Portfolio Management

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1) What is "Front-Running"?

a) Trading ahead of large client orders or market-moving news, taking advantage of anticipated price movements.

b) Executing client orders quickly.

c) Being the first to identify a market trend.

d) Trading during market opening hours.

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2) What is a "Separately Managed Account (SMA)"?

a) An account where an investor manages their own portfolio.

b) A pooled investment vehicle.

c) An investment account owned by an individual investor but managed by a professional money manager, often customized to the investor's specific needs.

d) A type of mutual fund.

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3) What is "Factor Investing"?

a) Investing only in passively managed funds.

b) An investment approach that targets specific factors (e.g., value, size, momentum, low volatility) that have historically been associated with excess returns.

c) Investing only in specific company stocks.

d) Investing based solely on random selection.

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4) What is "Risk Parity"?

a) A strategy that allocates equally to all assets.

b) A strategy that ignores risk entirely.

c) A strategy that only invests in low-risk assets.

d) A portfolio strategy that aims to achieve equal risk contributions from different asset classes, rather than equal capital allocations.

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5) What is the "CFP®" designation?

a) Corporate Finance Practitioner

b) Certified Financial Planner

c) Chartered Financial Planner

d) Certified Financial Professional

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6) What is "Alternative Investment"?

a) Investments that are guaranteed to yield high returns.

b) Investments that are very low risk.

c) Traditional investments like stocks and bonds.

d) Investments that are not traditional stocks, bonds, or cash, such as private equity, hedge funds, real estate, and commodities.

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7) What is "Algorithmic Trading"?

a) Trading without any market data.

b) The use of computer programs to execute trades at high speeds, based on predefined instructions (algorithms), often used for large volumes and complex strategies.

c) Trading based solely on fundamental analysis.

d) Manual trading decisions.

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8) What is "Market Capitalization"?

a) The total revenue of a company.

b) The total value of a company's outstanding shares, calculated by multiplying the current share price by the number of shares outstanding.

c) The total debt of a company.

d) The total value of a company's assets.

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9) What is "Liquidity-Adjusted VaR (LVaR)"?

a) A measure of capital gains.

b) A modification of VaR that incorporates the potential impact of liquidity risk, recognizing that selling large positions quickly may affect prices.

c) A measure of only market risk.

d) Standard VaR calculation.

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10) What is "Core-Satellite Approach" in portfolio management?

a) A strategy that focuses only on high-risk assets.

b) A strategy that invests only in individual stocks.

c) A strategy that combines a passively managed, diversified "core" portfolio (e.g., ETFs tracking broad indices) with actively managed "satellite" investments seeking to generate alpha.

d) A strategy that avoids all forms of diversification.

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11) What is an "Exchange Traded Fund" (ETF)?

a) A type of investment fund that holds assets like stocks, bonds, or commodities, and trades like a common stock on a stock exchange.

b) A derivative contract.

c) A type of mutual fund that cannot be traded on an exchange.

d) A private equity fund.

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12) What is "FINRA" (Financial Industry Regulatory Authority) in the US?

a) A self-regulatory organization that oversees brokerage firms and their registered representatives in the United States.

b) A government agency that sets interest rates.

c) A non-profit organization promoting financial literacy.

d) A professional body for financial planners.

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13) What is "Insider Trading"?

a) Trading that occurs within the firm's internal network.

b) Trading stocks within the same company.

c) The illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.

d) Trading based on publicly available information.

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14) What is "Cybersecurity" in financial services?

a) Protecting financial systems and data from theft, damage, or unauthorized access using technology and processes.

b) Digital marketing for financial services.

c) Selling financial products online.

d) Physical security of bank branches.

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15) What is the purpose of "Constraint Management" in portfolio construction?

a) To maximize leverage.

b) To incorporate investor-specific restrictions, such as liquidity needs, tax considerations, regulatory limits, or ethical preferences, into the portfolio design.

c) To avoid all forms of risk.

d) To limit the number of assets in a portfolio.

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16) What is an "IPO"?

a) Internal Price Optimization.

b) International Payment Option.

c) Initial Public Offering, when a private company first offers shares to the public.

d) Investment Portfolio Overview.

