Stock Jobs Risk Management in Securities

Question 1

What does 'market risk' refer to in the context of securities?

Accepted Answer

The risk of losses due to movements in market prices such as stock prices or interest rates

Answer

Market risk (also called systematic risk) is the risk of losses caused by factors that affect the overall performance of financial markets, such as changes in stock prices, interest rates, or exchange rates.

Question 2

What is Value at Risk (VaR)?

Accepted Answer

A statistical measure estimating the potential loss of a portfolio over a defined time period at a given confidence level

Answer

VaR estimates the maximum loss a portfolio could face over a specific time period with a given level of statistical confidence (e.g., 95% or 99%).

Question 3

Which type of risk can be reduced through diversification?

Accepted Answer

Unsystematic (idiosyncratic) risk

Answer

Unsystematic risk is company- or industry-specific and can be reduced by holding a diversified portfolio; systematic risk affects the entire market and cannot be diversified away.

Question 4

What does a stock's beta measure?

Accepted Answer

The stock's price volatility relative to the overall market

Answer

Beta measures a stock's sensitivity to market movements; a beta above 1 indicates the stock is more volatile than the market, while a beta below 1 indicates less volatility.

Question 5

What is the primary purpose of a stop-loss order in risk management?

Accepted Answer

To limit potential losses by triggering a sale when the price falls to a set level

Answer

A stop-loss order automatically sells a security once it falls to a specified price, limiting the investor's downside risk.

Stock Jobs Practice Test

Stock Jobs Practice Test

Stock Jobs Risk Management in Securities