In the context of finance, the term ‘beta’ refers to
(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
Answer: D
The correct answer is (d). Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market. It is calculated by comparing the returns of a stock to the returns of a benchmark index, such as the S&P 500. A beta of 1.0 means that the stock moves in the same direction as the market, while a beta of greater than 1.0 means that the stock moves more than the market. For example, if a stock has a beta of 1.5, it means that for every 1% increase in the market, the stock will increase by 1.5%.
The other options are incorrect.
(a) The process of simultaneous buying and selling of an asset from different platforms is called arbitrage. (b) An investment strategy of a portfolio manager to balance risk versus reward is called risk management. (c) A type of systemic risk that arises where perfect hedging is not possible is called market risk.
