Financial System Return Concepts Quiz

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What is the term used for the variability in a security's return that is directly associated with overall market movements?

Market risk

Beta risk

Unsystematic risk

Systematic risk (correct)

Which type of risk can be diversified and is specific to individual companies?

Market risk

Unsystematic risk (correct)

Systematic risk

Interest rate risk

What does beta measure in terms of an asset's risk?

Market volatility

Relative volatility (correct)

Unsystematic risk

Diversifiable risk

Which type of risk arises due to fluctuations in macroeconomic fundamentals like interest rates and inflation?

Market risk Signup and view all the answers

What does a security with a beta greater than 1 indicate in terms of volatility?

More volatile than the market Signup and view all the answers

What is the term used for the variability in return on a security due to changes in market interest rates?

Interest rate risk Signup and view all the answers

What is the primary risk associated with the relationship between security price and interest rates?

Price risk Signup and view all the answers

Which type of risk is also known as purchasing power risk?

Inflation risk Signup and view all the answers

What does fundamental analysis involve at the company level?

Examination of financial data, management, business concept, and competition Signup and view all the answers

Under which exchange rate system is there no exchange rate risk?

Fixed exchange rate system Signup and view all the answers

How does fundamental analysis combine economic, industry, and company analysis?

To derive an asset's current fair value and forecast its future value Signup and view all the answers

Which risk results from uncertainty about the interest rate at which future coupon income or principal can be reinvested?

Reinvestment risk Signup and view all the answers

What might fundamental analysis focus on at the national economy level?

Economic data to assess present and future economic growth Signup and view all the answers

What does country risk primarily consider in relation to issuers doing business in a specific country?

Political and economic unrest Signup and view all the answers

How do economic factors affect the value of a stock?

Changes in macroeconomic factors like business cycle, monetary policy, fiscal policy, and inflation impact cash flows and discount rates Signup and view all the answers

Which type of risk refers to cash-flow variability experienced in international transactions due to unexpected changes in exchange rates?

Exchange rate risk Signup and view all the answers

How does a restrictive monetary policy affect businesses?

Reduces the growth rate of money supply and limits funds for business expansion due to increased interest rates Signup and view all the answers

What is the primary purpose of fundamental analysis?

To assess the intrinsic value of an asset and forecast its future worth Signup and view all the answers

What is a challenge faced by security analysts according to the text?

Difficulty in comparing financial statements from different firms Signup and view all the answers

What distinguishes the actions required of a fundamental analyst from a technical analyst?

Fundamental analysts identify undervalued securities, while technical analysts look for price equilibrium movements Signup and view all the answers

What do technical analysts primarily look for before deciding to trade?

Declining trend channels in asset price cycles Signup and view all the answers

Why do many analysts follow rules based on the contrary opinion premise?

To capitalize on the majority being wrong near market peaks and troughs Signup and view all the answers

How is the Confidence Index calculated based on the text?

Ratio of average corporate bond yield to stock market average bond yield Signup and view all the answers

What does low liquidity in mutual fund cash positions indicate according to the text?

A bullish market sentiment Signup and view all the answers

What are the two components of return on a typical investment?

Capital gain and capital loss Signup and view all the answers

How is expected return defined?

An anticipated, predicted, desired return subject to uncertainty Signup and view all the answers

What is holding period return (HPR) a measure of?

Total return from an investment during a designated time period Signup and view all the answers

What is the difference between nominal and real return?

Nominal return is the return in terms of current prices; real return considers inflation. Signup and view all the answers

What is realised return?

An expost return that is actually earned Signup and view all the answers

What defines the total return on an investment?

Income plus/minus price appreciation/depreciation Signup and view all the answers