Risk

Florida Securities, Commodities and Precious Metals Fraud Attorney, Russell L. Forkey, Esq.

In the investment arena, one of the reoccurring terms that one hears is the word risk.  This post sets forth certain types of risks that investors may be exposed to and, consequently, consider when looking at a particular investment.  This discussion It is not designed to be complete in all material respects.  It is being provided for educational purposes only.  It should not be considered as legal or investment advice.  If you have any questions relative to any of the information contained herein, you should contact a qualified legal or financial professional.

When discussing investment risk in its strict and narrow sense, it means the potential for loss of value.  Among the common types of investment risks that one encounters are:

  • Actuarial risk is the risk an insurance underwriter covers in exchange for premiums, such as the risk of premature death.
  • Exchange risk relates to the chance of loss on a foreign currency exchange.
  • Inflation risk relates to the chance that the value of assets or of income will be eroded as inflation shrinks the value of a country's currency.
  • Interest rate risk relates to the possibility that a fixed rate debt instrument will decline in value as a result of a rise in interest rates.
  • Inventory risk relates to the possibility that price changes, obsolescence, or other factors will shrink the value of inventory.
  • Liquidity risk relates to the possibility that an investor will not be able to buy or sell a commodity or security quickly enough or in sufficient quantities because buying or selling opportunities are limited.
  • Political risk relates to the possibility of nationalization or other unfavorable governmental action.
  • Repayment risk relates to the chance that a borrower or trade debtor will not repay an obligation as promised.
  • Risk of principal relates to the chance that invested capital will drop in value.

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