Investment Test 2 — Questions and Answers
Question 1: Which of the following enables the issue of shares by acting as a middleman in the transfer of funds between the company in need of financing and the general public?
- Securities investor
- Stock issuer
- Underwriter (Correct answer)
- Bond issuer
Correct answer: Underwriter
Explanation: <br> Underwriters determine how risky an insurer's business is. By appropriately valuing investment risk, underwriting aids in the establishment of fair borrowing rates for loans, the establishment of appropriate premiums, and the creation of a market for securities.
Question 2: An ______ is a decentralized market in which members trade directly with one another rather than through a centralized exchange. It is made up of securities that are not traded on public markets.
- Over-the-counter (OTC) market (Correct answer)
- Derivatives market
- Stock exchange
- Primary market
Correct answer: Over-the-counter (OTC) market
Explanation: <br> Buying and selling stocks outside of an established stock market is referred to as OTC (over-the-counter). Penny stocks, bonds, derivatives, ADRs, and currencies are examples of OTC investments. OTC markets are electronic networks that allow two parties to trade with one another without the use of a dealer-broker.
Question 3: For the first time, new shares are issued and offered to the investing public in the ______ .
- Capital market
- Debt market
- Secondary market
- Primary market (Correct answer)
Correct answer: Primary market
Explanation: <br> The primary market is where securities are formed in order to be offered for the first time to investors. Above all, the primary market allows firms, governments, and others to raise cash by issuing new securities on an exchange. Stocks, corporate or government bonds, notes, and bills are examples of securities issued through a primary market.
Question 4: What does the acronym APR stand for?
- Accreditation in Public Relations
- Academic Percentage Rate
- Annual Percentage Rate (Correct answer)
- Annual Progress Rate
Correct answer: Annual Percentage Rate
Explanation: <br> The yearly interest created by a sum charged to borrowers or paid to investors is known as the annual percentage rate (APR). APR is a percentage that represents the actual annual cost of money over the course of a loan or investment. This includes any transaction fees or additional expenditures, but not compounding. Consumers can compare APRs between lenders, credit cards, and investment products since they provide a bottom-line number.
Question 5: The is made up of exchanges and over-the-counter markets where publicly traded businesses' shares are issued and sold.
- Initial public offering
- Stock market (Correct answer)
- Stock exchange
- Debt market
Correct answer: Stock market
Explanation: <br> The stock market is a marketplace for investors to buy and sell investments, most often stocks, which are ownership shares in a publicly traded firm.
Question 6: What is the definition of a bull market?
- A market that is frozen, preventing the purchase or sale of stocks.
- A market in which assets are rising or anticipated to be rising (Correct answer)
- A market in which losses are expected and securities prices are declining.
- A market portfolio with a lot of variety.
Correct answer: A market in which assets are rising or anticipated to be rising
Explanation: <br> The state of a financial market in which prices are rising or are expected to rise is known as a bull market. The word "bull market" is most commonly associated with the stock market, although it may also be applied to any tradable asset, including bonds, real estate, currencies, and commodities.
Question 7: What is the definition of GDP?
- Gross Domestic Profit
- Gross Domestic Product (Correct answer)
- Gross Domestic Proceed
- Gross Domestic Progress
Correct answer: Gross Domestic Product
Explanation: <br> The monetary worth of all finished goods and services produced inside a country over a given time period is referred to as the gross domestic product (GDP). GDP is a measure of a country's economic health that is used to calculate its size and rate of growth. GDP can be computed in three different ways: expenditures, output, and incomes.
Question 8: What is the definition of liquidity?
- A nearly incompressible fluid that conforms to the shape of its container while maintaining a (nearly) constant volume regardless of pressure.
- The extent to which an asset or security can be acquired or sold without impacting its price in the market. (Correct answer)
- Falsifying information on a tax return knowingly and willingly.
- A debt investment in which an investor lends money to a company that borrows money for a set period of time at a set interest rate.
Correct answer: The extent to which an asset or security can be acquired or sold without impacting its price in the market.
Explanation: <br> The ease with which an asset, or security, can be changed into immediate cash without impacting its market price is known as liquidity. Cash is the most liquid asset, whereas tangible goods are less so. Market liquidity and accounting liquidity are the two most common types of liquidity.
Question 9: What is the significance of your credit score?
- You won't have to pay taxes if you get a score of 500.
- It has an impact on how much money banks and credit card firms are ready to lend you. (Correct answer)
- It allows you to keep track of how much money you spend on a monthly basis.
- It establishes how much money you can gain from a specific investment.
Correct answer: It has an impact on how much money banks and credit card firms are ready to lend you.
Explanation: <br> A credit score has complete control over financing rates, attractive mortgages, and an investor's negotiating power when applying for a loan. If you have negative credit or a low credit score, you can still invest in real estate, but it will affect potential investors and loan programs.
Investment Test 2
Which of the following enables the issue of shares by acting as a middleman in the transfer of funds between the company in need of financing and the general public?