All RE5 questions
Financial Products Apply knowledge of the financial products and services environment
A retiree puts all her savings into a five-year fixed deposit at one small bank. Two years later she needs cash urgently and finds she cannot withdraw without a heavy penalty; meanwhile, prices have risen faster than her interest rate. Which risks have materialised?
RE5 practice question with a worked answer. This is one of hundreds of FSCA RE5 questions in the RegulatoryExams question bank.
- a) Credit risk and market risk
- b) Liquidity risk and inflation riskCorrect
- c) Liquidity risk and credit risk
- d) Market risk and inflation risk
Why this is the answer
Being unable to access the money without penalty is liquidity risk, and returns that lag rising prices are inflation risk. Credit risk would materialise only if the bank failed to repay, which has not happened, although concentrating everything in one small bank exposes her to it. A fixed deposit carries little market risk.
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