What Does Risk Mean For Investment Performance

Question 1

How does RPI differ from CPI?

Answer 1

Mortgage interest unless stsed as RPIX
Generally, it’s higher than CPI
The international standard of RPI is RPIJ

Question 2

What is the sensitivity to inflation called?

Answer 2

Modified duration

Question 3

What moves interest rates?

Answer 3

Economic cycles
Fiscal policy
Monetary Policy
Expectations of inflation and investor sentiment/preference

Question 4

What different way can credit risk affect the investments

Answer 4

Default risk
Downgrade risk
Credit spread risk (poor market makes investors move to higher quality damaging corporate bonds)
Counterparty risk

Question 5

What is bail in risk?

Answer 5

Internal funds used to bail out instution

Question 6

What is operational risk?

Answer 6

Risks that arose from the investment process itself. Fraud, human error, etc.

Question 7

What are the 3 ways of diversifying?

Answer 7

1 Holding different asset classes
2 holding different companies/issuers
3 holding different sectors