Chapter4_PractiseQs

Chapter4_PractiseQs - 1 An ordinary share represents a...

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Unformatted text preview: 1 An ordinary share represents a claim to a fraction of the profits of the company that issued the share. An additional distinguishing feature of ordinary shares can be described as follows A) shares represent an ownership interest in the issuing company B) shareholders have the right to vote in the election of directors C) shareholders can vote on resolutions at a general meeting of the company D) all of the above Feedback: Ordinary shares are a form of equity so shareholders have an ownership interest in the company that issued the share. As part owners of a company, shareholders also have voting rights, so A, B and C are all valid making D the answer. See page 147. 2 The corporation differs from other forms of business organisation in ways that can be very important. Which of the following is not a valid a corporation’s ownership claims are freely transferable forms? A) difference between the corporation and other organisational B) shareholders do not have a right to participate directly in the operation and management of the business C) shareholders are protected by limited liability Feedback: In contrast to other organisational forms such as sole proprietorships and partnerships, a corporation’s ownership D) operating through a company held by reduces the income have no role in managing the claims (shares) are freely transferable and can be structuremany investors who tax payable on company profits business. Sole p roprietors and partners manage their businesses but, unlike shareholders, are fully liable for any debts of the business. In s ummary, A, B and C outline valid differences between the corporation and other organisational forms. See page 148. 3 The objectives and policies of a corporation are determined by: A) the board of directors B) major shareholders C) senior management D) various stakeholders corporation are as well out by managers and other employees, not by shareholders. Feedback: The day-to-day operations of aincluding lenders carried as shareholders and directors Senior management reports to a board of directors whose responsibilities include the setting of objectives and policies, so A is the answer. See page 148 4 The overall financial objective of corporate managers should be to maximise: A) the power and wealth of managers B) shareholder value C) growth in sales and profits D) market share Feedback: Managers may adopt various goals expressed in terms of sales or profit targets. These and other goals should be consistent with the overall financial objective of maximising the value of the company’s ordinary shares. See page 149. 5 The corporate form of a publicly listed company provides important advantages. Which of the following benefits may also be regarded as a disadvantage in is particularly suited to large scale business operations A) the corporate form certain circumstances? B) there is a separation of ownership and management control C) the corporate form allows for continuity of business activities D) large amounts of funding can be of the corporate form. While terms Feedback: A, C and D outline unambiguous benefits raised on relatively favourable the separation of ownership and control has advantages it also has the disadvantage that managers may pursue their own objectives that are not consistent with the o bjectives of shareholders, so B is the answer. See page 149. 6 A conflict of interests (agency problem) can exist between the owners and managers of a company. Factors that serve to reduce Feedback: this problem include: of takeover The agency problem that can exist between shareholders and managers may be reduced by factors that help to align A) the threat the interests of managers withof share options in the compensation packages of senior managers B) inclusion those of shareholders. The threat of takeover is important because the managers of a target company often fare poorly when a new management team takes control. Including share options in the compensation packages C) more rigorous corporate governance arrangements o f managers gives them a strong incentive to maximise the share price. Corporate governance arrangements can also help to D) all example, ensuring that management decisions are open to review by directors and that managers are achieve that end by, for of the above accountable for their actions. In summary, all the factors listed in A, B and C can reduce the agency problem, making D the answer. See page 150. 7 Several different financial securities are listed on the ASX. Which of the following security types is not listed on the ASX? A) government bonds B) corporate bonds C) hybrid securities D) promissory notes Feedback: Government bonds, corporate bonds and hybrid securities such as convertible notes can be listed on the ASX, but p romissory notes are unlisted and they are generally traded between institutions that deal directly with each other. See page 151. 