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UPSC Prelims 2023GS1EconomyFinancial Market Terminology (Beta)

Q93. In the context of finance, the term 'beta' refers to

A. the process of simultaneous buying and selling of an asset from difference 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.✓ Correct

Detailed Solution

✓ Correct Answer: Option D

In finance, 'beta' (β) is a measure of the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. A beta value greater than 1 indicates that the asset's price tends to move more than the market, while a beta less than 1 suggests it is less volatile.

A beta of 1 means the asset's price movement correlates directly with the market. Option (a) describes arbitrage. Option (b) describes general portfolio management. Option (c) describes systemic risk, but beta specifically quantifies an asset's sensitivity to market movements.

This term is fundamental to investment analysis and financial markets, making it relevant for UPSC Economy.

Current Affairs Link

The concept of 'beta' appeared in personal finance sections of various newspapers.

All Economy Questions →All Financial Market Terminology (Beta) Questions →← Back to Full Paper

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