Sample Questions and Answers
What is “capital gains tax”?
A) A tax imposed on the income earned from stocks and bonds
B) A tax on the profit earned from the sale of assets, such as stocks or real estate
C) A tax on the interest earned from government bonds
D) A tax imposed on individuals’ wages
Answer: B
What is a “futures contract”?
A) A contract to buy or sell an asset at a specified price at a future date
B) A contract that gives the right to buy an asset at a specific price
C) A contract for short-term lending between banks
D) A contract that fixes the price of commodities for long-term investment
Answer: A
What is “quantitative easing” (QE)?
A) The central bank’s policy of raising interest rates to control inflation
B) The process of buying financial assets, such as government bonds, to inject money into the economy
C) The use of interest rate cuts to stimulate economic growth
D) The selling of government bonds to decrease money supply
Answer: B
What is “systematic risk”?
A) Risk that is specific to a particular company or industry
B) Risk that affects the overall market or economy
C) Risk associated with government regulations
D) Risk related to currency fluctuations
Answer: B
What is “financial leverage”?
A) The use of debt to finance investment or operations
B) The use of stock options to increase returns
C) The practice of investing in multiple asset classes
D) The process of diversifying investments to reduce risk
Answer: A
What is the “tangible book value” of a company?
A) The value of a company’s physical assets, such as property and equipment, after liabilities
B) The total value of a company’s stock
C) The market capitalization of a company
D) The total value of a company’s intangible assets
Answer: A
What is “crowdfunding” in financial markets?
A) The process of raising capital through the sale of bonds to the public
B) The use of social media platforms to fund start-up businesses and projects
C) The issuance of new stock to the public in an IPO
D) A government-backed method of securing loans
Answer: B
What does the “Treasury yield curve” represent?
A) The difference between short-term and long-term interest rates on U.S. Treasury bonds
B) The average interest rate on government bonds
C) The total return on government bonds over a year
D) The correlation between stock market and government bond returns
Answer: A
What does the term “equity” refer to in the context of financial markets?
A) The total value of a company’s assets
B) Ownership in a company, typically in the form of stock
C) The debt issued by a company to finance operations
D) The interest rate on a company’s bonds
Answer: B
What is a “collateralized debt obligation” (CDO)?
A) A government-issued bond backed by securities
B) A debt security backed by a pool of loans, such as mortgages
C) A loan provided to corporations to manage risk
D) A type of equity offering for companies
Answer: B
What is “short selling” in financial markets?
A) Buying a security in anticipation that its price will increase
B) Selling securities that the seller does not own, with the intention of buying them back at a lower price
C) Selling a company’s debt securities to raise funds
D) A government transaction to buy bonds to stabilize the market
Answer: B
What is “systemic risk”?
A) Risk that is inherent in the specific asset being traded
B) Risk that arises from the interconnection between institutions, potentially causing a cascading failure
C) Risk related to changes in consumer behavior
D) Risk of geopolitical instability
Answer: B
What is “interest rate risk”?
A) The risk that the value of an investment will decrease due to changes in interest rates
B) The risk that inflation will reduce the purchasing power of income
C) The risk associated with the issuance of corporate bonds
D) The risk that stock prices will fall due to market volatility
Answer: A
What does “reinvestment risk” refer to?
A) The risk that an investor cannot reinvest income from an investment at the same rate of return
B) The risk of a decline in the overall market value of an asset
C) The risk associated with the liquidation of an investment
D) The risk of losing capital invested in risky assets
Answer: A
What is “market capitalization”?
A) The total debt of a company
B) The total market value of a company’s outstanding shares of stock
C) The ratio of a company’s revenue to its stock price
D) The total assets of a company
Answer: B
What is “market efficiency”?
A) A market in which prices reflect all available information at any given time
B) A market in which companies are able to raise capital quickly
C) A market with low transaction costs
D) A market where governments set fair prices for assets
Answer: A
What is a “currency swap”?