8 It is important that a stock exchange should operate a market that is efficient. In this context, ‘efficient’ refers primarily to: A) the level of transaction costs in the market B) the speed with which new information is reflected in security prices C) the performance of the exchange in quickly processing payments D) the performance of brokers and the exchange in maintaining up-to-date records Feedback: A well-known theory about the behaviour of security prices, particularly share prices, is the Efficient Market Hypothesis: ‘efficient’ refers to the speed with which prices in the market respond to new information. See page 151. 9 Raising capital by issuing new shares to existing shareholders on a pro-rata basis is known as a: A) new float B) placement C) rights issue D) dividend reinvestment plan Feedback: In a float, shares are issued to new shareholders and a placement is made to a small number of investors, so A and B are . Participation in a dividend reinvestment plan is voluntary, so the issue of shares is not made on a pro-rata basis; therefore, is also . See page 152. D 10 Potential investors in an Initial Public Offering (IPO) must be provided with information. This information is contained in: A) a prospectus issued by the company B) a research report prepared by a broker C) reports issued by the stock exchange D) in an notices rely on newspapers Feedback: Investors publicIPO mayin major information from a variety of sources. However, applications for shares can only be made using a form contained in a prospectus issued by the company, so a copy of this document must be given to all potential investors. See page 152. 11 Some debt is unlisted while other debt securities are listed on an interest rate market provided by a stock exchange. The advantages of listing include: A) an exchange provides access to information such as the price, yield, maturity and credit rating of debt securities B) investors are able to buy and sell the securities with low transaction costs C) access to a wider range of investors Feedback: Unlisted debt securities may be traded between institutions but smaller investors will find it difficult to obtain information about D) all of the aboveIf debt securities are listed on an exchange much information about them is readily available these securities. and the costs of trading the securities are low. In this case the securities can be issued to many investors in the retail market as w ell as to institutions. In summary, A, B and C are all valid making D the answer. See page 157. 12 Most of the securities listed on stock exchanges are equities, but some types of debt securities are also listed and traded on stock exchanges. IV example, the Australian Stock Exchange (ASX) lists various types of ‘interest rate securities’ that are A) I, II, III, For either straight debt securities or hybrids of debt and equity. Which of the following sets (A, B, C or D) contains the greatest B) I, III, V, VI of Feedback: number C)securities thatsecurities that are typically listed on a typically long-term securities. securities I debentures II bank The debt types of ‘debt’ are listed on stock exchanges are stock exchange? Types of debt In accordance, debentures III, III V, VI accepted billsIV, floating rate notes IV convertible notes be listed but bank-accepted bills shares (secured bonds), floating rate notes and convertible notes mayV instalment warrants VI preference that are short term are not listed. D) I, III, IV, VI Instalment warrants are listed but they are a type of derivative, not debt. Preference shares may be listed and often have many of the characteristics of debt. In summary, the types of ‘debt’ securities that are typically listed are I, III, IV and VI, making D the answer. See pages 157–158. 13 Complete the next sentence with the most appropriate response. ‘From the perspective of company management, the existence of a wellA) facilitates the raising of further capital in the secondary market developed secondary market in the company’s shares… B) maintains the share price above the initial issue price C) encourages successful primary market issues D) is of little or no transactions Feedback: While secondary market consequence in shares do not raise new funds for companies, the secondary market is important to companies and managers. One reason for this is that investors will be more willing to subscribe for primary market issues if there is an active secondary market where the shares can be sold if their needs change. See page 154. 14 The existence of an active, liquid market in existing shares adds to the attractiveness of acquiring new shares. Liquidity in the share market means that: whose shares are traded have adequate holdings of liquid assets A) the companies B) market participants can buy and sell shares with little effect on the market price C) there are many potential buyers who can be expected to enter the market if prices fall significantly Feedback: A liquidD) transactions where assets are actively traded and there are many buyers and sellers in the market at any market is one are settled quickly time. Under these circumstances the price of the asset will not be changed significantly by the arrival of a few more orders to buy o r sell, so B is the answer. See page 154. 