POI - Lecture 2

Which of the following best defines credit risk?

• The risk of interest rates increasing and affecting loan repayments

• The risk that a borrower may fail to meet financial obligations

• The risk of foreign exchange rate fluctuations affecting profits

• The risk of stock market fluctuations

James owns a small business and took out a loan with an adjustable interest rate. Last year, he was paying 5% interest, but due to rising market interest rates, his loan payments have increased to 7%. What type of risk is James experiencing?

• Exchange rate risk

• Liquidity risk

• Interest rate risk

• Market risk

An investor in which of the following assets is MOST exposed to market risk?

• A fixed deposit with a guaranteed return

• A government bond

• A savings account

• A diversified stock portfolio

Emma is planning for retirement and has invested most of her savings in a fixed annuity that pays a set amount each month. If cost of livings rises significantly over the next 20 years, what risk does she face?

• Credit risk

• Inflation risk

• Interest rate risk

• Liquidity risk

Which of the following assets has the highest liquidity risk?

• Real Estate

• Cash

• Short-term Bonds

• Money Market Accounts

Which of the following situations is an example of business risk?

• A stock market crash leading to lower portfolio values

• A company struggling with high competition in its industry

• A company facing losses due to currency fluctuations

• A sudden increase in interest rates affecting loan repayments

XYZ Corporation took a large loan to expand its operations. Due to an economic downturn, the company’s revenue drops, making it harder to pay interest on its debt. What type of risk is XYZ Corporation facing?

• Market risk

• Liquidity risk

• Financial risk

• Credit risk

Which of the following businesses is MOST affected by exchange rate risk?

• A local bakery that sells only in its home country

• A multinational company that exports goods to multiple countries

• A grocery store that buys products from local farmers

• A bank that offers fixed-rate home loans

A U.S. company invests in a manufacturing plant in Argentina. After a few years, the Argentine government imposes strict foreign investment controls, making it difficult for the company to repatriate profits. This situation is an example of:

• Market risk

• Credit risk

• Liquidity risk

• Country risk

Which of the following is an example of non-systematic risk?

• A sudden increase in interest rates affecting all companies

• A company’s CEO resigning unexpectedly, causing its stock price to drop

• A global financial crisis leading to a stock market crash

• A recession that impacts the entire economy