11.2 Review Savings and Investing

What is fraud risk in investing?

• The risk of losing money by investing in illegitimate businesses or schemes that promise great returns but are too good to be true.

• The potential for losing money due to market fluctuations and economic downturns.

• The chance of investing in a company that has a poor management team and low profitability.

• The risk associated with investing in new technologies that may not succeed.

What are the five common investment risks?

• Financial, market price, liquidity, inflation, and fraud.

• Market volatility, interest rate changes, credit risk, operational risk, and fraud.

• Liquidity, currency risk, geopolitical risk, inflation, and market price.

• Fraud, credit risk, operational risk, liquidity, and economic downturn.

What is inflation risk?

• The risk that the money you have today will buy less in the future due to a rise in the price of goods and services over time.

• The risk of losing money due to poor investment choices.

• The risk that interest rates will rise, affecting loan repayments.

• The risk of currency devaluation affecting international purchases.

How can inflation affect your savings?

• If the interest earned on your savings is less than the rate of inflation, you are actually losing value over time.

• Inflation has no effect on savings as they grow at a fixed rate.

• Inflation increases the value of your savings over time.

• Higher inflation rates guarantee higher interest rates on savings accounts.

What is financial risk in investing?

• The potential for an investment to increase in value over time.

• The risk of losing some or all of your investment because the business or government you invested in may not be able to return your money.

• The chance of receiving dividends from a stock investment.

• The likelihood of market fluctuations affecting the value of your investment.

What causes market price risk?

• The price of investments like stocks and mutual funds can go up and down due to supply and demand and other factors beyond your control.

• Market price risk is caused solely by changes in interest rates.

• Market price risk is only influenced by government regulations.

• Market price risk is determined by the performance of the economy as a whole.

What is an example of a low financial risk investment?

• Savings accounts insured by the federal government up to $250,000 and United States savings bonds.

• Investing in high-yield stocks

• Real estate investment trusts (REITs)

• Cryptocurrency trading

What is liquidity risk?

• The risk associated with how easily you can access your money from an investment.

• The risk of losing money due to market fluctuations.

• The risk of not being able to sell an asset quickly without a significant loss in value.

• The risk of default on a loan or credit obligation.