15 An important feature of exchange-traded derivative contracts, in comparison to over-the-counter (OTC) contracts, is A) OTC contracts are standardised B) the price of an exchange-traded derivative is more highly correlated with the price of the underlying asset C) exchange-traded contracts are standardised on a global basis D) exchange-traded contracts are standardised within each exchange Feedback: To facilitate trading, exchange-traded derivative contracts are always standardised. This is necessary; otherwise an active market would not be feasible. Standardisation applies within each exchange, rather than on a global basis. In contrast, OTC contracts are not standardised and can be tailored to suit the needs of the parties. See page 155. 16 Some exchanges trade using ‘open outcry’ on a trading floor while many have moved to electronic trading. Which of the following isall trading on the ASX is conducted using an electronic system A) not correct? B) two of the open outcry exchanges that remain are located in Chicago C) the ASX uses two electronic trading systems; one for shares and interest rate securities and another for derivatives D) the ASX Feedback: The ASX moved tohas moved an integratedin the 1990s allowsis valid. B is also valid because the Chicago Board of Trade full electronic trading system that so A all listed securities to be traded electronically on the same system and the Chicago Mercantile Exchange still have trading floors where the open outcry system is used. For a time, the ASX used a s eparate trading system for options but it has now moved to an integrated system covering all listed securities so D is valid, making C the answer. See page 158. 17 An option contact gives the buyer of the option the right to buy or sell a specified security at a predetermined price. Which of the following statements about options is correct? option A) an option to sell is known as a call B) if an option is exercised, the option buyer will pay the exercise price C) the writer of an option receives the premium from the buyer D) with options, a cash flow occurs only if the option is exercised Feedback: An option to sell is a put, so A is . B is true of call options but, with a put, the option buyer receives the exercise price, s o B is . When an option is created, the buyer pays the agreed premium to the writer (seller), so C is and D is . See page 156. 18 Some types of derivative contracts are traded on formal exchanges while others are traded over the counter. Which set of the following derivatives (A, B, C or D) may be traded on a stock exchange? Derivatives I call options II put options III warrants IV A) I, II, IV, V forward B) contracts V futures contracts VI currency swaps I, II, III, V C) II, III, V, VI D) I, II, III, VI Feedback: Warrants and futures contracts are always traded on exchanges, and options can be exchange traded. Forward contracts and swaps are not traded on exchanges, so B is the answer. See page 155. 19 An investor holds shares in Zinifex Limited and is concerned that the price may fall. If this investor decides to use options to protect against this riskcall should: A) purchase a he option B) write a put option C) purchase a put option D) write a call option Feedback: The buyer of a put option obtains the right to sell shares at a specified price (the exercise price) even if the market p rice is lower than the exercise price, so C is the answer. See page 156. 20 The Australian Stock Exchange (ASX) operates a system known as CLICK XT. Which of the following statements is correct in relation A) this system? to it allows individual investors direct access to execute buy/sell orders on the ASX B) at the opening of trade, overlapping bids and offers are shared between existing orders C) CLICK XT is used for trading shares while a different system is used for derivatives D) investors must trade through a broker and the CLICK XT system is used Feedback: Individual it facilitates the efficient processing and settlement of market transactions for trading all listed securities, so A and C are . The CLICK XT system matches buy and sell orders to enable transactions to be executed but settlement takes place through CHESS so D is also , but B is . See page 158. 21 The Australian Stock Exchange operates The Clearing House Electronic Subregister System (CHESS). Which of the following statementsthe systemCHESS settlement of transactions within three working days A) regarding allows is not correct? B) a shareholder must conduct a CHESS transaction with a sponsor C) shareholders can continue to hold and use traditional share certificates D) the CHESS clearing-house issues holding statements to shareholders Feedback: A, B and D are all true. All transactions on the ASX are conducted electronically and share certificates are no longer u sed, so C is the answer. See pages 159–160. 