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17) What is the "risk-free rate" in investment calculations?

a) The theoretical rate of return of an investment with zero risk, often approximated by government bond yields.

b) The expected return of a risky asset.

c) The average return of the stock market.

d) The inflation rate.

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18) What is the concept of "rebalancing" a portfolio?

a) Adding new assets to the portfolio for the first time.

b) Adjusting the portfolio's asset allocation back to its original or target weights due to market fluctuations.

c) Only selling assets that have performed poorly.

d) Selling all assets and buying new ones.

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19) What is the purpose of "Financial Literacy"?

a) To manage large corporate portfolios.

b) The ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.

c) To become a certified financial analyst.

d) To only understand complex financial derivatives.

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20) The efficient frontier in portfolio theory represents:

a) Portfolios that are guaranteed to outperform the market.

b) Portfolios that offer the highest expected return for a given level of risk or the lowest risk for a given expected return.

c) All possible portfolios.

d) Portfolios with zero risk.

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21) What is the "Market Portfolio" in MPT?

a) A portfolio managed by a central bank.

b) A portfolio with zero systematic risk.

c) A theoretical portfolio that includes all risky assets in the market, each weighted by its market capitalization.

d) A portfolio consisting of only risk-free assets.

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22) What is the primary purpose of using "options" (call/put) in portfolio strategies?

a) To achieve long-term capital appreciation without risk.

b) To gain voting rights in a company.

c) To generate fixed income.

d) To speculate on asset price movements and for hedging (risk management).

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23) What is a "Hedge Fund"?

a) A fund that only invests in government bonds.

b) An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short, and derivative positions in both domestic and international markets with the goal of generating high returns.

c) A fund that only invests in highly liquid assets.

d) A publicly traded mutual fund.

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24) What is the primary role of a "Fiduciary Duty" in investment management?

a) To always recommend the highest-commission products.

b) To provide only generic investment advice.

c) To act in the best interest of the client, placing the client's interests above one's own.

d) To maximize the firm's profits.

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25) What is a "Derivative" in finance?

a) A direct investment in a company's equity.

b) A type of government bond.

c) A fixed-income security.

d) A financial contract whose value is derived from an underlying asset, group of assets, or benchmark.

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26) What is "duration" in bond portfolio management?

a) The coupon rate of a bond.

b) The yield to maturity of a bond.

c) A measure of a bond's price sensitivity to changes in interest rates.

d) The maturity date of a bond.

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27) What is "Monte Carlo Simulation" used for in portfolio management?

a) To perform technical analysis on individual stocks.

b) To calculate the exact future value of an investment.

c) To track historical portfolio performance.

d) To model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables, often used for retirement planning and risk assessment.

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28) What is "Dark Pools" in financial markets?

a) Places where only foreign currencies are traded.

b) Private exchanges or forums for trading securities, often large blocks, that are not accessible to the general investing public and provide anonymity.

c) Regulated public exchanges.

d) Markets for illegal financial activities.

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29) What is "Glide Path" in target-date funds?

a) The historical return trajectory of the fund.

b) The predetermined shifting of asset allocation from more aggressive (higher equity) to more conservative (higher bonds) as the target date approaches.

c) A fixed asset allocation throughout the fund's life.

d) A strategy for maximizing short-term gains.

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30) What is "Behavioral Finance"?

a) The study of efficient markets.

b) The study of corporate financial decisions.

c) A field that studies the psychological influences on investor behavior and its impact on financial markets.

d) A branch of finance that focuses solely on quantitative models.

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31) What is a "Money Market Instrument"?

a) Equity securities.

b) Long-term debt instruments.

c) Short-term, highly liquid, and low-risk debt instruments, such as Treasury bills, commercial paper, and certificates of deposit.

d) Real estate investments.

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32) What is "Value at Risk" (VaR)?

a) The expected return of a portfolio.

b) A measure of the maximum potential loss that could be incurred over a specific time horizon with a given confidence level.

c) The total market value of a portfolio.

d) The maximum potential gain from an investment.

