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Commerce > Investing > Flashcards

Investing Flashcards

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1
Q

What is the sharemarket?

A

The place where the buying and selling of shares takes place

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2
Q

Who participates in the sharemarket?

A

Buyers, sellers, companies and stockbrokers

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3
Q

What is the obligation of companies on the sharemarket?

A

To keep everyone informed about events that have/will affect share price so no one is disadvantaged

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4
Q

What is a bid?

A

An offer to buy shares, includes the amount of shares and the price you are willing to pay

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5
Q

What is an offer?

A

An order to sell shares, includes the amount of shares and the price you are willing to sell for; could be specific or just the best price on the market

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6
Q

What is volume (in commerce)?

A

How many shares you’d like to buy/sell

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7
Q

What is a share?

A

Partial ownership of a company

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8
Q

What is a float?

A

AKA an Initial Public Offering (IPO) from the business itself (primary market)

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9
Q

What is the secondary market?

A

The sharemarket, where shares that have already been bought from a float are traded

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10
Q

What are dividends?

A

Payments from a company to its investors

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11
Q

How do you calculate dividend yield?

A

Annual dividends per share/price per share = return p.a

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12
Q

Are dividends guaranteed?

A

No, the company could experience a loss or choose to reinvest their profits into the company

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13
Q

How many times a year are dividends paid

A

2 times

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14
Q

What are the dividend dates called?

A

Interim and Final

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15
Q

How many days does it take for a transfer of share ownership?

A

3 days

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16
Q

What is the ex-dividend date?

A

If you buy shares on or after it, you don’t qualify for the latest dividend

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17
Q

What is the date that dividends are paid called?

A

Record date

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18
Q

At what time must you be on the register on a record date to receive dividends?

A

5pm

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19
Q

When should you buy shares to receive dividends?

A

When they are trading cum-dividend, not ex-dividend

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20
Q

What is investing?

A

Allocating money or other resources in the expectation of some future benefit (return)

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21
Q

Why do individuals invest?

A

To grow their wealth so they can achieve a good quality of life in the future; financial gains aren’t always achieved immediately

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22
Q

Why do businesses invest?

A

Invest for the production of goods/services to provide profit to the owners ASAP

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23
Q

What do businesses invest in?

A
  • Infrastructure, labour, research
  • Smaller businesses
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24
Q

How often is profit in a business paid?

A

Annually

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25
Q

What are the sources of business investment funding?

A
  • Retained and reinvested business profits
  • Banks (loans)
  • Parent companies/corporations
  • Private investors
  • Shareholders (trading shares on the ASX)
  • Debentures
  • Crowdfunding
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26
Q

How do individuals fund their investments?

A

Savings, Borrowing, Superannuation

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27
Q

What are the advantages of savings?

A
  • no interest needed to be repaid
  • less opportunity cost
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28
Q

What are the disadvantages of savings to fund individual investing?

A
  • can’t use the money elsewhere
  • limited funds
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29
Q

What are the advantages of borrowing to fund individual investing?

A
  • receive money immediately
  • large amount available
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30
Q

What are the disadvantages of borrowing to fund individual investing?

A
  • debt if money is lost
  • not everyone is eligible
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31
Q

What are the advantages of super to fund individual investing?

A
  • lower risk of loss
  • money from an employer
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32
Q

What does ASX stand for?

A

Australian Securities Exchange

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33
Q

How popular is the ASX?

A

It’s in the top 5 exchanges globally

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34
Q

Who regulates the ASX and what do they do?

A

ASIC protects investors from insider trading

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35
Q

How many companies are listed on the ASX?

A

2200+

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36
Q

How many sectors of industry are the companies on the ASX divided into?

A

26

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37
Q

What did the ASX do in 2006?

A

It listed itself on the ASX (it’s the safest investment option), it was the first exchange to do so

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38
Q

How does the ASX provide performance data?

A

With ‘indexes’ for each sector

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39
Q

What are the direct investment options?

A

Cash, Property, Shares

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40
Q

List the direct investment options from safest to riskiest.

A

Cash, Property, Shares

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41
Q

What type of return do cash investments give you?

A

Interest

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42
Q

What are some types of cash investments?