22 Entities with securities listed on a stock exchange must comply with the exchange’s listing rules. A number of Australian Stock Exchange (ASX) listing rules relate to a to the market of fundamental importance, namely: A) the provision of information matter that is B) payment of dividends C) lodgement of documents with ASIC D) auditing great significance to compliance by listed entities with its continuous disclosure regime. In Feedback: The ASX attaches of financial statements accordance, its listing rules specify many types of information that must be reported promptly to the ASX, so A is the answer. See page 161. 23 To ensure that investors have confidence in the integrity of its operation, the Australian Stock Exchange (ASX) is heavily regulated and supervised. The main supervision is carried out by the: A) Australian Prudential Regulation Authority (APRA) B) Australian Securities and Investments Commission (ASIC) C) ASX itself D) ASX and ASIC Feedback: The ASX carries out surveillance of market activity and monitors compliance with its listing rules. Possible breaches of the law, such as the Corporations Act, are referred to ASIC for investigation, so D is the answer. See page 162. 24 A National Guarantee Fund (NGF) provides protection to investors who deal in listed securities and derivatives on the Australian Stock Exchange (ASX). Investors can claim against the NGF if losses are incurred from: A) failure of the ASX computer system B) the misconduct of a broker C) the failure of a listed entity to disclose price-sensitive information D) a material breach of the listing rules Feedback: The purpose of the NGF is to protect investors from losses that arise from fraud or negligence, and so forth, by a member of the ASX, so B is the answer. See page 162. 25 Under the Australian Stock Exchange (ASX) continuous disclosure regime, when must a listed entity disclose information that is relevantA) daily to investors? B) monthly C) immediately D) as soon required to has verified the information Feedback: Listed entities are as its auditorundertake regular reporting as well as continuous disclosure. Regular reporting is u sually carried out on a half-yearly or quarterly basis, rather than on a daily or monthly basis. Continuous disclosure is based on the principle that other relevant information should be reported immediately, so C is . See page 161. 26 Which of the following statements about the supervisory function of the ASX is not correct? A) its role is restricted to ensuring that companies applying for listing do comply with its Listing Rules B) the ASX monitors listed companies to ensure compliance with its continuous disclosure regime C) an electronic surveillance system is used to monitor trading on the ASX D) misconduct by brokers may result in penalties imposed by the ASX or ASIC Feedback: The statements in B, C and D are all valid. The ASX does scrutinise companies applying for listing but its role does not end once a company is listed. The ASX continues to monitor companies to ensure ongoing compliance making A the answer. See page 162. 27 Disclosure of information by listed entities is critical to the efficient operation of a market. Which of the following should be disclosed by a listed company? A) declaration of a dividend B) a decision to buy back shares C) changes in directors’ interests in the company D) continuous disclosure regime, any information that could influence the price of a company’s shares or Feedback: Under theall of the above affect an investor’s decision to buy or sell shares should be disclosed. All the items mentioned in A, B and C fall into that category making D the answer. See page 161. 28 A limited liability company is one where: A) directors and management have only limited responsibilities B) shareholders cannot be required to help meet obligations to creditors if the company fails C) holders of partly paid shares are not required to meet calls Feedback: Limited liability protects shareholders in that, if the shares they hold are fully paid, the shareholders cannot be D) a liquidator funds on holders of company failure. However, of the issue price that has not been paid r equired to contribute additionalcan callin the eventof shares to contribute any part if shares are partly paid, holders can be required to contribute the unpaid portion of the issue price. A and B are and the situation outlined in C applies to no liability companies r ather than limited liability companies. See page 148. 29 The corporate form of a business organisation has important advantages. Which of the following is not an advantage? A) capital can be raised on terms that reflect the ability of investors to diversify B) skilled managers who need not be shareholders can operate the business C) skilled managers who must also be shareholders can operate the business D) ownership of the business can change without disrupting its operations Feedback: A, B and D all identify advantages of the corporate form of a business organisation. While the managers of a business can also invest in its shares, they are not required to be shareholders, so C is the answer. See page 148. E-mail Your Results 1 Chapter 04no 0 1070140898 4256364 qu 1 An ordinary share represents a claim to a fraction of the profits of the company that issued the share. An additional distinguishing feature of ordinary shares can be described as follows A) shares represent an ownership interest in the issuing company B) shareholders have the right to vote in the election of directors C) shareholders can vote on resolutions at a general meeting of the company D) all of the above Feedback: Ordinary shares are a form of equity so shareholders have an ownership interest in the company that issued the share. As part owners of a company, shareholders also have voting rights, so A, B and C are all valid making D the answer. See page 147. 