Types of Risks

Below we describe types of risks:

Inflation risk – refers to risk that money today will not worth as much tomorrow, or in a year. Many safe investments, such as fixed deposits offered by banks do not keep pace with inflation.

Opportunity risk – risk that a safe investment that is undertaken will lead to the loss of additional return that could have been earned if money were placed into a better investment.

Concentration risk – risk of putting entire funds into one investment such as an investment in one’s own business or investment in shares of a specific company. If such an investment will not yield the return that was expected than there is no other investment that could make up for such loss.

Interest rate risk – risk that interest rates will fluctuate with adverse effects on the company. For example, an adverse effect those changes in interest rates can have on servicing debt.

Marketability risk – refers to risk that marketability of the investment may turn out to be low. It refers to the chance that if the need arose to sell the investment in a timely manner, there will be no ready market to sell it to.

Credit risk – refers to possibility that the borrower will not be able to meet its obligations as it comes due.

 

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