Question : ___________ is the risk associated with the loss of purchasing power due to inflation.
Option 1: Inflation risk
Option 2: Credit risk
Option 3: Market risk
Option 4: Liquidity risk
Correct Answer: Inflation risk
Solution : The correct answer is (a) Inflation risk
Inflation risk refers to the risk associated with the loss of purchasing power due to inflationary pressures in the economy. It is the risk that the value of money or the future cash flows generated by an investment will decrease in real terms over time.
Inflation risk affects various aspects of an individual's or investor's financial life. It can impact the returns on fixed-income investments, such as bonds or savings accounts, as the interest earned may not keep pace with inflation. Similarly, it can affect the real returns on investment portfolios, as the growth in asset values may not be sufficient to offset the impact of inflation.
