#1
Which of the following is NOT a characteristic of a bond?
Ownership stake in the issuing company
ExplanationBonds don't confer ownership; they're debt instruments.
#2
What is the primary function of the stock market?
To provide a platform for trading securities
ExplanationStock markets facilitate buying and selling of financial instruments.
#3
What is the role of a financial intermediary?
To facilitate transactions between borrowers and lenders
ExplanationIntermediaries connect those who have funds with those who need them.
#4
What is the term for the risk that an investment's value will decrease due to a change in interest rates?
Interest rate risk
ExplanationInterest rate risk arises from fluctuations in interest rates.
#5
What is the function of a mutual fund?
To invest in a diversified portfolio of securities
ExplanationMutual funds pool money to invest in various securities.
#6
What does the P/E ratio measure?
Price-to-earnings ratio
ExplanationP/E ratio evaluates a company's current share price relative to its per-share earnings.
#7
What is the concept of 'diversification' in investment?
Investing in multiple assets to reduce risk
ExplanationDiversification spreads risk across different investments.
#8
What does the Sharpe ratio measure?
Risk-adjusted return
ExplanationSharpe ratio assesses an investment's return adjusted for its risk.
#9
What is the purpose of the Securities and Exchange Commission (SEC)?
To regulate financial markets and protect investors
ExplanationSEC oversees securities markets to ensure fairness and transparency.
#10
What is a blue-chip stock?
A stock issued by a well-established and financially stable company
ExplanationBlue-chip stocks are from reputable, financially sound companies.
#11
What does the efficient market hypothesis (EMH) suggest?
Market prices reflect all available information
ExplanationEMH posits that stock prices reflect all available information.
#12
What does the term 'alpha' refer to in investment analysis?
The excess return of an investment relative to a benchmark
ExplanationAlpha measures investment performance compared to a benchmark.
#13
What does the term 'arbitrage' mean in financial markets?
The process of exploiting price differences for the same asset in different markets
ExplanationArbitrage profits from price disparities in different markets.
#14
What is the term for the rate at which the general level of prices for goods and services is rising?
Inflation
ExplanationInflation reflects the decrease in purchasing power over time.
#15
What does the term 'short selling' mean in financial markets?
The process of selling a security that the seller does not own, with the intention of buying it back later at a lower price
ExplanationShort selling involves selling borrowed securities with the aim of profiting from a price decline.