Finance Questions

Q:

Capitalism is characterized by which of the following?

A) Profits B) A market economy
C) Privately owned businesses D) All the above
 
Answer & Explanation Answer: D) All the above

Explanation:

Capitalism is an economic system followed by a country or a society which is characterized by Privately owned businesses, a market economy and profits.


Capitalism is defined as "production for exchange" driven by the desire for personal accumulation of money receipts in such exchanges, mediated by free markets. The markets themselves are driven by the needs and wants of consumers and those of society as a whole in the form of the bourgeois state.

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Q:

Which of the following investment choices is least risky?

A) Renting B) Bonds
C) Flipping D) CD's
 
Answer & Explanation Answer: D) CD's

Explanation:

CDs are the least risky investment choice when compared to flipping, renting and bonds.

A certificate of deposit (CD) is a savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. A CD restricts access to the funds until the maturity date of the investment. CDs are generally issued by commercial banks.

CDs are issued by the bank and are guaranteed by the government. So even if the bank goes bankrupt the investor's money is guaranteed to a certain extent.

Flipping and renting are subjected to market fluctuations while bonds are not insured.

 

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Q:

What is true about personal financial planning?

A) Personal financial planning is the process of creating and achieving financial goals B) Our financial decisions decrease once we reach adulthood
C) A family's resources are unlimited D) There are two means for achieving financial goals—you either need to increase your spending or reduce savings
 
Answer & Explanation Answer: A) Personal financial planning is the process of creating and achieving financial goals

Explanation:

Personal financial planning is the process of creating and achieving financial goals.

 

True statements regarding personal financial planning:

As we age, the number and complexity of the financial decisions that we make increases.

There are two means for achieving financial goals—you either need to increase your savings or reduce spending.

A family's resources are limited.

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Q:

What is Trial Balance?

Answer

It is statement of balances of all the accounts in the ledger prepared to prove the arithmetical accuracy of the books of accounts.


A trial Balance is a list of Debit and Credit or a list of Debit & Credit Balance of all the ledger accounts prepared on any particular date

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Q:

What is hedging?

Answer

Hedging is a tool to minimize the risks. It is thus like an 'insurance' where one pays a premium but gets an assured amount in case of some uncertain event to the extent of the loss actually suffered on an equally opposite position for which the hedge was done. Thus, hedger is different from arbitrageur and speculators, as the intention here is not to maximize the profit but to minimize the loss.


E.g. In Capital Markets, suppose an investor has an equity portfolio of Rs. 2 lacs and the portfolio consists of all the major stocks of NIFTY. He thinks the market will improve in the long run but might go on a downside in the shortrun. NIFTY today stands at 4300. To minimize the risk of downfall, he enters into an option contract by buying NIFTY-PUT of strike 4300 at a premium of, say, Rs. 100. Thus, the actual amount paid is Rs. 5,000(lot size of NIFTY is 50). Also, the number of NIFTY-PUTs to be bought will vary on the beta of the portfolio so as to completely hedge the positon. 

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Q:

Distinguish between speculator and hedger?

Answer

The main difference lies in the motive of the two parties. The main motive of the hedger is to hedge(minimize) the risk from the occurence of some events. 


The motive of the speculator is to gamble in the market in order to make the profit by buying/selling the derivative products.


 

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Q:

What is Bull Market?

Answer

Bull market is that market where stock value are expected rise and people will have tendency to sell their stock so as to earn profit out of it. Thus sudden push from the suppliers will gradually niutalise the market.


 

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Q:

Which payment type can help you stick to a budget?

A) Payday loans B) Cash advances
C) Debit cards D) Credit cards
 
Answer & Explanation Answer: C) Debit cards

Explanation:

There are two payment types that will help you stick to your budget.

1. Cash
2. Debit Card

The amount in the debit card is the only amount you can spend to stay within budget.

These method work because once you spend your money, you are done. You don’t have anything else to spend.

 

Credit cards, payday loans, and cash advances are all loans on future income. When you use a credit card, there is always just a little bit more you can spend. These types do not help you budget properly. In fact, these types encourage you to spend beyond your means and be out of budget.

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