10 Questions
What is the process of measuring a security’s intrinsic value by evaluating all aspects of the underlying business including the firm’s assets and its earnings?
Fundamental analysis
What method involves spreading out investments to avoid total loss?
Diversification
What is the risk that a borrower may default or miss an obligation as stated in a contract between the financial institution and the borrower?
Credit risk
What is the main objective of risk avoidance?
To reduce the chances of losses by eliminating unnecessary risks
How does risk avoidance differ from risk mitigation?
Risk avoidance involves eliminating unnecessary risks that are not essential to the institution's business purpose
Which activity involves doing something beforehand to reduce the chances of a risk from happening?
Risk avoidance
What is the strategy to prepare for and lessen the effects of threats faced by a business?
Risk mitigation
Which type of risk includes non-compliance or information breaches?
Internal risk
What might corporations face if they do not incorporate social campaigns and environmental responsibility?
Reputational risk
What type of risk refers to those that are not in direct control of the management, such as political issues and exchange rates?
External risk
Study Notes
Security Analysis
- Measuring a security's intrinsic value involves evaluating all aspects of the underlying business, including the firm's assets and earnings.
Risk Management
- Diversification is a method that involves spreading out investments to avoid total loss.
- Credit risk is the risk that a borrower may default or miss an obligation as stated in a contract between the financial institution and the borrower.
Risk Avoidance and Mitigation
- The main objective of risk avoidance is to eliminate or avoid risks completely.
- Risk avoidance differs from risk mitigation in that mitigation involves reducing the impact of a risk, whereas avoidance involves eliminating the risk altogether.
Risk Prevention and Strategy
- Risk prevention involves doing something beforehand to reduce the chances of a risk from happening.
- The strategy to prepare for and lessen the effects of threats faced by a business is known as risk management.
Types of Risks
- Operational risk includes non-compliance or information breaches.
- External risks, which are not in direct control of the management, include political issues and exchange rates.
Corporate Social Responsibility
- Corporations may face reputational damage if they do not incorporate social campaigns and environmental responsibility.
Test your knowledge of common risk-avoidance activities in finance. Explore concepts such as underwriting standards, asset-liability matches, diversification, and due diligence investigation.
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