78 Questions
Which type of asset pays a fixed rate of return in the form of interest?
Bonds
Which type of asset offers the advantage of liquidity?
Cash
Which type of asset represents shares of ownership in publicly traded companies?
Stocks
Which of the following is a function of the central bank in relation to the money market?
Influencing interest rates for fixed-income financial instruments
What is the main purpose of the money market for companies?
Obtaining short-term loans
How does the money market benefit commercial banks?
Investing excess reserves to earn interest
Which type of market is usually the most liquid?
Dealer market
Which type of market operates with a dealer who sets bid and ask prices for the security?
Dealer market
Which type of market is the most highly automated?
Exchange
Which type of market is commonly operated through dealers with banks and currency exchanges acting as intermediaries?
OTC market
Which of the following is considered a tangible asset?
Gold and silver
What is the purpose of diversification in investment portfolios?
To reduce the overall risk
What is the term used for reducing investment portfolio risk by investing in different asset classes?
Asset allocation
Which asset class is usually considered to carry significantly more risk than bonds or equities?
Foreign currency exchange
Which one of the following is NOT commonly specified in stock exchange trading or bond trading?
Quality
What is the minimum tick value for a 100-lot contract on US stock exchanges?
$1.00
Which of the following is a characteristic of fixed income securities?
Repayment of principal at maturity
What is the primary risk associated with fixed income securities?
Credit/default risk
Which one of the following is true about zero-coupon bonds?
Zero-coupon bonds guarantee the principal amount at maturity.
Which one of the following is true about bond pricing?
A bond with a higher coupon rate will be priced higher.
Which one of the following is true about the money market?
The money market allows participants to lend and borrow short-term debt securities.
Which one of the following is a function of the money market?
Providing immediate financing to buyers of goods
Which one of the following is considered an alternative investment?
Gold
Which one of the following is a characteristic of hedge funds?
High correlation with equities
Which one of the following is NOT a factor that determines an individual's asset allocation?
Income level
Which one of the following is true about exchange-traded funds (ETFs)?
ETFs are traded like stocks on equity exchanges
Which of the following is NOT a function of the money market?
Helping companies obtain long-term financing
What does the central bank use to influence interest rates for all types of fixed-income financial instruments?
Treasury bills and bonds
Which of the following is NOT considered an asset class?
Certificates of deposit
What is the primary advantage of cash or cash equivalent investments?
Liquidity
How many different asset classes are commonly divided into?
5
Which type of market is commonly used for initial public offerings (IPOs) and new bond issues?
Broker market
Which type of market is less common in stocks but more common in bonds and currency markets?
Dealer market
Which of the following is NOT a characteristic of fixed income securities?
They usually offer higher investment returns than equities
True or false: The money market primarily provides long-term loans for companies to finance their working capital needs.
False
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.
True
True or false: The central bank uses the money market to influence interest rates for all types of fixed-income financial instruments.
True
True or false: A zero-coupon bond pays interest in the form of coupon payments throughout its maturity.
False
True or false: A bond with a higher coupon rate will always be priced higher.
False
True or false: The money market allows individual investors to invest large amounts of money in a low-risk market.
False
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.
True
True or false: A dealer market operates with a dealer who acts as a counterparty for both buyers and sellers.
True
True or false: Broker markets are used for all manner of securities, especially those with initial issues.
True
True or false: Exchanges are most appropriate for standardized securities such as stocks, bonds, futures contracts, and options.
True
True or false: Stock markets are no longer truly brokered markets, having transitioned to operating as automated exchanges.
True
True or false: Real estate is considered a tangible asset that offers protection against inflation.
True
True or false: Exchange-traded funds (ETFs) can be composed of investments from multiple asset classes.
True
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.
False
True or false: Asset allocation refers to the practice of reducing investment portfolio risk by diversifying investments within the same asset class.
False
True or false: Delivery terms and quality are commonly specified in stock exchange trading or bond trading.
False
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.
True
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.
True
True or false: The price of a bond depends on the coupon and the principal value.
True
True or false: There are five categories of assets commonly divided by analysts: stocks, bonds, cash or cash equivalents, commodities, and derivatives?
False
True or false: Fixed income investments are generally considered to be less risky than investing in equities or other asset classes?
True
True or false: Cash or cash equivalents investments offer the advantage of liquidity and can be accessed quickly and easily at any time?
True
True or false: The market tends to move in the opposite direction of what you think it will.
True
True or false: Real estate is considered a financial derivative.
False
True or false: Exchange-traded funds (ETFs) can be composed of investments from multiple asset classes.
True
True or false: Investing in futures contracts is less risky than investing in equities.
False
True or false: Diversification is the idea that you can reduce risk by investing in different asset classes.
True
True or false: If you have a high risk tolerance, diversification may not be a priority for you.
True
True or false: Dealer markets are more common in stocks than in bonds and currency markets.
False
True or false: Broker markets are commonly used for initial public offerings (IPOs) and new bond issues.
True
True or false: Exchanges provide a central location for buyers and sellers to find counterparties and are most appropriate for standardized securities.
True
True or false: Fixed income investments are generally considered to be less risky than investing in equities or other asset classes.
True
True or false: Cash or cash equivalents investments offer the advantage of liquidity and can be accessed quickly and easily at any time.
True
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.
False
True or false: Delivery terms and quality are commonly specified in stock exchange trading or bond trading.
False
True or false: Fixed income securities provide higher investment returns compared to equities.
False
True or false: The coupon rate of a bond is inversely related to its maturity.
True
True or false: Zero-coupon bonds are typically priced higher than bonds with coupons.
False
True or false: The money market provides long-term loans for companies to finance their working capital needs.
False
True or false: The central bank uses the money market to influence interest rates for all types of fixed-income financial instruments.
True
True or false: The principal value of a bond is to be repaid to the borrower by the lender.
False
True or false: A zero-coupon bond pays interest in the form of a lower bond price compared to the principal amount.
True
True or false: A bond with a higher coupon rate will be priced lower.
False
True or false: A bond with a higher yield to maturity will be priced higher.
False
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.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
