Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Terms and concepts

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As an investor, Tom is obliged to perform due diligence. What is "due diligence"?
  1. Education on market regulations.
  2. The paperwork required to make an investment.
  3. The responsibility to gather necessary information on actual or potential risks involved in an investment.
  4. Commitment to be diligent all the time for investment projects in order to prevent actual or potential risks.
  5. None of the above.
Explanation
Due diligence is the act of gathering information on actual or potential risks involved in an investment.

Key Takeaway: As there are many actual and potential risks involved in an investment, an investor should be extremely careful in gathering all necessary information. Without this due diligence, there can be mistakes or miscalculations which lead to huge losses in investments.
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