Risk

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Forbes  6 hrs ago  Comment 
Upside with downside protection. Especially after the unfortunate adventures of 2008-2009 isn?t that what everybody wants? A product touting those features should sell like hotcakes, so naturally Wall Street is just too happy to supply it ? Even...
New York Times  11 hrs ago  Comment 
Banks remain vulnerable to sudden runs because of their dependence on short-term borrowing, but Dodd-Frank contains many tools that regulators can use to reduce risk, contends Jennifer Taub in Another View.
SeekingAlpha  Apr 4  Comment 
By Cam Hui: A little over a month after the then Fed chair Ben Bernanke dropped hints about Fed tapering of its QE program, I wrote that the likely effect of Fed tapering would be a compression in risk premium (see It's the risk premium,...
DailyFinance  Apr 4  Comment 
ACE Group today announced the introduction of its Global Cyber Risk Practice, established to address growing risks as legislation and exposures for privacy and network security evolve around the world and customer demands for...
newratings.com  Apr 4  Comment 
LONDON (dpa-AFX) - Big asset managers could pose risk to the stability in the financial system and there should be proper monitoring to assess risks associated with mispricing, a senior Bank of England official said Friday. Asset managers do not...
The Australian  Apr 4  Comment 
AS Tony Abbott leads a delegation to Asia, some see the need for Australian business to take more risks.
The Hindu Business Line  Apr 4  Comment 
As IDFC rejoices for bagging a banking licence, the expected decline in profitability over next few years of building the bank will be a major challenge for the infrastructure finance company, acc...
FX Street  Apr 4  Comment 
A ForexTrading.TV Technical Analysis Video Alert for AUDCAD For more information, read our latest forex news and reports.
Financial Times  Apr 3  Comment 
Latest OECD report on the 18-nation euro area says the post-2008 crisis and recession has sapped public support for European monetary union




 

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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