#1
What is the key function of a mutual fund?
To pool money from investors and invest in a diversified portfolio
ExplanationCollecting funds to invest in diverse assets.
#2
What is the significance of the Securities and Exchange Commission (SEC) in the U.S.?
To oversee and regulate the securities industry
ExplanationRegulating the U.S. securities market.
#3
What is the role of a custodian in the context of investment?
To safeguard and hold financial assets on behalf of clients
ExplanationProtecting and managing client assets.
#4
What is the purpose of the Price-to-Earnings (P/E) ratio in stock analysis?
To assess the profitability of a company relative to its stock price
ExplanationEvaluating a company's profitability per share price.
#5
What is the function of a prospectus in the context of securities offerings?
To provide information to potential investors about the company and the securities being offered
ExplanationOffering details to potential investors.
#6
What does the term 'market capitalization' represent for a publicly traded company?
The total market value of a company's outstanding shares of stock
ExplanationTotal value of a company's outstanding shares.
#7
Which of the following is a primary market transaction?
Buying a new issue of shares directly from the company
ExplanationDirect purchase of shares from the issuing company.
#8
What is the purpose of diversification in investment portfolios?
To spread risk across different assets
ExplanationMinimize risk by investing in various assets.
#9
What does the term 'bull market' refer to in the securities market?
A market with rising prices and optimism
ExplanationPeriod of rising prices and positive sentiment.
#10
What does the term 'dividend' refer to in the context of stocks?
A portion of a company's earnings distributed to shareholders
ExplanationDistribution of company profits to shareholders.
#11
What is a 'blue-chip stock'?
A stock from a financially stable and well-established company
ExplanationStock from a financially strong, reputable company.
#12
What does the term 'short selling' refer to in the securities market?
Selling a security without actually owning it, with the hope of buying it back at a lower price
ExplanationProfiting from a security's price decline.
#13
What is the role of a stockbroker in the securities market?
To buy and sell stocks on behalf of investors
ExplanationExecuting stock trades for investors.
#14
What is the significance of the Efficient Market Hypothesis (EMH) in finance?
It implies that it's impossible to consistently outperform the market
ExplanationEfficient markets make consistent outperformance difficult.
#15
In the context of bonds, what does the term 'coupon rate' refer to?
The interest rate paid by the issuer to the bondholder
ExplanationInterest rate paid on a bond's face value.
#16
In the context of investment, what is the meaning of the term 'liquidity'?
The ease with which an asset can be quickly converted into cash without significant price changes
ExplanationEase of converting an asset into cash without price impact.
#17
In the context of mutual funds, what does the term 'net asset value (NAV)' represent?
The total market value of all outstanding shares of the fund
ExplanationTotal value of mutual fund's shares.
#18
In the context of options trading, what does the term 'call option' signify?
The right to buy a security at a specified price before a certain date
ExplanationOption to purchase a security at a predetermined price.