Financial Instruments Flashcards
6 cards from real CME-1 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Instruments flashcards as text
What is the difference between 'primary' and 'secondary' capital markets?
Answer: Primary markets involve issuing new securities to raise capital; secondary markets involve trading existing securities between investors
In the primary market (e.g., IPO), companies sell new securities to raise funds. In the secondary market (e.g., Saudi Exchange), investors trade previously issued securities among themselves.
What is a 'short sale' in the context of Saudi capital markets?
Answer: Selling borrowed securities with the intention of repurchasing them later at a lower price to profit from a price decline
Short selling involves borrowing and selling securities you do not own, hoping to buy them back later at a lower price, profiting from the price decline.
What is an 'investment fund' under CMA Investment Funds Regulations?
Answer: A collective investment scheme pooling investor money to invest in a portfolio managed by a licensed fund manager
Investment funds pool money from multiple investors to invest in diversified portfolios managed by CMA-licensed fund managers, allowing access to professional management.
What type of risk does a callable bond present to the investor?
Answer: Reinvestment risk: if the issuer calls the bond when rates fall, the investor must reinvest at lower yields
A callable bond allows the issuer to repay principal early, typically when interest rates fall. This creates reinvestment risk for the investor who must then reinvest at lower market rates.
What is 'credit risk' in fixed income investing?
Answer: Risk that the bond issuer will fail to make timely payments of principal or interest
Credit risk is the risk that the issuer defaults on its payment obligations, failing to pay coupons or repay principal at maturity, resulting in investor losses.
What are 'convertible bonds' in Saudi capital markets?
Answer: Bonds that can be converted into a specified number of ordinary shares of the issuer at a predetermined price
Convertible bonds give the holder the option to convert the bond into equity shares at a predetermined conversion price, combining debt and equity characteristics.
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