15 Questions
What is the risk associated with uncertainty created by the inability to turn investment quickly for cash?
Liquidity risk
Which risk refers to the uncertainty about the rate of return caused by the nature of the business?
Business risk
What is the risk that the real rate of return will be lesser than the nominal or stated rate of return due to inflation?
Purchasing power risk
Which technique involves eliminating or reducing risk which could mean losing out on the potential gain?
Risk avoidance
Which of the following is NOT a financial risk associated with Financial Institutions?
Environment risk
What is the risk associated with uncertainty about the rate of return caused by the nature of the business?
Business risk
Which risk refers to the uncertainty created by the inability to turn investment quickly for cash?
Liquidity risk
What is the risk that the real rate of return will be lesser than the nominal or stated rate of return due to inflation?
Purchasing power risk
Which of the following is NOT a manifestation of operations risk?
Interest rates volatility
Which financial risk is NOT associated with Financial Institutions?
Environment risk
Which risk refers to the uncertainty created by the inability to turn investment quickly for cash?
Liquidity risk
What is the risk associated with uncertainty about the rate of return caused by the nature of the business?
Business risk
Which technique involves eliminating or reducing risk which could mean losing out on the potential gain?
Risk avoidance
Which of the following is NOT a manifestation of operations risk?
Interest rates volatility
Which financial risks are NOT associated with Financial Institutions?
Environment risk
Study Notes
Risks Associated with Financial Investments
- The risk associated with uncertainty created by the inability to turn investment quickly for cash is known as liquidity risk.
- The risk that refers to the uncertainty about the rate of return caused by the nature of the business is known as business risk.
- The risk that the real rate of return will be lesser than the nominal or stated rate of return due to inflation is known as purchasing power risk.
Risk Management Techniques
- Risk reduction or elimination technique involves giving up potential gains to avoid potential losses.
Risks Associated with Financial Institutions
- Operational risk is a risk associated with financial institutions, but it does not include the risk of a person being unable to access their account.
- Financial institutions do not face the risk of a person's salary being delayed.
Review of Risks
- Liquidity risk is associated with uncertainty about the ability to quickly turn investments into cash.
- Business risk is associated with uncertainty about the rate of return due to the nature of the business.
- Purchasing power risk is associated with the possibility of the real rate of return being lesser than the nominal rate due to inflation.
- Risk reduction or elimination technique involves trading off potential gains to avoid potential losses.
Test your knowledge of financial risk with this quiz. Identify different types of financial risks and their impact on investment returns.
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