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HKSI Paper 11 (Corporate Finance) English Free Trial
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Question 1 of 20
1. Question
Which of the following statement/s is/are correct?
I. A primary market is one where debentures or securities are first issued.
II. A primary market is one where securities are first issued.
III. A primary market is one where financial instruments or securities are first issued.
IV. A primary market is one where debentures and financial instruments are first issued.Correct
Incorrect
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Question 2 of 20
2. Question
Which of the following term/s is/are true?
I. Governments and companies can raise long-term funds from the capital market including the stock and bond markets.
II. Only companies can raise long-term funds from the capital market including the stock and bond markets.
III. Only Governments can raise long-term funds from the capital market including the stock and bond markets.
IV. Only financial institutions can raise long-term funds from the capital market including the stock and bond markets.Correct
Incorrect
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Question 3 of 20
3. Question
What is a ‘seasoned issue?’
I. Debentures shares
II. Preferential shares
III. Fixed bonds
IV. Additional sharesCorrect
Incorrect
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Question 4 of 20
4. Question
What is management buy-in (MBI)?
I. Theoretically Management buy-in is a third permutation.
II. It is a replacement for entering management team with new management.
III. It is part of an acquisition scheme, along with the company and the management with a renegotiated terms.
IV. It is a new management team buys into an existing enterprise.Correct
An MBI is a third permutation on the theme, whereby a new management team buys into an existing enterprise.
Incorrect
An MBI is a third permutation on the theme, whereby a new management team buys into an existing enterprise.
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Question 5 of 20
5. Question
For an investment bank, what is medium-term loan?
I. Loan having a maturity between 3 months to 4 months is the medium-term loan.
II. Loan having a maturity between 4 months to 6 months is the medium-term loan.
III. Loan having a maturity between 181 days to 12 months is the medium-term loan.
IV. Loan having a maturity between 12 months to 24 months is the medium-term loan.Correct
For an investment bank, short-term loans are usually defined as having a maturity of less than 180 days, medium-term loans between 181 days and 12 months, and long-term loans anything over 12 months. In most academic textbooks, short-term refers to a maturity less than or equal to a year and long-term as a maturity more than a year. In corporate finance practice, however, short-term corporate loans generally have a term of less than three years, medium-term loans a term of between three and seven years, and long-term loans a term of more than seven years. Thus, it is important to be sure of the maturity of the loans as different people may be talking about different things but using the same terminology.
Incorrect
For an investment bank, short-term loans are usually defined as having a maturity of less than 180 days, medium-term loans between 181 days and 12 months, and long-term loans anything over 12 months. In most academic textbooks, short-term refers to a maturity less than or equal to a year and long-term as a maturity more than a year. In corporate finance practice, however, short-term corporate loans generally have a term of less than three years, medium-term loans a term of between three and seven years, and long-term loans a term of more than seven years. Thus, it is important to be sure of the maturity of the loans as different people may be talking about different things but using the same terminology.
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Question 6 of 20
6. Question
What is the thumb rule for borrowing long term and short term loans?
I. Borrow long term for both short-term and long-term loans.
II. Borrow short term for both short-term and long-term loans.
III. Borrow short-term for a long-term loan and long-term for short-term loans.
IV. Borrow long-term for long-term loans and short-term for short-term loans.Correct
The next consideration for lenders and borrowers is to determine the basis of repayment. Good credit suggests that the term, and hence the repayment structure, is matched as closely as possible to how the underlying assets will be utilized. Hence, a rule of thumb is to borrow long for long-term financing needs; and borrow short for short-term financing needs.
Incorrect
The next consideration for lenders and borrowers is to determine the basis of repayment. Good credit suggests that the term, and hence the repayment structure, is matched as closely as possible to how the underlying assets will be utilized. Hence, a rule of thumb is to borrow long for long-term financing needs; and borrow short for short-term financing needs.
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Question 7 of 20
7. Question
Which of the following statement/s is/are correct?
I. Stronger and more creditworthy borrowers may bypass financial institutions to borrow directly from Fund Surplus Units (FSU) at a lower cost because they have the credit standing to approach the defined group of lenders directly.
II. Stronger and more creditworthy borrowers may use the service of intermediaries to borrow directly from Fund Surplus Units (FSU) at a lower cost because they have the credit standing to approach the defined group of lenders directly.
III. Stronger and more creditworthy borrowers may approach directly to Fund Surplus Units (FSU) because that is the banking financial practice.
IV. Any borrowers may bypass financial institutions to borrow directly from Fund Surplus Units (FSU) at a lower cost because they can approach any lenders directly.Correct
Incorrect
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Question 8 of 20
8. Question
Which of the following statement is true?
