35 Questions
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.
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 lost.
What feature do participating preference shares have that sets them apart from other types of preference shares?
They entitle holders to participate in higher dividends during profitable years.
What distinguishes redeemable preference shares from other types of preference shares?
They have a specific redemption date.
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.
How are votes typically allocated for ordinary shareholders at company meetings?
Based on the number of shares owned
What is the term commonly used when an individual shareholder appoints someone else to vote on their behalf?
Voting by Proxy
How do different share classes in some companies impact voting rights?
They may restrict or eliminate voting rights
Why have approaches like different share classes with restricted voting rights faced criticism from investors?
Because they limit shareholder engagement
In what form are most shares held nowadays, especially by ordinary shareholders?
In electronic form through nominee accounts
What is the term used to describe the point at which shares and rights are traded as two separate instruments?
Ex-rights price
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
What response may occur in the market initially following the announcement of a rights issue?
Share price fall
What is the role of underwriters in a share issue?
To buy any portion of the issue not taken up in the market
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
What is the primary motivation behind a bonus issue?
To return value to shareholders without requiring additional funds
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.
What impact does a bonus issue have on the theoretical ex-bonus price?
It remains the same as before the bonus issue.
Why might a company opt for a stock split?
To make shares more affordable and marketable
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.
In an order-driven market, how are buyers and sellers matched?
By chronological order of price and quantity
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
How is queue priority determined in the order book of an order-driven system?
First-come, first-served basis
What are Multilateral Trading Facilities (MTFs) considered as in comparison to traditional exchanges?
Emerging competitors to traditional exchanges
What is the term used to describe trading away from the exchange directly between market counterparties?
'Over-the-counter' (OTC) trading
What determines queue priority in an order-driven system?
Price and time
How are trades typically executed on a multilateral trading facility (MTF)?
Through direct negotiation with institutional investors
What distinguishes off-exchange trading from trading on a stock exchange?
Execution location
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
What characterizes an order book in an order-driven system that is described as 'deep'?
Large number of pending orders
What is the generally accepted method for settlement in the final phase of the trading process?
Simultaneous exchange of stock and cash
How is settlement typically achieved in the trading process through electronic systems?
Changing electronic records of ownership via book-entry transfer
What occurs once the trade instructions are matched and the settlement day is reached?
Settlement takes place
What role does a broker play in the settlement process?
Inputting trade details to the settlement system
What is the primary purpose of the settlement process in trading?
To ensure simultaneous exchange of stock and cash
Learn about the differences between preference shares and ordinary shares in companies. Explore the characteristics of preference shares as a hybrid security with elements of both debt and equity, including their fixed income payments and legal priority.
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