Stock Market and Financial Instruments Quiz

What is the main purpose of the stock market?

• To gamble for fun

• To connect investors with companies/governments needing capital

• To ensure all companies make profits

• To prevent inflation

Which of the following is NOT a type of security?

• Stocks

• Bonds

• Fund Certificates (ETFs)

• Cash in a savings account

What do you own when you buy a company’s stock?

• A loan to the company

• A portion of ownership in the company

• A guarantee of fixed returns

• A government bond

Bonds are usually considered safer than stocks because…

• They are guaranteed by the stock exchange

• They always increase in value

• They pay fixed interest and must be repaid at maturity

• They allow voting rights in the company

Which of the following best describes “hedging” (locking in prices)?

• Buying assets to make quick profits

• Fixing a future price to avoid risks from price changes

• Taking maximum risk for maximum gain

• Borrowing money to speculate

Speculation means…

• Trying to predict future price movements to make profits

• Protecting yourself from risk

• A guaranteed investment

• A type of bond

Which statement about derivatives is correct?

• They are real assets like gold or stocks

• Their value depends on an underlying asset

• They are risk-free investments

• They are only used by farmers

A futures contract is different from a forward contract because…

• Futures are private agreements, forwards are traded on exchanges

• Futures are standardized and traded on exchanges, forwards are private deals

• Futures always give profit, forwards always lose

• Forwards are only for farmers, futures are only for banks

In an options contract, the buyer…

• Must buy the asset at maturity

• Has the right but not the obligation to buy or sell the asset

• Is guaranteed profit

• Has to pay no cost at all

What is a swap?

• Exchanging company shares

• A type of savings account

• A contract where two parties exchange cash flows (e.g., fixed ↔ floating interest, or currencies)

• A guarantee of dividends