NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Which of the following best describes 'inflation risk' faced by an investor who keeps all savings in a bank savings account?
Inflation risk is the chance that the purchasing power of money falls because the return earned is lower than the rate at which prices rise. Savings kept at low interest may therefore buy fewer goods in future, even though the rupee amount grows.
- AThe risk that the bank will fail to repay the deposit
- BThe risk that the purchasing power of the money erodes because returns are lower than the rise in pricesCorrect
- CThe risk that interest rates will rise and bond prices will fall
- DThe risk that the investment cannot be sold quickly
Explanation
Inflation risk is the loss of real purchasing power when the return earned is below the rate of price increase. Default risk relates to the bank failing, interest rate risk relates to bond prices, and liquidity risk relates to ease of sale.
Did you get it right without looking?
One question tells you little. A timed set on Investment Landscape shows your real accuracy, how long you take and where you lose marks.
More Investment Landscape questions
- Which asset class has historically offered the highest potential for long-term inflation-beating returns, while also carrying the highest sh…
- A portfolio has the following annual returns over three years: +50%, -20%, +10%. What is the approximate geometric mean annual return?
- An investor earns a nominal return of 10.2% in a year when inflation is 2%. Using the exact (Fisher) relationship, what is the real rate of …
- Ravi invested Rs 50,000 in a security and, after exactly 2 years, it was worth Rs 72,000 with no interim income. What is the compounded annu…
- Asha earns a nominal return of 10% a year while inflation is 6%. Using the approximate method (nominal return minus inflation), her real ret…
- Ms. Kavita invested Rs 50,000 in a bank deposit that earns 8% per annum compounded annually. What will be the value of the deposit at the en…