The Capital Asset Pricing Model (CAPM) is a sophisticated model that establishes a relationship between expected risk and expected return. It operates on the principle that investors require higher returns as compensation for higher risks.
Capital gearing refers to the proportion of debt to equity in the capital structure of a company. It is a crucial indicator of financial stability and risk.
The risk, in a lending operation, that the capital amount of the investment may be less than its par value even at maturity.
Country risk refers to the potential financial losses that can arise when conducting transactions or holding assets in a foreign country due to political or economic instability.
Credit risk refers to the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms. This concept is crucial for lenders and investors as it impacts the stability and profitability of financial institutions and markets.
Currency risk, also known as exchange-rate risk or foreign exchange risk, arises from the fluctuation in the exchange rate between two currencies, impacting the value of investments or transactions made in foreign currencies.
An estimate of an investment's potential decline in value, considering the entire range of factors that could affect market price.
An emerging market refers to a foreign economy that is developing due to the spread of capitalism and has created its own stock market. These markets are analogous to small growth companies, possessing high potential coupled with high risk.
The likelihood of a specific occurrence affecting a given business or investment. Unlike market or systemic risk, which affects all entities within the same class, event risk is particular to an individual company or portfolio.
A high flyer refers to a high-priced and highly speculative stock that demonstrates sharp fluctuations in its value over short periods. These stocks are typically associated with unproven high-technology companies and exhibit significant volatility.
High-Net-Worth Individuals (HNWIs) are individuals who possess very high net incomes, substantial net assets, or a combination of both. These individuals typically qualify for specialized financial products and services aimed at optimizing their wealth, despite the elevated investment risks involved.
Inactive stock or inactive bond refers to a security that is traded infrequently, either on an exchange or over the counter. Due to its low trading volume, the security is considered illiquid, making it less attractive to small investors.
Purchasing power risk refers to the risk that inflation will erode the value of the currency in which an investment or deal has been made, effectively reducing the real return on investment over time.
The risk-free rate or risk-free return represents the interest rate on the safest investments, such as federal government obligations. It is a fundamental component in financial models, particularly in assessing the required return on investments.
Evaluation of the credit and investment risk of a securities issue by commercial rating agencies.
Static risk refers to risks with a constant level of uncertainty regarding the outcome or payoff. This type of risk is not influenced by market fluctuations or evolving factors and typically remains unchanged over time.
Whipsawed refers to a situation in financial markets when a trader experiences rapid and significant price changes that lead to losses. Specifically, the trader buys just before the prices start to decline and sells just before they begin to rise. It is commonly associated with high volatility and unexpected market movements.
