Type Of Risk Essay

2058 words - 9 pages

Interest rate risk is the chance that an unexpected change in interest rates will negatively affect the value of an investment.
How it works/Example:
Let's assume you purchase a bond from Company XYZ. Because bond prices typically fall when interest rates rise, an unexpected increase in interest rates means that your investment could suddenly lose value. If you expect to sell the bond before it matures, this could mean you end up selling the bond for less than you paid for it (a capital loss). Of course, the magnitude of change in the bond price is also affected by the maturity, coupon rate, its ability to be called, and other characteristics of the bond.
 
One common way to measure a ...view middle of the document...

Business risks can be classified by the influence by two major risks: internal risks (risks arising from the events taking place within the organization) and external risks (risks arising from the events taking place outside the organization).[4]
Internal risks arise from factors (endogenous variables, which can be controlled) such as human factors (talent management, strikes), technological factors (emerging technologies), physical factors (failure of machines, fire or theft), operational factors (access to credit, cost cutting, advertisement). External risks arise from factors (exogenous variables, which cannot be controlled) such as economic factors (market risks, pricing pressure), natural factors (floods, earthquakes), political factors (compliance and regulations of government).[5][6]
Credit risk is the chance that a bond issuer will not make the coupon payments or principal repaymentto its bondholders. In other words, it is the chance the issuer will default
How it works/Example:
While the definition of credit risk may be straight forward, measuring it is not.  Many factors can influence an issuer's credit risk and in varying degrees. Some examples are poor or falling cash flowfrom operations (which is often needed to make the interest and principal payments), rising interest rates (if the bonds are floating-rate notes, rising interest rates increase the required interest payments), or changes in the nature of the marketplace that adversely affect the issuer (such as a change in technology, an increase in competitors, or regulatory changes). The credit risk associated with foreign bonds also includes the home country's sociopolitical situation and the stability and regulatory practices of its government.
 
Ratings agencies like Moody's and Standard & Poor's analyze bond offerings in an effort to measure an issuer's credit risk on a particular security. Their results are published as ratings that investors can track and compare with other issuers.
 
S&P's ratings range from AAA (the most secure) to D, which means the issuer is already in default. Moody's ratings go from Aaa to C. Only bonds rated BBB or better are considered "investment grade." Bonds rated below BBB- or Baa3 are considered "junk."
What it is:
Call risk is the risk that a bond issuer will redeem its bonds before they mature.
How it works/Example:
Some bonds are callable, that is, the issuer has the right to call, or buy back all or some of the bonds before they mature. This often happens when interest rate risk rates fall. For example, consider a callable 10-year, 10% coupon bond issued by XYZ Company.  Presumably, XYZ Company issued thedebt at prevailing market rates. But as time passes, market rates may change. If rates fall to 5% while the bonds are outstanding, XYZ Company would be paying twice the going interest rate. Clearly, this situation costs XYZ Company money, and if it can call the debt and reissue it at the lower 5% rate, itwill probably do...

Other Papers Like Type of Risk

Project Management Essay

613 words - 3 pages purpose. These are processes that were not captured during the Risk planning process. 8- Limitation- No definite structure for risk assessment. It varies according to the type of job, the time of execution, the terrain and the perception of the people. REFERENCES GEORGE CALOTĂ, TRAIAN IANA (2009), RISK ANALYSIS - SPECIFIC PROCEDURE OF THE INTERNAL AUDIT. Annals of the University of Petroşani, Economics, 9(1), 93-100. Terry M Willams (1994

Management Risk Essay

2188 words - 9 pages , with some being more beneficial dependent on the situation, three key risk management strategies are (Norman & Jansson, 2004; Juttner, et al., 2003) * The Avoidance Strategy: There are two main types of avoidance strategy. The first type is where an organisation will attempt to drive the probability of a risk event occuring down to zero, or as close to zero as possible. Furthermore, the second type of avoidance strategy is where an

Intelligent Risks

558 words - 3 pages disappear and there is always a chance in life to take a risk. Sometimes, these intelligent risks are how people can become famous and successful. You can analyze the risk and this will further help you decide if you should take it. Intelligent risks are the types of risks that shouldn’t be avoided. Determining the type of risk you are dealing with is vital to your success.

