CFA Global Markets & Trading Flashcards

Which type of market order guarantees execution but not the execution price?

Answer: Market order

A market order is executed immediately at the best available current price, guaranteeing execution but not a specific price.

A limit order to buy a security is placed:

Answer: At or below the specified limit price

A buy limit order specifies the maximum price the investor is willing to pay, and execution occurs only at that price or lower.

The bid-ask spread in financial markets represents:

Answer: The transaction cost paid by investors and profit for market makers

The bid-ask spread is the difference between the highest price a buyer will pay and the lowest price a seller will accept, representing the implicit cost of trading.

Which global index is considered the primary benchmark for international developed market equities?

Answer: MSCI EAFE Index

The MSCI EAFE (Europe, Australasia, Far East) Index is the standard benchmark for developed international equity markets outside North America.

Short selling involves:

Answer: Borrowing shares and selling them with the intent to repurchase at a lower price

Short selling is a strategy where an investor borrows shares, sells them, and hopes to buy them back at a lower price to profit from the decline.

Margin trading allows investors to:

Answer: Borrow funds from a broker to purchase more securities than their cash allows

Margin trading involves borrowing from a broker to increase purchasing power, amplifying both potential gains and losses.