Risks associated with SIE

I know that risks are a huge portion of the exam, how should I differentiate how risk relate to products, ex: debt has credit risk

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Hi @Britta - great question!

There are a lot of risks to be aware of for the exam. Here’s a quick summary of the most tested risks and how they relate to securities:

Systematic risks

  • Market risk = common stock
  • Interest rate risk = preferred stock and debt securities
  • Inflation risk = preferred stock and long term debt securities (common stock returns tend to outplace inflation)

Non-systematic risks

  • Financial risk = stocks
  • Business risk = stocks
  • Regulatory risk = stocks
  • Legislative risk = all securities
  • Political risk = foreign securities
  • Liquidity risk = all securities, although the more actively traded ones are least subject to it
  • Call risk = callable preferred stocks and callable bonds
  • Reinvestment risk = preferred stocks and debt securities with coupons (zero coupon bonds not subject to it)
  • Default (Credit risk) = debt securities

Although this question is from the SIE, another good resource may be this page in our Series 7 program (which you should be able to access for free - our programs allow anyone to view 5 chapters per month at no cost) . You won’t need to know the minor details for the SIE, but the information presented may help build additional context.

Please let me know if you need additional clarification. Good luck with your studies!