ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -The interest rate on savings generally is lower compared with investments. While safe, savings are not risk-free: the risk is that the low interest rate you receive will not keep pace with inflation.
Detailed explanation-2: -The risk that you will lose money. A savings account is unlikely to lose you money but it is also unlikely to make you money. An investment could lose you money but it may also make you money over the long term. Particularly if you understand the investment you are making.
Detailed explanation-3: -A risk-free asset is one that has a certain future return-and virtually no possibility of loss. Debt obligations issued by the U.S. Department of the Treasury (bonds, notes, and especially Treasury bills) are considered to be risk-free because the “full faith and credit” of the U.S. government backs them.
Detailed explanation-4: -Even cash, as mentioned, carries the risk of losing value because of inflation, and it’s also possible that inflation will outpace your investments in Treasurys.