NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
An investor expects her money to buy fewer goods in future because the general price level keeps rising. Which risk is she mainly worried about?
Inflation risk is the correct answer. It is the danger that rising general prices reduce what a given sum of money can buy, so even positive nominal returns may fail to preserve real purchasing power over time.
- AInflation riskCorrect
- BLiquidity risk
- CCredit risk
- DReinvestment risk
Explanation
Inflation risk is the chance that rising prices erode the purchasing power of money and returns. Liquidity risk concerns difficulty in selling, credit risk concerns issuer default, and reinvestment risk concerns reinvesting proceeds at lower rates.
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