Principles of Financial Markets and Investment Quiz

Consumer market is not a financial market, as it involves the buying and selling of goods and services, not financial instruments.

ROI stands for Return on Investment, representing the profitability of an investment.

Financial intermediaries facilitate the flow of funds between savers and borrowers in the financial system.

A bull market is characterized by increasing stock prices and positive investor sentiment.

Liquidity in financial markets refers to the ease of converting assets into cash without substantial loss of value.

Economic risk is not a type of financial risk; common financial risks include market, credit, and operational risks.

Purchasing shares in an IPO is a primary market transaction, involving the initial sale of securities by a company.

EMH suggests that financial markets efficiently incorporate and reflect all relevant information.

The compound interest formula is A = P(1 + r)^t, where A is the future value, P is the principal, r is the interest rate, and t is the time period.

The P/E ratio (Price-to-Earnings ratio) indicates market sentiment and the valuation of a stock relative to its earnings.

Diversification aims to reduce risk by spreading investments across various assets and sectors.

A clearinghouse facilitates the settlement of trades by ensuring the smooth exchange of securities and funds between buyers and sellers.

An option is a derivative instrument, its value derived from the underlying asset.

A 'blue chip' stock refers to shares of a well-established, financially stable company with a history of reliable performance.

Buying on margin involves borrowing money from a bank to increase the purchasing power for acquiring securities.

Mutual funds are actively managed investment funds, while ETFs are passively managed and typically track an index.

Short selling involves borrowing securities and selling them with the expectation of buying them back at a lower price in the future.