#1
Which of the following is NOT a primary function of financial markets?
Regulating government policies
ExplanationFinancial markets primarily serve as intermediaries for capital allocation.
#2
What does the term 'bull market' refer to?
A market characterized by rising prices
ExplanationBull markets signify optimism and increasing investor confidence, leading to rising asset prices.
#3
What is the function of a stock exchange?
To facilitate trading of securities
ExplanationStock exchanges provide a platform for buying and selling securities, ensuring liquidity and price transparency.
#4
What is the significance of diversification in investment?
It reduces risk by spreading investments across different assets
ExplanationDiversification helps mitigate risk by spreading investments across various assets, reducing the impact of individual asset performance on the overall portfolio.
#5
What is the role of a central bank in financial markets?
To issue currency and manage monetary policy
ExplanationCentral banks control monetary policy, regulate money supply, and ensure the stability of the financial system through various measures.
#6
What is the role of an investment bank in financial markets?
Assisting companies in raising capital
ExplanationInvestment banks help companies raise funds through debt or equity issuance.
#7
Which financial instrument represents ownership in a corporation?
Stocks
ExplanationStocks represent ownership in a company, providing shareholders with voting rights and dividends.
#8
What is a 'blue chip' stock?
A stock of a company with a high market capitalization
ExplanationBlue chip stocks represent shares in well-established, financially stable companies with a history of strong performance.
#9
What does the term 'dividend' refer to in the context of stocks?
The share of profits distributed to shareholders
ExplanationDividends are payments made by companies to shareholders from their profits, typically on a regular basis.
#10
What does the term 'market capitalization' refer to?
The total value of a company's outstanding shares
ExplanationMarket capitalization represents the total value of a company's outstanding shares, calculated by multiplying the current share price by the total number of outstanding shares.
#11
What does the Efficient Market Hypothesis suggest?
All available information is already reflected in asset prices
ExplanationAccording to the Efficient Market Hypothesis, asset prices reflect all publicly available information, making it difficult for investors to outperform the market consistently.
#12
What is the primary purpose of financial derivatives?
To provide insurance against market risk
ExplanationFinancial derivatives offer investors tools to hedge against market risk by allowing them to offset potential losses from adverse price movements.
#13
What is the purpose of a financial regulator?
To ensure fair and transparent financial markets
ExplanationFinancial regulators oversee financial markets and institutions to ensure compliance with laws and regulations, promote transparency, and protect investors.
#14
What is the purpose of credit rating agencies in financial markets?
To assess the creditworthiness of companies and governments
ExplanationCredit rating agencies evaluate the creditworthiness of entities by assigning credit ratings, which help investors assess the risk associated with investing in their debt securities.
#15
What is the role of a market maker in financial markets?
To facilitate trading by providing liquidity and making continuous buy and sell quotes
ExplanationMarket makers play a vital role in financial markets by providing liquidity and maintaining orderly trading by quoting bid and ask prices for securities, ensuring that buyers and sellers can transact smoothly.