SIE Exam Question 183: Answer and Explanation

Question: 183

The possibility of higher prices in the future reducing the amount of goods or services that may be bought is known as _______________.

• A. Market risk
• B. Purchasing power risk
• C. Financial risk
• D. Interest rate risk

Correct Answer: B

Explanation:

Purchasing power risk is the possibility that higher prices in the future will reduce the amount of goods or services that may be bought. Market risk is the potential for loss due to the performance of the financial market. Financial risk is a generic term describing a variety of risk types, including credit risk, liquidity risk, and operational risk. Interest rate risk is the risk of investments losing value due to changes in prevailing interest rates.