SOFA-CFE · Question #219
Which is the risk that a security will decline in value over time?
The correct answer is B. Market risk. Market risk is the risk that a security will decline in value due to factors affecting the overall market - such as economic downturns, interest rate changes, or geopolitical events - which can cause prices to fall regardless of the security's individual merits. Credit risk (A)…
Question
Which is the risk that a security will decline in value over time?
Options
- ACredit risk
- BMarket risk
- CCommodity risk
- DTechnology risk
How the community answered
(16 responses)- A6% (1)
- B69% (11)
- C13% (2)
- D13% (2)
Explanation
Market risk is the risk that a security will decline in value due to factors affecting the overall market - such as economic downturns, interest rate changes, or geopolitical events - which can cause prices to fall regardless of the security's individual merits.
Credit risk (A) is specifically the risk that a borrower will default on a debt obligation, not that a security's market value will drop. Commodity risk (C) relates to price fluctuations in raw materials like oil or gold, which is a subset of market risk but not the general term for a security's value declining. Technology risk (D) refers to losses from system failures, cyberattacks, or obsolete infrastructure - an operational risk, not a valuation one.
Memory tip: Think "Market = Movement." Market risk captures any downward movement in a security's price driven by broad market forces, making it the umbrella term for value decline risk.
Community Discussion
No community discussion yet for this question.