CISI IAD Securities and Markets

Question 1

What is the key difference between an ordinary share and a preference share?

Accepted Answer

Preference shares typically pay a fixed dividend and rank ahead of ordinary shares for dividend payments and on winding up, but usually have limited voting rights

Answer

Ordinary shares pay fixed dividends while preference shares pay variable dividends

Answer

Ordinary shares have no voting rights

Answer

Preference shares always outperform ordinary shares

Question 2

What is a 'corporate bond' and how does it differ from a UK Government gilt?

Accepted Answer

A corporate bond is a debt instrument issued by a company, typically carrying higher credit risk and yield than gilts which are issued by the UK Government

Answer

They are identical instruments issued by different entities

Answer

Corporate bonds are always more liquid than gilts

Answer

Corporate bonds are equity instruments while gilts are debt instruments

Question 3

What is the role of a 'market maker' on the London Stock Exchange?

Accepted Answer

To provide continuous buy and sell prices for securities, providing liquidity to the market

Answer

To regulate trading activity on behalf of the FCA

Answer

To clear and settle all trades

Answer

To set the official closing price for all securities

Question 4

What does the term 'ex-dividend date' mean for a shareholder?

Accepted Answer

The date after which a buyer of the shares will not be entitled to the next dividend payment

Answer

The date on which the dividend is paid into the shareholder's account

Answer

The date the company declares the dividend amount

Answer

The date by which shareholders must reinvest their dividend

Question 5

Which of the following is a characteristic of an Exchange-Traded Fund (ETF)?

Accepted Answer

ETFs trade on a stock exchange like shares, typically track an index, and can be bought and sold throughout the trading day at market prices

Answer

ETFs can only invest in UK equities

Answer

ETFs always outperform actively managed funds

Answer

ETFs are only available to institutional investors

Question 6

What is a 'rights issue' and how does it affect existing shareholders?

Accepted Answer

An offer to existing shareholders to purchase additional shares at a discounted price in proportion to their current holding, diluting non-participating shareholders

Answer

A mandatory purchase of new shares at market price

Answer

A share buyback programme

Answer

A bonus issue of free shares