Assessing Risk Tracking and Signpost Identification in Asset Management
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Questions and Answers

Which asset prices are commonly affected by high-velocity geopolitical risks?

  • Stocks and bonds (correct)
  • Cryptocurrencies and venture capital
  • Commodities and foreign exchange
  • Real estate and precious metals

    • What can sustained disruption due to low-velocity geopolitical risks result in?

  • Higher interest rates
  • Decreased investor inputs
  • Smaller revenues and higher costs (correct)
  • Improved risk asset valuations

    • What is a basic rule of thumb for distinguishing signal from noise in geopolitical risk?

  • The distinction between politics and policy (correct)
  • The distinction between domestic and international risks
  • The distinction between short-term and long-term risks
  • The distinction between economic and social impacts

    • What can high inflation and deteriorating employment potentially signal?

    <p>Political unrest</p> Signup and view all the answers

    What can prompt a change in exchange rate policy for a country?

    <p>A pegged currency and rapidly declining export value</p> Signup and view all the answers

    What can serve as meaningful signposts for geopolitical risk?

    <p>Political developments</p> Signup and view all the answers

    What can be used to help identify potential red flags early for country-level economic conditions?

    <p>Data screens</p> Signup and view all the answers

    What can be a key reason why asset prices in emerging and frontier markets are typically maintained at a discount to those in developed countries?

    <p>Higher risk premium</p> Signup and view all the answers

    What can geopolitical risk analysis be translated into for the portfolio management process?

    <p>Investment action</p> Signup and view all the answers

    What can determine the priority of geopolitical risks for an investor?

    <p>The likelihood, velocity, and impact of the risk</p> Signup and view all the answers

    Which factor can affect an asset allocator's positioning in certain countries or regions?

    <p>All of the above</p> Signup and view all the answers

    What may be considered more reliable investments based on their historical use of a multilateral approach?

    <p>Countries with long history of using a multilateral approach</p> Signup and view all the answers

    Why may countries experiencing consistent military threat have lower economic and investment growth potential?

    <p>Due to consistent disruptions</p> Signup and view all the answers

    In multifactor models, how can geopolitical risk be considered when assessing global car manufacturers?

    <p>As a factor affecting production diversity</p> Signup and view all the answers

    What may be the impact of geopolitical risks on the confidence intervals around factors related to momentum, valuation, market sentiment, or the economic cycle?

    <p>They may increase the confidence intervals</p> Signup and view all the answers

    What does the importance of geopolitical risk to the investment process depend on?

    <p>Investor objectives, risk tolerance, and time horizon</p> Signup and view all the answers

    For an investor with low risk tolerance, what may be an appropriate approach to reducing exposure to geopolitical risk?

    <p>Investing in low-volatility choices</p> Signup and view all the answers

    For an investor with a long time horizon, what may a geopolitical event like an exogenous shock be considered as?

    <p>A buying opportunity</p> Signup and view all the answers

    For an investor nearing retirement, what may be the impact of a geopolitical event like an exogenous shock on their terminal portfolio value?

    <p>A major negative impact</p> Signup and view all the answers

    What can changes in the style and momentum of international cooperation have on capital markets?

    <p>An important impact</p> Signup and view all the answers

    Which of the following best describes a signpost in the context of risk management?

    <p>An indicator or event that signals a risk is becoming more or less likely</p> Signup and view all the answers

    When signposts are flashing amber, what does it indicate?

    <p>Medium likelihood, velocity, or impact of a risk</p> Signup and view all the answers

    What is the purpose of identifying signposts in risk management?

    <p>To differentiate signal from noise</p> Signup and view all the answers

    In the context of risk management, what does it mean when signposts flash green?

    <p>No action needed</p> Signup and view all the answers

    What is one important process in building a portfolio's resilience to unexpected change?

    <p>Developing plans for addressing priority risks</p> Signup and view all the answers

    When might an action plan be necessary in risk management?

    <p>When a risk is high in likelihood, velocity, or impact</p> Signup and view all the answers

    What is the role of good signposts in risk management?

    <p>To differentiate signal from noise</p> Signup and view all the answers

    In the context of risk management, what does it mean when signposts flash red?

    <p>High likelihood, velocity, or impact of a risk</p> Signup and view all the answers

    What is one example of a signpost mentioned in the text?

    <p>A scenario materializing</p> Signup and view all the answers

    Before 2014, what did signposts for geopolitical risk in the United Kingdom flash?

    <p>Green</p> Signup and view all the answers

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