A) A type of forward contract in which one currency is exchanged for another at a predetermined rate
B) A transaction that allows investors to exchange short-term bonds for longer-term debt
C) A type of financial option to purchase foreign currencies
D) A contract in which two parties exchange cash flows in different currencies
Answer: D
What does “monetary policy” refer to?
A) Government policies that regulate taxation and spending
B) Central bank actions that influence the supply of money and interest rates
C) Policies that affect income inequality
D) International regulations on trade and tariffs
Answer: B
What is “corporate governance”?
A) The regulations that affect corporate tax liabilities
B) The processes and structures used to manage and oversee corporate operations and decision-making
C) The financial controls that ensure corporate profits are maximized
D) The stockholder’s ability to control business operations
Answer: B
What is “moral hazard” in the context of financial markets?
A) The risk that investors will act in their own self-interest without regard for others
B) The risk that a company’s earnings report will be misleading
C) The risk of a government intervention to stabilize financial institutions
D) The risk that companies may over-issue bonds to raise capital
Answer: A
What is the “securities and exchange commission” (SEC)?
A) A government body responsible for enforcing market regulations and protecting investors
B) A regulatory body for corporate taxation
C) A trade organization that sets interest rates
D) A private company that offers investment advice
Answer: A
What is a “market order” in trading?
A) An order to buy or sell a security at the current market price
B) An order to buy or sell a security at a specific price in the future
C) An order to buy or sell a security after hours
D) An order to buy a security in exchange for other assets
Answer: A
What is “alpha” in investment performance?
A) The return on an investment relative to the overall market’s performance
B) The level of risk associated with an investment portfolio
C) The interest rate earned on a bond
D) The profit margin of a company
Answer: A
What is “spread” in the context of bond markets?
A) The difference between the bond’s coupon rate and its yield to maturity
B) The difference between the bid price and ask price of a bond
C) The amount of time until a bond matures
D) The gap between government and corporate bond yields
Answer: B
What is “behavioral finance”?
A) The study of how psychological factors affect investors’ financial decisions
B) The practice of controlling inflation through government intervention
C) The management of personal finance portfolios
D) The regulation of financial markets by governments
Answer: A
What is “inflation risk”?
A) The risk of an increase in the prices of goods and services over time, which erodes the purchasing power of money
B) The risk of a decrease in the value of stock portfolios
C) The risk that an investment will not meet the expected return
D) The risk associated with currency exchange fluctuations
Answer: A
What is a “junk bond”?
A) A bond issued by a government with a low risk of default
B) A high-risk bond issued by companies with poor credit ratings
C) A bond backed by precious metals
D) A bond with a short maturity period
Answer: B
What is “interest rate parity”?
A) The condition in which interest rates on bonds in different countries are equal
B) The relationship between spot exchange rates and forward exchange rates, based on interest rates in different countries
C) The adjustment of interest rates to encourage investment
D) The relationship between bond yields and inflation rates
Answer: B
What is “buyback” in the context of stocks?
A) The purchase of stock by a company from its shareholders
B) The sale of stock to raise capital
C) The government intervention to prevent a stock from falling
D) The process of buying back government bonds
Answer: A
What does “liquidity risk” refer to?
A) The risk that an investor cannot sell an asset quickly at a reasonable price
B) The risk that an asset will lose value due to market volatility
C) The risk that a company will not be able to meet its debt obligations
D) The risk associated with changes in currency exchange rates
Answer: A
What is “dividend yield”?
A) The interest paid on government bonds as a percentage of face value
B) The annual dividend payment as a percentage of the stock’s current market price
C) The return on investment for bonds
D) The amount of dividends paid per share
Answer: B
What is a “repurchase agreement” (repo)?
A) A short-term borrowing agreement in which securities are sold with the promise to repurchase them later at a higher price
B) A long-term bond issued by the government
C) A loan agreement between two corporations
D) A contract to buy foreign currencies
Answer: A
What is the primary function of a “central bank”?
A) To regulate the stock market
B) To control the money supply, interest rates, and provide financial stability
C) To issue corporate bonds
D) To control private banking institutions
Answer: B
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