How well do you know the basics?

Ten questions. No sign-up, no tricks, and every answer comes with a one-line explanation.

Question 1
Inflation is 3%. What does that mean?
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B. Inflation tracks the price of a typical basket of spending. Some prices rise more, some less, some fall. What is inflation?
Inflation tracks the price of a typical basket of spending. Some prices rise more, some less, some fall. What is inflation?
Question 2
Roughly what inflation rate does the European Central Bank aim for?
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B. The ECB aims for 2% a year over the medium term. A little inflation leaves room to cut rates and makes falling prices less likely. Latest inflation chart
The ECB aims for 2% a year over the medium term. A little inflation leaves room to cut rates and makes falling prices less likely. Latest inflation chart
Question 3
Interest rates in the market rise. What usually happens to the price of bonds people already hold?
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B. An older bond paying less than new ones is only attractive at a lower price, so its price falls and its yield rises. What is a bond?
An older bond paying less than new ones is only attractive at a lower price, so its price falls and its yield rises. What is a bond?
Question 4
What is a stock market index such as the DAX or the PSI?
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B. An index combines the prices of a set of shares, usually weighted by company size, into one number. What is a stock market index?
An index combines the prices of a set of shares, usually weighted by company size, into one number. What is a stock market index?
Question 5
An ETF that follows an index…
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B. An ETF holds a basket, often everything in an index. It spreads company risk, but it still falls when the market falls. ETFs and single shares
An ETF holds a basket, often everything in an index. It spreads company risk, but it still falls when the market falls. ETFs and single shares
Question 6
You invest €1,000 at 5% a year and leave the growth invested. Roughly how much is it after two years?
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C. Year one: €1,000 → €1,050. Year two, 5% of €1,050: → €1,102.50. The extra €2.50 is growth on growth: compounding. Compound interest calculator
Year one: €1,000 → €1,050. Year two, 5% of €1,050: → €1,102.50. The extra €2.50 is growth on growth: compounding. Compound interest calculator
Question 7
What is a fund's TER (or ongoing charge)?
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B. It's taken every year from everything you hold, including past growth, which is why small differences add up. What fees cost you
It's taken every year from everything you hold, including past growth, which is why small differences add up. What fees cost you
Question 8
EUR/USD is quoted at 1.12. What does that mean?
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A. The first currency is the one you're pricing: one euro costs 1.12 US dollars. Euro vs dollar chart
The first currency is the one you're pricing: one euro costs 1.12 US dollars. Euro vs dollar chart
Question 9
What does diversification do?
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B. Spreading money out limits the damage any single company can do. It doesn't protect against the whole market falling. Diversification explained
Spreading money out limits the damage any single company can do. It doesn't protect against the whole market falling. Diversification explained
Question 10
Investing with borrowed money (leverage) magnifies…
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C. Leverage makes every move bigger in both directions, and losses can exceed what you put in without protections. What is leverage?
Leverage makes every move bigger in both directions, and losses can exceed what you put in without protections. What is leverage?

How well do you know the basics?

Inflation is 3%. What does that mean?

Roughly what inflation rate does the European Central Bank aim for?

Interest rates in the market rise. What usually happens to the price of bonds people already hold?

What is a stock market index such as the DAX or the PSI?

An ETF that follows an index…

You invest €1,000 at 5% a year and leave the growth invested. Roughly how much is it after two years?

What is a fund's TER (or ongoing charge)?

EUR/USD is quoted at 1.12. What does that mean?

What does diversification do?

Investing with borrowed money (leverage) magnifies…