Risk and Risk Types

Question 1

If you want bigger rewards, then you need to take more ___

Answer 1

Risk

Question 2

What is Market Risk (Systematic Risk)?

Answer 2

The entire market does something. S&P is up, Nikkei is up, etc.

Question 3

What is Business Risk (Bankruptcy)?

Answer 3

Business you invest in goes bankrupt

Question 4

What is Credit Risk?

Answer 4

Credit for the organization is downgraded. They can’t borrow money or have higher interest rates

Question 5

What is Taxability Risk?

Answer 5

Does the tax go up or down for an industry

Question 6

What is Interest Rate Risk?

Answer 6

Interest rates overall in the economy (EU, Greece, Japan, China, Korea)

Question 7

What is inflationary Risk?

Answer 7

Cost of goods or services going up in price. Dairy, Milk going up in price (think of investing in commodities…like pork belly, gold, oil)

Question 8

What is Liquidity Risk?

Answer 8

This is around debt and equity ratios. What is the companies ability to pay their bill

Question 9

What is Social/Political/Regulatory Risk?

Answer 9

Obamacare or something around regulations…maybe even political. Alteria (Philip Morris) for cigarettes for example. Sin companies - defense contractors, gambling companies, tobacco,

Question 10

What is Currency/Exchange Rate Risk?

Answer 10

When the currency rises or falls and how does that affect your holdings

Question 11

What is Mutual Fund Manager Risk?

Answer 11

A manager makes buying and selling decisions for you.. Maybe the manager makes very bad decisions