Examkin

Soru

Zorluk: ZorSystematic and Market Risks

A registered representative is reviewing a client's investment portfolio consisting of a diverse mix of large-cap domestic equities and long-term fixed-rate corporate bonds. The client wants to understand how systemic macroeconomic shifts could impact their holdings despite extensive diversification. Which of the following statements regarding the systematic risk exposure of this portfolio are TRUE?

  1. Extensive asset diversification across hundreds of equity positions cannot eliminate the portfolio's exposure to overall market risk.Cevap
  2. B
    Holding long-term Treasury securities in place of corporate bonds completely eliminates systematic interest rate risk because Treasuries carry zero default risk.
  3. Purchasing broad-market index put options can serve as a systemic risk hedge to protect the equity portion against a widespread market decline.Cevap
  4. D
    When prevailing market interest rates rise during a central bank tightening cycle, the market prices of the portfolio's existing fixed-rate bonds will increase.

Cevap

Extensive diversification does not eliminate systematic market risk, and purchasing broad-market index put options is an effective hedging strategy against broad market downturns.
The correct statements recognize that systematic risk (market risk) affects the market as a whole and cannot be eliminated by adding more individual stocks, and that hedging via index options is a valid risk-mitigation strategy for systematic risk.

Adım Adım Çözüm

1
Analyze the nature of systematic risk versus unsystematic risk.
Systematic risks (such as market risk, interest rate risk, and inflation risk) affect the entire financial system and cannot be eliminated through portfolio diversification.
Diversification only eliminates unsystematic (business/credit/company-specific) risk.
2
Evaluate hedging mechanisms for systematic risk.
Since systematic risk cannot be diversified away, derivatives such as index put options are used to hedge against systemic declines.
Index puts gain value when the broader market index drops, offsetting portfolio losses.
3
Identify common misconceptions regarding Treasury bonds and interest rate dynamics.
Treasuries eliminate default risk but remain subject to interest rate risk. Furthermore, bond prices move inversely to prevailing interest rates.
When market rates rise, fixed coupon payments become less attractive, forcing existing bond prices down.

Anahtar Kavram

Systematic risk (market, interest rate, inflation risk) affects the entire market, cannot be diversified away, and must be managed via hedging strategies like index options.
Tahmini Süre:2m 0s
Bu soruyu puanla

Konular

Systematic and Market Risks

Bu konudan daha fazla soru