Financial Markets- QA Flashcards
What are securities?
Securities refer to tradable financial assets, including stocks, bonds, and money market instruments.
What are stocks (equities)?
Stocks represent ownership in a company and can be publicly traded on a stock exchange.
What is the difference between shares and stocks?
The term shares includes both publicly traded stocks and privately held stakes in small firms.
What is a mutual fund?
A mutual fund is a basket of stocks, bonds, or other securities, managed by a professional fund manager.
What are the investment objectives of mutual funds?
Mutual funds aim for either regular income (from dividends), long-term capital growth, or a balance between the two.
What is a stock exchange?
A stock exchange is a marketplace where stocks are bought and sold. It can be a physical location (e.g., New York Stock Exchange) or an electronic exchange (e.g., NASDAQ).
What are stock market indices?
A stock market index is a group of selected stocks that represent a market or sector, such as:
Dow Jones (30 large U.S. companies)
Standard & Poor’s (S&P) 500 (500 large U.S. companies)
Why do stock prices change?
Stock prices fluctuate due to:
Company performance and market position
National and global economic conditions
Technical analysis (chart patterns, momentum indicators, etc.)
What is the bond market?
The bond market is ten times bigger than the stock market and allows companies or governments to raise money by issuing bonds.
What is a bond?
A bond is a fixed-income security where an investor lends money to a company or government in exchange for interest payments.
How do bond prices fluctuate?
Bond prices change due to:
Inflation: Higher inflation reduces bond value.
Currency movements: Bonds are repaid in one currency, so exchange rate fluctuations impact value.
What are investment-grade and junk bonds?
Investment-grade bonds: Low-risk, issued by financially strong companies.
Junk bonds: High-risk, issued by companies with a greater chance of fault.
What is the money market?
A short-term financial market where investors buy low-risk, short-term securities such as:
Treasury bills (T-bills) (issued by the government)
Certificates of deposit (CDs) (issued by banks)
Commercial paper (issued by companies)
What is the forex market?
The foreign exchange (forex) market is where currencies are bought and sold, making it the largest financial market.
Who participates in the forex market?
Commercial banks (trading currencies for themselves and clients)
Central banks (stabilizing their national currencies)
Pension funds and investors
What happens if a currency fluctuates in value?
Currency fluctuations can impact:
Export and import costs
Inflation and interest rates
Stock and bond prices
What is hedging in Forex trading?
Hedging is a strategy to protect against currency risks.
What is traded in the commodities market?
Energy: Crude oil, natural gas.
Metals: Gold, silver, copper, steel.
Soft commodities: Coffee, sugar, grains, livestock.
Why do investors trade commodities?
To speculate on future price movements or hedge against risks.
