Financial Instruments and Market Concepts Quiz

Futures contracts derive their value from an underlying asset, commodity, or financial instrument.

Stock exchanges provide a platform for investors to trade securities such as stocks, bonds, and derivatives.

Preferred stock represents ownership in a corporation and usually pays a fixed dividend.

Bonds are debt securities that pay fixed interest (coupon) payments at regular intervals and have a specified maturity date when the principal is repaid.

Central banks aim to regulate monetary policy, including interest rates, to achieve economic stability and growth.

Money market instruments include short-term, highly liquid debt securities such as Treasury bills, commercial paper, and certificates of deposit.

An IPO is the process by which a private company offers shares to the public for the first time, enabling it to raise capital to fund business expansion or other objectives.

Treasury bills are backed by the government and are considered low-risk due to their short maturity and government guarantee.

Liquidity measures how quickly an asset can be bought or sold in the market without significantly impacting its price.

Diversification reduces the impact of any single asset's performance on the overall portfolio by spreading investments across different asset classes and sectors.

Market makers facilitate trading by buying and selling securities, thereby providing liquidity to the market.

Money market instruments are short-term, highly liquid, and generally considered low-risk investments.

Investment banks help corporations raise capital by underwriting and issuing securities such as stocks and bonds.

Short selling involves selling borrowed securities in the hope that their price will decline, allowing the seller to repurchase them at a lower price to return to the lender, thereby profiting from the difference.

'In the money' refers to an option with intrinsic value, meaning it would be profitable if exercised immediately.

Futures contracts are standardized agreements traded on regulated exchanges, whereas forward contracts are individually negotiated between parties and traded over-the-counter.