Investment Training - Part1 And 2
(56).webp "Investment Training - Part1 And 2 - Quiz")
This quiz is to test your understanding of Part 1and 2 of the Investment Training held for EBA staff
Questions and Answers
- 1.
The capital market offers short term securities (less than one year)
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The capital market primarily deals with long-term securities, such as stocks and bonds, which have a maturity period of more than one year. Short-term securities, on the other hand, are typically traded in the money market. Therefore, the statement that the capital market offers short-term securities is false.Rate this question:
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- 2.
Debt security exist in both the capital as well as the money market?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Debt securities exist in both the capital and money market because they are financial instruments that represent a loan made by an investor to a borrower. They include bonds, notes, and debentures, which are traded in the capital market, and treasury bills and commercial paper, which are traded in the money market. These securities allow investors to earn interest on their investment while providing borrowers with a means to raise capital. Therefore, it is true that debt securities exist in both the capital and money market.Rate this question:
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- 3.
Bondholders are able to participate in the profits of the company?
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Bondholders are not able to participate in the profits of the company. Unlike shareholders, who are owners of the company and have the right to share in its profits through dividends, bondholders are creditors who lend money to the company in exchange for regular interest payments. They do not have any ownership rights or the ability to share in the profits of the company. Their main source of income is the interest earned on the bonds they hold. Therefore, the statement that bondholders are able to participate in the profits of the company is false.Rate this question:
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- 4.
Dividend are fixed payments made to investors?
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Dividends are not fixed payments made to investors. Dividends are payments made by a company to its shareholders as a portion of the company's profits. The amount of dividends can vary and is usually determined by the company's board of directors. The board may choose to increase, decrease, or eliminate dividends based on the company's financial performance and other factors. Therefore, dividends are not fixed and can change over time.Rate this question:
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- 5.
When interest rates rise, bond values fall
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
When interest rates rise, bond values fall because bonds have fixed interest rates. When new bonds are issued with higher interest rates, the older bonds with lower rates become less attractive to investors. As a result, the demand for the older bonds decreases, causing their prices to drop. Conversely, when interest rates decrease, bond values tend to rise as the older bonds with higher rates become more valuable. This inverse relationship between interest rates and bond values is a fundamental principle in bond investing.Rate this question:
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- 6.
Hybrid securities are a mix of short term and long term securities?
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Hybrid securities are not a mix of short term and long term securities. They are a type of financial instrument that combines elements of both debt and equity securities. These securities typically have characteristics of both bonds and stocks, offering investors features such as fixed income payments and potential for capital appreciation. The combination of these features makes hybrid securities unique and distinct from short term and long term securities. Therefore, the correct answer is false.Rate this question:
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- 7.
Asset backed securities are debt securities
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Asset-backed securities are debt securities because they are backed by a pool of assets, such as loans or mortgages. These assets serve as collateral for the securities, providing security to the investors. In case of default, the investors have a claim on the underlying assets. This makes asset-backed securities similar to traditional debt securities, where the issuer promises to repay the principal amount along with interest. Therefore, the statement that asset-backed securities are debt securities is correct.Rate this question:
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- 8.
Inter-bank lending takes place in the money market
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Inter-bank lending refers to the borrowing and lending of funds between banks. This activity occurs in the money market, which is a segment of the financial market where short-term borrowing and lending of funds take place. Banks participate in inter-bank lending to manage their liquidity needs, meet regulatory requirements, and earn interest income. Therefore, the statement that inter-bank lending takes place in the money market is true.Rate this question:
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- 9.
Debt securities carry voting rights
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Debt securities, such as bonds, do not carry voting rights. Unlike equity securities, which represent ownership in a company and typically come with voting rights, debt securities are essentially loans made to a company or government entity. Investors who hold debt securities are considered creditors and have a claim on the issuer's assets and income, but they do not have the right to vote on corporate matters or decisions. Therefore, the correct answer is false.Rate this question:
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- 10.
In liquidation, ordinary shareholders rank above creditors?
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
In liquidation, ordinary shareholders do not rank above creditors. When a company goes into liquidation, creditors have the first claim on the company's assets to recover their debts. Ordinary shareholders, on the other hand, are the last to receive any remaining funds after all the creditors and other stakeholders have been paid. Therefore, the statement that ordinary shareholders rank above creditors in liquidation is false.Rate this question:
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- 11.
Name two hybrid Securities
- A.
Common Stock
- B.
Convertibles
- C.
Equity warrants
Correct Answer(s)
B. Convertibles
C. Equity warrantsExplanation
The correct answer is convertibles and equity warrants. Convertibles are hybrid securities because they have characteristics of both debt and equity. They are bonds or preferred stocks that can be converted into common stock at a later date. Equity warrants, on the other hand, give the holder the right to buy a company's stock at a specific price within a certain time frame. They are also considered hybrid securities because they combine elements of both equity and options contracts.Rate this question:
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- 12.
Name two money market securities
- A.
Repurchase agreement
- B.
Asset backed securities
- C.
Convertibles
- D.
