FIL 241 exam 3 participation isu sherill questions & correct answers 2022

FIL 241 exam 3 participation isu sherill questions & correct answers 2022Which has higher average returns? Stocks AAA-rated Bonds Stocks Which has higher volatility in returns? Stocks AAA-rated bonds Stocks 00:11 01:23 From a company perspective, compare the tax implications of stock dividends versus bond coupons. Coupons are tax deductible while dividends are not Which voting method allows the shareholder to use all of their votes for a single board of directors candidate (should they wish to)? Cumulative coting Straight voting Cumulative voting do preferred stocks move more similar to common stocks or bonds? Common stock Bonds Common stock Compare best efforts and firm commitment underwriting The investment bank takes on more risk with firm commitment by agreeing to sell all the shares for a agreed upon price. Best efforts the firm bears the risk if there is insufficient demand. Describe the average first-day performance of IPOs. Does the number of IPOs and capital raised in IPOs tend to be steady across years or cyclical? Very good first-day performance. The average amount varies by year but was around 22% in 2020. The number of IPOs and capital raised is very cyclical and often is tied to how well the economy is doing. What is the benefit of shelf registration for firms? It gives them the option to time the market and quickly sell stocks during a two year window should they want to Who is the current owner of the NYSE? intercontinental exchange Give an example of how a DMM maintains a “fair and orderly market” for NYSE stocks. a. After a lock-up expiration, a DMM might participate much more (by buying more) to mitigate the downward price pressure on the stock Describe the difference between a market and limit order to buy. A market order to buy says you are willing to take the best available price to purchase a limit order to buy says you are only willing to purchase the stock at a certain price or lower. A market order will typically be executed faster and a limit order may never be executed if the price conditions are not met. An investor is about to take a long trip where they are not planning on monitoring their stock brokerage account. If they are concerned about stock prices falling a lot and would like to have it set up to automatically sell a stock if the price falls to a particular price, then what type of trade order should they place? Stop loss order 00:02 01:23 what was the original event that motivated adding circuit breakers to the stock market? What happened during that event? The 1987 stock market crash called “Black Monday” where the stock market fell about 25% in the day. Name the US stock exchanged that have a physical trading floor. NYSE Does trading occur on a physical trading floor at Nasdaq in a way similar to the NYSE? No, trading is all electronically done at Nasdaq What is mean to say NASDAQ has a “dealer market”? Many dealers quote prices they are willing to trade at that are made known on and available at NASDAQ. This creates competition and gives investors multiple dealers to trade with. What is the P/E ratio on a stock quote? Do investors generally prefer a high or low P/E? The price-to-earnings ratio. Low. How many stocks are included in the Dow Jones Industrial Average? 30 How do a price-weighted and value-weighted index differ as far as methodology? In general, what criteria lead to a stock having a larger weight in each? The former has weights based on the stock price such that stock with higher prices per share have larger weights. The latter has weights based on the market cap and gives larger weights to bigger stocks. If evidence shows that technical analysis is very valuable and leads to investors making extra returns, does that suggest markets ARE or ARE NOT weak-form efficient? ARE NOT Give an example of country who’s stock returns are not strongly correlated with those of the U.S. Russia and China What are the pros and cons for a company sponsoring a Level 3 ADR vs a Level 2 ADR. They can raise capital in the US with a Level 3 but this also means they have to register with the SEC and file annual reports like a 10K. How to FX futures and forwards differ? Futures are standardized contracts with profits/losses settled daily and most are sold before maturity. Forwards are customized contracts with more flexible terms, no daily settlement, and most involve delivery. What does Dollarization mean? When one country uses the currency of another country instead of their own currency or uses a foreign currency in parallel, such as with the domestic currency pegged to a foreign currency with a fixed exchange rate. You see a quote for the Swiss franc with: 1.0927 in US $ and 0.9152 per US $. How many francs could you get for $10? 1 USD is worth 0.9152 francs. Hence 10 USD is worth 9.152 francs You see a quote for the Swiss franc with: 1.0927 in US $ and 0.9152 per US $. How many US dollars could you get for 10 francs? 1 franc is worth 1.0927 USD. Hence 10 francs is worth 10.927 USD How does currency appreciation impact the costs of imports and exports? When a domestic currency appreciates (and a foreign currency depreciates), it makes foreign imports cheaper. However, exports become more expensive for international trading partners. What are the differences in the risks and mechanics of on-balance-sheet hedging and off-balance-sheet hedging? On-balance-sheet hedging directly impact assets & liabilities on the balance sheet. This can ensure positive profits but the final return is uncertain. With off-balance-sheet hedging, no changes are made to the balance sheet as it uses derivative positions. This can give greater certainty of a specific positive final return. A bank has a net long position on Japanese Yen. If the Yen depreciates, is this good or bad for the bank? The bank is making a bet to the Yen. When the Yen depreciates, they lose because the currency they are strongly exposed to suffers. How does Blockchain processes differ from traditional financial transactions? Traditional transactions use a centralized intermediary or clearinghouse who maintains the ledger. Blockchain uses a decentralized ledger that is publically viewable and distributed ledger with no central authority/processor. When are new Bitcoins created, what is the maximum number of Bitcoin that will ever be created, and how Bitcoins are currently in circulation? New Bitcoin is created when miners verify transactions. The reward changes over time as more coins are created. There are currently around 19 million out of a total possible 21 million coins. How does Ether differ from Bitcoin? Both are digital currencies and use blockchain technology. Bitcoin is solely a cryptocurrency. Ether is additionally used as a currency for transactions on the Ethereum platform that can be used for decentralized applications. Give an example of a decentralized application on Ethereum. dApps exist in areas like finance, gaming, technology and collectibles. For example, you can lend your crypto and earn interest as well as create NFTs. Compare proof of work with proof of stake mechanics. POW has miners solve complex puzzles that are very energy intensive to validate transactions. POS has participants post collateral and validate transactions in a way that is much less energy intensive than POW. How do Stablecoins differ from cryptocurrencies like Bitcoin? There are no assets that back Bitcoin and hence its value is largely influenced by investor sentiment. Stablecoins are typically backed by real assets that typically results in greater price stability than Bitcoin and other cryptocurrencies. Explain what an NFT is. NFTs use blockchain technology to create a unique digital record. These can be used to publicly record unique ownership of an asset, such as a digital picture.