Bulgarian Investment Consultant Exam flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Financial Supervision Commission

Bulgaria's integrated financial regulator (КФН) that authorises and supervises investment firms, insurers and pension funds, and enforces capital market rules.

MiFID II

EU directive harmonising investment services, requiring authorisation, conduct-of-business rules, best execution, cost disclosure and product governance across EEA member states.

Passporting

The right of an EEA-authorised investment firm to provide services in another member state through a notified branch or under freedom of services without separate local authorisation.

Prospectus requirement

A public offer of securities or admission to a regulated market requires an approved prospectus, subject to exemptions such as small offers or limited investor numbers.

Market abuse

Insider dealing, unlawful disclosure of inside information and market manipulation; prohibited conduct enforced by the regulator with administrative sanctions and published decisions.

Transferable securities

Negotiable instruments such as shares, bonds and depositary receipts that can be traded on capital markets and are not payment instruments.

Limit order

An order to buy or sell only at a specified price or better, providing price control but no guarantee of execution if the market does not reach that level.

Systematic internaliser

An investment firm that, on an organised and frequent basis, deals on own account when executing client orders outside regulated markets, MTFs and OTFs.

Central counterparty

An entity that interposes itself between trade counterparties through novation, managing counterparty risk with margin requirements and default funds.

UCITS

Harmonised EEA retail fund subject to diversification, liquidity and leverage limits, which may be marketed cross-border after notifying the host regulator.

Synthetic ETF

An exchange-traded fund that replicates index returns using derivative swaps rather than holding the underlying assets, adding counterparty exposure to the swap provider.

Modified duration

Macaulay duration divided by one plus the yield per period; it approximates the percentage bond price change for a small change in yield.

Structured product

A combined instrument of a bond component and a derivative payoff, offering features such as capital protection or participation while carrying issuer credit risk.

Insurance-based investment

A product combining insurance cover with investment exposure, distributed under insurance rules and subject to key information disclosure requirements.

Portfolio variance formula

For two assets: w1²σ1² + w2²σ2² + 2w1w2σ1σ2ρ12; lower correlation between assets reduces total portfolio risk through diversification.

Capital Asset Pricing Model

Expected return equals the risk-free rate plus beta times the market risk premium, pricing only systematic risk in equilibrium.

Efficient frontier

The set of portfolios offering the highest expected return for each risk level; the optimal risky portfolio is the tangency point with the capital allocation line.

Sharpe ratio

Portfolio excess return over the risk-free rate divided by portfolio standard deviation, measuring return per unit of total risk.

Bond pricing relation

Price equals the present value of coupons and principal discounted at yield to maturity; price and yield move inversely, with premium, par or discount outcomes.

Convexity adjustment

A second-order correction to duration-based price estimates: price change approximates minus modified duration times yield change plus half convexity times the squared change.

Gordon growth model

Share value equals next dividend divided by the difference between required return and sustainable growth, requiring the return to exceed growth.

Net asset value

Total fund assets minus liabilities divided by units outstanding; open-ended funds issue and redeem units at this computed valuation price.

Value at Risk

A statistical estimate of the maximum loss over a given horizon at a stated confidence level, excluding information about losses beyond that threshold.

Expected loss formula

Expected credit loss equals probability of default times loss given default times exposure at default, used to quantify credit portfolio risk.

Liquidity risk

The risk of being unable to meet obligations (funding liquidity) or to trade without materially moving prices (market liquidity), often measured by bid-ask spreads.

Segregation of client assets

Holding client money and securities separately from the firm's own assets, protecting clients if the firm becomes insolvent.

Best execution

The duty to take all sufficient steps to obtain the best possible result for clients, considering price, cost, speed, execution likelihood and settlement.

Suitability assessment

Gathering information on a client's knowledge, financial situation and objectives to determine whether a product or service is appropriate for that client.

Inducements

Third-party fees or benefits paid to a firm; they must be disclosed and must not impair the duty to act in the client's best interest.

Enhanced due diligence

Additional identity, source-of-funds and source-of-wealth checks applied to higher-risk clients such as politically exposed persons and high-risk jurisdictions.

Suspicious activity report

A confidential report filed with the financial intelligence unit when a firm suspects money laundering or terrorist financing, without informing the client.

Bulgarian dividend tax

Dividends distributed by Bulgarian companies carry a 5% withholding tax that is a final tax for resident individual shareholders.

Conflicts of interest

Situations where the firm's or an employee's interests may harm the client; they must be identified, managed, disclosed or avoided.