CMFAS Securities Products M2 4 — Questions and Answers
Question 1: What is short selling?
- Selling shares quickly
- Selling borrowed shares with the intention of buying them back at a lower price (Correct answer)
- Selling shares below their face value
- Selling only a small number of shares
Correct answer: Selling borrowed shares with the intention of buying them back at a lower price
Short selling involves borrowing shares and selling them, hoping to buy them back later at a lower price to return to the lender and profit from the difference.
Question 2: What is a blue-chip stock?
- A stock that is painted blue
- A stock of a well-established, financially sound large company (Correct answer)
- A newly listed stock
- A penny stock
Correct answer: A stock of a well-established, financially sound large company
Blue-chip stocks are shares of large, well-established, and financially stable companies with a history of reliable performance.
Question 3: What is a stock split?
- Dividing a company into two
- Dividing existing shares into more shares, reducing the price per share proportionally (Correct answer)
- Selling half of a company's shares
- Combining two companies
Correct answer: Dividing existing shares into more shares, reducing the price per share proportionally
In a stock split, a company divides its existing shares into multiple shares. A 2-for-1 split doubles the number of shares while halving the price.
Question 4: What is the bid-ask spread?
- The difference between the highest and lowest price in a day
- The difference between the price a buyer is willing to pay and a seller is willing to accept (Correct answer)
- The commission charged by a broker
- The daily trading volume
Correct answer: The difference between the price a buyer is willing to pay and a seller is willing to accept
The bid-ask spread is the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask).
Question 5: What is a credit rating for a bond?
- The interest rate of the bond
- An assessment of the issuer's ability to repay debt (Correct answer)
- The maturity date of the bond
- The market price of the bond
Correct answer: An assessment of the issuer's ability to repay debt
A credit rating evaluates the creditworthiness of the bond issuer — the likelihood they will meet their debt obligations. Ratings like AAA, AA, BBB indicate quality.
Question 6: What is a structured deposit?
- A normal fixed deposit
- A deposit whose return is linked to the performance of an underlying asset (Correct answer)
- A deposit with no interest
- A deposit that cannot be withdrawn
Correct answer: A deposit whose return is linked to the performance of an underlying asset
A structured deposit has returns linked to the performance of underlying financial instruments like equities, interest rates, or currencies.
CMFAS Securities Products M2 4
What is short selling?