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What are different types of Risks?
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Answer Posted / arbiejoy
1. A common concern with any investment is that you may lose
the money you invest - your capital. This risk is therefore
often referred to as capital risk.
2. If the assets you invest in are being held in another
currency there is a risk that currency movements alone may
affect the value. This is referred to as currency risk.
3. Assets that are easily sold are termed liquid therefore
this type of risk is termed liquidity risk.
4. Credit risk is the risk of loss due to a debtor's
non-payment of a loan or other line of credit (either the
principal or interest (coupon) or both)
5. Default risk or Insolvency risk is the risk that an
organization does not pay out on a credit derivative, credit
default swap, credit insurance contract, or other trade or
transaction when it is supposed to.
6. Sovereign risk is the risk of a government becoming
unwilling or unable to meet its loan obligations, or
reneging on loans it guarantees
7. Interest rate risk is the risk (variability in value)
borne by an interest-bearing asset, such as a loan or a
bond, due to variability of interest rates.
8. Basis risk the risk presented when yields on assets and
costs on liabilities are based on different bases
9. Yield curve risk The risk presented by differences
between short-term and long-term interest rates
10. Re-pricing risk the risk presented by assets and
liabilities that re-price at different times and rates.
11. Option risk It is presented by optionality that is
embedded in some assets and liabilities.
12. Hedging interest rate risk Interest rate risks can be
hedged using fixed income instruments or interest rate swaps.
13. Legal and regulatory risk: Sometimes governments change
the law in a way that adversely affects a bank's position.
14. Equity risk, the risk that stock prices will change.
15. Commodity risk, the risk that commodity prices (e.g.
grains, metals) will change.
16. Operational risk is a risk arising from execution of a
company's business functions.
17. The risk that there may be a disruption in the internal
financial affairs of the investment, thereby causing a loss
of value, is called "financial risk
18. Reinvestment risk is The term describes the risk that a
particular investment might be canceled or stopped somehow,
that one may have to find a new place to invest that money
with the risk being there might not be a similarly
attractive investment available.
19. Country risk refers to the likelihood that changes in
the business environment adversely affect operating profits
or the value of assets in a specific country.
20. Political risk is a type of risk faced by investors,
corporations, and governments. It is a risk that can be
understood and managed with proper aforethought and investment.
| Is This Answer Correct ? | 54 Yes | 12 No |
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