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Financial Markets and Stock Exchanges

Description: This quiz will test your knowledge of financial markets and stock exchanges.
Number of Questions: 15
Created by:
Tags: economics finance stock market
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What is the primary function of a stock exchange?

  1. To facilitate the trading of stocks and other securities

  2. To provide investment advice to individuals and institutions

  3. To regulate the financial markets

  4. To set interest rates


Correct Option: A
Explanation:

A stock exchange is a marketplace where stocks and other securities are traded. It provides a platform for buyers and sellers to come together and negotiate prices.

What is the difference between a primary market and a secondary market?

  1. A primary market is where new securities are issued, while a secondary market is where existing securities are traded

  2. A primary market is where stocks are traded, while a secondary market is where bonds are traded

  3. A primary market is where large companies trade, while a secondary market is where small companies trade

  4. A primary market is where foreign companies trade, while a secondary market is where domestic companies trade


Correct Option: A
Explanation:

A primary market is where new securities are issued for the first time. A secondary market is where existing securities are traded between investors.

What is the role of a stockbroker?

  1. To buy and sell stocks on behalf of clients

  2. To provide investment advice to clients

  3. To manage investment portfolios for clients

  4. To underwrite new securities


Correct Option: A
Explanation:

A stockbroker is a licensed professional who buys and sells stocks and other securities on behalf of clients.

What is the difference between a stock and a bond?

  1. A stock represents ownership in a company, while a bond is a loan to a company

  2. A stock pays dividends, while a bond pays interest

  3. A stock is more risky than a bond

  4. All of the above


Correct Option: D
Explanation:

A stock represents ownership in a company, while a bond is a loan to a company. A stock pays dividends, while a bond pays interest. A stock is more risky than a bond because the value of a stock can fluctuate more than the value of a bond.

What is the purpose of a prospectus?

  1. To provide investors with information about a new security offering

  2. To register a new security with the Securities and Exchange Commission (SEC)

  3. To raise capital for a company

  4. All of the above


Correct Option: D
Explanation:

A prospectus is a document that provides investors with information about a new security offering. It is required by the SEC to be filed before a new security can be sold to the public. The prospectus contains information about the company, the security, and the risks involved in investing in the security.

What is the difference between a bull market and a bear market?

  1. A bull market is a period of rising stock prices, while a bear market is a period of falling stock prices

  2. A bull market is a period of high economic growth, while a bear market is a period of economic recession

  3. A bull market is a period of low interest rates, while a bear market is a period of high interest rates

  4. All of the above


Correct Option: A
Explanation:

A bull market is a period of rising stock prices. A bear market is a period of falling stock prices.

What is the role of the Securities and Exchange Commission (SEC)?

  1. To regulate the financial markets

  2. To protect investors

  3. To promote economic growth

  4. All of the above


Correct Option: D
Explanation:

The SEC is an independent agency of the United States government that regulates the financial markets. Its mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

What is the difference between a mutual fund and an exchange-traded fund (ETF)?

  1. A mutual fund is actively managed, while an ETF is passively managed

  2. A mutual fund trades once a day, while an ETF trades continuously throughout the day

  3. A mutual fund has a higher expense ratio than an ETF

  4. All of the above


Correct Option: D
Explanation:

A mutual fund is actively managed, while an ETF is passively managed. A mutual fund trades once a day, while an ETF trades continuously throughout the day. A mutual fund has a higher expense ratio than an ETF.

What is the purpose of a credit rating agency?

  1. To assess the creditworthiness of companies and governments

  2. To provide investment advice to individuals and institutions

  3. To regulate the financial markets

  4. To set interest rates


Correct Option: A
Explanation:

A credit rating agency is an independent organization that assesses the creditworthiness of companies and governments. It issues credit ratings, which are used by investors to assess the risk of investing in a particular security.

What is the difference between a stock split and a stock dividend?

  1. A stock split increases the number of shares outstanding, while a stock dividend does not

  2. A stock split reduces the par value of the stock, while a stock dividend does not

  3. A stock split is taxable, while a stock dividend is not

  4. All of the above


Correct Option: A
Explanation:

A stock split increases the number of shares outstanding, while a stock dividend does not. A stock split reduces the par value of the stock, while a stock dividend does not. A stock split is not taxable, while a stock dividend is.

What is the role of a clearinghouse in the financial markets?

  1. To facilitate the settlement of trades

  2. To provide liquidity to the markets

  3. To regulate the financial markets

  4. To set interest rates


Correct Option: A
Explanation:

A clearinghouse is an organization that facilitates the settlement of trades. It acts as an intermediary between buyers and sellers, ensuring that each party receives the securities or cash that they are entitled to.

What is the difference between a futures contract and an options contract?

  1. A futures contract obligates the buyer to buy or sell a security at a specified price on a specified date, while an options contract gives the buyer the right, but not the obligation, to buy or sell a security at a specified price on a specified date

  2. A futures contract is traded on an exchange, while an options contract is traded over-the-counter

  3. A futures contract is more risky than an options contract

  4. All of the above


Correct Option: D
Explanation:

A futures contract obligates the buyer to buy or sell a security at a specified price on a specified date, while an options contract gives the buyer the right, but not the obligation, to buy or sell a security at a specified price on a specified date. A futures contract is traded on an exchange, while an options contract is traded over-the-counter. A futures contract is more risky than an options contract.

What is the purpose of a margin account?

  1. To allow investors to buy stocks on credit

  2. To provide investors with leverage

  3. To reduce the risk of investing in stocks

  4. None of the above


Correct Option: A
Explanation:

A margin account allows investors to buy stocks on credit. This means that they can borrow money from their brokerage firm to purchase stocks. Margin accounts are used by investors who want to increase their potential returns, but they also come with increased risk.

What is the difference between a short sale and a long sale?

  1. A short sale is the sale of a security that the seller does not own, while a long sale is the sale of a security that the seller owns

  2. A short sale is made in anticipation of a decline in the price of the security, while a long sale is made in anticipation of a rise in the price of the security

  3. A short sale is more risky than a long sale

  4. All of the above


Correct Option: D
Explanation:

A short sale is the sale of a security that the seller does not own, while a long sale is the sale of a security that the seller owns. A short sale is made in anticipation of a decline in the price of the security, while a long sale is made in anticipation of a rise in the price of the security. A short sale is more risky than a long sale.

What is the purpose of a stop-loss order?

  1. To limit the losses on a trade

  2. To protect profits on a trade

  3. To close out a trade at a specified price

  4. All of the above


Correct Option: D
Explanation:

A stop-loss order is a type of order that is used to limit the losses on a trade. It is placed with a brokerage firm and specifies the price at which the security should be sold if it reaches that price. Stop-loss orders can also be used to protect profits on a trade or to close out a trade at a specified price.

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