Risk COM641A
Transcript of Risk COM641A
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RISK ASSISTANT
DEPARTMENT O
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MEANING OF RISK
The dictionary meaning of risk is the possibility of loss or i
the possibility of not getting the expected return. The
between expected return and actual return.
The possibility that the actual return may not be the
expected.!
" situation where the possibility of happening or non#happe
e$ent can be %uantified and measured.!
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CAUSES OF RISK
&riceInterest
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FACTORS AFFECTING RISK OF
AN INVESTMENT
The longer the maturity period' the larger is the return.
The lower the credit worthiness of the borrower' the
higher is the risk.
The risk $aries with the nature of in$estment.
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ELEMENTS OF RISK
S(ST)*"TI+ RISK ,external factors' non#di$ersifiable risk /S(ST)*"TI+ RISK , internal factors' di$ersifiable risk-
TOTAL RISK = SYSTEMATIC RISK + UNSYSTEMATIC RISK
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CLASSIFICATION OF RISKS
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MARKET RISK
0ariability in stock prices due to changes in in$estor attitudes
expectations.
Tangible 1 Intangible e$ents
Tangible 2 &olitical' Social 1 )conomic
Intangible 2 *arket psychology or Reactions' expectations or
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INTEREST-RATE RISK
+hange in interest rates
3onds 1 4ebentures
0ariations in interest rates for lending institutions 1 borrowin
institutions
5onger maturity period of a security the higher the yield 1 l
fluctuations in prices 1 $ice $ersa.