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33) What is the "Endowment Model" of investing?

a) An asset allocation strategy, popularized by university endowments, characterized by a significant allocation to alternative investments (e.g., private equity, hedge funds, real estate) and a long-term horizon.

b) A model that only invests in liquid assets.

c) A model primarily used by individual investors.

d) A model that avoids all forms of risk.

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34) What is "Backtesting" in portfolio management?

a) d) Forward-looking market prediction.

b) a) Implementing a strategy in real-time.

c) b) Applying a trading strategy to historical data to determine its hypothetical performance.

d) c) Analyzing current market conditions.

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35) What does "tracking error" measure in passive portfolio management?

a) The total return of the portfolio.

b) The management fees incurred.

c) The individual errors in stock predictions.

d) The deviation of a portfolio's returns from the returns of its benchmark index.

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36) What is a "Whistleblower" in finance?

a) A financial regulator.

b) An employee who reports misconduct or illegal activities occurring within their organization to external authorities.

c) An internal auditor.

d) A market analyst.

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37) What is "Gamma" in options trading?

a) The rate of change of an option's delta with respect to the underlying asset's price.

b) The sensitivity of the option price to the passage of time.

c) The sensitivity of the option price to changes in volatility.

d) The sensitivity of the option price to changes in the underlying asset's price.

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38) What is "Greenwashing"?

a) A new type of sustainable bond.

b) The practice of making unsubstantiated or misleading claims about the environmental benefits of a product, service, technology, or company practice.

c) A method for measuring environmental impact.

d) Companies genuinely investing in environmentally friendly projects.

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39) Which type of investment represents ownership in a company?

a) Certificates of Deposit (CDs)

b) Mutual Funds

c) Bonds

d) Stocks (Equity)

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40) What is the "Mean-Variance Optimization"?

a) A method to minimize portfolio returns.

b) A mathematical framework used in MPT to construct portfolios that maximize expected return for a given level of risk (variance), or minimize risk for a given expected return.

c) A method for selecting individual stocks based on their past performance.

d) A strategy that ignores risk.

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41) What is a "Stress Test" in risk management?

a) A method for optimizing portfolio returns.

b) A test to see how well an investment manager performs under pressure.

c) A way to reduce transactional costs.

d) A simulation technique to evaluate the potential impact of extreme but plausible market movements or economic scenarios on a portfolio's value.

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42) What is the role of a "Market Maker"?

a) To regulate financial markets.

b) To facilitate trading by always being ready to buy or sell a particular security, thereby providing liquidity to the market.

c) To manage private equity funds.

d) To provide investment advice to clients.

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43) What does "tracking error" measure in passive portfolio management?

a) The management fees incurred.

b) The deviation of a portfolio's returns from the returns of its benchmark index.

c) The individual errors in stock predictions.

d) The total return of the portfolio.

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44) What is "Foreign Exchange (Forex)" market?

a) A market for international bonds only.

b) A market for trading international goods.

c) A market for foreign direct investment.

d) A global decentralized market for the trading of currencies.

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45) What is a "Mutual Fund"?

a) A direct investment in real estate.

b) A professionally managed investment fund that pools money from many investors to purchase securities.

c) An individual stock.

d) A type of government bond.

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46) What is "Liquidity Risk"?

a) The risk of a global economic downturn.

b) The risk that an asset's price will fluctuate wildly.

c) The risk of a company going bankrupt.

d) The risk that an asset cannot be bought or sold quickly enough in the market without substantially affecting its price.

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47) What is "Correlation" in the context of portfolio diversification?

a) The intrinsic value of an asset.

b) The average return of two assets.

c) The total risk of a portfolio.

d) A statistical measure that describes how two assets move in relation to each other.

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48) What is "Tax-Loss Harvesting"?

a) A strategy to sell investments at a loss to offset capital gains and reduce taxable income.

b) A strategy that only applies to tax-exempt bonds.

c) A method for delaying tax payments.

d) A strategy to intentionally incur capital gains.

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49) What is "Core Equity" in portfolio construction?

a) High-risk, speculative equity investments.

b) The main portion of the equity allocation, typically invested in large-cap, stable companies for long-term growth and stability.

c) Equity investments in emerging markets

d) Short-term equity trades.

