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15 Questions

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1. Finance and Investment

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Questions and Answers

What does low yield signify in investments?

High risk and illiquid investments

Safe and liquid investments (correct)

No correlation with investment risk

High return with low risk

How can an investor reduce risk by diversifying their portfolio?

By investing in a mix of different investments (correct)

By avoiding cash reserves

By putting all money into a single stock

By focusing on a single investment type

What is the primary impact of rising market interest rates on a fixed-rate loan?

Decreases lender's risk exposure

Allows lender to reinvest money at higher rates

Doesn't affect lender's risk exposure

Increases lender's risk exposure (correct)

What is the main goal when a lender charges the borrower more due to additional risk?

To compensate for the extra risk involved Signup and view all the answers

In the context of investments, what does a high yield typically indicate?

High risk and illiquidity Signup and view all the answers

What is the role of the Securities and Exchange Commission (SEC) in securities trading?

Enforcing insider trading rules Signup and view all the answers

How does securitization impact the mortgage industry?

It increases liquidity by selling mortgage-backed securities to investors Signup and view all the answers

What are the three key investment characteristics that investors consider?

Safety, yield, and liquidity Signup and view all the answers

How can an investment be described as 'safe'?

When it carries a low risk of losing money Signup and view all the answers

What does liquidity refer to in investments?

The speed at which an investment can be sold for cash Signup and view all the answers

What can be a consequence of underestimating the risk of a particular investment?

Reduced yield than expected Signup and view all the answers

How do some lenders compensate for the reduced yield due to prepayment?

Charging a prepayment penalty Signup and view all the answers

What impact do high mortgage rates typically have on real estate activity?

Slowdown in real estate activity Signup and view all the answers

Which factor can influence market interest rates charged by lenders?

Loan term Signup and view all the answers

What risk is associated with poor investment decisions resulting from bad judgment?

Risk of loss Signup and view all the answers