2I - CHP 5 and 6

It refers to the risk that losses can be incurred in international transactions due to currency fluctuations.

• Default risk

• Foreign exchange risk

• Market risk

• Political Risk

It is a bond that can be redeemed by the issuer prior to its maturity.

• Default risk

• Foreign exchange risk

• Market risk

• Political Risk

It is the risk of an investment’s return that may suffer as a result of political instability due to change of government, legislation and other foreign policy makers.

• Default risk

• Foreign exchange risk

• Market risk

• Political Risk

It is the risk that a stock’s price will change due to changes in the stock market atmosphere as a whole since prices of all stocks are correlated to some degree with broad swings in the stock market.

• Default risk

• Foreign exchange risk

• Market risk

• Political Risk

Risk is not directly correlated to return.

• True

• False

The human brain is risk neutral in nature.

• True

• False

Low-risk investments give low returns.

• True

• False

Idiosyncratic risk can be managed and reduced through diversification.

• True

• False

Put options allow the holder to buy the asset at a stated price within a specific timeframe while call options allow the holder to sell the asset at a stated price within a specific timeframe.

• True

• False

If interest rates rise, bond prices fall.

• True

• False