2 4 2 The corporation differs from other forms of business organisation in ways that can be very important. Which of the following is not a valid a corporation’s ownership claims are freely transferable forms? A) difference between the corporation and other organisational B) shareholders do not have a right to participate directly in the operation and management of the business C) shareholders are protected by limited liability Feedback: In contrast to other organisational forms such as sole proprietorships and partnerships, a corporation’s ownership D) operating through a company held by reduces the income have no role in managing the claims (shares) are freely transferable and can be structuremany investors who tax payable on company profits business. Sole p roprietors and partners manage their businesses but, unlike shareholders, are fully liable for any debts of the business. In s ummary, A, B and C outline valid differences between the corporation and other organisational forms. See page 148. 3 4 3 The objectives and policies of a corporation are determined by: A) the board of directors B) major shareholders C) senior management D) various stakeholders corporation are as well out by managers and other employees, not by shareholders. Feedback: The day-to-day operations of aincluding lenders carried as shareholders and directors Senior management reports to a board of directors whose responsibilities include the setting of objectives and policies, so A is the answer. See page 148 4 4 4 The overall financial objective of corporate managers should be to maximise: A) the power and wealth of managers B) shareholder value C) growth in sales and profits D) market share Feedback: Managers may adopt various goals expressed in terms of sales or profit targets. These and other goals should be consistent with the overall financial objective of maximising the value of the company’s ordinary shares. See page 149. 5 4 5 The corporate form of a publicly listed company provides important advantages. Which of the following benefits may also be regarded as a disadvantage in is particularly suited to large scale business operations A) the corporate form certain circumstances? B) there is a separation of ownership and management control C) the corporate form allows for continuity of business activities D) large amounts of funding can be of the corporate form. While terms Feedback: A, C and D outline unambiguous benefits raised on relatively favourable the separation of ownership and control has advantages it also has the disadvantage that managers may pursue their own objectives that are not consistent with the o bjectives of shareholders, so B is the answer. See page 149. 6 4 6 A conflict of interests (agency problem) can exist between the owners and managers of a company. Factors that serve to reduce Feedback: this problem include: of takeover The agency problem that can exist between shareholders and managers may be reduced by factors that help to align A) the threat the interests of managers withof share options in the compensation packages of senior managers B) inclusion those of shareholders. The threat of takeover is important because the managers of a target company often fare poorly when a new management team takes control. Including share options in the compensation packages C) more rigorous corporate governance arrangements o f managers gives them a strong incentive to maximise the share price. Corporate governance arrangements can also help to D) all example, ensuring that management decisions are open to review by directors and that managers are achieve that end by, for of the above accountable for their actions. In summary, all the factors listed in A, B and C can reduce the agency problem, making D the answer. See page 150. 7 7 4 Several different financial securities are listed on the ASX. Which of the following security types is not listed on the ASX? A) government bonds B) corporate bonds C) hybrid securities D) promissory notes Feedback: Government bonds, corporate bonds and hybrid securities such as convertible notes can be listed on the ASX, but p romissory notes are unlisted and they are generally traded between institutions that deal directly with each other. See page 151. 