module 9 Flashcards
Types of Investment Risks
What is investment risk?
The probability or uncertainty of losses in an investment.
Which type of risk refers to the possibility that a company’s stock value will decrease unexpectedly?
Market Risk.
Which type of risk is caused by changes in exchange rates affecting foreign investments?
Currency Risk.
When a government entity or company cannot repay its debts, what type of risk does this represent?
Credit Risk.
Which type of risk happens when you cannot sell your investment at a fair price and withdraw your money when needed?
Liquidity Risk.
Which type of risk refers to the loss of purchasing power due to rising prices?
Inflation Risk.
If an investor loses money due to a country’s economic downturn, what type of risk is involved?
Market Risk.
Why is diversification important in investing?
It reduces Concentration Risk by spreading investments.
Which risk occurs when interest rates drop and investors must reinvest at lower returns?
Reinvestment Risk.
What is Horizon Risk?
The risk of needing to sell investments earlier than planned.
Which type of risk is associated with outliving one’s savings, particularly for retirees?
Longevity Risk.
What is the main cause of Market Risk?
Global economic changes that affect all investments.
Which type of risk occurs when an investor places all their money into one type of investment?
Concentration Risk.
How can investors reduce the effects of Horizon Risk?
Plan ahead and keep an emergency fund.
A drop in stock prices that negatively affects an investor’s portfolio is an example of:
Market Risk.
Which risk affects investors holding foreign stocks when the exchange rate weakens?
Currency Risk.
What happens if an investor faces Liquidity Risk?
They can’t sell their investment at a fair price.
What is the best way to manage Foreign Investment Risk?
Monitoring global economic trends and diversifying investments.
Which investment risk is most directly affected by government policies and economic instability?
Foreign Investment Risk.
Which statement about investment risk is true?
All investments come with some level of risk.