A
  • Term deposits
  • Government bonds
  • Cryptocurrencies
  • Foreign currency exchange
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43
Q

What types of return do property investments give you?

A

Rental income (safer) and House appreciation (higher return)

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44
Q

What are the types of property investments?

A

Residential and commercial

45
Q

What are the different ways that shares can give you a return?

A

Dividends (safer) and share prices fluctuating

46
Q

What are the different types of shares?

A

Australian and International

47
Q

What are indirect investment methods?

A

A 3rd party makes investment decisions for you

48
Q

What are some examples of indirect investment methods?

A
  • Fund managers
  • Trusts
  • Appointed financial service provider
  • Superannuation
49
Q

What is a fund manager, including an EFT?

A
  • People pool money and the return is paid in distributions to members
  • Members spilt brokerage fee
50
Q

What does ETF stand for?

A

Exchange Traded Fund

51
Q

What are some examples of an appointed financial service provider?

A
  • Stockbroker
  • Financial planner
  • Bank
52
Q

How does a managed fund work?

A
  • People with similar investment goals pool money
  • An investment manager trades shares/property/other assets on your behalf
  • The investors are paid distributions periodically
53
Q

List some other investment options.

A
  • Debenture
  • Unsecured/secured notes
  • Currency exchange
  • Futures/options
  • International shares
  • Cryptocurrencies
54
Q

What is a debenture?

A

A fixed term loan with a fixed interest rate given to a company, tied to a physical asset

55
Q

What is an unsecured note?

A

A loan you give to a fund, it is not tied to a physical asset and therefore compensates with higher interest rates

56
Q

What are the 2 types of futures investment?

A

Commodities and Derivatives

57
Q

What are commodities?

A

Investing in a resource eg: buying gold for $1000, the price increases so you sell the gold at $1500 for a profit of $500

58
Q

What are derivatives?

A

Investing in the price of commodities, eg: investing $1000 in the price of gold

59
Q

What is an option?

A

Instead of buying a product for it to potentially lose or gain value, you pay a small amount for the opportunity to purchase the same product later for the present price. If the price increases you can buy the product at the old price and make a profit, and if the price decreases, you don’t buy the product and just lose your deposit

60
Q

Where are international shares available?

A

Through fund managers

61
Q

What is the crypto market?

A

An unregulated alternative currency market

62
Q

What are some important aspects of currency?

A
  • Durable
  • Portable
  • Fungibe
  • Divisible
  • Verifiable
  • History
  • Scarce
  • Censorship resistant
63
Q

What is durability?

A

Not easily destroyed

64
Q

What is portability?

A

Able to be transported and stored

65
Q

What is fungibility?

A

Easily interchangeable with another token of equal value

66
Q

What is divisibility?

A

Easy to subdivide

67
Q

What is verifiability?

A

Quickly authenticated

68
Q

What is scarcity (in terms of money)?

A

Not abundant, easy to obtain or produce

69
Q

What is history (in terms of money)?

A

Recognised value

70
Q

What is censorship resistance?

A

How easy it is for a 3rd party to take it away from you

71
Q

What are the pros of renting?

A
  • Cheaper (in the short term)
  • No maintenance costs/property tax
  • Flexible
72
Q

What are the cons of renting?

A
  • No ownership; risk of eviction
  • Rent is not earning an asset
  • Changes to the property are difficult
  • Dealing with a landlord is annoying
73
Q

What are the pros of buying a house?

A
  • A place to live; no risk of eviction
  • House appreciates in value
  • Potential rental income
74
Q

What are the cons of buying a house?

A
  • Expensive mortgage
  • Difficult to buy a first home
  • Maintenance/property taxes
75
Q

What do mortgage repayments consist of?

A
  • Deposit
  • Principle repayments
  • Interest
76
Q

What are the unrecoverable costs of a mortgage/house?

A
  • Interest
  • Maintenance
  • Property tax
77
Q

What percentage of a house price is a typical deposit?

A

5%-20%

78
Q

What is another term for the principal repayment?

A

Cost of equity

79
Q

What are the unrecoverable costs of renting?

A

Rent itself; cheaper in the short term; savings to invest

80
Q

What are growth assets?

