AWMA Exam Review Questions with Correct
Answers
Intestate
Dying without a will. The distribution of their assets will be determined by a probate court.
1031 Exchange
A swap of one real estate investment property for another that allows capital gains taxes to be
deferred. The term—which gets its name from Section 1031 of the Internal Revenue Code
(IRC)—is bandied about by real estate agents, title companies, investors, and more. Some
people even insist on making it into a verb, as in, "Let's 1031 that building for another."
Emotional Intelligence
The ability to perceive and control one's own emotions and use those emotions to guide
thought and behavior.
Emotional Perception
The ability to notice and accurately express emotions.
Ex: A client has been angry at his meetings w/his adviser. The client realizes his anger stems
from his work and is lashing out at his adviser's financial suggestions.
Emotional Facilitation
Describes how individuals use emotions to assist thinking, including responding to changes
in their environment and in themselves.
,Ex: A client tells her planner that she prefers afternoon meetings at the planner's office. She's
aware that she'll be in a BETTER MOOD and away from distractions.
Emotional Understanding
Understanding and analyzing emotions or employing emotional knowledge.
Emotional Regulation
Regulation of emotions to promote emotional and intellectual growth. Openness and
understanding of feelings permit the individual to learn to control their feelings and dictate
expression when appropriate.
Total Risk
The combination of systematic risk and unsystematic risk. It is measured by the standard
deviation (variability).
Systematic Risk
The uncertainty of return inherent in the "system" of which any asset is a part. Found in
nearly all securities because comparable securities generally move together in a systematic
manner. It is non-diversifiable.
- Purchasing power risk
- Reinvestment risk
- Interest rate risk
- Market risk
- Exchange rate risk
Purchasing Power (Inflation) Risk
, The risk of one's purchasing power decreasing as a result of an increase in inflation. Inflation
is most devastating to bond prices since the interest and principal are usually fixed in terms of
dollar amounts. Increase inflation will send bond prices downward.
Inflation rate is pro-cyclical (moving in the same direction as the economy as a whole) but
will lag by a year or more.
Reinvestment Risk
The risk that market interest rates have decreased at the time payments from an investment
are received. An investor is forced to reinvest his payment amount at a time when rates are
not as favorable as they may have been previously.
Market Risk
This risk stems from factors independent of any particular security. Factors include political
events, broad economic and social changes, and the mood of the investing public.
It is systemic in the sense that the price of any security can rise or fall in reaction to these
larger company's financial condition.
Exchange Rate Risk (Currency Risk)
This risk occurs as the value of foreign currencies fluctuate against the U.S. dollar. If the
foreign currency strengthens, the return is positive. If the foreign currency weakens, the
return is negative.
Exogenous Risk
Risks found outside the financial system and is taken into account when doing fundamental
analysis.
Endogenous Risk
Answers
Intestate
Dying without a will. The distribution of their assets will be determined by a probate court.
1031 Exchange
A swap of one real estate investment property for another that allows capital gains taxes to be
deferred. The term—which gets its name from Section 1031 of the Internal Revenue Code
(IRC)—is bandied about by real estate agents, title companies, investors, and more. Some
people even insist on making it into a verb, as in, "Let's 1031 that building for another."
Emotional Intelligence
The ability to perceive and control one's own emotions and use those emotions to guide
thought and behavior.
Emotional Perception
The ability to notice and accurately express emotions.
Ex: A client has been angry at his meetings w/his adviser. The client realizes his anger stems
from his work and is lashing out at his adviser's financial suggestions.
Emotional Facilitation
Describes how individuals use emotions to assist thinking, including responding to changes
in their environment and in themselves.
,Ex: A client tells her planner that she prefers afternoon meetings at the planner's office. She's
aware that she'll be in a BETTER MOOD and away from distractions.
Emotional Understanding
Understanding and analyzing emotions or employing emotional knowledge.
Emotional Regulation
Regulation of emotions to promote emotional and intellectual growth. Openness and
understanding of feelings permit the individual to learn to control their feelings and dictate
expression when appropriate.
Total Risk
The combination of systematic risk and unsystematic risk. It is measured by the standard
deviation (variability).
Systematic Risk
The uncertainty of return inherent in the "system" of which any asset is a part. Found in
nearly all securities because comparable securities generally move together in a systematic
manner. It is non-diversifiable.
- Purchasing power risk
- Reinvestment risk
- Interest rate risk
- Market risk
- Exchange rate risk
Purchasing Power (Inflation) Risk
, The risk of one's purchasing power decreasing as a result of an increase in inflation. Inflation
is most devastating to bond prices since the interest and principal are usually fixed in terms of
dollar amounts. Increase inflation will send bond prices downward.
Inflation rate is pro-cyclical (moving in the same direction as the economy as a whole) but
will lag by a year or more.
Reinvestment Risk
The risk that market interest rates have decreased at the time payments from an investment
are received. An investor is forced to reinvest his payment amount at a time when rates are
not as favorable as they may have been previously.
Market Risk
This risk stems from factors independent of any particular security. Factors include political
events, broad economic and social changes, and the mood of the investing public.
It is systemic in the sense that the price of any security can rise or fall in reaction to these
larger company's financial condition.
Exchange Rate Risk (Currency Risk)
This risk occurs as the value of foreign currencies fluctuate against the U.S. dollar. If the
foreign currency strengthens, the return is positive. If the foreign currency weakens, the
return is negative.
Exogenous Risk
Risks found outside the financial system and is taken into account when doing fundamental
analysis.
Endogenous Risk
