5 - Nature and impact of the main types of risk on investment performance Flashcards

1
Q

What are the three main inflationary measures?

A

CPI
CPIH
RPI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the CPI primarily and secondarily used for by the Governmen?

A

Measure of inflation by the government

Increasing state benefits and the state pension

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are some of the coseqeunces to rising inflation?

A

bottlenecks in production causing price rises and imports flood into the country

Government responds by rising interest rates

Cuts in public expenditure and tax increases dampen demand

The ecomony enters recession and prices steady or fall as supply exceeds demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What in the definition of stagflation?

A

Combination of stagnant growth and inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What investments might an investor consider including in their portfolio to give some protection against inflation?

A

Index linked guilts
assets that can provide long term growth such as equities, property, infrastructure or commodities which have generated positive real returns in the long term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the main causes of interest rate moves?

A
The economic cycle
Government fiscal policy
Government monetary policy
Inflation expectations
Preference for liquid securities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the different types of credit risk for investors?

A

Default risk
Downgrade risk
Credit spread risk
Counterparty risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is ‘bail in’ risk?

A

Financial assistance for a financial instuitution comes from the existing capital base, such as shareholders, bond holders an depositors

Holders might see their holdings reduced by the bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the key elements of operational risk?

A
Settlement or counterparty risk
fraud
misrepresentation
systems failure
trading errors or unauthorised trading
Staff errors
Regulatory risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

List six major risks that affect investments, other than inflation risk?

A
Interest rate
credit 
currency 
liquidity
event 
political
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the definition of Gearing?

A

Borrowing money in a clients portfolio with the objective if increasing exposure to other assets, often equities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the impact of gearing?

A

It will magnify positive and negative portfolio returns

How well did you know this?
1
Not at all
2
3
4
5
Perfectly