Subject no.

51A Certificate in Offshore Finance and Administration

Investment
February 2011

Tuesday afternoon 1 February 2011

Time allowed: 2 hours

Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room.

This examination paper is divided into three sections. You must attempt all parts of Question 1 in Section A, all questions in Section B, and two questions only in Section C. Section A carries 20 marks (2 marks for each part of Question 1). Section B carries 30 marks (6 marks for each question). Questions in Section C each carry 25 marks. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 40 minutes in total to answer the questions in Section B and 30 minutes for each of the questions attempted in Section C.

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Section A
(Answer all parts of Question 1 Select only one of the options A, B, C or D for each part) 1. (i) An analysis of corporate securities which assesses not only the economic environment and interest-rate profile but also the individual credit and operational risk is: A. B. C. D. (ii) Fundamental analysis. Quantitative analysis. Technical analysis. A combination approach.

Warrants are derivative instruments issued by: A. The company to which the underlying shares relate and will result in the redistribution of shares which have already been issued. The company to which the underlying shares relate and will result in the issue of new shares. Third parties such as investment banks, rather than the company to which the underlying shares relate, and will result in the redistribution of shares which have already been issued. Third parties such as investment banks, rather than the company to which the underlying shares relate, and will result in the issue of new shares.

B.

C.

D.

(iii)

Foreign currency forward exchange rates may be calculated by: A. Adding a premium to, or subtracting a discount from, the prevailing spot rate as it is not possible for a forward rate to be quoted at par. Adding a premium to, or subtracting a discount from, the prevailing spot rate. It is also possible that forward exchange rates are quoted at par where the forward and spot rates are the same. Subtracting a premium from, or adding a discount to, the prevailing spot rate. It is not possible for a forward rate to be quoted at par.

B.

C.

D.

Subtracting a premium from, or adding a discount to, the prevailing spot rate. It is also possible that forward exchange rates are quoted at par where the forward and spot rates are the same.

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(iv)

A person may challenge a Warning Notice or a Decision Notice issued by the Regulatory Decisions Committee by referring to the Financial Services and Markets Tribunal within: A. B. C. D. 7 days. 10 days. 28 days. 90 days.

(v)

In the event of the involuntary liquidation of a firm, the last category paid out would be: A. B. C. D. Floating charge holders. Ordinary shareholders. Subordinated creditors. Unsecured creditors.

(vi)

An investor has a holding of 12,000 ordinary shares in a particular company which makes a 1-for-3 rights offer, when the current market price of its shares is 5 each. The price of the new shares will be set at 4 each. This investor will be able to subscribe for: A. B. C. D. 3,000 new shares at 4 while paying nothing for each right. 3,000 new shares at 4 while paying 0.75 for each right. 4,000 new shares at 4 while paying nothing for each right. 4,000 new shares at 4 while paying 0.75 for each right.

(vii) Treasury 12% 2011 13 is an example of a: A. UK Government bond issued by the Debt Management Office at a discount to face value. UK Government bond issued by the Debt Management Office at face value and paying coupons biannually. Money market instrument issued by the Debt Management Office at face value and paying coupons biannually. Money market instrument issued by the Debt Management Office at a discount to face value.

B.

C.

D.

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(viii) Which one of the following measures uses the rp-rf formula? p Where rp = portfolio return rf = risk free return over the same period p = portfolio beta A. B. C. D. (ix) The excess return to relative duration measure. The Jensen measure. The Sharpe measure. The Treynor measure.

An equity fund manager controlling a large portfolio of UK shares would mitigate the risk of a fall in the value of the underlying shares by: A. B. C. D. Buying interest rate swaps. Buying call options. Selling put options. Selling futures.

(x)

Ordinary shareholders do not have the right to vote on: A. B. C. D. The approval of the audited accounts. The appointment and removal of directors. The raising of further share capital. Mergers and acquisitions. (Total: 20 marks)

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Section B
(Answer all five questions) 2. Explain how LCH.Clearnet mitigates the risk of having to honour its guarantees in the futures markets. (6 marks) State those factors which the UK Financial Services Authority may consider when determining whether or not to instigate disciplinary action against a firm. (6 marks) How can the value of a companys equity be calculated from its assets? (6 marks) 5. What are the implications of a fixed charge? (6 marks) 6. Explain the role and inherent duties of a trustee when investing trust funds. (6 marks) (Total: 30 marks)

3.

4.

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Section C
(Answer two questions only) 7. (a) Explain the internal procedures which a UK financial services firm must have in place and operate in order to deal with complaints from or on behalf of an eligible complainant. Include in your answer the relevant time limits for dealing with such complaints. (16 marks) Detail the information that a UK financial services firm must provide to the Financial Services Authority in relation to complaints received from the firms customers. (9 marks) (Total: 25 marks)

(b)

8.

(a)

Discuss the types of clause which may be included in the documentation relating to a bond issue. (17 marks) Outline the two concepts brought together by the Fisher theorem. (8 marks) (Total: 25 marks)

(b)

9.

(a)

What are the constraints that an investment manager should consider in relation to an investment fund? State why he/she needs to be aware of such constraints. (17 marks) State the criteria which should be established by an investor when assessing their investment managers performance. For what purposes would an investor use this information? (8 marks) (Total: 25 marks)

(b)

The scenarios included here, except where expressly identified, are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.

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