What basically would be financial risk? How is it calculated?
By financial risk we mean the risk for an investor of having a fluctuation in the value of the invested capital in the short term , linked to the performance of the financial instruments in the portfolio.
For example, if you invest $10,000, with a capital growth target of 5%, there is a risk that this investment may actually have a lower or even negative result.
The types of financial risk……..
This can happen for various reasons, each of which refers to a different type of risk. In fact, although the term used is always the same, or ‘financial risk’, in reality it refers to different types of the same. Among them, the most common are:
1] Market risk :
or the possibility of obtaining losses on the investment portfolio. In simpler words, it is the possibility that the investment has a lower value than the initial one at a future date following the ” normal fluctuation of the market ” in which it is investing (changes in prices, exchange rates, interest rates etc.). Due to its characteristics, it is a type of risk that cannot be eliminated.
2 Credit risk :
possibility that, in the context of a loan, the debtor does not fulfill, even partially, his obligations to repay the principal or to pay interest to his creditor within the pre-established terms. This risk is associated with investing in bonds, particularly if issued by companies, but it can sometimes also happen with bonds issued by some states.
Operational risk or counterparty risk: it is linked to the financial institutions that hold the clients’ investments and therefore to the custodian bank. This is a risk that is not present for those who choose to invest with, because the investors’ savings are secured with long Security Services; one of the largest depository banks in the world.
3 Systemic risk :
risk of financial instability so widespread as to compromise the functioning of the financial system as a whole. For example, the failure of a large national bank could lead to the failure of other banks connected to it (ripple effect), with understandable repercussions on the real economy.
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