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50) What is the primary role of an "Investment Bank"?

a) Taking deposits and making loans to individuals.

b) Providing services such as underwriting, mergers and acquisitions (M&A) advisory, and corporate finance to corporations and governments.

c) Managing mutual funds for individual investors.

d) Issuing credit cards.

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51) What is "FinTech"?

a) Technology that aims to improve and automate the delivery and use of financial services.

b) A new method of financial reporting.

c) A type of financial derivative.

d) A government regulatory body.

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52) What is "Market Manipulation"?

a) Legitimate trading activities that affect market prices.

b) Setting fair market prices.

c) Analyzing market trends for investment decisions.

d) Intentional conduct designed to deceive or defraud investors by controlling or artificially affecting the market price of a security.

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53) Which of the following is a measure of "downside risk"?

a) Beta

b) Alpha

c) Standard deviation

d) Sortino Ratio (focuses on downside deviation)

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54) What is "Active Portfolio Management"?

a) Investing only in low-risk assets.

b) A strategy where investment decisions are made with the goal of outperforming a specific benchmark index.

c) Blindly following a market index.

d) Only investing in government bonds.

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55) What is "Liability-Driven Investment (LDI)"?

a) An investment strategy focused on maximizing short-term returns.

b) A strategy that ignores the time horizon of investments.

c) An investment strategy primarily used by institutional investors (like pension funds) that focuses on matching assets to future liabilities to ensure sufficient funds are available to meet those obligations.

d) A strategy that avoids all forms of fixed income.

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56) What is "Blockchain Technology" in the context of finance?

a) A decentralized, distributed ledger that records transactions across many computers, used for cryptocurrencies and other applications.

b) A new programming language for financial models.

c) A type of encrypted email.

d) A system for traditional banking transactions.

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57) What does "NAV" stand for in the context of mutual funds and ETFs?

a) New Acquisition Volume

b) Non-Aggressive Venture

c) Net Asset Value

d) National Average Yield

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58) What is a "REIT" (Real Estate Investment Trust)?

a) A company that develops real estate properties.

b) A company that owns, operates, or finances income-producing real estate and trades on stock exchanges like stocks.

c) A type of mortgage.

d) A private real estate fund.

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59) What is "Preferred Stock"?

a) Stock that is traded on a preferred exchange.

b) Stock that always appreciates in value.

c) Stock with voting rights only.

d) A type of stock that usually pays a fixed dividend and has priority over common stock in case of liquidation.

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60) What is "Contingent Immunization" in bond portfolio management?

a) A strategy to only invest in short-term bonds.

b) A method to avoid all interest rate risk.

c) A strategy to constantly change bond holdings.

d) A bond portfolio strategy that combines active and passive management, where a portfolio is actively managed until its surplus falls below a certain threshold, at which point it is immunized.

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61) What is "Yield to Maturity (YTM)" for a bond?

a) The current yield of the bond.

b) The interest payment divided by the bond's face value.

c) The coupon rate of the bond.

d) The total return an investor can expect to receive if they hold the bond until it matures.

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62) What does the Capital Asset Pricing Model (CAPM) primarily calculate?

a) The correlation between two assets.

b) The historical return of a portfolio.

c) The expected return for a stock, given its systematic risk.

d) The intrinsic value of a stock.

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63) What is the role of "Constraints" in portfolio optimization?

a) To eliminate all risk from the portfolio.

b) To make the optimization process simpler.

c) To guarantee specific returns.

d) To define the limits or boundaries within which the portfolio must operate, such as minimum/maximum asset weights, liquidity needs, or ESG criteria.

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64) What is "ESG Investing"?

a) Investing solely for short-term gains.

b) Investing in emerging markets only.

c) Investing only in government bonds.

d) An investment approach that considers Environmental, Social, and Governance factors alongside financial returns.

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65) What is the main idea behind "Dollar-Cost Averaging"?

a) Only investing when prices are falling.

b) Investing a fixed amount of money at regular intervals, regardless of the asset's price, to reduce the impact of market volatility.

c) Selling high and buying low.

d) Investing a lump sum at once.