Treasury bills
Correct Answer(s)
A. Repurchase agreement
D. Treasury billsExplanation
A repurchase agreement is a short-term borrowing where one party sells securities to another party with a promise to repurchase them at a higher price. Treasury bills, on the other hand, are short-term debt instruments issued by the government to finance its short-term borrowing needs. Both of these securities are commonly traded in the money market due to their low risk and high liquidity.Rate this question:
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- 13.
Name two capital market securities
- A.
Subprime
- B.
Floating rate bonds
- C.
Common stock
- D.
Repurchase agreements
- E.
Mortgge backed securities
Correct Answer(s)
B. Floating rate bonds
E. Mortgge backed securitiesExplanation
The correct answer is floating rate bonds and mortgage-backed securities. Floating rate bonds are debt securities that have variable interest rates, which are adjusted periodically based on a reference interest rate. Mortgage-backed securities are financial instruments that represent an ownership interest in a pool of mortgage loans. These securities allow investors to participate in the income generated from the mortgage payments made by borrowers. Both of these capital market securities are commonly traded and provide different investment opportunities for investors.Rate this question:
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- 14.
Name two other type of financial market apart from capital and money market
- A.
Commodities Market
- B.
Pensions market
- C.
Agricultural market
- D.
Foreign Exchange market
Correct Answer(s)
A. Commodities Market
D. Foreign Exchange marketExplanation
The correct answer is commodities market and foreign exchange market. These are two other types of financial markets apart from capital and money market. The commodities market is where commodities such as gold, oil, and agricultural products are traded. The foreign exchange market is where currencies from different countries are bought and sold. These markets play a crucial role in facilitating trade and investment activities and provide opportunities for investors to diversify their portfolios.Rate this question:
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- 15.
A repurchase agreement is ......................... with an agreement to repurchase them at a fixed price on a fixed date.
Correct Answer(s)
a repurchase agreement is selling a security to an investor with an agreement to re-purchase them at a fixed price on a fixed date agreement to re-purchase them at a fixed price on a fixed date.Explanation
A repurchase agreement, also known as a repo, involves selling a security to an investor with an agreement to repurchase it at a fixed price on a fixed date. This allows the seller to temporarily raise funds by selling the security and then repurchasing it at a later date. The fixed price and fixed date provide clarity and certainty to both parties involved in the agreement.Rate this question:
- 16.
The Trustees must review their SIPP documents at least twice per year
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because there is no requirement for trustees to review their SIPP (Self-Invested Personal Pension) documents at least twice per year. The frequency of document review is not specified or mandated by any regulatory body or governing authority. Therefore, trustees have the flexibility to determine the appropriate frequency for reviewing their SIPP documents based on their specific needs and circumstances.Rate this question:
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- 17.
The SIPP must be submitted 90 days after a Fund or Scheme has been approved by the FSC?
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The SIPP does not need to be submitted 90 days after a Fund or Scheme has been approved by the FSC. The given statement is incorrect.Rate this question:
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- 18.
The Term risk tolereance means?
- A.
THe degree of certainty that an investor can handle in regard to a positive change in the value of his assets.
- B.
The degree of uncertainty that an investor can handle in regard to a negative change in the value of his portfolio.
- C.
The degree of tolerance to changes in life
Correct Answer
B. The degree of uncertainty that an investor can handle in regard to a negative change in the value of his portfolio.Explanation
The term risk tolerance refers to the degree of uncertainty that an investor can handle in relation to a negative change in the value of his portfolio. It indicates the level of risk that an investor is willing and able to endure without becoming overly anxious or making impulsive decisions. This concept is crucial in investment decision-making as it helps investors determine the appropriate level of risk they can afford to take on based on their financial goals, time horizon, and personal circumstances.Rate this question:
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- 19.
State one purpose of diversification?
- A.
To smooth out systematic risk so that the positive performance of some investments will neutralise the negative ones.
- B.
To get better return always.
- C.
To ride the tide.
- D.
To smooth out unsystematic risk so that the positive performance of some investments will neutralise the negative ones.
Correct Answer
D. To smooth out unsystematic risk so that the positive performance of some investments will neutralise the negative ones.Explanation
Diversification is a risk management strategy that aims to reduce the impact of unsystematic risk, which is the risk specific to an individual investment or industry. By spreading investments across different asset classes, sectors, or geographic regions, the positive performance of some investments can offset the negative performance of others. This helps to reduce the overall volatility of a portfolio and potentially increase the chances of achieving more consistent returns.Rate this question:
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- 20.
Based on the course material an investor's risk tolerance varies according to?
- A.
Age
- B.
Financial goals
- C.
Income requirements
- D.
Family ties
Correct Answer(s)
A. Age
B. Financial goals
C. Income requirementsExplanation
An investor's risk tolerance varies according to their age, financial goals, and income requirements. Age plays a role in risk tolerance as younger investors may have a longer time horizon and can afford to take on more risk. Financial goals also impact risk tolerance, as investors with long-term goals may be willing to take on more risk to potentially earn higher returns. Income requirements affect risk tolerance as investors with higher income may be more willing to take on risk. Family ties are not mentioned in the course material as a factor affecting risk tolerance.Rate this question:
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Nov 15, 2023Quiz Edited by
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Jun 27, 2012Quiz Created by
Ebapensions
How Well Do You Know About The Principle of Investment Assignment?
How Well Do You Know About The Principle of Investment Assignment?
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