Introduction to Investment

Question 1

types of markets

Answer 1

money markets
capital markets
primary market
secondary market

Question 2

money markets

Answer 2

the market where short-term securities are bought and sold

short term debt, up to 1 year

Question 3

capital market

Answer 3

the market where long-term securities such as stocks and bonds are sold

from 1 year onwards

Question 4

primary market

Answer 4

the market in which new issues of securities are sold to the public

where the company / state gets the money, the first time the stock is sold to the market

Question 5

secondary market

Answer 5

the market in which securities are traded after they have been issued

where investors buy from each other

Question 6

what type of market are we looking at in this course?

Answer 6

Secondary market
stock exchange, where investors trade

Question 7

role of secondary markets

Answer 7

1. provides liquidity to security purchasers –> being able to sell it at any time if the purchaser wants to because there are new buyers for it
2. provides continuous pricing mechnism

Question 8

securities exchanges

Answer 8

forums where buyers and sellers of securities are brought together to execute trades

Question 9

nasdaq market

Answer 9

employes an all-electronic trading platform to execute trades

Question 10

over-the-counter (OTC) market

Answer 10

involves trading in smaller, unlisted securities
there is a problem of illiquidity because there is no market

Question 11

bull market / bear market

Answer 11

bull market: favourable markets, rising prices, investor / consumer optimism, economic growth and recovery, government stimulus

bear market: unfavourable markets, falling prices, investor / consumer pessimism, economic slowdown, government restraint

Question 12

Bid price

Answer 12

position of all the buyers
you sell at this price

Question 14

ask price

Answer 14

position of all the sellers
you buy at this price

Question 15

last price

Answer 15

the most recent actual trade

Question 16

reasons to use market averages and indexes

Answer 16

• gauge general market conditions
• compare your portfolio performance to large, diversified portfolio
• study market cycles, trends and behaviors to forecast future market behavior

Question 17

what do stock market averages and indexes measure?

Answer 17

they measure the general behavior of stock prices over time

Question 18

what is the difference between market averages and indexes?

Answer 18

• averages reflect the arithmetic average pricde behavior at a given point in time
• indexes measure the current price behavior relative to a base value set at an earlier point in time

Question 19

ex-date of dividend

Answer 19

• the date when a stock begins trading without the dividend
• buyers who purchase the stock after the ex-dividend date are not entitled to receive the declared dividend payment
• to get the dividend payment, buyers must have purchased the stock before the ex-dividend date
• stock prices typically drop by the amount of the dividend on the ex-dividend date

Question 20

what happens to the stock price on the ex-dividend date?

Answer 20

stock prices typically drop by approximately the amount of the dividend being paid

Question 21

why does the price of a stock usually drop on the ex-dividend date?

Answer 21

new buyers will not get the dividend, therfore it is slightly less valuable to the investors
–> market adjusts, usually by reducing the stock price by the dividend amount