IMC Investment Environment & UK Markets 4

Question 1

What is the primary role of a market maker in equity markets?

Accepted Answer

To provide continuous two-way prices (bid and offer) to ensure market liquidity

Answer

Market makers quote continuous bid (buy) and offer (sell) prices for securities, committing to trade at those prices. This ensures liquidity in the market, allowing investors to buy and sell at any time.

Question 2

In UK financial regulation, what is 'best execution'?

Accepted Answer

The obligation to take all sufficient steps to obtain the best possible result for clients when executing orders

Answer

Best execution requires firms to take all sufficient steps to obtain the best possible result for clients, considering price, costs, speed, likelihood of execution, and other relevant factors, not just price alone.

Question 3

What is the significance of the 'free float' for a listed company?

Accepted Answer

The proportion of shares available for public trading

Answer

Free float refers to the proportion of a company's shares that are available for trading by the general public, excluding shares held by controlling shareholders, insiders, or strategic investors who rarely trade.

Question 4

What does 'investment grade' mean when referring to bonds?

Accepted Answer

Bonds rated BBB- or above by major credit rating agencies, indicating relatively low default risk

Answer

Investment grade bonds are those rated BBB- (S&P/Fitch) or Baa3 (Moody's) or above. They indicate the issuer has sufficient capacity to meet financial commitments and are considered suitable for conservative investors.

Question 5

What is the primary function of a custodian in investment management?

Accepted Answer

To safekeep and administer client assets, including settlement and corporate actions

Answer

A custodian safeguards client assets by holding securities in segregated accounts, handling settlement of trades, processing corporate actions (dividends, rights issues), and providing reporting. They do not make investment decisions.

IMC Practice Test

IMC Practice Test

IMC Investment Environment & UK Markets 4