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.