8 8 4 It is important that a stock exchange should operate a market that is efficient. In this context, ‘efficient’ refers primarily to: A) the level of transaction costs in the market B) the speed with which new information is reflected in security prices C) the performance of the exchange in quickly processing payments D) the performance of brokers and the exchange in maintaining up-to-date records Feedback: A well-known theory about the behaviour of security prices, particularly share prices, is the Efficient Market Hypothesis: ‘efficient’ refers to the speed with which prices in the market respond to new information. See page 151. 9 4 9 Raising capital by issuing new shares to existing shareholders on a pro-rata basis is known as a: A) new float B) placement C) rights issue D) dividend reinvestment plan Feedback: In a float, shares are issued to new shareholders and a placement is made to a small number of investors, so A and B are . Participation in a dividend reinvestment plan is voluntary, so the issue of shares is not made on a pro-rata basis; therefore, is also . See page 152. 10 10 D 4 Potential investors in an Initial Public Offering (IPO) must be provided with information. This information is contained in: A) a prospectus issued by the company B) a research report prepared by a broker C) reports issued by the stock exchange D) in an notices rely on newspapers Feedback: Investors publicIPO mayin major information from a variety of sources. However, applications for shares can only be made using a form contained in a prospectus issued by the company, so a copy of this document must be given to all potential investors. See page 152. 11 11 4 Some debt is unlisted while other debt securities are listed on an interest rate market provided by a stock exchange. The advantages of listing include: A) an exchange provides access to information such as the price, yield, maturity and credit rating of debt securities B) investors are able to buy and sell the securities with low transaction costs C) access to a wider range of investors Feedback: Unlisted debt securities may be traded between institutions but smaller investors will find it difficult to obtain information about D) all of the aboveIf debt securities are listed on an exchange much information about them is readily available these securities. and the costs of trading the securities are low. In this case the securities can be issued to many investors in the retail market as w ell as to institutions. In summary, A, B and C are all valid making D the answer. See page 157. 12 12 4 Most of the securities listed on stock exchanges are equities, but some types of debt securities are also listed and traded on stock exchanges. IV example, the Australian Stock Exchange (ASX) lists various types of ‘interest rate securities’ that are A) I, II, III, For either straight debt securities or hybrids of debt and equity. Which of the following sets (A, B, C or D) contains the greatest B) I, III, V, VI of Feedback: number C)securities thatsecurities that are typically listed on a typically long-term securities. securities I debentures II bank The debt types of ‘debt’ are listed on stock exchanges are stock exchange? Types of debt In accordance, debentures III, III V, VI accepted billsIV, floating rate notes IV convertible notes be listed but bank-accepted bills shares (secured bonds), floating rate notes and convertible notes mayV instalment warrants VI preference that are short term are not listed. D) I, III, IV, VI Instalment warrants are listed but they are a type of derivative, not debt. Preference shares may be listed and often have many of the characteristics of debt. In summary, the types of ‘debt’ securities that are typically listed are I, III, IV and VI, making D the answer. See pages 157–158. 13 13 4 Complete the next sentence with the most appropriate response. ‘From the perspective of company management, the existence of a wellA) facilitates the raising of further capital in the secondary market developed secondary market in the company’s shares… B) maintains the share price above the initial issue price C) encourages successful primary market issues D) is of little or no transactions Feedback: While secondary market consequence in shares do not raise new funds for companies, the secondary market is important to companies and managers. One reason for this is that investors will be more willing to subscribe for primary market issues if there is an active secondary market where the shares can be sold if their needs change. See page 154. 14 14 4 The existence of an active, liquid market in existing shares adds to the attractiveness of acquiring new shares. Liquidity in the share market means that: whose shares are traded have adequate holdings of liquid assets A) the companies B) market participants can buy and sell shares with little effect on the market price C) there are many potential buyers who can be expected to enter the market if prices fall significantly Feedback: A liquidD) transactions where assets are actively traded and there are many buyers and sellers in the market at any market is one are settled quickly time. Under these circumstances the price of the asset will not be changed significantly by the arrival of a few more orders to buy o r sell, so B is the answer. See page 154. 