Investment Test

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Investment Test
2013-05-24 01:34:33
Economy 12

all 19 handouts
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  1. What is a bond?
    A bond is an interest on loan that is signed on a piece of paper to corporation or the government that borrows the funds for a defined period of time on a fixed interest rate.
  2. What is meant by a premium and a discount in regards to face/par value?
    • When a bond sells below face value, it is called a discount.
    • When it sells above the face value, it is selling at a premium.
  3. What are the pro and cons of investing in a bond?
    • Safe and secure investment with reasonable interest rates.
    • Liquidity (cash in) at any time.
    • Interest rate risk- Any rise in the general interest rates will decrease the value of your bond.
    • Credit risk- If the organization that issued the bond goes out of business, they will not be able to fulfill anymore interest payments or otherwise redeem the bond's value.
  4. When are good times to invest in the commodity markets?
    • When commodities become very cheap and commodities are considered a value play. 
    • When they are hitting multi-year highs and investors want to catch the trend.
  5. How does commodity market influence the economy?
    Commodity trading impacts the economy by making public the analysts forecasts of the future prices of the most important market goods.
  6. Why is buying future contracts the most popular way to trade in the commodity market?
    • Leverage allows for big profits if on the right side of the trade.
    • Minimum-deposit accounts control full-size contracts that you would normally not be able to afford.
  7. What is an exchange?
    An exchange is an organized market where tradable securities, commodities, foreign exchange, futures and options contracts are sold and bought.
  8. What is the type of exchange where people can trade for future contracts?
    Futures exchange
  9. What determines which stock exchange is biggest?
    By market capitalization (total value of shares)
  10. What is one major disadvantage of investing in the FOREX market?
    • -Risky
    • -complicated, hard to understand the concept.
  11. How does inflation influence the FOREX market?
    a country with low inflation has strong purchasing power, which increases the value of its currency.
  12. What characteristic should and investor look for in a FOREX broker?
    choose a FOREX broker who is registered with the Futures commission merchant (FCM) and regulated by the Commodity Futures Trading Commission (CTFC), but also backed by a quality institution.
  13. What is one disadvantage of investing in mutual fund?
    The manager gets paid no matter how the fund is performing, even decreases in value.
  14. Frank buys a call option of 100 shares with the following: strike price=$13, current share price=$12, price of option to buy one share=$2. At expiry, the share price is now$15.
    What is the gain of this option? Net gain?
    200, 0
  15. What is the BEP
  16. Bob is a put option holder. The strike price was $22 and the final price was $25.
    Did he gain or loss?
    -300, lose
  17. If bob had 100 shares, the current share price was $30 and price of an option to buy one share was $2, what is his net gain?
  18. What is the BEP for Bob's option?
  19. Explain how it works for a well-designed investment portfolio to reduce total risk.
    It spreads you investment across different types of financial instrument, each with a different risk-return potential.
  20. What are the two things to consider when choosing the best portfolio management?
    Active VS Passive manager
  21. What are precious metals?
    Precious metals are rare, naturally occurring metallic chemical elements of high economic value.
  22. What is the gold standard?
    A monetary system where a government allows its currency to be exchanged for a fixed amount of gold and vice-versa (exchange rate)
  23. What is the disadvantage of using Gold
    Countries needed to hold large gold reserves in order to keep up with the supply and demand for currency.
  24. What are 2 ways to invest in precious metals?
    Buy physical gold, buy gold certificates
  25. List one advantage and one disadvantage of investing in gold.
    Advantage: can protect you savings against the currency devaluations.

    Disadvantage: Very heavy. It cannot be easily carried.
  26. How does the real estate market influence the economy?
    When economic times are good, there are certain parts of the housing market usually sees healthy growth. Therefore, when economic times aren't as good, those same parts don’t tend to do so well. The economy affects the overall housing market and impacts two of its major segments in an especially noticeable manner.
  27. When is a good time to invest in real estate?
    Mortgage interest rates are low
  28. How does investing with leverage work?
    Leverage is the strategy of using borrowed money to increase return on an investment. If the return on the total value invested in the security is higher than the interest you pay on the borrowed funds, you can make significant profit.
  29. What is the difference between direct and shared direct ownership of real estate?
    Direct ownership: receiving rent payments and value changes directly.

    Shared direct ownership: investing a company that owns real estate and manages it on its behalf.
  30. List one advantage and one disadvantage of
    real estate investment.
    Advantage: inflation hedge

    Disadvantage: legal issues
  31. Explain two economic influences on the real
    estate market.
    Interest rates: when interest rates fall, cost to obtain a mortgage decreases, demand and prices of real estate increase, and vice versa.

    Health of the economy: in general, when the economy is sluggish, so is real estate.
  32. What is the full name for TFSA?
    Tax Free Savings Account
  33. Why preferred stocks are considered a safer
    Shareholders have a guaranteed fixed dividend, and in the event of liquidation, these shareholders are paid off before common stock shareholders.
  34. How does the upswing and downswing of
    stocks impact the economy?(not too sure)
    When the valueof stock increases, many investors will feel inclined to spend more money; this will improve the economy and vice versa.
  35. Give one advantage and disadvantage of preferred stock.
    Advantage: first to receive their shares therefore easier to make large amount of profit.

    Disadvantage: unable to vote.
  36. What is a Securities Exchange Commission
    The SEC is a government agency whose purpose is to regulate the stock market.
  37. What 3 things should you consider before
    buying a stock?
    Earnings, Sales, Debt, Equity
  38. What is a stock market and give one example
    of one.
    Stock Market: market in which shares are issued and traded either through exchanges or over-the counter markets. Ex: New York Stock Market
  39. 1 advantage of technical trading? (not sure, searched it online)
    Trends are easily found.
  40. What does Tenet 5 of Dow Theory state?
    Trends are confirmed only by volume, a price change on a low volume item could of occurred due to many different reasons; therefore making an investment risky because the price could be barely predictable.
  41. What is the core wave of Elliot Wave Theory
    Impulsive wave