A
  • Assets that grow in value over time
  • Profit isn’t achieved until the asset is sold or profit is ‘realised’
81
Q

How do you calculate the rate of return of a growth asset?

A

(Profit from investment/Original investment) x (100/period of investment in years)

82
Q

What are some examples of growth assets?

A

Blue chip shares, property (house appreciation)

83
Q

What are income assets?

A
  • Assets that pay profit on a regular basis
  • They’re expected to make profit
  • The Rate of Return compares annual profit to original purchase price
84
Q

How do you calculate the rate of return for an income asset?

A

(profit per annum/original purchase price) x 100

85
Q

What are income assets also referred to as?

A

Defensive assets: Aim to provide a steady stream of income

86
Q

What are some examples of income assets?

A

Term deposits (interest), shares (dividends), property (rent)

87
Q

List the investment options from high to low risk.

A

Shares, property, cash (excluding crypto and foreign currency)

88
Q

List the investment options from high to low return.

A

Shares, property, cash (excluding crypto and foreign currency)

89
Q

How do you mitigate the risk of loss?

A

Diversify your investment portfolio

90
Q

How do you diversify your investment portfolio?

A
  • Cash investments, property, shares
  • Direct and indirect
  • Stable and new businesses
  • Income (capital/defence) and growth assets
  • Variety of industries
  • Australian and international shares/investments
91
Q

What is negative screening?

A

Avoiding interest in a company that you deem to be unethical and out of line with your beliefs and values

92
Q

What is positive screening?

A

Supporting companies that engage in and support ethical practices important to you

93
Q

What is ethical investing?

A

Making investment decisions in line with your beliefs and values

94
Q

What is an example of positive screening?

A

Investing in companies that use recycled materials for their products

95
Q

What is an example of negative screening?

A

ANZ controversy:
- ANZ is one of the top 4 banks in Australia
- Founded as the Bank of Australasia in Melbourne, 1830s
- Exposed during GFC for funding coal mines, power plants and ports as well as illegal cluster bombs
- Share price dropped rapidly as investors were discouraged from buying

96
Q

What are the factors influencing investment decisions?

A

Personal and economic circumstances

97
Q

What are some examples of personal circumstances that could affect investment decisions?

A
  • Illness, family situations and job loss
  • May need to withdraw from a fixed investment/fund to pay bills
  • May need to stop regular payments to an investment
98
Q

What are some examples of economic circumstances that could affect investment choices?

A
  • Global market changes: unpredictable and uncontrollable
  • Economic patterns: trade, national security and employment
  • National companies with contingency plans for an economic downturn are safer investments
  • Assess the future levels of economic activity (profit) of a company before buying shares
99
Q

What is a ‘high’ in the growth trend of the market called?

A

Peak

100
Q

What is a ‘low’ in the growth trend of the market called?

A

Trough

101
Q

What is an increase in the growth trend of the market called?

A

Expansion

102
Q

What is a decrease in the growth trend of the market called?

A

Contraction

103
Q

What are some strategies for making the most of the economic cycle?

A

Time your entry and exit from the market:
- Buy shares when the price is low and sell them when the price is high to make a profit
- However, it’s hard to predict a peak or trough in reality, but easy to recognise once it’s passed
Determine what kind of investments to make:
- Make low-risk investments such as term deposits in economic contraction and capitalise on high-risk/return investments such as shares when the market begins recovery

104
Q

Detail the flowchart for analysing the risks of an investment.

A

Identify all possible risks - Rank risks on the probability of occurrence - Are they acceptable?

Yes: Accept and continue monitoring - Develop further risk mitigation plans
No: Consider a risk avoidance strategy

105
Q

What are the actions you can take from a risk analysis?

A
  • Avoid the risk
  • Reduce the risk
  • Manage the risk
  • Transfer the risk
106
Q

How do you avoid a risk?

A
  • Don’t make the investment
  • Withdraw from the investment to avoid future loss
  • Don’t take the investment avenue
107
Q

How do you reduce a risk

A

Diversify investments; this reduces the impact of possible harm

108
Q

How do you manage a risk?

A

Record and monitor profits and losses

109
Q
A

Commerce (8 decks)

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