GCE Commerce 2023 Theory — Question 7

Model answer

(i) Stocks: shares of ownership in a company; their prices fluctuate based on factors such as the company's financial performance, economic conditions and investor sentiment. (ii) Bonds: loans that investors make to companies or governments; in return for lending money, investors receive interest payments from the borrower. Bonds are typically considered less risky than stocks but offer lower potential returns. (iii) Mutual funds: baskets of stocks or bonds managed by a professional investment manager, offering investors a way to diversify and reduce risk. (iv) Exchange-Traded Funds (ETFs): similar to mutual funds, but traded on stock exchanges like stocks, making them more liquid and suitable for investors who want to trade frequently. (v) Commodities: raw materials such as oil and wheat that can be traded on futures exchanges, with prices fluctuating based on supply and demand.