TAKING THE SIE EXAM? CAN YOU IDENTIFY AND DEFINE VARIOUS RISKS OF INVESTING SUCH AS CAPITAL RISK, CURRENCY RISK, NON-SYSTEMATIC RISK?
When investing in stocks and bonds, an investor needs to be aware that the investing carries various risks and and that it will not always be successful or profitable. Some of these risks entail chances of losing a good part of the investment, and, in some cases, all of it.
The Securities Industry Essentials Exam (SIE) asks questions about various investment risks. How do I know this? FINRA publishes a guide to the exam, Securities Industry Essentials Exam Content Outline, and in Section 2.2, FINRA lists "Investment Risks." These risks include capital, credit, currency liquidity, non-systematic, political and prepayment, among others.
Bob Eder in his Study for the Securities Industry Essentials (SIE) Exam covers these risks in some detail. Here is an example of Bob Eder's discussion on Investment Risks:
Systematic Risk (2.2)
This is the risk that the whole market will crash.
This is also called "market risk." You can see how almost all stocks
rise and fall with the general market. Changes in interest rates, economic or
political events, or inflation—these factors affect all types of securities.
Systematic risk applies to the market as a whole or as a "system."
Unfortunately a person cannot avoid systematic risk by simply diversifying.
Almost all stocks go down in a falling market just as almost all stocks rise in
a rising market. Even if a portfolio is well-diversified, its value will still
go down if the whole market goes down. Therefore, mere stock diversification
cannot mitigate this risk.
Here is the link to FINRA's Content Outline for the SIE Exam. See the references to Investment Risks in Section 2.2.
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