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Quiz about Stock Market Basics Part 2
Quiz about Stock Market Basics Part 2

Stock Market Basics Part 2 Trivia Quiz


A follow up quiz to Part 1. A further, perhaps more in depth, test of investment knowledge.

A multiple-choice quiz by Eagle9a. Estimated time: 4 mins.
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Author
Eagle9a
Time
4 mins
Type
Multiple Choice
Quiz #
322,895
Updated
Dec 03 21
# Qns
10
Difficulty
Average
Avg Score
7 / 10
Plays
764
- -
Question 1 of 10
1. A sub-section of the London Stock Exchange is called AIM. What does this acronym stand for? Hint


Question 2 of 10
2. Why might an investor "short" a particular stock or share? Hint


Question 3 of 10
3. I have just instructed my stockbroker to sell one of my holdings using a "fill or kill" trade. What have I asked him to do? Hint


Question 4 of 10
4. I am fairly confident that a company I want to invest in will have a good year but just in case I'm wrong I want to "hedge" my risk. Which of the following combinations of manufacturing companies might be a good "hedging" strategy? Hint


Question 5 of 10
5. I am told by my pension adviser that my retirement fund has now been placed in an investment vehicle run by a professional institution, co-mingled with other investors' money and spread throughout various sectors of the investment market. The returns obtained will be totally dependent upon investment performance with no underlying guarantees. Which type of fund am I now invested in? Hint


Question 6 of 10
6. Speculation on which region's stock markets caused Nick Leeson to bring about the collapse of Barings Bank in 1995? Hint


Question 7 of 10
7. I need to raise capital for my company, which is already listed on a stock exchange, but do not wish to increase the number of shares in circulation. Which of the following might achieve this objective? Hint


Question 8 of 10
8. In stock market terms which event is now known as the South Sea Bubble? Hint


Question 9 of 10
9. When looking at stock prices I notice that the buying price is usually lower than the selling price. What is the technical name for this differential? Hint


Question 10 of 10
10. I have just been arrested and charged with "insider dealing". What crime have I committed? Hint



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Quiz Answer Key and Fun Facts
1. A sub-section of the London Stock Exchange is called AIM. What does this acronym stand for?

Answer: Alternative Investment Market

AIM was launched in 1995 with the intention of allowing smaller companies to sell shares to the public but with a less rigid regulatory system than that normally required within the main stock market. The regulatory model is based on a comply-or-explain principle which allows companies which are listed on AIM to either comply with the relatively few rules, or explain why it has decided not to comply.
2. Why might an investor "short" a particular stock or share?

Answer: In the belief that the price will fall

Short selling a stock is a tactical market ploy used by traders when they think the price will fall for any reason. It involves borrowing stock from someone (with the promise to give it back on a specific date), selling the stock immediately and then hoping to buy back on the market at a price less than the current market price. The "borrowed stock" is then given back to the owner with the difference being the profit generated. It can go spectacularly wrong if the price of the stock actually rises.

The three wrong answers would generally be bad news for a short seller.
3. I have just instructed my stockbroker to sell one of my holdings using a "fill or kill" trade. What have I asked him to do?

Answer: Sell a stock at a fixed price or do not sell at all

A "fill or kill" trade is normally used where the stock owner believes the stock is worth more than the current market price. If that price is not obtained immediately the order is withdrawn. A "limit sale" is similar in that a price is set for the sale but the order left open until the price is reached.

A "market sale" is executed at the current market price and in most cases the trade is immediate.
4. I am fairly confident that a company I want to invest in will have a good year but just in case I'm wrong I want to "hedge" my risk. Which of the following combinations of manufacturing companies might be a good "hedging" strategy?

Answer: waterproof boots / ice cream

"Hedging" involves creating an investment portfolio which should offset some risk should one sector of the portfolio suffer. This normally involves selecting stock which will react differently to market news or world events. In my example, a hot summer would benefit ice cream makers but in the event of a wet summer it is likely that ice cream sales would suffer. To "hedge" this risk I would also invest in waterproof boots which should be a good seller in a wet summer.
5. I am told by my pension adviser that my retirement fund has now been placed in an investment vehicle run by a professional institution, co-mingled with other investors' money and spread throughout various sectors of the investment market. The returns obtained will be totally dependent upon investment performance with no underlying guarantees. Which type of fund am I now invested in?

Answer: Balanced Managed Fund

Balanced Funds aim to spread the investment risk between all sectors of the stock market including equity, fixed income, property and cash assets. Individual risk is minimized by co-mingling funds with other investors. There are no underlying guarantees and therefore the value of the fund can fall as well as rise.
6. Speculation on which region's stock markets caused Nick Leeson to bring about the collapse of Barings Bank in 1995?

Answer: Asia

Barings Bank (founded 1762) was one of the oldest merchant banks in London until its collapse in 1995. Speculating primarily with "futures contracts" Nick Leeson lost £827 million on the Japanese and Singapore markets.
7. I need to raise capital for my company, which is already listed on a stock exchange, but do not wish to increase the number of shares in circulation. Which of the following might achieve this objective?

Answer: Bond issue

A bond issue involves the sale of financial instruments, usually to institutions, which have a guaranteed rate of interest payable. No further equity shares are issued. A stock buy back would reduce shares in circulation but at the expense of company capital. The other two options would result in additional equity shares being issued.
8. In stock market terms which event is now known as the South Sea Bubble?

Answer: A scandal on the London Stock Exhange during the early 1700s

A complex network of intersecting financial, legal, political, and cultural factors all contributed to the development of the South Sea Bubble. The end result was the collapse of the South Sea Company in 1720. Financial ruin for many followed in its wake. Essentially, investors were conned into placing money in the company with promises of huge returns which could never materialize.

The bubble burst, the company went bust and so did many other people and institutions.
9. When looking at stock prices I notice that the buying price is usually lower than the selling price. What is the technical name for this differential?

Answer: Bid / Offer Spread

The difference between the buy (offer) price and the sale price (bid) allows the dealer to make a profit. The "spread" is usually determined by the volume of the stock being traded. In some cases (usually thinly traded stock) the spread can be manipulated to encourage buyers or if the stock is in short supply, sellers.
10. I have just been arrested and charged with "insider dealing". What crime have I committed?

Answer: Trading stock for my own gain using confidential information

Examples of "insider dealing" might include a director buying stock in his/her own company knowing that the company was to become the target of a takeover bid. Conversely the finance director, after finding out that the annual results would be poor, before this information was released to the market, sell his/her own stock.
Source: Author Eagle9a

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