CMFAS Securities Products M2 4

Question 1

What is short selling?

Accepted Answer

Selling borrowed shares with the intention of buying them back at a lower price

Answer

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?

Accepted Answer

A stock of a well-established, financially sound large company

Answer

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?

Accepted Answer

Dividing existing shares into more shares, reducing the price per share proportionally

Answer

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?

Accepted Answer

The difference between the price a buyer is willing to pay and a seller is willing to accept

Answer

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?

Accepted Answer

An assessment of the issuer's ability to repay debt

Answer

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.

CMFAS Practice Test

CMFAS Practice Test

CMFAS Securities Products M2 4