LOS g: Explain the use of risk budgeting in global performance evaluation.

Q1. Selection risk is defined as the:

A)   risk of individual companies in a sector in the benchmark portfolio.

B)   additional risk taken by deviating from the benchmark portfolio.

C)   risk of all the companies in a sector of the portfolio.

Q2. What is risk budgeting?

A)   Identification of sources of portfolio risk.

B)   Determination of a risk measure that the portfolio can take.

C)   Determination of the amount of risk the portfolio can take.

Q3. Sector risk is defined as the risk of:

A)   individual countries in a passive benchmark portfolio.

B)   all the sectors in the portfolio.

C)   assigning the wrong weight to a sector in the portfolio.

LOS g: Explain the use of risk budgeting in global performance evaluation. fficeffice" />

Q1. Selection risk is defined as the:

A)   risk of individual companies in a sector in the benchmark portfolio.

B)   additional risk taken by deviating from the benchmark portfolio.

C)   risk of all the companies in a sector of the portfolio.

Correct answer is B)       

Selection risk is the additional risk taken by deviating from the benchmark portfolio.

Q2. What is risk budgeting?

A)   Identification of sources of portfolio risk.

B)   Determination of a risk measure that the portfolio can take.

C)   Determination of the amount of risk the portfolio can take.

Correct answer is A)        

Risk budgeting is the risk counterpart of performance attribution. It identifies the sources of the portfolio risk.

Q3. Sector risk is defined as the risk of:

A)   individual countries in a passive benchmark portfolio.

B)   all the sectors in the portfolio.

C)   assigning the wrong weight to a sector in the portfolio.

Correct answer is A)        

Sector risk is the risk of individual countries or sectors in a passive benchmark portfolio.

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