Investment Glossary Quiz

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What is a day-trader known for doing?

Buying and selling stocks frequently (correct)
Pooling assets to make high-risk investments
Owning shares and holding onto them
Investing for the long term

What is a key characteristic of a stock market bubble?

Investors retain faith in the asset forever
The asset's value sharply rises above its actual value (correct)
The asset's value never drops
Assets are bought at their actual value

What does short selling involve?

Buying stocks at their peak price
Selling stocks with the intent to buy them back at a higher price
Holding onto stocks for long periods
Borrowing stocks with the intent to sell them and repurchase at a lower price (correct)

What characterizes a short squeeze?

Short sellers rush to buy back borrowed stocks that are increasing in value (B) Signup and view all the answers

What is a hedge fund primarily composed of?

A partnership between a fund manager and investors making high-risk investments (C) Signup and view all the answers

What advice is given regarding finding online financial advice?

Be cautious about where you find advice online (B) Signup and view all the answers

What is the main characteristic of high-risk high-reward investments?

Large investment amounts for potentially high returns (B) Signup and view all the answers

How do hedge funds differ from typical investors in terms of investment focus?

Hedge funds can invest in various assets beyond stocks (D) Signup and view all the answers

What is the primary process involved in short selling?

Investors selling borrowed stocks with the expectation of a price drop (B) Signup and view all the answers

In short selling, what motivates investors to sell borrowed stocks?

To benefit from a perceived drop in stock value (B) Signup and view all the answers

Which scenario best describes short selling using the top hat example?

Selling a borrowed top hat with the anticipation of a drop in top hat prices (C) Signup and view all the answers

What sets short selling apart from traditional investing?

Short selling involves borrowing and selling assets before buying them back (C) Signup and view all the answers

What is a potential risk for short-sellers when predicting stock value incorrectly?

They may have to buy back stocks at a higher price than sold. (D) Signup and view all the answers

What is the main difference between short-selling and typical investing?

Short-selling benefits from stocks dropping quickly, while investing benefits from slow increases in stock value over time. (A) Signup and view all the answers

What happens in a short squeeze scenario?

Short-sellers are forced to buy back stocks at potentially much higher prices. (D) Signup and view all the answers

What is the worst-case scenario for someone who invests in stocks traditionally?

The stocks become completely worthless, resulting in a total loss of the investment. (A) Signup and view all the answers

Why is short-selling considered riskier compared to traditional investing?

Short-selling can lead to potentially infinite losses if stock values rise sharply. (B) Signup and view all the answers

In the scenario provided, why did the individual who sold the top hat need to buy it back quickly?

The top hat's market value was increasing rapidly. (C) Signup and view all the answers