CFA Risk Management & Analysis Flashcards
6 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CFA Risk Management & Analysis flashcards as text
Systematic risk is best characterized as risk that:
Answer: Cannot be eliminated through diversification
Systematic risk, also called market risk, affects all assets and cannot be diversified away.
Which of the following is a primary tool used to hedge interest rate risk?
Answer: Interest rate swaps
Interest rate swaps allow parties to exchange fixed and floating rate payments, effectively hedging interest rate exposure.
The risk that a specific company or sector underperforms is known as:
Answer: Unsystematic (idiosyncratic) risk
Unsystematic or idiosyncratic risk is company- or industry-specific and can be reduced through diversification.
Which metric measures the loss a portfolio has experienced from its peak value to its subsequent trough?
Answer: Maximum drawdown
Maximum drawdown captures the largest peak-to-trough decline in portfolio value over a specified period.
Counterparty risk in a derivatives contract is the risk that:
Answer: The other party defaults before the contract settles
Counterparty risk is the probability that the other party to a derivatives contract will fail to meet its obligations.
Stress testing in risk management involves:
Answer: Evaluating portfolio performance under extreme but plausible adverse scenarios
Stress testing assesses how a portfolio would perform under severe market conditions such as the 2008 financial crisis.