I. Surplus sector places funds with the intermediaries
II. Surplus sector places funds with the deficit sector
III. Surplus sector places funds with the borrow directly
IV. Surplus sector places funds with another surplus unit.Correct
Incorrect
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Question 9 of 20
9. Question
Which of the following statement is true?
I. A ‘security’ is a piece of paper, expressing the precise nature of pre-agreed terms of what is being traded. If shall carry the title to whatever is being traded, enabling its transfer between parties for consideration.
II. A ‘security’ is a piece of ‘security bond,’ outlining the nature of terms described to execute a deal.
III. A ‘security’ is a piece of ‘security bond,’ outlining the nature of terms described to execute a deal without mentioning any specific transaction.
IV. A ‘security’ is a piece of paper, outlining the nature of terms described to execute a deal. If shall carry the title to whatever is being traded, enabling its transfer between parties for consideration.Correct
Incorrect
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Question 10 of 20
10. Question
What will be the term of a company warrant?
I. It will have a term of 1-2 years
II. It will have a term of 2-6 years
III. It will have a term of 3-6 years
IV. It will have a term of 3-5 yearsCorrect
Warrants are tradable securities that give the holders the right to purchase (in the case of call warrants) or to sell (in the case of put warrants) the underlying securities at a fixed price (the exercise price) for a fixed period (the exercise period). Essentially, warrants are long-term options. There are differences between company warrants (also known as equity warrants) and derivative warrants. Company warrants are issued by the underlying company, give the right to subscribe for shares in that company, and usually have a term of 3 – 5 years; while derivative warrants are usually issued by a third party (e.g. an investment bank) and have a term of less than one year. The trading of derivative warrants in Hong Kong involves the liquidity provider. In many cases, the role of liquidity providers will be taken up by the issuers. Hong Kong’s derivative warrants market is now one of the most active in terms of turnover.
Incorrect
Warrants are tradable securities that give the holders the right to purchase (in the case of call warrants) or to sell (in the case of put warrants) the underlying securities at a fixed price (the exercise price) for a fixed period (the exercise period). Essentially, warrants are long-term options. There are differences between company warrants (also known as equity warrants) and derivative warrants. Company warrants are issued by the underlying company, give the right to subscribe for shares in that company, and usually have a term of 3 – 5 years; while derivative warrants are usually issued by a third party (e.g. an investment bank) and have a term of less than one year. The trading of derivative warrants in Hong Kong involves the liquidity provider. In many cases, the role of liquidity providers will be taken up by the issuers. Hong Kong’s derivative warrants market is now one of the most active in terms of turnover.
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Question 11 of 20
11. Question
What will be the term of a derivative warrant?
I. It will have term value of 5 years
II. It will have term value less than 5 years
III. It will have a term value of 3-4 years
IV. It will have terms value less than one yearCorrect
Warrants are tradable securities that give the holders the right to purchase (in the case of call warrants) or to sell (in the case of put warrants) the underlying securities at a fixed price (the exercise price) for a fixed period (the exercise period). Essentially, warrants are long-term options. There are differences between company warrants (also known as equity warrants) and derivative warrants. Company warrants are issued by the underlying company, give the right to subscribe for shares in that company, and usually have a term of 3 – 5 years; while derivative warrants are usually issued by a third party (e.g. an investment bank) and have a term of less than one year. The trading of derivative warrants in Hong Kong involves the liquidity provider. In many cases, the role of liquidity providers will be taken up by the issuers. Hong Kong’s derivative warrants market is now one of the most active in terms of turnover.
Incorrect
Warrants are tradable securities that give the holders the right to purchase (in the case of call warrants) or to sell (in the case of put warrants) the underlying securities at a fixed price (the exercise price) for a fixed period (the exercise period). Essentially, warrants are long-term options. There are differences between company warrants (also known as equity warrants) and derivative warrants. Company warrants are issued by the underlying company, give the right to subscribe for shares in that company, and usually have a term of 3 – 5 years; while derivative warrants are usually issued by a third party (e.g. an investment bank) and have a term of less than one year. The trading of derivative warrants in Hong Kong involves the liquidity provider. In many cases, the role of liquidity providers will be taken up by the issuers. Hong Kong’s derivative warrants market is now one of the most active in terms of turnover.
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Question 12 of 20
12. Question
Which of the following statement is true?
