Chapter 8

Question 1

Three main factors when considering an investment

Answer 1

Risk, Return, Liquidity

Question 2

Capital Risk

Answer 2

A risk that the value of the investment will go down

Question 3

Risk appetite

Answer 3

How readily accepting an investor is of risk

Question 4

Risk averse

Answer 4

Wants to invest in the safest way

Question 5

Risk Seeker

Answer 5

Wants the highest return no matter the outcome

Question 6

Income return

Answer 6

Interest or dividend

Question 7

Capital return

Answer 7

invested principal goes up

Question 8

Liquidity in regards to investing

Answer 8

How quickly an investment can be turned into cash

Question 9

Diversification

Answer 9

The process of reducing risk by increasing the number of separate investments in a portfolio

Question 10

Monetary Policy

Answer 10

implemented by BoE to bring price stability and deal with supply of money, interest rates, and availability of credit

Question 11

Fiscal Policy

Answer 11

The balance between public spending and taxation

Question 12

Contractionary fiscal policy

Answer 12

more taxation, less spending

Question 13

The Financial Policy Committee

Answer 13

Analyses and addresses risks to the UK economy such as house price growth

Question 14

Prudential Regulation Authority

Answer 14

Addresses safety of general public’s money with regards to investing and financial decisions

Question 15

A company’s treasury’s role in foreign exchange

Answer 15

1. Managing exchange rate risk
2. Arranging for overseas transfers

Question 16

Counter-cyclical industries

Answer 16

The phenomena of when an economy falters, an industry booms meanwhile. E.g. Healthcare

Question 17

The business cycle

Answer 17

Periods of growth followed by periods of decline

Question 18

difference between current ratio and acid test ratio (quick ratio)

Answer 18

current ratio considers all current assets and liabilities due within a year, including inventory

Quick ratio considers assets and liabilities that are due within 90 days, excluding inventory

Question 19

Gearing ratio formula

Answer 19

total debt / equity