium
Occurs if BOTH:
1. Supply curve has negative slope 2. Supply curve less steep than Demand curve
Factors that increase Short Run AS
Any Factors that SHIFT the AS curve right
- e.g. firms increase output @ all price levels - Do so to maximize profits
Profit Maximizing output increases if MCs decrease
- Thus any factor reducing MC shifts AS curve right - Decreasing wages, resource prices, etc.
Inventory/Sales Ratio: Indicator of cycle changes
At peak: Economic activity starts to slow
1. Sales are < planned 2. Inv begins to accumulate 3. Inv/Sales ratio increases = indicator
Firms begin to reduce production to reduce Inventory
-Actually worsens the initial contraction
Descending Price auction: Bond yields
Orders filled to who will pay highest prices, first:
-Lowest yields = highest prices
Continues until highest yield where total offer size filled
-Highest yield = lowest price
Descending PRICE = Ascending YIELDS
Effects of Inventory writedown to NRV: BS & IS
BS: Inventory, Assets and Equity decrease
-Inv TO, D/E and D/A increase
IS: Current Period profitability measures decrease
-Loss on IS
- *Future COGS reduced due to lower value of Inv
- NI will increase
Periodic vs. Perpetual Inventory System:
FIFO and LIFO values
Periodic:
COGS and Inv determined @ end of period
Perpetual:
COGS and Inv updated continuously
Values are = under each: FIFO and Specific ID
Values may be different under LIFO and WAC
Upward Revaluations of Assets
- How estimated must be disclosed by mgmt in stmts
- No increase in NI
- Revaluation Surplus = SE increase
Factors that make proxy voting restrictive to shareholder Interests
- Making it difficult to vote:
- e.g. requiring attendance to vote and holding meeting on same day as other firms - Minority groups have cumulative voting rights
- Can disproportionately vote their own interests
Factors that make proxy voting more in-line with shareholder Interests
- Remote voting
2. Confidential voting
Reasons for Preparing an IPS
- Address Client needs and circumstances
i. e. risk/return, constraints, preferences, etc.
-Material changes have occurred to existing needs/circumstances
Validity, Execution and Clearing Instructions
V: Specify WHEN an order can be filled
-ex: good-till cancelled, stop order, day-order
E: Specify HOW to trade
-ex: limit and market orders
C: Specify how trade is SETTLED
Sponsored vs. Unsponsored Depository Receipts:
SDR: shareholder has same voting and Div rights as CS holders
UDR: Depository bank retains voting rights
GDRs: Can be either Sponsored or Unsponsored
Index wts: Equal, Price, MV
And which req rebalancing?
Equal: Req rebalancing to keep allocation the same as prices change
Price: Price changes wt themselves
MV: Self-adjusting
Increased ROE: Possible (+) and (-) impacts on intrinsic share value
(+): If unexpected - increases IV
(-): If result of share repurchase - won’t necessarily increase IV
- May be offset by increased riskiness of equity - i.e. higher leverage
Factors making bond indexes harder to construct and maintain
- Maturities lead to higher TO of index securities
- vs. delisting of stocks
- Many bonds lack continuous trade data
- Rely on dealers for pricing data
- vs. exchange-traded stocks
- FI universe is much broader vs. equity universe
- More classifications exist for bonds vs. stocks
- e.g. by maturity, collateral, yield, issuer, etc.
Sinking Fund Provisions: Reinvestment Risk
SFP: Allow repayment of principal prior to maturity
If YTMs decrease since bonds issued:
-Repaid bondholder’s only able to reinvest returned principal @ lower IR
Restricted Subsidiary:
Holding Company Debt Covenant
Subsidiary’s Assets/CFs are designated to service HC’s debt
-HC debt pari passu with Subsidiary’s debt
The covenant alleviates structural subordination
