Portfolio Management Quiz 5

1 Primary areas of risk

risk represents the risk associated with adverse movement in the value of a particular security or class of securities.

risk related to the ability to quickly and easily trade, as well as the ability to meet financial obligations as and when they fall due.

risk is the risk that a debtor of the portfolio will fail to perform all or part of a contracted obligation in a timely manner.

risk related to the chance that a deficiency or breakdown in the effectiveness and accuracy of information systems or internal controls will result in a material loss.

2 There are four specific kinds of market-related risk that a portfolio manager must consider

risk: the risk of a major collapse of asset prices in a particular asset class, such as property or listed shares.

risk: the risk that all asset classes (except cash) suffer from price declines.

risk: the risk that forecasts are wrong as well as the risk than an allocation to different asset classes compounds the cost of 'getting it wrong'.

risk: the risk that diversification into the international asset classes of overseas equities or overseas bonds does not reduce risk as much as required because of unexpected variability in exchange rates.

3 market risk can be controlled by

use of

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