30 Questions
What is the term used for the variability in a security's return that is directly associated with overall market movements?
Systematic risk
Which type of risk can be diversified and is specific to individual companies?
Unsystematic risk
What does beta measure in terms of an asset's risk?
Relative volatility
Which type of risk arises due to fluctuations in macroeconomic fundamentals like interest rates and inflation?
Market risk
What does a security with a beta greater than 1 indicate in terms of volatility?
More volatile than the market
What is the term used for the variability in return on a security due to changes in market interest rates?
Interest rate risk
What is the primary risk associated with the relationship between security price and interest rates?
Price risk
Which type of risk is also known as purchasing power risk?
Inflation risk
What does fundamental analysis involve at the company level?
Examination of financial data, management, business concept, and competition
Under which exchange rate system is there no exchange rate risk?
Fixed exchange rate system
How does fundamental analysis combine economic, industry, and company analysis?
To derive an asset's current fair value and forecast its future value
Which risk results from uncertainty about the interest rate at which future coupon income or principal can be reinvested?
Reinvestment risk
What might fundamental analysis focus on at the national economy level?
Economic data to assess present and future economic growth
What does country risk primarily consider in relation to issuers doing business in a specific country?
Political and economic unrest
How do economic factors affect the value of a stock?
Changes in macroeconomic factors like business cycle, monetary policy, fiscal policy, and inflation impact cash flows and discount rates
Which type of risk refers to cash-flow variability experienced in international transactions due to unexpected changes in exchange rates?
Exchange rate risk
How does a restrictive monetary policy affect businesses?
Reduces the growth rate of money supply and limits funds for business expansion due to increased interest rates
What is the primary purpose of fundamental analysis?
To assess the intrinsic value of an asset and forecast its future worth
What is a challenge faced by security analysts according to the text?
Difficulty in comparing financial statements from different firms
What distinguishes the actions required of a fundamental analyst from a technical analyst?
Fundamental analysts identify undervalued securities, while technical analysts look for price equilibrium movements
What do technical analysts primarily look for before deciding to trade?
Declining trend channels in asset price cycles
Why do many analysts follow rules based on the contrary opinion premise?
To capitalize on the majority being wrong near market peaks and troughs
How is the Confidence Index calculated based on the text?
Ratio of average corporate bond yield to stock market average bond yield
What does low liquidity in mutual fund cash positions indicate according to the text?
A bullish market sentiment
What are the two components of return on a typical investment?
Capital gain and capital loss
How is expected return defined?
An anticipated, predicted, desired return subject to uncertainty
What is holding period return (HPR) a measure of?
Total return from an investment during a designated time period
What is the difference between nominal and real return?
Nominal return is the return in terms of current prices; real return considers inflation.
What is realised return?
An expost return that is actually earned
What defines the total return on an investment?
Income plus/minus price appreciation/depreciation
Test your knowledge on return concepts in the financial system, including understanding what return is, its components, and the objective of investors. Explore how return serves as a motivating force behind investments.
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