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Prelims Special– What is Beta? · Beta is
relevant risk metric that measures the relative volatility or market risk of
a security or portfolio compared to the market as a whole. In finance, the
beta (β or market beta or beta coefficient) is a measure of how an individual
asset moves (on average) when the overall stock market increases or
decreases. Thus, beta is a useful measure of the contribution of an
individual asset to the risk of the market portfolio when it is added in
small quantity.
· A beta of 1.0 indicates a stock has market
risk identical to the broader market, while a beta greater than 1 means that
the asset is more volatile than the market. Beta can be used to estimate the
market risk of a portfolio by calculating the weighted average beta of its
constituent assets. |
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Test Yourself-
VI
Prelims MCQs
Practice: Q. In the context of finance, the term “beta” refers to (Prelims 2023) (a) the process of simultaneous buying and selling of an
asset from different platforms (b) an investment strategy of a portfolio manager to
balance risk versus reward (c) a type of
systemic risk that arises where perfect hedging is not possible (d) a numeric
value that measures the fluctuations of a stock to changes in the overall
stock market
Ans: (d)
Q. Consider the following: 1. Trade in goods 2. Trade in services 3. Transfer payments How many of the
above form the components of the current account? (a) One only (b) Two only (c) All three (d) None
Current Account is
the trade record in goods and services and transfer payments.
— Trade in goods: It includes exports
and imports of goods.
— Trade in services: It includes factor
income and non-factor income transactions.
— Transfer payments:
These are the receipts that the residents of a country get for ‘free’,
without having to provide any goods or services in return. They consist of
gifts, remittances and grants. They could be given by the government or by
private citizens living abroad.
Therefore, option
(c) is the correct answer. |
