Investment Jobs Fundamentals 2 — Questions and Answers
Question 1: What does the term 'buy-side' typically refer to in the investment industry?
- Firms that manage money and purchase securities, like asset managers and hedge funds (Correct answer)
- Banks that issue new stock
- Regulators who approve trades
- Brokers who only sell bonds
Correct answer: Firms that manage money and purchase securities, like asset managers and hedge funds
The buy-side consists of institutions like asset managers, pension funds, and hedge funds that invest capital by buying securities.
Question 2: Which entry-level role is most associated with building financial models and pitch books at an investment bank?
- Analyst (Correct answer)
- Managing Director
- Chief Investment Officer
- Compliance Officer
Correct answer: Analyst
Investment banking analysts are the junior staff who build models and prepare pitch books.
Question 3: What is the primary purpose of diversification in a portfolio?
- To reduce unsystematic risk by spreading investments (Correct answer)
- To guarantee higher returns
- To eliminate all market risk
- To avoid paying taxes
Correct answer: To reduce unsystematic risk by spreading investments
Diversification lowers company-specific (unsystematic) risk by holding a mix of uncorrelated assets.
Question 4: Which regulatory body oversees securities markets in the United States?
- The SEC (Correct answer)
- The FDA
- The FCC
- The EPA
Correct answer: The SEC
The Securities and Exchange Commission (SEC) regulates U.S. securities markets and protects investors.
Question 5: What does 'liquidity' describe about an asset?
- How quickly it can be converted to cash without major price loss (Correct answer)
- Its total dollar value
- Its dividend yield
- Its credit rating
Correct answer: How quickly it can be converted to cash without major price loss
Liquidity measures how easily an asset can be sold for cash near its market value.
Question 6: Which professional designation is widely regarded as a standard for investment analysis careers?
- CFA (Chartered Financial Analyst) (Correct answer)
- CPR
- MBA only
- PMP
Correct answer: CFA (Chartered Financial Analyst)
The CFA charter is a globally recognized credential for investment management and analysis roles.
Question 7: What is the 'sell-side' in finance?
- Firms that create, promote, and sell securities, like brokerages and investment banks (Correct answer)
- Households that buy index funds
- Government tax authorities
- Insurance claim adjusters
Correct answer: Firms that create, promote, and sell securities, like brokerages and investment banks
The sell-side includes investment banks and brokerages that issue, market, and sell financial products.
Investment Jobs Fundamentals 2
What does the term 'buy-side' typically refer to in the investment industry?