CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

An investor who buys Apple stock may use the financial system to ______

I. manage risks.
II. trade on information.
III. borrow money.
Correct Answer: I and II

The investor may trade on information to exploit insightful research that suggests the stock is under-valued (II). He or she may also manage risks by saving money so the money can be used in the future.

User Contributed Comments 12

User Comment
JohnnyWu Why is 1 correct?
hoyleng to hedge against other stocks that have inverse relationship with apple? i guess
lmiller87 It says right in the notes that people use the financial system to borrow money, why isn't that a correct answer?
mjwoulf Yeah, I agree a person could use their position in apple to secure an abl, especially now...
yan525 why III is not correct?
johntan1979 I think III is wrong because it is the opposite of saving money (buying APPL). You don't borrow money to buy stocks although technically you can do that through your broker, but that is not a wise decision.
djely9 surely its a huge leap to assume the investor is buying apple as a hedge. How can we possibly assume that from the question?
cmacewen It say how MAY they be using the financial system. It is perfectly reasonable to assume that someone may desire to hedge a position through owning Apple stock.
ascruggs92 managing risk doesn't necessarily mean hedging. Holding cash exposes you to the risk that inflation devalues your currency, so you can mitigate that risk by buying assets that have an expected nominal return higher than zero.
cgalarzac When you're buying a stock you are not borrowing money, you spend money in order to have more in the future. When you borrow money you expect to use it in the short term.
sshetty2 you CAN use the financial system to short apple if you wanted to...
jstid40 1. I would say you absolutely can use the financial market to borrow money. It does say it in the notes and you can buy AAPL on margin.
2. I think the question may be asking more so , why would this person be buying AAPL. They may be buying it to manage risk, they may be buying it to trade on information, but they would not be buying AAPL for the purpose of borrowing money.
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