#1
Which of the following is a primary function of financial markets?
Raising capital for businesses
ExplanationFinancial markets facilitate the process of raising capital for businesses through the issuance of stocks and bonds.
#2
Which financial market instrument represents ownership in a corporation?
Stock
ExplanationStocks represent ownership stakes in companies, entitling shareholders to a portion of the company's assets and profits.
#3
Which entity typically regulates financial markets in a country?
Central Bank
ExplanationCentral banks are responsible for regulating and overseeing financial markets to ensure stability, integrity, and efficiency.
#4
In the context of financial markets, what does IPO stand for?
Initial Public Offering
ExplanationAn IPO is the initial sale of stock by a company to the public, marking its transition from private to public ownership.
#5
Which financial market is typically associated with the trading of currencies?
Foreign exchange market
ExplanationThe foreign exchange market is where currencies are traded, facilitating international trade and investment.
#6
What is the term used to describe the process of converting financial assets into cash?
Liquidation
ExplanationLiquidation refers to the process of selling financial assets to convert them into cash, often to meet financial obligations or in response to market conditions.
#7
What does the term 'liquidity' refer to in financial markets?
The ability to buy and sell assets without causing a significant change in their price
ExplanationLiquidity indicates the ease with which assets can be bought or sold in the market without affecting their prices significantly.
#8
What is the role of an investment bank in financial markets?
Advising companies on mergers and acquisitions
ExplanationInvestment banks provide advisory services to companies regarding mergers, acquisitions, and other financial transactions.
#9
What is the main purpose of a financial derivative?
To hedge against financial risks
ExplanationFinancial derivatives are used to manage risk by providing a means to offset potential losses from adverse price movements in underlying assets.
#10
What is the primary function of a stock exchange?
To facilitate the buying and selling of stocks
ExplanationStock exchanges provide a platform for investors to buy and sell stocks, ensuring liquidity and price discovery.
#11
What is the term used to describe a situation where the market price of an asset is higher than its intrinsic value?
Overvaluation
ExplanationOvervaluation occurs when the market price of an asset exceeds its intrinsic value, potentially indicating an inflated market.
#12
Which of the following is NOT a characteristic of a money market instrument?
High-risk investment
ExplanationMoney market instruments are characterized by short maturities, high liquidity, and low risk, making them suitable for short-term cash management.
#13
What is the term for the process of spreading investments across different assets to reduce risk?
Diversification
ExplanationDiversification involves investing in a variety of assets to minimize the impact of any single investment's performance on the overall portfolio.
#14
What is the term used to describe the measure of the sensitivity of an asset's price to changes in interest rates?
Duration
ExplanationDuration measures the sensitivity of a bond's price to changes in interest rates, indicating the bond's price volatility.
#15
What is the term used to describe the total market value of all final goods and services produced in a country during a specified period?
Gross Domestic Product (GDP)
ExplanationGross Domestic Product (GDP) measures the total value of all goods and services produced within a country's borders within a specific time frame.
#16
What does the term 'arbitrage' refer to in financial markets?
The practice of exploiting price differences in different markets
ExplanationArbitrage involves capitalizing on price discrepancies between different markets or assets to generate profits with minimal risk.
#17
What is the term used to describe the process of pooling funds from multiple investors to invest in a diversified portfolio of securities?
Mutual fund
ExplanationMutual funds collect funds from multiple investors to invest in a diversified portfolio of securities, managed by professional fund managers.