15 15 4 An important feature of exchange-traded derivative contracts, in comparison to over-the-counter (OTC) contracts, is A) OTC contracts are standardised B) the price of an exchange-traded derivative is more highly correlated with the price of the underlying asset C) exchange-traded contracts are standardised on a global basis D) exchange-traded contracts are standardised within each exchange Feedback: To facilitate trading, exchange-traded derivative contracts are always standardised. This is necessary; otherwise an active market would not be feasible. Standardisation applies within each exchange, rather than on a global basis. In contrast, OTC contracts are not standardised and can be tailored to suit the needs of the parties. See page 155. 16 16 4 Some exchanges trade using ‘open outcry’ on a trading floor while many have moved to electronic trading. Which of the following isall trading on the ASX is conducted using an electronic system A) not correct? B) two of the open outcry exchanges that remain are located in Chicago C) the ASX uses two electronic trading systems; one for shares and interest rate securities and another for derivatives D) the ASX Feedback: The ASX moved tohas moved an integratedin the 1990s allowsis valid. B is also valid because the Chicago Board of Trade full electronic trading system that so A all listed securities to be traded electronically on the same system and the Chicago Mercantile Exchange still have trading floors where the open outcry system is used. For a time, the ASX used a s eparate trading system for options but it has now moved to an integrated system covering all listed securities so D is valid, making C the answer. See page 158. 17 17 4 An option contact gives the buyer of the option the right to buy or sell a specified security at a predetermined price. Which of the following statements about options is correct? option A) an option to sell is known as a call B) if an option is exercised, the option buyer will pay the exercise price C) the writer of an option receives the premium from the buyer D) with options, a cash flow occurs only if the option is exercised Feedback: An option to sell is a put, so A is . B is true of call options but, with a put, the option buyer receives the exercise price, s o B is . When an option is created, the buyer pays the agreed premium to the writer (seller), so C is and D is . See page 156. 18 18 4 Some types of derivative contracts are traded on formal exchanges while others are traded over the counter. Which set of the following derivatives (A, B, C or D) may be traded on a stock exchange? Derivatives I call options II put options III warrants IV A) I, II, IV, V forward B) contracts V futures contracts VI currency swaps I, II, III, V C) II, III, V, VI D) I, II, III, VI Feedback: Warrants and futures contracts are always traded on exchanges, and options can be exchange traded. Forward contracts and swaps are not traded on exchanges, so B is the answer. See page 155. 19 19 4 An investor holds shares in Zinifex Limited and is concerned that the price may fall. If this investor decides to use options to protect against this riskcall should: A) purchase a he option B) write a put option C) purchase a put option D) write a call option Feedback: The buyer of a put option obtains the right to sell shares at a specified price (the exercise price) even if the market p rice is lower than the exercise price, so C is the answer. See page 156. 20 20 4 The Australian Stock Exchange (ASX) operates a system known as CLICK XT. Which of the following statements is correct in relation A) this system? to it allows individual investors direct access to execute buy/sell orders on the ASX B) at the opening of trade, overlapping bids and offers are shared between existing orders C) CLICK XT is used for trading shares while a different system is used for derivatives D) investors must trade through a broker and the CLICK XT system is used Feedback: Individual it facilitates the efficient processing and settlement of market transactions for trading all listed securities, so A and C are . The CLICK XT system matches buy and sell orders to enable transactions to be executed but settlement takes place through CHESS so D is also , but B is . See page 158. 21 21 4 The Australian Stock Exchange operates The Clearing House Electronic Subregister System (CHESS). Which of the following statementsthe systemCHESS settlement of transactions within three working days A) regarding allows is not correct? B) a shareholder must conduct a CHESS transaction with a sponsor C) shareholders can continue to hold and use traditional share certificates D) the CHESS clearing-house issues holding statements to shareholders Feedback: A, B and D are all true. All transactions on the ASX are conducted electronically and share certificates are no longer u sed, so C is the answer. See pages 159–160. 