#1
Which of the following is NOT a component of risk assessment in financial decision-making?
Predicting future stock prices
ExplanationFuture stock price prediction is speculative, not a standard component of risk assessment.
#2
Which of the following is a primary objective of risk assessment in financial decision-making?
Minimizing uncertainty
ExplanationRisk assessment aims to reduce uncertainty by identifying and evaluating potential risks.
#3
Which of the following is a qualitative method for assessing financial risk?
Scenario analysis
ExplanationScenario analysis involves qualitative assessment by considering various hypothetical scenarios.
#4
What does the 'risk-return tradeoff' suggest in financial decision-making?
Higher returns may require taking on more risk
ExplanationBalancing higher returns with increased risk is a fundamental concept in financial decision-making.
#5
Which statistical measure is commonly used to quantify the volatility of an asset?
Standard deviation
ExplanationStandard deviation measures the dispersion of returns and is commonly used to assess volatility.
#6
What is 'systemic risk' in financial markets?
Risk associated with overall market conditions or events
ExplanationSystemic risk relates to risks inherent in the broader market environment or events.
#7
In financial risk assessment, what does 'liquidity risk' refer to?
The risk of not being able to convert an asset into cash without a significant loss
ExplanationLiquidity risk pertains to the inability to convert assets into cash without incurring substantial losses.
#8
What is 'value-at-risk' (VaR) commonly used for in risk assessment?
To measure the potential loss over a specified time horizon at a given confidence level
ExplanationVaR quantifies the maximum potential loss over a specific time frame at a given confidence level.
#9
What does 'stress testing' involve in risk assessment?
Subjecting assets to extreme market conditions to assess their performance
ExplanationStress testing evaluates how assets perform under adverse conditions by subjecting them to extreme scenarios.