Understanding Five HKSI Question Explanations: Hedging, IPO Paths, and Board Basics

If you're preparing for HKSI or simply want to brush up on core HKI topics, real-world scenario questions are a great way to connect theory with practice. Below are five representative questions, each followed by a concise explanation and key takeaways. Think through the logic as you read, and you’ll notice how the same principles show up across different topics such as hedging, financing, governance, and market structure.

Question 1

Trade company hedging currency risk with many derivative tools: what is this practice called?

Options:

• [A] Speculation
• [B] Hedging
• [C] Basis trading
• [D] Capital protection

Answer: B

Why this is the right concept: When a company expects receipts in one currency (e.g., foreign currency receivables) and payments in another, it may use currency derivatives to neutralize fluctuations in exchange rates before payment or receipt. This proactive risk management is known as hedging, which is distinct from purely taking on risk (speculation) or other trading strategies. In HKSI terms, hedging is a core risk-management activity used to stabilize cash flows and earnings against FX volatility.

Takeaways:

• Hedging = risk management, not enhancement of speculative returns.
• FX hedging often involves forwards, options, or other derivatives to lock in a rate.

Question 2

Vivien Milk is a newly established company needing HK$100 million but does not want to increase liabilities. Which financing option is suitable?

Options:

• [A] List on Growth Enterprise Market (GEM)
• [B] Sell put options
• [C] Issue bonds
• [D] Issue commercial paper

Answer: A

Why GEM fits: The Hong Kong Stock Exchange’s Growth Enterprise Market (GEM) is designed to help high-growth potential, smaller companies raise capital without taking on debt. For a startup that prefers equity funding over additional liabilities, listing on GEM can be a strategic route to access public market funding while maintaining a lighter debt footprint. This aligns with HKSI principles around understanding the different funding avenues and their risk/return profiles.

Takeaways:

• GEM is targeted at growth-stage and smaller companies seeking equity funding.
• Equity listings dilute ownership but do not add to balance sheet debt.

Question 3

A licensed entity in Hong Kong (listed on the exchange) violates insider-trading disclosure rules. Which statements are correct?

Options:

• [A] (1) and (2)
• [B] (3) and (4)
• [C] (2) and (3)
• [D] (2) and (4)

Answer: B

Understanding the liability framework: Statements (3) and (4) are correct: if senior personnel act with intent (蓄意) or fail to take all reasonable steps to prevent a breach, they can bear responsibility. Conversely, statements (1) and (2) are not universally true in isolation; liability depends on the specific facts and the level of responsibility and awareness of those individuals. This reflects HK’s emphasis on director and senior management accountability in insider dealing and disclosure regimes.

Takeaways:

• Senior personnel can be liable if they knowingly violate rules or fail to prevent violations.
• Liability is fact-specific and depends on duties, intent, and preventive actions.

Question 4

Which methods are correct for a new上市 applicant (IPO) in the listing process?

Options:

• [A] (1)(2)(3)
• [B] (1)(2)(4)
• [C] (1)(3)(4)
• [D] (1)(2)(3)(4)

Answer: A

Reasoning: For a new上市 applicant, the applicable methods are: (1) offer for subscription, (2) offer of existing securities, and (3) placing. The term (4) price-formation (代价发行) relates to other corporate actions and not a standard method used to list a new applicant. Therefore, (4) is not correct for a new IPO listing pathway.

Takeaways:

• IPO routes include primary (new issue), secondary (existing shares), and placing.
• “Price-based” issuances tied to transactions like M&A are not typical for new listing routes.

Question 5

Which description about the Main Board and GEM is incorrect?

Options:

• [A] The listing rules for the Main Board and GEM are not the same.
• [B] GEM is more suitable for experienced investors.
• [C] Main Board and GEM shares are listed on the same exchange in Hong Kong.
• [D] The profitability and financial criteria for Main Board listing are more stringent than those for GEM.

Answer: C

Why C is not correct: In Hong Kong, the exchange that operates the market is the Stock Exchange of Hong Kong Limited (SEHK), under HKEx. Both Main Board and GEM stocks are listed on SEHK. The idea that they are listed on separate exchanges is a mischaracterization. The other statements reflect real distinctions: rules differ between boards, GEM is higher risk and more suited to certain investors, and Main Board has stricter financial/operational criteria in many respects.

Takeaways:

• Main Board and GEM operate under different rules and risk profiles, but both are part of SEHK.
• Understanding board-specific eligibility is key for HKSI topics on market structure.

Final thoughts

Grasping these five scenarios helps connect core HKSI concepts—hedging and risk management, alternative financing paths for startups, governance responsibilities, IPO mechanics, and market structure. If you found this walkthrough helpful, stay tuned to HKSIYES for more practical “题目讲解” that connect theory with real-world financial nuances in Hong Kong.

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