Examination Practice paper - Assessment 2 - Paper 2 - Financial Markets & Risk Management.docx

**CCCU -- Accounting/Finance 2024/25** **Saegis Campus** **Financial Markets and Risk Management** **Assessment 2 -- Examination Practice Paper 2** **Answering method - Select the suitable answer from the given answer choices against each question.** **Marking -- Each question carries 2 marks.*...

**CCCU -- Accounting/Finance 2024/25** **Saegis Campus** **Financial Markets and Risk Management** **Assessment 2 -- Examination Practice Paper 2** **Answering method - Select the suitable answer from the given answer choices against each question.** **Marking -- Each question carries 2 marks.** 1\. As per the technical definition, the yield curve is referred to A. Yields of any debt securities. B. Yield of bank loans. C. Yields of Treasury securities. D. Yields of any security. 2\. Which of the following is not relevant to the yield curve. A. Credit rating B. Term to maturities C. Yields D. Treasury bonds 3\. Repo interest is computed on A. Discounted interest basis. B. Simple discounted interest basis. C. Add-on interest basis. D. Compounded interest basis. 4\. Relevant interest on a Repo will be paid by the borrower A. On the discounted basis at the beginning of the Repo. B. At maturity of the Repo. C. As periodical coupon rate. D. As the capital gains. 5\. Repo maturity will be A. Equal to the Repo lending amount. B. Lower than the Repo lending. C. Higher than the Repo lending value. 6\. As per the technical definition, which is the borrowing party in a Repo. A. A government B. Any borrower. C. A broker. D. A dealer of government securities. 7\. Why Repo transaction is recognized as security with very low default risk. A. Because Repo is a governments security. B. The borrower is AAA rated borrower. C. It is s short term debt security. D. It is backed by a government security of which the ownership is transferred to the lender. 8\. Normal shape of a yield curve is A. Flat B. Downward sloping C. Humped shape D. Upward sloping 9\. When short term yields are lower than the long term yields in the economy, yield curve will get A. An upward slope. B. A Flat shape. C. A Downward slope. D. A humped shape. 10\. In a flat yield curve. A. Long term yields will be higher than short term yields. B. Long term yields will be lower than short term yields. C. Long term yields will be same as the short term yields. 11\. Owners of the corporates will provide, A. Equity capital. B. Working capital. C. Debt capital. D. Bond investments. 12\. As a provider of funds to a corporate, which will assume the highest risk, A. A bank. B. A bond investor. C. A Repo investor. D. An equity investor. 13\. Which of the following is a feature of common shares of a corporate. A. A fixed dividend rate. B. A defined maturity period. C. Dividend accumulation if not paid. D. Last priority for their entitlements. 14\. Equity shares of Ecowest Company are not traded in any Stock Exchange. One of the issues faced by its existing investors or potential investors is A. Finding a buyer or seller for the shares within a shorter period of time. B. Establishing the legal ownership of the shares. C. Claiming the dividends once it is declared. D. Appointing the board of directors. 15\. Publicly traded shares are the shares of the companies A. Which have lot of shareholders. B. Which are registered with the company secretary. C. Which are listed in a share exchange. D. Which are traded with open tender procedure. 16\. Private equity are the equity shares of A. Companies with private ownership. B. Companies which are traded in over-the-counter market. C. Equity shares owned by the private sector. 17\. Which of the following is the differentiator between the public equity and private equity. A. Ownership. B. Dividend rate. C. Traded market. D. Voting rights. 18\. You currently do not own shares of HSBC shares. In such an occation, A. You can never sell it. B. You can do margin trading. C. You can lend it. D. You can short sell it. 19\. Assume ABC share is a listed share in the stock exchange. Its current share price is GBP 25. You have not purchased this share. You expect the price of the ABC share to decline to GBP 25 by next one month time. What can be the best action by you as an active investor in the market. A. Do nothing. B. Buy the ABC share immediately. C. Sell the ABC share. D. Short sell the ABC share. 20\. Under short selling of shares, A. You will buy the share first and then sell. B. You will sell the share first and then buy. C. You will buy and sell the share at the same time. D. You will contract to sell the share in a future date. 21\. Under short selling, A. You will borrow the share from the exisiting owner B. You will borrow the share from the broker. C. You will handover your own share to the buyer. 