General Financial Knowledge

Study Notes

Credit Rating Agencies

Major credit rating agencies include Standard and Poor's, Moody's, and Fitch Group.
They assess the creditworthiness of borrowers and use a standardized rating scale to evaluate potential investor losses if defaults occur.
Moody's rating scale ranges from Aaa (highest quality) to C (lowest quality).

Initial Public Offering (IPO)

An IPO is the inaugural sale of a private company’s stock to the public.
Underwriting firms (e.g., Barclays, Credit Suisse, Morgan Stanley) assist in determining the type of security to issue, pricing, number of shares, and timing.
Investing in IPOs carries risks due to limited historical data for evaluation, making price predictions challenging.

Retirement Plans

Defined Benefit Plan: Guarantees a specified retirement pension amount, regardless of current cash availability (impacting states like Illinois).
Defined Contribution Plan: Requires the employer to have sufficient cash to fund the retirement plan directly.
Cash Balance Plan: A hybrid plan that combines elements of defined benefit and 401(k) plans, with a minimum annual return of 3%.

Types of Orders for Trading Shares

Four main types of orders: Market, Limit, Stop Loss, and Stop Limit.

Market Order

Guarantees transaction at the current market price.
Ideal for immediate asset trading.

Limit Order

Does not ensure immediate execution; sets a price for buying (below market) or selling (above market).
Executes only when the stock reaches the specified price.

Stop Loss Order

Protects against significant losses; transforms into a market order once a predetermined price is reached.
Sell Stop Loss Order: Triggers a sale at market price if the stock dips below a set limit.
Buy Stop Loss Order: Converts to a market order for purchase when the stock hits a specified high.

Stop Limit Order

Combines features of stop orders and limit orders.
Triggers a trade once the stock reaches a specific "stop" price but does not exceed a set "limit" price.
Useful for entering markets during price recoveries while avoiding overpaying.

Example of Stop Limit Order

An investor places a stop-limit order for a stock at $45 stop price and $46 limit price.
Once the stock price hits $45, the order becomes a limit order; however, it may become void if the limit can't be fulfilled promptly.

Description

Test your understanding of basic financial concepts in this quiz, focusing on credit rating agencies and their functions. You'll also explore essential topics related to taxes as provided by Khan Academy's playlist. Ideal for anyone looking to strengthen their financial literacy.