CPS Risk Management in Portfolios 2

Question 1

What is 'concentration risk' in a portfolio?

Accepted Answer

Risk from having too large a position in a single security or sector

Answer

Risk from owning too many securities

Answer

Risk of over-diversification

Answer

Risk from using index funds

Question 2

What is 'liquidity risk' in portfolio management?

Accepted Answer

The risk of not being able to sell an asset quickly at fair value

Answer

The risk of having too much cash

Answer

The risk of excessive trading

Answer

The risk of interest rate changes

Question 3

What is 'credit risk' in the context of bond investing?

Accepted Answer

The risk that a bond issuer will default on payments

Answer

The risk of rising interest rates

Answer

The risk of currency devaluation

Answer

The risk of inflation outpacing returns

Question 4

Which risk management technique involves setting a predetermined price to automatically sell a position?

Accepted Answer

Stop-loss order

Answer

Buy and hold strategy

Answer

Rebalancing trigger

Answer

Margin call

Question 5

What is 'inflation risk' (purchasing power risk) in a portfolio?

Accepted Answer

The risk that returns will not keep pace with inflation

Answer

The risk that investments grow too fast

Answer

The risk of deflation harming bond returns

Answer

The risk of currency appreciation

Question 6

How does geographic diversification help manage portfolio risk?

Accepted Answer

It reduces exposure to any single country's economic or political events

Answer

It eliminates currency risk entirely

Answer

It guarantees higher returns

Answer

It only benefits equity investors