chp 3 - mock exam

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What happens to the dividend entitlement of cumulative preference shares when there are arrears from previous years?

It accumulates and is paid in the subsequent year. (correct)

It is lost, similar to non-cumulative preference shares.

It is doubled in the subsequent year.

It remains the same, unaffected by arrears.

In a scenario where a company lacks profits to pay dividends on preference shares, what happens to the unpaid dividend for non-cumulative preference shares?

It is carried forward and paid in the following year.

It is lost. (correct)

It is doubled in the subsequent year.

It is converted into ordinary shares.

What feature do participating preference shares have that sets them apart from other types of preference shares?

They can be converted into ordinary shares.

They are redeemable at a set date.

They entitle holders to participate in higher dividends during profitable years. (correct)

They have no maturity date.

What distinguishes redeemable preference shares from other types of preference shares?

They have a specific redemption date. Signup and view all the answers

What option do convertible preference shares offer to their holders that other preference shares do not?

The opportunity to convert them into ordinary shares at set intervals and terms. Signup and view all the answers

How are votes typically allocated for ordinary shareholders at company meetings?

Based on the number of shares owned Signup and view all the answers

What is the term commonly used when an individual shareholder appoints someone else to vote on their behalf?

Voting by Proxy Signup and view all the answers

How do different share classes in some companies impact voting rights?

They may restrict or eliminate voting rights Signup and view all the answers

Why have approaches like different share classes with restricted voting rights faced criticism from investors?

Because they limit shareholder engagement Signup and view all the answers

In what form are most shares held nowadays, especially by ordinary shareholders?

In electronic form through nominee accounts Signup and view all the answers

What is the term used to describe the point at which shares and rights are traded as two separate instruments?

Ex-rights price Signup and view all the answers

What is the term used to describe the value of the right to acquire a share at a discounted price in a rights issue?

Premium Signup and view all the answers

What response may occur in the market initially following the announcement of a rights issue?

Share price fall Signup and view all the answers

What is the role of underwriters in a share issue?

To buy any portion of the issue not taken up in the market Signup and view all the answers

What could potentially happen if the price at which new shares are offered in a rights issue is too high?

Failure to raise necessary funds Signup and view all the answers

What is the primary motivation behind a bonus issue?

To return value to shareholders without requiring additional funds Signup and view all the answers

How does a stock split differ from a bonus issue?

A stock split divides each share into multiple shares, while a bonus issue gives extra shares. Signup and view all the answers

What impact does a bonus issue have on the theoretical ex-bonus price?

It remains the same as before the bonus issue. Signup and view all the answers

Why might a company opt for a stock split?

To make shares more affordable and marketable Signup and view all the answers

In what way does a bonus issue differ from a cash dividend in terms of value distribution?

A bonus issue increases shareholders' ownership stake, while a cash dividend does not affect ownership. Signup and view all the answers

In an order-driven market, how are buyers and sellers matched?

By chronological order of price and quantity Signup and view all the answers

What is the key characteristic of a 'deep' order book in an order-driven system?

A large number of buy and sell orders waiting to be filled Signup and view all the answers

How is queue priority determined in the order book of an order-driven system?

First-come, first-served basis Signup and view all the answers

What are Multilateral Trading Facilities (MTFs) considered as in comparison to traditional exchanges?

Emerging competitors to traditional exchanges Signup and view all the answers

What is the term used to describe trading away from the exchange directly between market counterparties?

'Over-the-counter' (OTC) trading Signup and view all the answers

What determines queue priority in an order-driven system?

Price and time Signup and view all the answers

How are trades typically executed on a multilateral trading facility (MTF)?

Through direct negotiation with institutional investors Signup and view all the answers

What distinguishes off-exchange trading from trading on a stock exchange?

Execution location Signup and view all the answers

In what circumstance would an institutional investor typically engage in over-the-counter (OTC) trading?

When the order size is too large for on-exchange execution Signup and view all the answers

What characterizes an order book in an order-driven system that is described as 'deep'?

Large number of pending orders Signup and view all the answers

What is the generally accepted method for settlement in the final phase of the trading process?

Simultaneous exchange of stock and cash Signup and view all the answers

How is settlement typically achieved in the trading process through electronic systems?

Changing electronic records of ownership via book-entry transfer Signup and view all the answers

What occurs once the trade instructions are matched and the settlement day is reached?

Settlement takes place Signup and view all the answers

What role does a broker play in the settlement process?

Inputting trade details to the settlement system Signup and view all the answers

What is the primary purpose of the settlement process in trading?

To ensure simultaneous exchange of stock and cash Signup and view all the answers