Investment Risk

See Also:
Hedging Risk
Risk Premium
Business Risk
Interest Rate Risk
Commercial Risk

Investment Risk Definition

The investment risk definition is the risk of a particular investment. Furthermore, an investment risk assessment usually contains several different forms ranging from interest rate risks to currency risks.

Investment Risk Meaning

Investment risk contains several different measures, including the following:

Market Risk

This is the risk associated within a market or index like the S&P 500 or the Dow Jones. There are currently two types of market risk. The first is the unsystematic risk. It can be diversified away in a well-managed portfolio. Then the other is systematic risk. Use it to describe factors that deal with the entire economy or an index which are simply inherent when investing.

Interest Rate Risk

This is the risk associated with bond and debt markets. Specifically the ways in which the interest rates change in the market or what is better known as the yield to maturity.

Currency Risk

Currency is the risk associated with an investment if it is denominated in another currency. The risk here is that the exchange rates change. In some cases it may benefit the investor, but in others, it can really hurt.

Liquidity Risk

This is the risk associated with the ease an investor can convert that particular investment into cash. For example, land is a lot harder to turn into cash over a very liquid asset, such as commercial paper. This is not normally a problem unless an investor needs to meet short term obligations.

Financial Risk

This is the risk that there is something fundamentally wrong in the financials of a company. The investor may not see that risk. Furthermore, this type of risk is normally associated with scandals such as Enron or Worldcom.
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