Asset Classes & Instruments

Question 1

What are the major asset classes?

Answer 1

Equities, fixed income, FX, commodities, and derivatives.

Question 2

What is an equity?

Answer 2

Ownership in a company.

Question 3

What is common stock?

Answer 3

Standard ownership shares with voting and residual economic rights.

Question 4

What is preferred stock?

Answer 4

Equity with priority over common stock for dividends or liquidation, often with limited voting rights.

Question 5

What is an ETF?

Answer 5

An exchange-traded fund that holds a basket of assets and trades like a stock.

Question 6

What is an ADR?

Answer 6

An American Depositary Receipt representing shares in a foreign company.

Question 7

What is fixed income?

Answer 7

Debt instruments that typically pay interest and return principal at maturity.

Question 8

What is a government bond?

Answer 8

Debt issued by a sovereign government.

Question 9

What is a corporate bond?

Answer 9

Debt issued by a company.

Question 10

What is a gilt?

Answer 10

A UK government bond.

Question 11

What is a Treasury bond or Treasury note?

Answer 11

A U.S. government debt security.

Question 12

What is coupon in bond terms?

Answer 12

The interest payment rate on a bond.

Question 13

What is yield in bond terms?

Answer 13

The return implied by the bond’s price and cash flows.

Question 14

What is maturity in bond terms?

Answer 14

The date on which principal is repaid.

Question 15

What is duration?

Answer 15

A measure of a bond’s sensitivity to interest rate changes.

Question 16

What is credit spread?

Answer 16

The extra yield over a safer benchmark to compensate for credit risk.

Question 17

What is FX?

Answer 17

The market for exchanging one currency for another.

Question 18

What is an FX pair?

Answer 18

A quoted relationship between two currencies, such as GBP/USD.

Question 19

What is base currency in an FX pair?

Answer 19

The first currency in the pair.

Question 20

What is quote currency in an FX pair?

Answer 20

The second currency in the pair.

Question 21

What is an FX spot trade?

Answer 21

A near-immediate exchange of one currency for another.

Question 22

What is an FX forward?

Answer 22

An OTC agreement to exchange currencies at a future date.

Question 23

What is an FX swap?

Answer 23

A pair of FX transactions combining spot and forward legs.

Question 24

What is a commodity?

Answer 24

A tradable raw material such as oil, gas, gold, or wheat.

Question 25

What is a derivative?

Answer 25

A contract whose value depends on an underlying asset or reference.

Question 26

What are the main derivative types?

Answer 26

Futures, options, forwards, and swaps.

Question 27

What is a future?

Answer 27

A standardized exchange-traded contract for future delivery or settlement.

Question 28

What is a forward?

Answer 28

A customized OTC future transaction agreement.

Question 29

What is a call option?

Answer 29

The right to buy an asset at a specified strike price.

Question 30

What is a put option?

Answer 30

The right to sell an asset at a specified strike price.

Question 31

What is strike price?

Answer 31

The fixed price at which an option can be exercised.

Question 32

What is expiry?

Answer 32

The date after which an option or derivative contract ends.

Question 33

What is a swap?

Answer 33

A contract to exchange cash flows between two parties.

Question 34

What is an interest rate swap?

Answer 34

A swap exchanging fixed and floating interest payments.

Question 35

What is a credit default swap (CDS)?

Answer 35

A derivative used to transfer credit default risk.

Question 36

What is a total return swap (TRS)?

Answer 36

A swap where one party receives the total return of an asset without owning it directly.

Question 37

Why do hedge funds use derivatives heavily?

Answer 37

They allow efficient exposure, hedging, leverage, and access to hard-to-trade markets.

Question 38

What is a synthetic exposure?

Answer 38

Exposure created via derivatives rather than direct ownership of the asset.

Question 39

What is a structured product?

Answer 39

A customized financial product built from multiple instruments or embedded derivatives.

Question 40

What is a securitized product?

Answer 40

A product backed by pooled assets, such as MBS, ABS, or CLOs.