Risk

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Financial Times  Oct 17  Comment 
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BRUSSELS (dpa-AFX) - The pound erased its early losses against the other major currencies in the early European session on Friday, as European equities rebounded on upbeat data from the U.S. overnight. While initial jobless claims unexpectedly...
Mondo Visione  Oct 17  Comment 
Lombard Risk Management plc (Lombard Risk), a leading provider of integrated collateral management, regulatory compliance and reporting solutions for the financial services industry, is pleased to announce its latest release of COLLINE -- the...
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The next time you hear someone singing the praises of the Dutch pension system, you can tell them about this
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(MedPage Today) -- Why it's not the "wonderful healthcare system" that saves lives from cardiovascular risks.
Reuters  Oct 16  Comment 
Blackstone Group LP , the world's largest alternative asset manager, on Thursday reported lower-than-expected third-quarter earnings, but said it was well positioned to profit from market jitters and put more of its $42.3 billion in undrawn...




 

Risk in economic terms indicates the probability of the occurance of a specific event, which would lead to damage or loss (p.e. the likelihood of losing ship and freight to a hurricane). In distinction to risk, chance indicates the possibility of a positive outcome.

Investments include both risk and chance. This is the so called Risk-Return Tradeoff: low levels of uncertainty offer low potential returns but also low potential losses, whereas high levels of uncertainty offer high potential returns but also high potential losses. Another way many investors quantify and calculate risk is in terms of the standard deviation of returns. This is because all else being equal, risk averse investors prefer returns that are less volatile and more predictable.

Companies try to identify, analyse and control risk through concepts of risk management.

Risks of Bond Investing

Bonds carry credit risk ("will I get my money back?"), prepayment risk, liquidity risk and interest-rate risk.

  • Many bonds give the bond issuer the right to repay the bond early -- which happens more often when rates are low, in other words, just when you don't want your money back. This is prepayment risk.
  • Liquidity risk is the risk that you won't find a good price for your bond when you want to sell it -- because there are so many more bond issuers than stock issuers, and because bonds are not exchange-traded, there may not be a willing buyer.
  • Interest-rate risk is the opposite of prepayment risk: when rates go up, the value of your bond will drop (it drops more, the further away it is from maturity). If your circumstances change and you need to sell the bond before maturity, you can lose capital that you would otherwise receive, if you held the bond to maturity.
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