Investment Risk - The Strategic CFO®

Investment Risk

Other Category: Investment & Shareholders, Profitability

July 24, 2013
Dan
currency, interest rate, investment, investment risk, liquidity, market risk, 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.
If you want to overcome obstacles and prepare how your company is going to react to external factors, then download your free External Analysis whitepaper

[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]

ARTICLES YOU MIGHT LIKE

IP Valuation & Monetization For The C-Suite

April 26, 2023

Intellectual Property (IP) defines and protects the sources of goods and services in the marketplace, the products and services offered for sale and the content surrounding such offerings. Whether trademarks, patents, copyrights, or other IP, it is critical that C-Suite strategy drives and shapes the creation, valuation use and monetization of all its intellectual property.

Financial Ratios

July 28, 2020

See also: Quick Ratio Analysis Price to Book Value Analysis Price Earnings Growth Ratio Analysis Time Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The

Margin vs Markup

May 15, 2019

See Also: Gross Profit Margin Analysis Retail Markup Chart of Accounts (COA) Margin Percentage Calculation Markup Percentage Calculation Margin vs Markup Differences Is there a difference between margin vs markup? Absolutely. More and more in today’s environment, these two terms are being used interchangeably to mean gross margin, but that misunderstanding may be the menace

MARCH 28TH-31ST 2022

Days

Hours

Min

August 7-10th, 2023

Days

Hours

Min

SHARE THIS ARTICLE