Intro to trading 1
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Questions and Answers

Which type of asset pays a fixed rate of return in the form of interest?

  • Cash
  • Bonds (correct)
  • Equities
  • Stocks

    • Which type of asset offers the advantage of liquidity?

  • Stocks
  • Bonds
  • Equities
  • Cash (correct)

    • Which type of asset represents shares of ownership in publicly traded companies?

  • Stocks (correct)
  • Bonds
  • Cash
  • Equities

    • Which of the following is a function of the central bank in relation to the money market?

    <p>Influencing interest rates for fixed-income financial instruments</p> Signup and view all the answers

    What is the main purpose of the money market for companies?

    <p>Obtaining short-term loans</p> Signup and view all the answers

    How does the money market benefit commercial banks?

    <p>Investing excess reserves to earn interest</p> Signup and view all the answers

    Which type of market is usually the most liquid?

    <p>Dealer market</p> Signup and view all the answers

    Which type of market operates with a dealer who sets bid and ask prices for the security?

    <p>Dealer market</p> Signup and view all the answers

    Which type of market is the most highly automated?

    <p>Exchange</p> Signup and view all the answers

    Which type of market is commonly operated through dealers with banks and currency exchanges acting as intermediaries?

    <p>OTC market</p> Signup and view all the answers

    Which of the following is considered a tangible asset?

    <p>Gold and silver</p> Signup and view all the answers

    What is the purpose of diversification in investment portfolios?

    <p>To reduce the overall risk</p> Signup and view all the answers

    What is the term used for reducing investment portfolio risk by investing in different asset classes?

    <p>Asset allocation</p> Signup and view all the answers

    Which asset class is usually considered to carry significantly more risk than bonds or equities?

    <p>Foreign currency exchange</p> Signup and view all the answers

    Which one of the following is NOT commonly specified in stock exchange trading or bond trading?

    <p>Quality</p> Signup and view all the answers

    What is the minimum tick value for a 100-lot contract on US stock exchanges?

    <p>$1.00</p> Signup and view all the answers

    Which of the following is a characteristic of fixed income securities?

    <p>Repayment of principal at maturity</p> Signup and view all the answers

    What is the primary risk associated with fixed income securities?

    <p>Credit/default risk</p> Signup and view all the answers

    Which one of the following is true about zero-coupon bonds?

    <p>Zero-coupon bonds guarantee the principal amount at maturity.</p> Signup and view all the answers

    Which one of the following is true about bond pricing?

    <p>A bond with a higher coupon rate will be priced higher.</p> Signup and view all the answers

    Which one of the following is true about the money market?

    <p>The money market allows participants to lend and borrow short-term debt securities.</p> Signup and view all the answers

    Which one of the following is a function of the money market?

    <p>Providing immediate financing to buyers of goods</p> Signup and view all the answers

    Which one of the following is considered an alternative investment?

    <p>Gold</p> Signup and view all the answers

    Which one of the following is a characteristic of hedge funds?

    <p>High correlation with equities</p> Signup and view all the answers

    Which one of the following is NOT a factor that determines an individual's asset allocation?

    <p>Income level</p> Signup and view all the answers

    Which one of the following is true about exchange-traded funds (ETFs)?

    <p>ETFs are traded like stocks on equity exchanges</p> Signup and view all the answers

    Which of the following is NOT a function of the money market?

    <p>Helping companies obtain long-term financing</p> Signup and view all the answers

    What does the central bank use to influence interest rates for all types of fixed-income financial instruments?

    <p>Treasury bills and bonds</p> Signup and view all the answers

    Which of the following is NOT considered an asset class?

    <p>Certificates of deposit</p> Signup and view all the answers

    What is the primary advantage of cash or cash equivalent investments?

    <p>Liquidity</p> Signup and view all the answers

    How many different asset classes are commonly divided into?

    <p>5</p> Signup and view all the answers

    Which type of market is commonly used for initial public offerings (IPOs) and new bond issues?

    <p>Broker market</p> Signup and view all the answers

    Which type of market is less common in stocks but more common in bonds and currency markets?

    <p>Dealer market</p> Signup and view all the answers

    Which of the following is NOT a characteristic of fixed income securities?

    <p>They usually offer higher investment returns than equities</p> Signup and view all the answers

    True or false: The money market primarily provides long-term loans for companies to finance their working capital needs.

    <p>False</p> Signup and view all the answers

    True or false: The main purpose of the money market for commercial banks is to invest their excess reserves and earn interest while maintaining liquidity.

    <p>True</p> Signup and view all the answers

    True or false: The central bank uses the money market to influence interest rates for all types of fixed-income financial instruments.

    <p>True</p> Signup and view all the answers

    True or false: A zero-coupon bond pays interest in the form of coupon payments throughout its maturity.

    <p>False</p> Signup and view all the answers

    True or false: A bond with a higher coupon rate will always be priced higher.

    <p>False</p> Signup and view all the answers

    True or false: The money market allows individual investors to invest large amounts of money in a low-risk market.

    <p>False</p> Signup and view all the answers

    True or false: The main function of the money market is to provide financing to local and international traders in need of short-term funds.

    <p>True</p> Signup and view all the answers

    True or false: A dealer market operates with a dealer who acts as a counterparty for both buyers and sellers.

    <p>True</p> Signup and view all the answers

    True or false: Broker markets are used for all manner of securities, especially those with initial issues.

    <p>True</p> Signup and view all the answers

    True or false: Exchanges are most appropriate for standardized securities such as stocks, bonds, futures contracts, and options.

    <p>True</p> Signup and view all the answers

    True or false: Stock markets are no longer truly brokered markets, having transitioned to operating as automated exchanges.

