Interest Rate Risk
The potential for loss (or gain) from the fluctuation of interest rates relative to the bond a person may be holding. There is an inverse relationship between interest rates and bond prices. Therefore a rise in interest rates will negatively affect the value of existing bonds (prices will go down). The degree of price fluctuation is exasperated by the length of maturity. The longer the bond maturity the greater the price fluctuation will be.
The potential loss of principal stemming from a borrower’s failure to repay a loan or debt offering(a contractual obligation). Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Credit risk is closely tied to the potential return of an investment, the most notable being that the yields on bonds correlate strongly to their perceived credit risk.
Pertains to the daily fluctuation of prices of securities. Relative to the stock market prices may vary as a result of (but not limited to) political, economic, global, catastrophic or industry or company related news. Market risk also known as systematic risk cannot be diversified away.
A form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk. One means companies have to minimize this risk (diversify the risk) is to hedge their positions against currency changes.