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Financial Risk Management Key Concepts

Key Concepts

Key Concepts provide you with definitions of buzzwords appearing in the media to ensure that you are up to speed with the current finance conversation. Produced in snapshot, glossary form, Key Concepts direct you to additional material to increase your knowledge and satisfy your interest.

  • Currency Risk
    Currency risk refers to the possibility that movements in foreign exchange rates could affect the value of a business operation or an investment. Whenever an investment or agreement is made based on one currency, movements of that currency against other currencies can have a significant impact on the value or performance for investors or partners using other base currencies. For example, a US investor choosing to invest in German equities could...
  • Derivatives
    Derivatives are powerful financial instruments with valuations based on the level of an underlying asset or a market index. Futures and options are commonly used forms of exchange-traded derivatives that offer tightly controlled, transparent clearing and settlement processes. However, over-the-counter (OTC) derivatives can be considerably more complex in structure. Derivatives can permit the use of leverage, meaning that users of products such...
  • Interest Rate Risk
    Interest rate risk represents the extent to which an asset or investment’s value could be influenced by movements in variable interest rates. Some investments carry greater direct exposure to interest rate risk than others; given their fixed rates of returns, bonds are more exposed to the impact of interest rate movements than equities, with the result than bond prices tend to move inversely relative to interest rates and inflation. For example,...

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