    <p>True</p> Signup and view all the answers

    True or false: Real estate is considered a tangible asset that offers protection against inflation.

    <p>True</p> Signup and view all the answers

    True or false: Exchange-traded funds (ETFs) can be composed of investments from multiple asset classes.

    <p>True</p> Signup and view all the answers

    True or false: Diversification is the idea that you can reduce the overall risk of your investment portfolio by investing in different types of assets.

    <p>False</p> Signup and view all the answers

    True or false: Asset allocation refers to the practice of reducing investment portfolio risk by diversifying investments within the same asset class.

    <p>False</p> Signup and view all the answers

    True or false: Delivery terms and quality are commonly specified in stock exchange trading or bond trading.

    <p>False</p> Signup and view all the answers

    True or false: Fixed income securities provide returns in the form of regular, or fixed, payments and repayments of the principal when maturity is reached.

    <p>True</p> Signup and view all the answers

    True or false: Fixed income securities such as bonds generally pay a higher rate of interest - known as the coupon - the longer their maturities are.

    <p>True</p> Signup and view all the answers

    True or false: The price of a bond depends on the coupon and the principal value.

    <p>True</p> Signup and view all the answers

    True or false: There are five categories of assets commonly divided by analysts: stocks, bonds, cash or cash equivalents, commodities, and derivatives?

    <p>False</p> Signup and view all the answers

    True or false: Fixed income investments are generally considered to be less risky than investing in equities or other asset classes?

    <p>True</p> Signup and view all the answers

    True or false: Cash or cash equivalents investments offer the advantage of liquidity and can be accessed quickly and easily at any time?

    <p>True</p> Signup and view all the answers

    True or false: The market tends to move in the opposite direction of what you think it will.

    <p>True</p> Signup and view all the answers

    True or false: Real estate is considered a financial derivative.

    <p>False</p> Signup and view all the answers

    True or false: Exchange-traded funds (ETFs) can be composed of investments from multiple asset classes.

    <p>True</p> Signup and view all the answers

    True or false: Investing in futures contracts is less risky than investing in equities.

    <p>False</p> Signup and view all the answers

    True or false: Diversification is the idea that you can reduce risk by investing in different asset classes.

    <p>True</p> Signup and view all the answers

    True or false: If you have a high risk tolerance, diversification may not be a priority for you.

    <p>True</p> Signup and view all the answers

    True or false: Dealer markets are more common in stocks than in bonds and currency markets.

    <p>False</p> Signup and view all the answers

    True or false: Broker markets are commonly used for initial public offerings (IPOs) and new bond issues.

    <p>True</p> Signup and view all the answers

    True or false: Exchanges provide a central location for buyers and sellers to find counterparties and are most appropriate for standardized securities.

    <p>True</p> Signup and view all the answers

    True or false: Fixed income investments are generally considered to be less risky than investing in equities or other asset classes.

    <p>True</p> Signup and view all the answers

    True or false: Cash or cash equivalents investments offer the advantage of liquidity and can be accessed quickly and easily at any time.

    <p>True</p> Signup and view all the answers

    True or false: The primary function of the money market is to provide financing to local and international traders in need of long-term funds.

    <p>False</p> Signup and view all the answers

    True or false: Delivery terms and quality are commonly specified in stock exchange trading or bond trading.

    <p>False</p> Signup and view all the answers

    True or false: Fixed income securities provide higher investment returns compared to equities.

    <p>False</p> Signup and view all the answers

    True or false: The coupon rate of a bond is inversely related to its maturity.

    <p>True</p> Signup and view all the answers

    True or false: Zero-coupon bonds are typically priced higher than bonds with coupons.

    <p>False</p> Signup and view all the answers

    True or false: The money market provides long-term loans for companies to finance their working capital needs.

    <p>False</p> Signup and view all the answers

    True or false: The central bank uses the money market to influence interest rates for all types of fixed-income financial instruments.

    <p>True</p> Signup and view all the answers

    True or false: The principal value of a bond is to be repaid to the borrower by the lender.

    <p>False</p> Signup and view all the answers

    True or false: A zero-coupon bond pays interest in the form of a lower bond price compared to the principal amount.

    <p>True</p> Signup and view all the answers

    True or false: A bond with a higher coupon rate will be priced lower.

    <p>False</p> Signup and view all the answers

    True or false: A bond with a higher yield to maturity will be priced higher.

    <p>False</p> Signup and view all the answers

    Study Notes

    The Complete Guide to Trading: Understanding Asset Classes and Trading Concepts

    • The Corporate Finance Institute is a provider of online financial analyst training programs.
    • The guide aims to provide fundamental skills for understanding capital markets in a trading context.
    • The guide is divided into three parts: The Markets, Trading Concepts, and Technical and Trading Strategies.
    • The Markets section covers different asset classes, including stocks, bonds, cash equivalents, real estate, and financial derivatives.
    • The Trading Concepts section explores topics such as the Random Walk Theory, fundamental and technical analysis, and reading stock charts.
    • The Technical and Trading Strategies section delves into various technical analysis indicators and trading strategies.
    • Diversification is important in investing, as different asset classes have little correlation.
    • Asset allocation is the practice of diversifying investments across different asset classes to reduce risk.
    • Trading futures and financial derivatives, such as forex, is considered riskier than trading bonds or equities.
    • The guide also mentions alternative asset classes, such as artwork, collectibles, and peer-to-peer lending.
    • The more an investment falls into the category of "alternative investment," the less liquid and riskier it tends to be.
    • Having a basic understanding of asset classes helps in recognizing the nature and risk level of different investments.

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