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Risk (financial)
Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent. A science has evolved around managing market and financial risk under the general title of modern portfolio theory initiated by Dr. Harry Markowitz in 1952 with his article, "Portfolio Selection". In modern portfolio theory, the variance (or standard deviation) of a portfolio is used as the definition of risk. Types According to Bender and Panz (2021), financial risks can be sorted into five different categories. In their study, they apply an algorithm-based framework and identify 193 single financial risk types, which are sorted into the five categories market risk, liquidity risk, credit risk, business risk and investment risk. Market risk The four standard market risk factors are equity ri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is “effect of uncertainty on objectives”. The understanding of risk, the methods of assessment and management, the descriptions of risk and even the definitions of risk differ in different practice areas (business, economics, environment, finance, information technology, health, insurance, safety, security etc). This article provides links to more detailed articles on these areas. The international standard for risk management, ISO 31000, provides principles and generic guidelines on managing risks faced by organizations. Definitions ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Supply And Demand
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a particular Good (economics), good, or other traded item such as Labour supply, labor or Market liquidity, liquid financial assets, will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted. The concept of supply and demand forms the theoretical basis of modern economics. In macroeconomics, as well, the AD–AS model, aggregate demand-aggregate supply model has been used to depict how the quantity of real GDP, total output and the aggregate price level may be determined in equilibrium. Graphical representations Supply schedule A supply schedule, depicted graphically as a supply cu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Derivative (finance)
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be used for a number of purposes, including insuring against price movements ( hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps. Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange, while most insurance contracts have developed into a separate industry. In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hedge (finance)
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts. Public futures markets were established in the 19th century to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations. Etymology Hedging is the practice of taking a position in one market to offset and balance against the risk adopted by assuming a position in a contrary or opposing market or investment. The word hedge is from Old English ''hecg'', originally any fence, living or artificial. The first known use of the word ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Late-2000s Recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression. One result was a serious disruption of normal international relations. The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2012. When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the subprime mortgage crisis. Th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Correlation
In statistics, correlation or dependence is any statistical relationship, whether causal or not, between two random variables or bivariate data. Although in the broadest sense, "correlation" may indicate any type of association, in statistics it usually refers to the degree to which a pair of variables are ''linearly'' related. Familiar examples of dependent phenomena include the correlation between the height of parents and their offspring, and the correlation between the price of a good and the quantity the consumers are willing to purchase, as it is depicted in the so-called demand curve. Correlations are useful because they can indicate a predictive relationship that can be exploited in practice. For example, an electrical utility may produce less power on a mild day based on the correlation between electricity demand and weather. In this example, there is a causal relationship, because extreme weather causes people to use more electricity for heating or cooling. However ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Index Fund
An index fund (also index tracker) is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that the fund can a specified basket of underlying investments.Reasonable Investor(s), Boston University Law Review, available at: https://ssrn.com/abstract=2579510 While index providers often emphasize that they are for-profit organizations, index providers have the ability to act as "reluctant regulators" when determining which companies are suitable for an index. Those rules may include tracking prominent indexes like the S&P 500 or the Dow Jones Industrial Average or implementation rules, such as tax-management, tracking error minimization, large block trading or patient/flexible trading strategies that allow for greater tracking error but lower market impact costs. Index funds may also have rules that screen for social and sustainable criteria. An index fund's rules of construction clearly identify the type of companies suitable for the fund. The most c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Price Of Oil
The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Reference Basket, Tapis crude, Bonny Light, Urals oil, Isthmus and Western Canadian Select (WCS). Oil prices are determined by global supply and demand, rather than any country's domestic production level. The global price of crude oil was relatively consistent in the nineteenth century and early twentieth century. This changed in the 1970s, with a significant increase in the price of oil globally. There have been a number of structural drivers of global oil prices historically, including oil supply, demand, and storage shocks, and shocks to global economic growth affecting oil prices. Notable events driving significant price fluctuations include the 1973 OPEC oil embargo targeting nations that had supported Israel during the Yom Kippur War ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Diversification (finance)
In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets. If asset prices do not change in perfect synchrony, a diversified portfolio will have less variance than the weighted average variance of its constituent assets, and often less volatility than the least volatile of its constituents. Diversification is one of two general techniques for reducing investment risk. The other is hedging. Examples The simplest example of diversification is provided by the proverb "Don't put all your eggs in one basket". Dropping the basket will break all the eggs. Placing each egg in a different basket is more diversified. There is more risk of losing one egg, but less risk of losing all of them. On the other hand, having a lot of baskets may increase costs. In finance, an example of an undiversified portfoli ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
IT Risk
Information technology risk, IT risk, IT-related risk, or cyber risk is any risk related to information technology. While information has long been appreciated as a valuable and important asset, the rise of the knowledge economy and the Digital Revolution has led to organizations becoming increasingly dependent on information, information processing and especially IT. Various events or incidents that compromise IT in some way can therefore cause adverse impacts on the organization's business processes or mission, ranging from inconsequential to catastrophic in scale. Assessing the probability or likelihood of various types of event/incident with their predicted impacts or consequences, should they occur, is a common way to assess and measure IT risks. Alternative methods of measuring IT risk typically involve assessing other contributory factors such as the threats, vulnerabilities, exposures, and asset values. Definitions ISO IT risk: ''the potential that a given threat will e ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Legal Risk
Basel II classified legal risk as a subset of operational risk in 2003. This conception is based on a business perspective, recognizing that there are threats entailed in the business operating environment. The idea is that businesses do not operate in a vacuum and in the exploitation of opportunities and their engagement with other businesses, their activities tend to become subjects of legal liabilities and obligations. One of the primary reasons why legal risk is associated with operational risk involves fraud since it is recognized as the most significant category of operational loss events and considered to be a legal issue as well. This, however, does not mean that legal risk is only confined to this conceptualization. For instance, there are specific sets of legal risks that are defined by European Union (EU) Law. In 2005, the European Central Bank declared that it will develop its own legal risk definition to help "facilitate proper risk assessment and risk managemen ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Reputational Risk
Reputational damage is the loss to financial capital, social capital and/or market share resulting from damage to a firm's reputation. This is often measured in lost revenue, increased operating, capital or regulatory costs, or destruction of shareholder value. Ethics violations, safety issues, security issues, a lack of sustainability, poor quality, and lack of or unethical innovation can all cause reputational damage if they become known. Reputational damage can result from an adverse or potentially criminal event, regardless of whether the company is directly responsible for said event, (as was the case of the Chicago Tylenol murders in 1982). Extreme cases may lead to large financial losses or bankruptcy, as per the case of Arthur Andersen. Reputation is recorded as an intangible asset in a company's financial records. Hence, damage to a firm's reputation has financial repercussions. Minor issues can be amplified by external social processes which lead to even more sev ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