22 22 4 Entities with securities listed on a stock exchange must comply with the exchange’s listing rules. A number of Australian Stock Exchange (ASX) listing rules relate to a to the market of fundamental importance, namely: A) the provision of information matter that is B) payment of dividends C) lodgement of documents with ASIC D) auditing great significance to compliance by listed entities with its continuous disclosure regime. In Feedback: The ASX attaches of financial statements accordance, its listing rules specify many types of information that must be reported promptly to the ASX, so A is the answer. See page 161. 23 23 4 To ensure that investors have confidence in the integrity of its operation, the Australian Stock Exchange (ASX) is heavily regulated and supervised. The main supervision is carried out by the: A) Australian Prudential Regulation Authority (APRA) B) Australian Securities and Investments Commission (ASIC) C) ASX itself D) ASX and ASIC Feedback: The ASX carries out surveillance of market activity and monitors compliance with its listing rules. Possible breaches of the law, such as the Corporations Act, are referred to ASIC for investigation, so D is the answer. See page 162. 24 24 4 A National Guarantee Fund (NGF) provides protection to investors who deal in listed securities and derivatives on the Australian Stock Exchange (ASX). Investors can claim against the NGF if losses are incurred from: A) failure of the ASX computer system B) the misconduct of a broker C) the failure of a listed entity to disclose price-sensitive information D) a material breach of the listing rules Feedback: The purpose of the NGF is to protect investors from losses that arise from fraud or negligence, and so forth, by a member of the ASX, so B is the answer. See page 162. 25 25 4 Under the Australian Stock Exchange (ASX) continuous disclosure regime, when must a listed entity disclose information that is relevantA) daily to investors? B) monthly C) immediately D) as soon required to has verified the information Feedback: Listed entities are as its auditorundertake regular reporting as well as continuous disclosure. Regular reporting is u sually carried out on a half-yearly or quarterly basis, rather than on a daily or monthly basis. Continuous disclosure is based on the principle that other relevant information should be reported immediately, so C is . See page 161. 26 26 4 Which of the following statements about the supervisory function of the ASX is not correct? A) its role is restricted to ensuring that companies applying for listing do comply with its Listing Rules B) the ASX monitors listed companies to ensure compliance with its continuous disclosure regime C) an electronic surveillance system is used to monitor trading on the ASX D) misconduct by brokers may result in penalties imposed by the ASX or ASIC Feedback: The statements in B, C and D are all valid. The ASX does scrutinise companies applying for listing but its role does not end once a company is listed. The ASX continues to monitor companies to ensure ongoing compliance making A the answer. See page 162. 27 27 4 Disclosure of information by listed entities is critical to the efficient operation of a market. Which of the following should be disclosed by a listed company? A) declaration of a dividend B) a decision to buy back shares C) changes in directors’ interests in the company D) continuous disclosure regime, any information that could influence the price of a company’s shares or Feedback: Under theall of the above affect an investor’s decision to buy or sell shares should be disclosed. All the items mentioned in A, B and C fall into that category making D the answer. See page 161. 28 28 4 A limited liability company is one where: A) directors and management have only limited responsibilities B) shareholders cannot be required to help meet obligations to creditors if the company fails C) holders of partly paid shares are not required to meet calls Feedback: Limited liability protects shareholders in that, if the shares they hold are fully paid, the shareholders cannot be D) a liquidator funds on holders of company failure. However, of the issue price that has not been paid r equired to contribute additionalcan callin the eventof shares to contribute any part if shares are partly paid, holders can be required to contribute the unpaid portion of the issue price. A and B are and the situation outlined in C applies to no liability companies r ather than limited liability companies. See page 148. 29 29 4 The corporate form of a business organisation has important advantages. Which of the following is not an advantage? A) capital can be raised on terms that reflect the ability of investors to diversify B) skilled managers who need not be shareholders can operate the business C) skilled managers who must also be shareholders can operate the business D) ownership of the business can change without disrupting its operations Feedback: A, B and D all identify advantages of the corporate form of a business organisation. While the managers of a business can also invest in its shares, they are not required to be shareholders, so C is the answer. See page 148. no Result ¶style= < 1tables epor 4256364R E-mail Your Results ...
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