Dm Type 2

1804 words - 8 pages ) offers some additional protection for people with pre-diabetes. Pre-diabetes is defined as blood glucose levels between 100 and 125 mg/dL. If you already have type 2 diabetes, you can still delay or prevent complications: Keep tight control of your blood sugar. This reduces the risk of most complications. Lower your risk of heart-related complications by: Taking a daily aspirin. Aggressively managing other risk factors for atherosclerosis, such

Business Admin

882 words - 4 pages | Definition of 'Systematic Risk'The risk inherent to the entire market or an entire market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification, only through hedging or by using the right asset allocation strategy

Chronic Disease

623 words - 3 pages Chronic Disease Risk Assessment Diabetes Type one and Type two Diabetes has to do with the level sugar (glucose) in the blood. Type one is commonly found in children, and is where the body doesn’t produce insulin. Type Two Diabetes is adult onset, and is insulin resistant or the body doesn’t produce enough. What cause the insulin resistant is not known, however some of the leading factors of getting the disease is genetic and family history

Enterprise Wide Risk Management

3548 words - 15 pages quantification of risk exposures and quantification can be a variety of forms – value-at-risk, earning-at-risk, stress scenario analysis, duration gaps-depending on the type of risk being measured and degree of sophistication of the estimates. On the other side, Risk management refers to the overall process that a financial institution follows to define a business strategy, to identify the risks to which it is exposed, to quantify those risks, and

Types of Risk

1633 words - 7 pages affect the entire industry instead, the investors would incur similar losses, due to systematic risk. Systematic Risk: It is the risk which is due to the factors which are beyond the control of the people working in the market and that's why risk free rate of return in used to just compensate this type of risk in market. Unsystematic Risk: This is the risk other than systematic risk and which is due to the factors which are controllable by

Risk Management In Banking

9309 words - 38 pages is divided into the following broad topics for simpler and easier understanding 1. Assignment of Risk Weights: all the exposures are first classified into various customer types defined by Basel committee or RBI. Thereafter, assignment of standard risk weights is done, either on the basis of customer type or on basis of the asset quality as determined by rating of the asset, for calculating risk weighted assets. 2. External Credit Assessments

Chronic Disease

522 words - 3 pages from defects in insulin production, insulin action, or both, resulting in either hypo- which is abnormally low blood sugar or hyperglycemia which is an elevated concentration of sugar in the blood. There are many risk factors to diabetes; type 1 diabetes is when you get the disease when you are a child the pancreas stops producing insulin. Insulin is a hormone your body needs to be able to use the energy -- sugar-- found in food. The primary

Risk Management

2511 words - 11 pages resources for the planned completion. Besides risk identification and specification, risks in software development should be addressed and managed. In software development, there are many choices of dealing with risks. Based on the risk impact area and type, risks can be avoided, restricted, mitigated and monitored. The best possible way of risk addressing is to completely avoid risks. There are a number of risks that can

Related Essays

Program Design To Reduce The Risk Of Hypertension And Type 2 Diabetes In Brazilian Teens

2368 words - 10 pages data. There are estimated to be about 7,800,000 Brazilian with Type 2 DM and 33 million Brazilian with HTN who are already diagnosed (DataSus, 2011). In Brazil, the majority of cases for both diseases are in the areas of poverty, emphasizing the influence of family income as an important risk factor for the development of the two morbidities. Apart from this, it is important to highlight the bias that exists due to the large number of patients

Unit1 Essay

323 words - 2 pages 1. Risk management is responding to a negative event when it occurs. A. True B. False 2. With respect to IT security, a risk can result in either a positive or a negative effect. A. True B. False 3. According to PMI, which term describes the list of identied risks? A. Risk checklist B. Risk register C. Risk methodology D. Mitigation list 4. Which type of risk analysis uses formulas and numerical values to indicate risk

Transaction Risk Essay

661 words - 3 pages one-year |Interest & Credit |This type of financial transaction it has an interest rate |Both, Interest Rate and| |certificate of deposit. |Risk |risk and credit risk. The reason it is an interest rate risk |Interest Income | | | |is because

Finance Questions Essay

648 words - 3 pages life Amortized Loan a loan that is paid off in equal periodic payments Risk potential variability in future cash flows standard deviation -a measure of risk when looking at stock in isolation standard deviation -measure of the dispersion of possible outcomes -Company-unique risk (unsystematic risk)-is diversifiable. This type of risk can be reduced through diversification. The result of factors that are unique to a particular firm -Market