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Exam IFM (Investment and Financial Markets)
#Question
What does diversification in an investment portfolio primarily aim to achieve?
A.
Increase volatility
B.
Reduce unsystematic risk
C.
Guarantee returns
D.
Maximize profit
Correct Answer:
B
Diversification aims to reduce unsystematic risk by spreading investments across various asset classes or sectors.
#Question
How do interest rate hikes typically affect the stock market?
A.
Negatively impact stock prices
B.
Stabilize stock prices
C.
Boost stock prices
D.
No effect
Correct Answer:
A
Interest rate hikes can negatively impact stock prices by increasing borrowing costs and reducing consumer spending.
#Question
What is the impact of rising commodity prices on inflation?
A.
Decrease inflation
B.
Stabilize prices
C.
No effect
D.
Increase inflation
Correct Answer:
D
Rising commodity prices typically contribute to increased inflation, as they raise production costs for goods and services.
#Question
In equity investing, what is the role of a 'dividend reinvestment plan (DRIP)'?
A.
Automatic purchase of more shares
B.
Fixed interest rate
C.
Automatic cash out
D.
Low-risk investment
Correct Answer:
A
A DRIP allows shareholders to reinvest dividends automatically into additional shares, compounding their investment over time.
#Question
What does 'market segmentation' refer to in finance?
A.
Targeting specific buyers
B.
Different trading strategies
C.
Merging asset classes
D.
Division of capital markets
Correct Answer:
A
Market segmentation refers to dividing the broader market into smaller, identifiable segments for targeted strategies.
#Question
How can an issuer of bonds enhance their credit rating?
A.
Conduct stock buybacks
B.
Improve financial stability
C.
Reduce debt
D.
Increase interest rates
Correct Answer:
B
Issuers can enhance their credit rating by showing improvement in financial stability and reducing leverage.
#Question
What is 'capital appreciation' in investment terms?
A.
Cost of investment
B.
Regular income
C.
Decrease in asset value
D.
Increase in asset value
Correct Answer:
D
Capital appreciation refers to the increase in the value of an asset over time.
Exam IFM (Investment and Financial Markets)
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