Investment Flashcards
What is the official currency of China?
Renmimbi, translates as “People’s Money”
What are mutual funds?
Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds.
What are the benefits of mutual funds?
Diversification at every dollar level.
Sharing of investment expenses.
Easier to invest in specialized market sectors.
What does CFD stand for and what is its purpose within financial markets?
Contract for Difference (CFD). Derivatives trading where the differences in the settlement between the open and closing trade prices are cash-settled.
Should the buyer of a CFD see the asset’s price rise, they will offer their holding for sale. The net difference between the purchase price and the sale price are netted together.
Conversely, if a trader believes a security’s price will decline, an opening sell position can be placed. To close the position they must purchase an offsetting trade. This is known as “Shorting a Market”.
What is a derivative?
Any asset whose value is determined by, or derived from, the value of another asset.
What is an underlying asset?
In derivatives, the value from which the derivative gets its value is known as the underlying asset.
An underlying assets can take many forms, but it commonly refers to stocks, bonds, currencies, interest rates, and market indexes.
What are the four types of derivatives?
1) Forward - A customised contract between 2 parties to buy or sell an asset at a specified price at a specified date, i.e. entering into a contract. Not traded on a central exchange, making them non-regulated.
2) Futures - Similar to forwards, however they are standardised and regulated.
3) Options - A contract in which the investor has the choice (but are not obliged to) buy or sell an asset at any time, as long as the contract is in effect.
4) Swaps - The trading of two different financial instruments between two parties. The most common is interest rate swaps in which a company with a variable rate can swap with a caompany with a fixed interest rate.
What’s the difference between Futures and Options?
An options contract gives an investor the right, but not the obligation, to buy (or sell) shares at a specific price at any time, as long as the contract is in effect.
By contrast, a futures contract requires a buyer to purchase shares—and a seller to sell them—on a specific future date, unless the holder’s position is closed before the expiration date.
