Financial Soundness and Investment Management Basics
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Questions and Answers

What financial instrument involves pooling of investors' money as evidenced by certificates issued by trustee banks?

  • Commercial Papers
  • Bonds
  • Mutual funds (correct)
  • Special Savings Deposit

Which investment option is considered a low-risk form of marketable securities and is made up of interest-bearing promissory notes issued by big firms?

  • Treasury Bills (T-bills)
  • Special Savings Deposit
  • Derivatives (correct)
  • Trust Investments

What refers to the right, but not the obligation, to buy or sell something at a specified price and time?

  • Real Estate
  • Shares of stocks
  • Options
  • Futures contracts (correct)

Which form of investment involves interest-bearing certificates of indebtedness issued by an organization?

<p>Bonds (B)</p> Signup and view all the answers

What type of contracts involve commitments to trade a given asset at a set price on a fixed date?

<p>Futures contracts (D)</p> Signup and view all the answers

Which investment option generally refers to diamonds due to their rarity and appreciation in value?

<p>Precious Stones and metals (B)</p> Signup and view all the answers

Which of the following best describes an individual with limited financial resources?

<p>They would prefer to invest in low-risk, fixed-income instruments like time deposits and treasury bills (D)</p> Signup and view all the answers

What is the primary purpose of laddered investing?

<p>To align investment maturities with expected cash needs or planned expenses (D)</p> Signup and view all the answers

What best defines a short-term time horizon in investing?

<p>1 year or less (D)</p> Signup and view all the answers

Which of the following is an example of an offensive investment?

<p>Stock investments (C)</p> Signup and view all the answers

What is the primary responsibility of a portfolio manager?

<p>Making investment decisions for an individual or entity (D)</p> Signup and view all the answers

How are financial markets typically classified?

<p>Money markets and capital markets (C)</p> Signup and view all the answers

What type of bonds can be exchanged for other securities of the issuing company?

<p>Convertible bonds (C)</p> Signup and view all the answers

Which bonds are subject to redemption by the issuing company before the maturity date?

<p>Callable bonds (D)</p> Signup and view all the answers

What type of bonds have no periodic interest payments?

<p>Zero coupon bonds (B)</p> Signup and view all the answers

Which bonds are considered risk-free investments?

<p>Government securities (C)</p> Signup and view all the answers

What type of stocks can only be bought by Filipino citizens?

<p>Class A stocks (C)</p> Signup and view all the answers

Which type of stocks are preferred by investors for their easy marketability?

<p>Listed stocks (C)</p> Signup and view all the answers

What is the primary purpose of investment portfolio management?

<p>To define investment objectives and adopt strategies to optimize results while considering risks (C)</p> Signup and view all the answers

According to the 'Rule of 72', what does the number 72 represent?

<p>The number of years it takes to halve the purchasing power of a monetary unit (A)</p> Signup and view all the answers

What is the main difference between a savings account and a time deposit?

<p>Savings accounts allow for immediate withdrawal of funds, while time deposits have a fixed length of deposit period (D)</p> Signup and view all the answers

What is the primary purpose of the 'Future Value of 1 After n Periods' concept?

<p>To calculate the value of a single lump-sum investment over time (B)</p> Signup and view all the answers

What is the primary purpose of the 'Future Value of an Annuity of 1 for N Periods' concept?

<p>To calculate the accumulated amount of periodic contributions or additional investments and the earnings (D)</p> Signup and view all the answers

How is 'Investible Cash' defined in the context of investment portfolio management?

<p>The accumulated amount of periodic contributions or additional investments and the earnings (B)</p> Signup and view all the answers

What is the main purpose of credit securities?

<p>To raise funds for the issuing corporation (A)</p> Signup and view all the answers

Which of the following is NOT a key factor to consider when investing in credit securities?

<p>Dividend yield (B)</p> Signup and view all the answers

What is the main difference between long-term and short-term investment in bonds?

<p>Short-term bonds can be sold on the stock exchange, while long-term bonds cannot (D)</p> Signup and view all the answers

Which type of bond is secured by the equipment of the issuing company?

<p>Equipment trust bonds (D)</p> Signup and view all the answers

What is the main difference between straight bonds and serial bonds?

<p>Straight bonds mature entirely at one time, while serial bonds mature in installments (A)</p> Signup and view all the answers

Which type of bond is secured by the securities invested in by the issuing company?

<p>Collateral trust bonds (B)</p> Signup and view all the answers

Flashcards

Mutual Funds

A type of investment where money from multiple investors is pooled together. This pooling of money is represented by certificates issued by trustee banks.

Derivatives

A low-risk investment option. Marketable securities backed by interest-bearing promissory notes issued by established companies.

Futures Contracts

Gives the holder the right, but not the obligation, to buy or sell a specific asset at a specific price and time.

Bonds

Investment certificates representing debt, issued by corporations or governments. These certificates carry an interest rate, and the issuing entity promises to repay the principal amount on maturity.

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Futures Contracts

Contracts that require the two parties to trade a specific asset at a specific price on a specified date.

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Precious stones and metals

A type of investment that includes diamonds and other precious metals. Their value rises due to their rarity.

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Individuals with limited financial resources

Individuals with limited financial resources tend to favor investments with low risk and a fixed return, like time deposits and treasury bills.

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Laddered Investing

A strategic approach to investing where different investments have varying maturities. This strategy aims to ensure that there is always an investment maturing to meet expected cash needs or planned expenses.

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Short-term investment

An investment time horizon that spans less than a year.

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Offensive Investments

Investments expected to generate strong returns and profit.

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Portfolio Manager

An individual or entity responsible for making investment decisions.

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Classification of Financial Markets

Financial markets are categorized based on the maturity of the instruments traded. Money markets deal with short-term instruments, while capital markets focus on long-term instruments.

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Convertible Bonds

A type of bond that can be exchanged for other securities issued by the same company.

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Callable Bonds

Bonds that can be redeemed by the issuing company before their maturity date.

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Zero Coupon Bonds

Bonds that don't pay regular interest payments.

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Government Securities

Bonds issued by governments, considered very low risk.

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Class A Stocks

Stocks that are exclusively available for purchase by Filipino citizens.

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Listed Stocks

Stocks that are listed on a stock exchange, making them readily tradable.

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Investment Portfolio Management

The process of setting investment goals and implementing strategies to achieve those goals while managing risks.

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Rule of 72

A concept used to estimate the time it takes for money to double in value.

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Savings Account

A bank account allowing for immediate withdrawal of funds.

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Time Deposit

A deposit account with a fixed maturity period, usually offering higher interest rates than savings accounts.

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Future Value of 1 after n periods

A concept used to calculate the future value of a single lump-sum investment.

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Future Value of an Annuity of 1 for N Periods

A concept used to calculate the accumulated value of periodic contributions over time.

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Investible Cash

The amount of money available for investing, typically after deducting expenses and liabilities.

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Credit securities

Securities issued to raise capital for companies. These securities represent a debt owed to the investor, who earns interest payments.

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Long-term vs Short-term bond investment

The main difference between long-term and short-term investment in bonds is their tradability. Short-term bonds can be sold on the stock exchange, while long-term bonds typically cannot.

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Equipment Trust Bonds

Bonds secured by the equipment of the issuing company. If the company defaults, the equipment can be sold to repay bondholders.

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Serial vs Straight bonds

Straight bonds mature entirely at one specific date, while serial bonds mature in installments over a period of time.

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Collateral Trust Bonds

Bonds secured by the securities held by the issuing company. If the company defaults, the securities can be sold to repay bondholders.

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