#1
What is the concept of diversification in investment?
Spreading investments across different assets
ExplanationRisk reduction by investing in various asset classes.
#2
What is the primary objective of portfolio diversification?
To decrease risk
ExplanationReducing investment risk by spreading assets across different categories.
#3
Which of the following is NOT considered a major asset class?
Options
ExplanationFinancial derivatives, not a traditional asset class like stocks or bonds.
#4
What is the formula to calculate Return on Investment (ROI)?
ROI = (Net Profit / Total Investment) x 100%
ExplanationPercentage measure of profitability in relation to the initial investment.
#5
What does the term 'PE Ratio' stand for in stock market analysis?
Price to Earnings Ratio
ExplanationValuation metric indicating the price investors are willing to pay for earnings.
#6
What is the significance of 'Beta' in investment?
It measures the systematic risk of a security
ExplanationQuantifies a security's volatility compared to the overall market.
#7
What does the 'Rule of 72' estimate in finance?
Time required to double an investment
ExplanationQuick calculation for estimating investment doubling time based on compound interest.
#8
What is the purpose of a 'Stop-Loss Order' in trading?
To minimize losses
ExplanationPre-set order to sell an asset to limit losses in a volatile market.
#9
What is the primary function of an 'Index Fund'?
To track a specific market index
ExplanationPassively managed fund mirroring the performance of a market index.
#10
What is the term for a financial instrument that derives its value from an underlying asset?
Derivative
ExplanationInstrument whose value is based on the performance of an underlying asset.
#11
What is 'Arbitrage' in finance?
Simultaneous buying and selling to profit from price differences
ExplanationExploiting price disparities in different markets for profit.
#12
What is the role of the 'Federal Reserve' in the United States?
Regulating monetary policy
ExplanationCentral bank responsible for formulating and implementing monetary policies.
#13
What does the term 'Alpha' signify in investment?
The return generated by an investment above the benchmark
ExplanationMeasure of investment performance exceeding the market average.
#14
What does the 'Efficient Market Hypothesis' propose?
Stock prices fully reflect all available information
ExplanationTheory stating that all relevant information is already incorporated into stock prices.
#15
What does the 'Sharpe Ratio' measure?
Risk-adjusted return of an investment
ExplanationQuantifies the return of an investment relative to its risk.