Types Of Risk

Question 1

Capital risk

Answer 1

The risk of losing all of one’s investment

Question 2

Inflation risk (purchasing power risk)

Answer 2

The risk that inflation will outpace investment returns

Question 3

Timing risk

Answer 3

The risk of poor timing when either purchasing or selling

Question 4

Interest rate risk

Answer 4

The risk that an investment is sensitive to interest rate movement

Question 5

Reinvestment risk

Answer 5

The risk that reinvesting proceeds from redemptions can be made worth the same or better returns

Question 6

Call risk

Answer 6

The risk that a debt instrument may be called before maturity

Question 7

Market risk

Answer 7

The risk of losing principal due to volatility in the markets

Question 8

Credit risk (default or financial risk)

Answer 8

The risk of losing principal due to the failure of the issuer

Question 9

Liquidity risk

Answer 9

The risk of not being able to divest quickly at a fair price

Question 10

Legislative risk

Answer 10

Risk that changes in laws or regulations can negatively impact a particular investment