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HKSI Paper 11 (Corporate Finance) English Free Trial
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HKSI Paper 11 English Free Trial
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- Question 1 of 10
1. Question
Which of the following statement regarding Swaps is correct?
CorrectSimilar to forwards and futures, a contract’s net initial value to each party should be zero and as one side of the swap contract gains the other side loses by the same amount. Swaps in which two parties exchange cash flows include interest rate and currency swaps.
IncorrectSimilar to forwards and futures, a contract’s net initial value to each party should be zero and as one side of the swap contract gains the other side loses by the same amount. Swaps in which two parties exchange cash flows include interest rate and currency swaps.
- Question 2 of 10
2. Question
Which of the following statement(s) is/are correct?
I. Hybrid securities have the characteristics of debt.
II. Hybrid securities have the characteristics of equity.
III. Hybrid securities have the characteristics of ordinary shares.
IV. Hybrid securities have the characteristics of debenture sharesCorrectHybrid securities have characteristics of both debt and equity. Another term for hybrid securities is mezzanine debt. Hybrid securities are usually tax-driven financing arrangements or techniques.
IncorrectHybrid securities have characteristics of both debt and equity. Another term for hybrid securities is mezzanine debt. Hybrid securities are usually tax-driven financing arrangements or techniques.
- Question 3 of 10
3. Question
Why do companies need to provide an incentive for shareholders?
CorrectEarlier in this Topic, we discussed the question of issuing options to executives. However, many companies need to provide an incentive for shareholders to keep faith with the company and retain their shares.
IncorrectEarlier in this Topic, we discussed the question of issuing options to executives. However, many companies need to provide an incentive for shareholders to keep faith with the company and retain their shares.
- Question 4 of 10
4. Question
What are the two alternative methods and considerations in evaluating investment proposals?
I. Net Present Value
II. Internal Rate of Return
III. Annual Rate of Return
IV. Average Return on Average InvestmentCorrectThere is a wide range of methods of assessing the economic return of projects under consideration. There are four principal methods, each of which contains a number of sub-approaches:
(1) Accounting rates of return;
(2) Payback period;
(3) Net present value (“NPV”); and
(4) Internal rate of return (“IRR”).IncorrectThere is a wide range of methods of assessing the economic return of projects under consideration. There are four principal methods, each of which contains a number of sub-approaches:
(1) Accounting rates of return;
(2) Payback period;
(3) Net present value (“NPV”); and
(4) Internal rate of return (“IRR”). - Question 5 of 10
5. Question
What are the conditions that may take to an inadequate strategic understanding of a company’s failure?
I. Inability to manage mass exodus of staff.
II. Inability to understand the competitive environment.
III. Inability to understand the environment changes.
IV. Failure to understand, anticipate or adapt to changes.Correct(2) Inadequate strategic understanding. It is necessary to understand the competitive environment in which a company operates, how that environment changes, and how the company must anticipate or adapt to the changes. CEOs who lack such understanding often feature among the ranks of those responsible for corporate collapses;
Incorrect(2) Inadequate strategic understanding. It is necessary to understand the competitive environment in which a company operates, how that environment changes, and how the company must anticipate or adapt to the changes. CEOs who lack such understanding often feature among the ranks of those responsible for corporate collapses;
- Question 6 of 10
6. Question
What are the four basic strategies for resolving non-perming equities and non-performing loans?
CorrectIn the final analysis, there are four basic strategies for resolving non-performing equities (“NPEs”) and non-performing loans (“NPLs”). The strategy for every company is different, but each will contain some of the following elements: workout, liquidation, legal action against sponsors, guarantors and other associated parties, and “walk away”.
IncorrectIn the final analysis, there are four basic strategies for resolving non-performing equities (“NPEs”) and non-performing loans (“NPLs”). The strategy for every company is different, but each will contain some of the following elements: workout, liquidation, legal action against sponsors, guarantors and other associated parties, and “walk away”.
- Question 7 of 10
7. Question
Why legal action against sponsors, guarantors and other associate parities may require in the event if a company fails?
I. To recover funds inappropriately removed before the collapse.
II. To recover fund from directors who have allowed the company to trade while insolvent.
III. To exercise right under guarantee.
IV. To facilitate smooth transisionCorrectWhile not a recommended strategy, this is definitely valid where the financial institution discovers that, for one reason or another, there is little or no sensible motive to pursue any form of recovery strategy. Reasons might include:
(a) The financial institution’s legal documents may be faulty;
(b) The borrower or investee may be so hopelessly insolvent that there would be little likelihood of any recovery;
(c) The actual borrower may be considered more incompetent than dishonest; and
(d) There may often be an element of lender or investor incompetence in the original decision.IncorrectWhile not a recommended strategy, this is definitely valid where the financial institution discovers that, for one reason or another, there is little or no sensible motive to pursue any form of recovery strategy. Reasons might include:
(a) The financial institution’s legal documents may be faulty;
(b) The borrower or investee may be so hopelessly insolvent that there would be little likelihood of any recovery;
(c) The actual borrower may be considered more incompetent than dishonest; and
(d) There may often be an element of lender or investor incompetence in the original decision. - Question 8 of 10
8. Question
What are the two issues arises at the time of checking financial assessments?
I. Proposals that are over time do not recoup all their costs and generate an inappropriate return are unlikely to be considered
II. Proposals that are over time do not recover all their costs and create an appropriate return is unlikely to be found.
III. Even if all other things being equal, a company will normally choose a more profitable venture over a less profitable venture.
IV. Even if all other things being equal, a company will normally choose a less profitable venture, as part of their social commitment.Correct(1) All other things being equal, a company will normally choose a more profitable venture over a less profitable venture; and
(2) Proposals that over time do not recoup all their costs and generate an appropriate return are unlikely to be considered.Incorrect(1) All other things being equal, a company will normally choose a more profitable venture over a less profitable venture; and
(2) Proposals that over time do not recoup all their costs and generate an appropriate return are unlikely to be considered. - Question 9 of 10
9. Question
Which are the two main categories of risks as per accounting terms?
I. Liquidation risks
II. Share transfer risks
III. Transaction risks
IV. Balance sheet risksCorrectEvery financial institution is exposed to a wide range of risks. The most commonly recognized risks can be segregated into two main categories:
(1) Balance sheet risks – risks related to the nature and make-up of assets on a financial institution’s balance sheet.
(2) Transaction risks – risks attaching to specific transactions or groups of related transactions.IncorrectEvery financial institution is exposed to a wide range of risks. The most commonly recognized risks can be segregated into two main categories:
(1) Balance sheet risks – risks related to the nature and make-up of assets on a financial institution’s balance sheet.
(2) Transaction risks – risks attaching to specific transactions or groups of related transactions. - Question 10 of 10
10. Question
What is a risk as per a layman’s perception?
CorrectTo a layman’s perception, risk often refers to the possibility of incurring a loss, but this is only partly true of risk, as such a perception only looks at the loss or downside risk.
IncorrectTo a layman’s perception, risk often refers to the possibility of incurring loss, but this is only partly true of risk, as such a perception only looks at the loss, or downside risk.
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