Practice Quiz

FINRA Series 6

Category - Series 6

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Which of the following is an example of market risk?
  1. the risk that the nation will enter a recession
  2. the risk that a drug company will produce a pill that will cure cancer
  3. the risk that an automobile manufacturer will have to undertake a massive recall of its cars
  4. the risk that competing firms will enter the market when a firm’s patent protection expires
Explanation
Answer: A - The risk that the nation will enter a recession is an example of market risk. A recession will affect the prices of all securities to one degree or another. The other choices are examples of business risk-a risk that is tied to a specific firm. In finance, risk means uncertainty, so even the possibility that a drug company will produce a pill that will cure cancer is referred to as a risk.
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