22\. You will be interested in short selling when only, A. Share prices stay unchaged. B. Share prices declie faster. C. Share prices increase faster. D. Share prices are very volatile. 23\. Short selling of equity shares is associated with, A. Selling a share that the seller does not own. B. Selling a part of the shares. C. Selling a share for a short period with a promise to buy in back. D. Selling a share on contract. 24\. You current owns 1,000 shares of TESSCO. A share trader in the market is looking for the same amount of TESSCO, which of the following will happen under the short selling on TESSCO shares. A. The share trader will contact you and request your shares for short selling. B. Broker will contact you and arrange borrowing of shares from you. C. You will not be informed and the trader can do short selling. D. You will not be informed but broker can arrange the short selling. 25\. Short selling is arranged A. On the agreement with the stockbroker to borrow shared. B. On the agreement with the other share owners to borrow the shares. C. On the agreement with the buyer of the short sell to transfer the share on a later day. D. With no involvement of any other party. 26\. Short seller will earn a profit if, A. Share price increases before the short selling. B. Share price declines before the short selling. C. Share price increases after the short selling. D. Share price declines after the short selling. 27\. Short seller will get a loss if, A. Share price increases before the short selling. B. Share price declines before the short selling. C. Share price increases after the short selling. D. Share price declines after the short selling. 28\. ECOWEST is a company with only 5 shareholders. They want to increase the shareholder base and invite any interested investor to be a shareholder. This will be done through a. A. Private placement of shares. B. Rights issue of shares. C. IPO. D. Selling shares of the existing 5 shareholders to another 5 shareholders. 29\. Through an IPO, A. Existing shareholders will sell their shares. B. New shares will be sold. C. Existing shares will be split. D. Bonus shares will be issued. 30\. Through an IPO, A. The issuer will get fresh equity capital. B. The existing investor will liquidate his share ownership. C. Number of outstanding shares will not increase. D. Total nominal value of the shares will not increase. 31\. An IPO is A. A primary market transaction. B. Private equity transaction. C. Secondary market transaction. 32\. Through an IPO, A. Only existing shareholders will buy shares. B. Only new investors will buy shares. C. Both existing and new investors will buy shares. D. Only directors will receive shares. 33\. Through a right issue, a corporate will make, A. An issue of new shares to new shareholders. B. An issue of existing shares to new shareholders. C. An issue of new shares to existing shareholders. D. An issue of existing shares to existing shareholders. 34\. an IPO is A. A non-dilutive share issue. B. Dilutive share issue. C. Share split. D. Can be dilutive for some investors while not dilutive for some of the existing shareholders. 35\. A corporate recently issued GBP 5 mn worth of equity shares to the investor. The shareholder Robert had a 1% ownership from that company. After the issue, Robert's share ownership of the company has declined to 0.75%. The p\[artcilar share issue can be, A. A right issue. B. IPO. C. Share split. D. Bonus share issue. 36\. Which of the following is the largest equity market in the world by 2023. A. USA market B. UK market C. Hing Kong market D. China market. 37\. The second largest equity market in he world by 2022 comes to A. USA market B. UK market C. Hing Kong market D. China market. 38\. Based on the latest ranking by GFCI, the number one financial center in the global markets is A. London market B. New York market C. Tokyo market D. Shanghai market 39\. Which of the following is correct. A. Only IPO will reduce the EPS immediately. B. Only a rights issue will reduce the EPS immediately. C. None of them will reduce the EPS immediately. D. Both of them will reduce the EPS immediately. 40\. A corporate currently has 100,000 total outstanding number of shares. Its current EPS is GBP 0.75 per share. The Company plans to issue additional shares of 50,000 immediately. EPS by the end of the current financial year can be, A. GBP 0.75 B. GBP 0.50 C. GBP 0.25 D. GBP 1.25..................................Report end.......................................................................................... 1. **C. Yields of Treasury securities.** - The yield curve typically refers to the yields of Treasury securities with different maturities. 2. **A. Credit rating** - The yield curve is primarily concerned with term to maturities, yields, and Treasury bonds, not credit ratings. 