Risk

RECENT NEWS
guardian.co.uk  3 hrs ago  Comment 
Geopolitical tensions and increased risk taking add to disruption, though world economy expected to pick up during 2015 Excessive risk taking and geopolitical hazards pose new threats to a global economy already experiencing an uneven and weaker...
New York Times  5 hrs ago  Comment 
While Scots have been warned repeatedly about the dire consequences of voting for independence from the United Kingdom, half — more or less — are expected to do so anyway.
Euromoney  7 hrs ago  Comment 
Euromoney Country Risk’s expert panel identifies corruption as the main political risk factor in most countries in the region, though overall economic risk has fallen since 2011
Forbes  8 hrs ago  Comment 
The lesson is don’t do that.
BBC News  11 hrs ago  Comment 
A sophisticated attack on eBay compromises at least two listings so that users who click on them are redirected to a fake page that attempts to steal their credentials.
Benzinga  11 hrs ago  Comment 
Even though the stock market is in the fifth year of a bull market and the S&P 500 is 200 percent from its low, there has been and will be more pullbacks. Timing the market to take advantage of the strong rallies and vaunted sell-offs is not an...
Mondo Visione  Sep 17  Comment 
 Hong Kong Exchanges and Clearing Limited (HKEx) has appointed Ketan Patel to the new position of Group Risk Officer, effective 1 January 2015. Mr Patel is currently Co-Head of Clearing Risk Management and the leader of the FIC* and OTC**...
Financial Times  Sep 17  Comment 
While the production side of the US economy appears robust, the same cannot be said for the rest of the world, which lacks an economic locomotive




 

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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