#1
What is the primary function of a stock exchange?
To facilitate buying and selling of stocks
ExplanationFacilitates trading by providing a platform for buying and selling stocks.
#2
What does the term 'bear market' refer to?
A market characterized by falling prices
ExplanationDescribes a market with declining asset prices, signaling pessimism and investor caution.
#3
What is the primary role of a central bank in financial markets?
To conduct monetary policy and regulate the money supply
ExplanationCentral banks manage money supply, interest rates, and oversee financial stability.
#4
What is the significance of the Dow Jones Industrial Average (DJIA) in financial markets?
It tracks the performance of 30 large publicly traded companies in the US
ExplanationDJIA gauges the performance of 30 major US companies, influencing market sentiment.
#5
What is the term for a financial instrument that derives its value from an underlying asset?
Derivative
ExplanationDerivative's value is based on the performance of an underlying asset or index.
#6
What is the term for the process of spreading investments across different asset classes to reduce risk?
Portfolio diversification
ExplanationDiversifying investments across various asset classes to minimize risk exposure.
#7
What is the role of a 'market maker' in financial markets?
To facilitate trading by providing liquidity
ExplanationEnhances market liquidity by actively buying and selling financial instruments.
#8
What does the term 'diversification' mean in the context of investing?
Investing in multiple assets to reduce risk
ExplanationSpreading investments across various assets to minimize overall risk.
#9
What is the difference between a 'limit order' and a 'market order'?
A limit order specifies a price, while a market order does not
ExplanationLimit order sets a specific price for execution, while market order executes at the current market price.
#10
What is the term for the measure of a company's profitability relative to its shareholder equity?
Return on Equity (ROE)
ExplanationROE measures a company's profitability in relation to its shareholders' equity.
#11
Which of the following is NOT considered a primary market transaction?
Secondary Offering
ExplanationSecondary Offering is a secondary market transaction; primary markets involve the issuance of new securities.
#12
Which type of analysis involves examining historical market data to forecast future price movements?
Technical analysis
ExplanationAnalyzing historical market data and patterns to predict future price movements.
#13
What is the purpose of a 'stop-loss order' in trading?
To limit potential losses by selling a security when it reaches a specified price
ExplanationA preset sell order to minimize losses by triggering at a specified price level.
#14
What does the Efficient Market Hypothesis (EMH) propose?
Financial markets are always efficient and accurately reflect all available information
ExplanationEMH suggests that markets quickly incorporate all available information, making consistent outperformance difficult.