Risk

Question 1

Name the 11 types of risk

Answer 1

Systemic-whole market
Unsystemic-specific to company/segment
Inflation-capital wont keep pace
Interest rate-when change account rates fall and get less of a return
Default/institutional-provider goes bust
Counterparty risk-third party goes bust
Currency risk-changes in currency rates
Investment/capital risk -falls rather than rises
Legislation risk-could negatively affect financial plans
Event risk-local event such as flooding
Operational risk-human errors effect investment
Liquidity risk-hard to realise cash

Question 2

How do you counter market risk (2)

Answer 2

Diversify across markets
Use negatively correlated assets

Question 3

How do you counter inflation risk?

Answer 3

Use asset backed investments that grow eg equities

Question 4

How do you counter interest rate risk?(2)

Answer 4

Use asset backed investments
Select higher yielding assets eg shares

Question 5

How do you counter legislation risj (2)

Answer 5

Be up to date with tax law
Diversify assets and wrappers

Question 6

How do you counter currency risk?(2)

Answer 6

Diversify over geographic regions
Avoid overseas inv

Question 7

How do you counter liquidity risk?

Answer 7

Diversify
Avoid tie ins

Question 8

How do you counter counter party risk?

Answer 8

Avoid derivatives

Question 9

How do you counter default risk?(3)

Answer 9

Diversify providers
Credit rate checks
FSCS limits observed eg £85k