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66) What is "Primary Market"?

a) Where new securities are issued for the first time by corporations and governments to raise capital.

b) A market for commodities.

c) Where existing securities are traded among investors.

d) A market for derivatives only.

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67) What is "Horizon Risk" in portfolio management?

a) Risk related to market crashes.

b) Risk related to a company's future growth.

c) The risk that the portfolio's actual investment horizon differs from the investor's planned horizon, impacting investment choices.

d) Risk associated with international investments.

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68) In Modern Portfolio Theory (MPT), what does the "Capital Market Line (CML)" represent?

a) The relationship between risk and return for individual securities.

b) The expected return of a single asset.

c) The set of optimal portfolios that combine the market portfolio and the risk-free asset, representing the most efficient allocation of risk and return.

d) The efficient frontier for risky assets.

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69) What is "Yield Curve"?

a) A graph showing the historical returns of a single bond.

b) A graph showing stock price movements.

c) A graph showing the profitability of a company.

d) A graph that plots the interest rates of bonds (or other debt instruments) having equal credit quality but differing maturity dates.

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70) What is "Securitization"?

a) The process of buying government bonds.

b) The process of pooling various types of contractual debts (e.g., mortgages, auto loans) and selling their related cash flows to third-party investors as securities.

c) The process of issuing new common stock.

d) The process of making a security more liquid.

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71) What is "Commodity Investing"?

a) Investing in fixed-income securities.

b) Investing in company stocks.

c) Investing in real estate properties.

d) Investing in raw materials or primary agricultural products, such as gold, oil, natural gas, or corn.

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72) What is "Asset Allocation"?

a) The process of dividing an investment portfolio among different asset classes, such as equities, fixed income, cash, and alternatives, to balance risk and reward.

b) Selecting individual stocks.

c) Minimizing brokerage fees.

d) Predicting market movements.

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73) What is "Tactical Asset Allocation"?

a) A strategy that only invests in one asset class.

b) An active portfolio management strategy that involves making short-term adjustments to asset allocation to capitalize on perceived market inefficiencies or short-term opportunities.

c) A strategy that minimizes transaction costs.

d) Maintaining a fixed asset allocation regardless of market conditions.

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74) What is "Tactical Asset Allocation"?

a) A strategy that only invests in one asset class.

b) Maintaining a fixed asset allocation regardless of market conditions.

c) A strategy that minimizes transaction costs.

d) An active portfolio management strategy that involves making short-term adjustments to asset allocation to capitalize on perceived market inefficiencies or short-term opportunities.

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75) Which of the following is an example of a systematic risk?

a) A new competitor enters the market for a specific industry.

b) A global economic recession.

c) A company's CEO resigns.

d) A product recall by a single company.

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76) What is the role of the "SEC" (Securities and Exchange Commission) in the US?

a) To conduct monetary policy.

b) To regulate the securities markets and protect investors.

c) To manage the national debt.

d) To provide insurance for bank deposits.

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77) What is "Greenwashing"?

a) The practice of making unsubstantiated or misleading claims about the environmental benefits of a product, service, technology, or company practice.

b) Companies genuinely investing in environmentally friendly projects.

c) A method for measuring environmental impact.

d) A new type of sustainable bond.

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78) What does a "negative correlation" between two assets in a portfolio imply?

a) They both will always lose money.

b) They move in opposite directions, providing diversification benefits.

c) They have no relationship.

d) They move in the same direction.

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79) What is a "Compliance Officer" responsible for in an investment firm?

a) Managing investment portfolios.

b) Marketing and sales.

c) Ensuring the firm adheres to all relevant laws, regulations, and internal policies to prevent legal and ethical breaches.

d) Developing new investment products.

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80) What is the purpose of "KYC" (Know Your Customer) regulations?

a) To verify the identity of clients, assess their risk profiles, and understand their financial activities to prevent financial crime.

b) To market new products to customers.

c) To gather customer feedback.

d) To track client spending habits.

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81) What is "Tail Risk"?

a) Risk at the end of a bull market.

b) The risk of rare, unexpected, and extreme events occurring, leading to significant losses for a portfolio.

c) Risk associated with small fluctuations in asset prices.

d) Risk that is easily diversified away.

