Financial Risk and Risk Management

What is risk management?

• The process of earning money from investments

• The process of identifying, analyzing, and reducing potential financial losses

• The process of predicting stock market trends

• The process of maximizing profits

Which of the following best describes financial risk?

• The chance of gaining more than expected

• The possibility of losing money due to poor decisions or market changes

What is credit risk?

• The risk of not having enough savings

• The risk that a borrower fails to repay a debt

• The risk that interest rates rise

• The risk of spending too much

Liquidity risk refers to:

• Not being able to access cash quickly without loss

• Losing money due to market crashes

• Borrower defaulting on a loan

• A drop in stock prices

Which of the following is a financial risk students commonly face?

• Investing in safe mutual funds

• Spending less than they earn

• Using credit cards without a repayment plan

• Setting financial goals

Risk management is only necessary for large companies, not individuals.

• True

• False

Having no emergency fund increases your financial risk.

• True

• False

Which type of risk occurs when money loses its purchasing power?

• Market risk

• Inflation risk

Using credit cards without a repayment plan increases:

• Inflation risk

• Operational risk

• Credit risk

• Market risk

Which step in financial risk management involves regularly reviewing your plan?

• Identify the risk

• Assess the impact

• Monitor regularly

• Plan and control