CISI IoI UK Financial Markets Overview 2

Question 1

What is the 'bid-offer spread' in the context of buying and selling shares?

Accepted Answer

The difference between the price a market maker will buy shares (bid) and the price at which they will sell shares (offer)

Answer

The bid-offer spread is the difference between the lower bid price (what the market maker will pay to buy) and the higher offer price (what they charge to sell). The spread represents the market maker's profit and a transaction cost for investors.

Question 2

What is the Alternative Investment Market (AIM)?

Accepted Answer

A secondary market for smaller, growing companies with lighter listing requirements than the main LSE market

Answer

AIM is a sub-market of the London Stock Exchange designed for smaller, growing companies. It has less stringent listing requirements than the main market, making it easier for smaller companies to raise capital, though with higher risk for investors.

Question 3

What is the Bank of England's primary monetary policy tool for influencing the UK economy?

Accepted Answer

Setting the Bank Rate (base rate), which influences borrowing costs throughout the economy

Answer

The Bank of England's Monetary Policy Committee (MPC) sets the Bank Rate, which is the rate at which the Bank lends to commercial banks. Changes to the Bank Rate influence interest rates throughout the economy, affecting borrowing, spending, and inflation.

Question 4

What is meant by 'market capitalisation'?

Accepted Answer

The total market value of a company's outstanding shares (share price multiplied by number of shares in issue)

Answer

Market capitalisation is calculated by multiplying a company's current share price by the total number of shares in issue. It represents the market's total valuation of the equity of the business.

Question 5

What is 'settlement' in the context of a stock market transaction?

Accepted Answer

The legal process of transferring ownership of a security from seller to buyer and the exchange of payment

Answer

Settlement is the process by which a securities transaction is finalised — the buyer receives the shares and the seller receives the cash. In the UK, standard settlement for equities is T+2 (two business days after the trade date).

CISI Introduction to Investment Practice Test

CISI Introduction to Investment Practice Test

CISI IoI UK Financial Markets Overview 2