Series 7 Exam Question 367: Answer and Explanation

Question: 367

Sal Gold is new to investing and wants to purchase a security that will provide him with current income with minimal risk. Which of the following are you LEAST likely to recommend?

• A. An income fund
• B. Treasury bonds
• C. An international fund
• D. AA rated municipal bonds

Correct Answer: C

Explanation:

C. Although international funds may be okay to help diversify a portfolio and may provide current income, they're certainly the riskiest of all the choices given. International funds invest in securities outside of the investor's home country. International funds have additional risks that many other securities don't have, such as currency risk (the risk that the currency exchange rate will be bad). Also, the investor faces political risk (the risk that political changes in a country may adversely affect the price of securities). You should definitely steer this investor away from international funds.