#1
What is the primary function of financial markets?
To allocate capital and resources
ExplanationFacilitate efficient allocation of capital.
#2
What is the role of a central bank in financial markets?
Regulating monetary policy and money supply
ExplanationControl currency circulation.
#3
What is the function of a futures contract in financial markets?
Agreeing to purchase or sell an asset at a future date at a predetermined price
ExplanationLocking in future asset prices.
#4
What is the role of a credit default swap (CDS) in financial markets?
Providing insurance against the default of a borrower
ExplanationProtection against default risk.
#5
What does the term 'blue chip stocks' refer to in the context of financial markets?
Highly reliable and financially stable stocks
ExplanationStable, well-established companies.
#6
Which financial instrument represents ownership in a company?
Preferred stock
ExplanationShares with priority in dividends.
#7
What does the term 'IPO' stand for in finance?
Initial Public Offering
ExplanationFirst sale of company shares to the public.
#8
Which financial market is known for trading currencies between nations?
Foreign exchange market
ExplanationExchange of international currencies.
#9
What is the purpose of a buyback (share repurchase) in corporate financing?
Reducing the number of outstanding shares
ExplanationDecrease shares in the market.
#10
In the context of corporate financing, what does the term 'dividend' refer to?
Payments made to shareholders from company profits
ExplanationShare of company earnings to investors.
#11
What is the purpose of a credit rating agency in the context of corporate financing?
To assess the creditworthiness of companies
ExplanationEvaluate risk for potential lenders.
#12
In the context of financial markets, what does the term 'arbitrage' refer to?
Exploiting price differences for profit
ExplanationProfiting from market inefficiencies.
#13
What does the term 'leverage' mean in the context of financial markets?
Increasing the risk of investments
ExplanationUsing borrowed funds to amplify returns.
#14
In the bond market, what is the relationship between bond prices and interest rates?
Inverse relationship
ExplanationPrice falls as interest rates rise.
#15
What does the term 'liquidity' mean in financial markets?
Ease of buying and selling without causing a significant price change
ExplanationAbility to convert assets into cash.