Time to Test Your Financial Knowledge

Many have chosen to exchange the stresses and strains of bustling western cities for the relative tranquility of Bali (depending on which part of course!). This may provide an escape from many aspects of city life but there are some things you cannot escape from – unless you have chosen to flee to the mountains and live a simple village life. In which case you are unlikely to be reading this column.

My last article focused on the importance of understanding financial matters and the plans of some western governments to educate the general public for whom financial advice is no longer affordable since the abolishing of commission-based products and the requirement for advisers to hold professional qualifications. How great is the need for education in financial matters? One way to test your own knowledge is to see how well you can answer a series of questions on a wide range of financial topics covering currencies, savings, investments, insurance and retirement planning. You can research the answers of course but can I suggest first time round that you answer the questions based on your current knowledge.
Question 1
What is the S & P 500?
a) An annual motor car race held in Indianapolis in the US
b) An index of the top 500 companies on the New York stock exchanges
c) A list of the top 500 savings and pension providers in the US.
Question 2
If your money in the bank is earning 2% interest and inflation is running at 3% per annum will you be able to buy more goods with the money after 10 years or less than today?
a) More
b) Less
c) The same
Question 3
Is it usually cheaper to borrow money through your credit card or via a bank loan?
a) Cheaper
b) More expensive
c) The same
Question 4
Higher interest rates on deposits generally imply a stronger currency
a) True
b) False
c) Makes no difference
Question 5
Who has first call on the proceeds in the event of the liquidation of a company?
a) Bond holders
b) Shareholders
c) Creditors
Question 6
If you invested in sovereign government bonds, which country is likely to pay you the highest rate of interest?
a) Japan
b) Indonesia
c) The United States
Question 7
Are you guaranteed to receive interest and the return of your capital if you invest in government bonds of any country?
a) Yes
b) No
Question 8
If you buy a government bond that on issue has a fixed rate of interest, what happens to the value of the bond during its term if prevailing interest rates in the market rise?
a) The value rises also
b) The value falls
c) The value stays the same
Question 9
If a sovereign government has difficulty repaying capital and interest on bonds can it simply print money to meet its obligations?
a) Yes in all cases
b) No in all cases
c) Possibly
Question 10
If you place your assets into a Trust are you still the legal owner?
a) Yes
b) No, the Trust is the legal owner
c) You have joint legal ownership with the Trust
Question 11
If you have a sum of money and hope to get the highest return over 12 months where should you invest it?
a) In one single asset class
b) In a fixed deposit
c) In a wide range of assets
Question 12
You, as a foreigner, wish to put the bulk of your savings aside for retirement in 15 years’ time. Where should you invest it?
a) In land in Bali
b) In a diverse range of asset classes
c) In gold
Question 12
FATCA stands for:
a) Fight Against Terrorism and Criminal Activities
b) Foreign Account Tax Compliance Act
c) Funds Applied To Current Accounts
Question 13
FATCA affects:
a) US nationals only
b) US and UK nationals only
c) Nationals of over 50 countries
Question 14
Which of the following groups of countries are all considered emerging markets?
a) Brazil, Russia, China
b) US, Australia, Indonesia
c) Thailand, Italy, Singapore
Question 15
The acronym ‘BRIC’ stands for
a) Brazil, Russia, Iceland, Canada
b) Brazil, Russia, India, China
c) Britain, Russia, Israel, China
Question 16
High returns imply high risk
a) Invariably
b) Not true. Some of the highest returns are without risk
c) Only when investing in stock markets
Question 16
The best time to take out life insurance is when:
a) You are young and healthy but can least afford it
b) Later on when you have built up your savings
c) After a serious illness
Question 17
Hedge funds are:
a) A very safe alternative to bank deposits
b) A useful addition to a large, balanced portfolio
c) Highly risky and to be avoided at all costs
Question 18
Private Equity Investments are suitable for:
a) High Net Worth investors who can take a very long term view
b) Widows and orphans
c) The average investor who wants a diversified portfolio
Question 19
A ‘bear’ market is one where:
a) Prices appear to be in a long term decline
b) Prices appear to be in a long term climb
c) Prices have barely moved for a long period
Question 20
The price of gold today in USD (as of 1 December 2014 compared to 10 years ago) is:
a) Close to three times higher
b) Around 50% lower
c) About the same (give or take 10%)

I think we can stop the test here. Can I suggest you keep a record of your answers and check them against the correct ones in my next article in four weeks’ time. No prizes for the highest score but the real prize is having the knowledge to cope with the complex world of finance and using it to your benefit.
And in the meantime have an enjoyable Christmas holiday period and may 2015 be a happy and prosperous year for you!

Colin Bloodworth of PPI Indonesia has spent over 20 years in Indonesia. He is based in Jakarta but visits Bali frequently. If you have any questions on this article or related topics you are welcome to contact him at colin.bloodworth@ppi-advisory.com or +62 21 2598 5087