I. Hong Kong’s derivative warrants market is one of the poorest in terms of turn over.
II. Hong Kong’s derivative warrants market is one of the moderate in terms of turnover.
III. Hong Kong’s derivative warrants market is one of the most active in terms of turnover.
IV. Hong Kong’s derivative warrants market is the second active in terms of turnover in comparison with New York derivative warrants.Correct
Warrants are tradable securities that give the holders the right to purchase (in the case of call warrants) or to sell (in the case of put warrants) the underlying securities at a fixed price (the exercise price) for a fixed period (the exercise period). Essentially, warrants are long-term options. There are differences between company warrants (also known as equity warrants) and derivative warrants. Company warrants are issued by the underlying company, give the right to subscribe for shares in that company, and usually have a term of 3 – 5 years; while derivative warrants are usually issued by a third party (e.g. an investment bank) and have a term of less than one year. The trading of derivative warrants in Hong Kong involves the liquidity provider. In many cases, the role of liquidity providers will be taken up by the issuers. Hong Kong’s derivative warrants market is now one of the most active in terms of turnover.
Incorrect
Warrants are tradable securities that give the holders the right to purchase (in the case of call warrants) or to sell (in the case of put warrants) the underlying securities at a fixed price (the exercise price) for a fixed period (the exercise period). Essentially, warrants are long-term options. There are differences between company warrants (also known as equity warrants) and derivative warrants. Company warrants are issued by the underlying company, give the right to subscribe for shares in that company, and usually have a term of 3 – 5 years; while derivative warrants are usually issued by a third party (e.g. an investment bank) and have a term of less than one year. The trading of derivative warrants in Hong Kong involves the liquidity provider. In many cases, the role of liquidity providers will be taken up by the issuers. Hong Kong’s derivative warrants market is now one of the most active in terms of turnover.
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Question 13 of 20
13. Question
How is interest rate risks mitigated in infrastructural finances?
I. By drafting fixed-rate contracts
II. By swaps
III. By options
IV. By leaving windows for further negotiationsCorrect
(6) Interest rate risk. Normally mitigated by a range of techniques, such as fixed-rate contracts, swaps, options, etc.
Incorrect
(6) Interest rate risk. Normally mitigated by a range of techniques, such as fixed-rate contracts, swaps, options, etc.
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Question 14 of 20
14. Question
What is red chip companies as per Hong Kong Stock Exchange terms?
I. Red Chip companies that are incorporated outside the People’s Republic of China and not listed on Hong Kong Stock Exchange
II. Red Chip companies that are incorporated outside the People’s Republic of China and listed in Hong Kong Stock Exchange and have significant
operations in the People’s Republic of China.
III. Red Chip companies that are incorporated in the People’s Republic of China and listed in Hong Kong Stock Exchange and have significant
operations in the People’s Republic of China.
IV. Red Chip companies that are incorporated in the People’s Republic of China and not listed on Hong Kong Stock Exchange and have significant
operations in the People’s Republic of China.Correct
• Red chips are companies which are incorporated outside the People’s Republic of China and listed in Hong Kong but have significant operations in the PRC. Examples include China Mobile, China Resources and Shanghai Industrial.
Incorrect
• Red chips are companies which are incorporated outside the People’s Republic of China and listed in Hong Kong but have significant operations in the PRC. Examples include China Mobile, China Resources and Shanghai Industrial.
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Question 15 of 20
15. Question
Which of the following statements are correct?
I. A type shares are not available for domestic investors.
II. A types shares are available for domestic investors or qualified foreign institutional investors and settled in Renminbi.
III. B type shares were initially available to domestic investors but now available for foreign investors.
IV. B type shares were initially available only to foreign investors but now available to domestic investors with a foreign exchange account and
transactions settled in US dollars in Shanghai and Hong Kong dollars in ShenzhenCorrect
• A and B shares. In China, both A and B shares are traded on the Shanghai or Shenzhen exchanges. A shares are available to domestic investors or qualified foreign institutional investors (“QFII”), and settled in renminbi. B shares were initially available only to foreign investors, but have now been opened up to domestic investors with a foreign exchange account. They are settled in US dollars in Shanghai and Hong Kong dollars in Shenzhen.
Incorrect
• A and B shares. In China, both A and B shares are traded on the Shanghai or Shenzhen exchanges. A shares are available to domestic investors or qualified foreign institutional investors (“QFII”), and settled in renminbi. B shares were initially available only to foreign investors, but have now been opened up to domestic investors with a foreign exchange account. They are settled in US dollars in Shanghai and Hong Kong dollars in Shenzhen.
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Question 16 of 20
16. Question
Under the generation of investment proposal, from where senior managers are expected to generate recommendations?
