Types Of Investment Risk

Question 1

Systematic risk

Answer 1

Also know as market risk - will affect all investments simultaneously largely unpredictable to most example credit crisis in 2008 most shares on the London stock exchange fell

Question 2

Unsystematic risk -is a specific risk affects a particular business investment or share

Answer 2

Business risk - stricke or labour relations issue
Management risk - is the Calibre of board sufficient to drive the company forward or a member of management that would be a significant loss and is there some succession planning .
Financial risk - how is the company structured is it heavily reliant on borrowing (highly geared ) can the company afford to discharge its loan and interest repayments .
Industry risk - change in taxation or vulnerability to the bank imposition of tariffs

Question 3

Liquids risk

Answer 3

Ability to readily convert their investment to cash .ie everyone selling gold but no one buying it

Question 4

Inflation risk

Answer 4

High inflation high interest rates

Inflation generally affects pensioners harder then employed as their pensions will only increase by a maximum amount per Annum and not be inflation proof

Assets most likely to be affected by an increase in inflation are cash deposit and fixed income securities

Question 5

Deflation

Answer 5

Encouraging people to Dave as the delay of purchase can cause stagnation of the economy since the demand for good and services will decline - so the be cheaper