3. **A. Discounted interest basis.** - Repo interest is usually computed on a discounted interest basis. 4. **B. At maturity of the Repo.** - The relevant interest on a Repo is generally paid at maturity. 5. **A. Equal to the Repo lending amount.** - The maturity of a Repo generally matches the lending amount\'s term. 6. **D. A dealer of government securities.** - In technical terms, the borrowing party in a Repo is typically a dealer in government securities. 7. **D. It is backed by a government security of which the ownership is transferred to the lender.** - Repo transactions are considered low-risk because they are backed by government securities. 8. **D. Upward sloping** - The normal shape of a yield curve is upward sloping. 9. **A. An upward slope.** - When short-term yields are lower than long-term yields, the yield curve has an upward slope. 10. **C. Long term yields will be the same as the short-term yields.** - In a flat yield curve, long-term and short-term yields are approximately the same. 11. **A. Equity capital.** - Owners of corporates typically provide equity capital. 12. **D. An equity investor.** - Equity investors assume the highest risk as they are last in line for claims on assets. 13. **D. Last priority for their entitlements.** - Common shareholders have the last priority for their entitlements. 14. **A. Finding a buyer or seller for the shares within a shorter period of time.** - Non-traded shares can be difficult to buy or sell quickly. 15. **C. Which are listed in a share exchange.** - Publicly traded shares are those listed on a stock exchange. 16. **A. Companies with private ownership.** - Private equity refers to shares of companies with private ownership. 17. **C. Traded market.** - The main differentiator between public and private equity is whether the shares are traded on a public market. 18. **D. You can short sell it.** - You can short sell shares even if you do not currently own them. 19. **D. Short sell the ABC share.** - If you expect the price to decline, short selling would be a strategy to profit from the drop. 20. **B. You will sell the share first and then buy.** - Short selling involves selling the share first and buying it back later. 21. **A. You will borrow the share from the existing owner.** - In short selling, the share is typically borrowed from the existing owner. 22. **B. Share prices decline faster.** - Short selling is profitable when share prices decline. 23. **A. Selling a share that the seller does not own.** - Short selling involves selling shares that the seller does not own. 24. **D. You will not be informed but the broker can arrange the short selling.** - In many markets, the broker handles the borrowing of shares for short selling without informing the original owner. 25. **A. On the agreement with the stockbroker to borrow shares.** - Short selling is arranged through an agreement with a stockbroker to borrow shares. 26. **D. Share price declines after the short selling.** - Short sellers profit when the share price declines after selling. 27. **C. Share price increases after the short selling.** - Short sellers incur losses if the share price increases after selling. 28. **C. IPO.** - An IPO (Initial Public Offering) is the process through which a private company becomes public, allowing anyone to buy shares. 29. **B. New shares will be sold.** - An IPO involves selling new shares to the public. 30. **A. The issuer will get fresh equity capital.** - Through an IPO, the company receives fresh equity capital. 31. **A. A primary market transaction.** - An IPO is a primary market transaction as it involves the sale of new shares. 32. **C. Both existing and new investors will buy shares.** - In an IPO, both existing and new investors can purchase shares. 33. **C. An issue of new shares to existing shareholders.** - A rights issue involves offering new shares to existing shareholders. 34. **B. Dilutive share issue.** - An IPO generally results in dilution, as new shares are added to the market, potentially reducing the value of existing shares. 35. **B. IPO.** - The decline in ownership percentage indicates a dilutive share issue, such as an IPO. 36. **A. USA market** - The USA equity market is the largest in the world by 2023. 37. **D. China market** - As of 2022, the China market is the second largest equity market in the world. 38. **B. New York market** - The New York market is often recognized as the number one financial center globally. 39. **D. Both of them will reduce the EPS immediately.** - Both an IPO and a rights issue can reduce the Earnings Per Share (EPS) if new shares are issued. 40. **B. GBP 0.50** - If the company issues additional shares, the EPS would decrease due to the increased number of outstanding shares.