I. Senior management generates proposals from the subordinate staffs.
II. Senior management generates proposals from the management teams.
III. Senior management generates proposal from the customers.
IV. Senior management generates proposal from professional consultants.Correct
New projects requiring board consideration may emerge in a number of ways. These include the following:
(1) One of the key roles of the board of directors is ensuring that the company’s strategic positioning is kept under continuous review. This process will frequently generate proposals to establish a new investment or to acquire all or part of an existing business;
(2) Senior management generates proposals from the management teams within the various business areas of the company; or
(3) An intermediary – a stockbroker or investment banker – will often approach a company with a proposal to establish a new investment, or to acquire all or part of an existing business.Incorrect
New projects requiring board consideration may emerge in a number of ways. These include the following:
(1) One of the key roles of the board of directors is ensuring that the company’s strategic positioning is kept under continuous review. This process will frequently generate proposals to establish a new investment or to acquire all or part of an existing business;
(2) Senior management generates proposals from the management teams within the various business areas of the company; or
(3) An intermediary – a stockbroker or investment banker – will often approach a company with a proposal to establish a new investment, or to acquire all or part of an existing business. -
Question 17 of 20
17. Question
What are the time-related estimates required after assembling the proposal?
I. Initial and subsequent investment outlays.
II. Projected revenue from the project.
III. Anticipated impact on overall company revenues, expenses, balance sheet and corporate structures.
IV. Bank finance feasibility report.Correct
Assembling the proposal will need to make time-related estimates of:
(1) initial and subsequent investment outlays;
(2) working capital requirements of the project, both at the beginning and throughout its economic life;
(3) projected revenue from the project;
(4) projected operating expenses of the project; and
(5) anticipated impact on overall company revenues, expenses, balance sheet and corporate structure.Incorrect
Assembling the proposal will need to make time-related estimates of:
(1) initial and subsequent investment outlays;
(2) working capital requirements of the project, both at the beginning and throughout its economic life;
(3) projected revenue from the project;
(4) projected operating expenses of the project; and
(5) anticipated impact on overall company revenues, expenses, balance sheet and corporate structure. -
Question 18 of 20
18. Question
What is the purpose of liquation of a company?
I. To stop further financial loss
II. To support the staff for getting their dues
III. To find means to pay out the debts
IV. To achieve a full or partial return of the financial institution’s funds.Correct
Earlier in this topic, we referred to the need to establish the cooperation of the owners, directors and management. Legal action is frequently warranted on strategic grounds, for example:
(a) To attempt to recover funds inappropriately removed before the collapse;
(b) To exercise rights under guarantees; or
(c) To recover monies from directors who have allowed the company to trade while insolvent.
Beyond that, if investors or lenders find an absence of cooperation on the part of sponsors, guarantors and/or other associated parties, and there are valid grounds for doing so, they may choose to initiate legal recovery action. They may do this not for the sake of the proceeds that might materialize, but to demonstrate that they are serious in attempting to implement their selected strategy.Incorrect
Earlier in this topic, we referred to the need to establish the cooperation of the owners, directors and management. Legal action is frequently warranted on strategic grounds, for example:
(a) To attempt to recover funds inappropriately removed before the collapse;
(b) To exercise rights under guarantees; or
(c) To recover monies from directors who have allowed the company to trade while insolvent.
Beyond that, if investors or lenders find an absence of cooperation on the part of sponsors, guarantors and/or other associated parties, and there are valid grounds for doing so, they may choose to initiate legal recovery action. They may do this not for the sake of the proceeds that might materialize, but to demonstrate that they are serious in attempting to implement their selected strategy. -
Question 19 of 20
19. Question
For what purpose discount is predominantly using in the money market?
I. It is using as a commercial paper
II. It is using to settle the accounts
III. It is using to pay out outstanding
IV. It is using zero-coupon bonds in the financial market.Correct
Discount is widely used for money-market instruments like commercial papers or zero-coupon bonds in financial markets, because it has a number of administrative advantages.
Incorrect
Discount is widely used for money-market instruments like commercial papers or zero-coupon bonds in financial markets, because it has a number of administrative advantages.
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Question 20 of 20
20. Question
What is settlement risk as per financial terms?
I. If a counterparty fails to fulfill its obligation in a transaction at settlement is known as settlement risk.
II. Any impending failure at settlement is known as settlement risk.
III. Any unforeseen settlement disputes are known as settlement risk.
IV. Any inadvertent settlement issues are known as settlement risk.Correct
Counterparty fails to fulfil its obligations in a transaction at
settlement.Incorrect
Counterparty fails to fulfil its obligations in a transaction at
settlement.
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