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82) What is "Private Equity"?

a) Equity of publicly traded companies.

b) A type of government investment.

c) Investment in real estate only.

d) Capital invested in companies that are not publicly traded, often involving buying out public companies or investing in private startups.

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83) What is a "Spot Market"?

a) A market where contracts are made for future delivery.

b) A market where financial instruments or commodities are traded for immediate delivery.

c) A market for long-term investments.

d) A market for options only.

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84) What is "Portfolio Optimization"?

a) Choosing only the best-performing stocks.

b) The process of selecting the best portfolio out of the set of all feasible portfolios, according to a specific objective (e.g., maximizing return for a given risk or vice versa), typically using quantitative models.

c) Minimizing transaction costs only.

d) Only focusing on diversification.

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85) What is a "Futures Contract"?

a) A standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future.

b) An option to buy or sell an asset.

c) A bond that matures in the future.

d) A current stock purchase.

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86) The Sharpe Ratio measures:

a) Only the risk of a portfolio.

b) The risk-adjusted return of an investment or portfolio, by dividing excess return (portfolio return minus risk-free rate) by its standard deviation.

c) The alpha of a portfolio.

d) Only the return of a portfolio.

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87) What is "Suitability" in investment advice?

a) Recommending any product to a client.

b) Recommending only highly aggressive investments.

c) Focusing solely on product features.

d) The ethical and regulatory obligation to ensure that any investment recommendation or transaction is appropriate for the client's financial situation, investment objectives, and risk tolerance.

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88) What is the primary difference between a "Bond" and a "Stock"?

a) Bonds represent ownership, stocks represent debt.

b) Bonds have variable returns, stocks have fixed returns.

c) Bonds represent debt (loan to an entity), stocks represent ownership (equity).

d) Stocks are less risky than bonds.

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89) What is "Portfolio Optimization"?

a) Only focusing on diversification.

b) Minimizing transaction costs only.

c) The process of selecting the best portfolio out of the set of all feasible portfolios, according to a specific objective (e.g., maximizing return for a given risk or vice versa), typically using quantitative models.

d) Choosing only the best-performing stocks.

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90) What is "Robo-Advisors"?

a) Investment firms that specialize in robotics stocks.

b) Human financial advisors with advanced degrees.Human financial advisors with advanced degrees.

c) Physical robots that manage money.

d) Digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.

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91) The term "alpha" in portfolio performance refers to:

a) The standard deviation of the portfolio.

b) The portfolio's total return.

c) The risk-free rate.

d) The return generated by a portfolio above what would be expected given its beta (market risk).

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92) What does "AML" stand for in financial regulations?

a) Anti-Money Laundering

b) Annual Management Levy

c) Asset Management Limits

d) Automated Market Liquidity

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93) What is "Portfolio Immunization"?

a) A strategy to avoid all market risk.

b) A strategy used by fixed-income investors to hedge against interest rate risk by matching the duration of assets and liabilities.

c) A strategy to protect a portfolio from inflation.

d) A strategy to maximize short-term capital gains.

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94) What is "GDPR" (General Data Protection Regulation) primarily concerned with?

a) Data protection and privacy for individuals within the European Union (EU) and European Economic Area (EEA).

b) Financial market stability.

c) Cybersecurity for financial institutions.

d) Anti-money laundering efforts globally.

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95) What is "Contingent Immunization" in bond portfolio management?

a) A bond portfolio strategy that combines active and passive management, where a portfolio is actively managed until its surplus falls below a certain threshold, at which point it is immunized.

b) A strategy to only invest in short-term bonds.

c) A strategy to constantly change bond holdings.

d) A method to avoid all interest rate risk.

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96) The Treynor Ratio measures:

a) Only the alpha of a portfolio.

b) Risk-adjusted return using systematic risk (beta).

c) The maximum potential loss.

d) Risk-adjusted return using total risk (standard deviation).

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97) What is "Information Ratio"?

a) A measure of a portfolio's active return divided by its tracking error, indicating the consistency of the manager's outperformance relative to a benchmark.

b) A measure of downside risk.

c) A measure of total portfolio return.

d) A measure of systematic risk.

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