In
finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
, rate risk is the risk of losses caused by
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
changes. The prices of most financial instruments, such as
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
s and
bonds move inversely with interest rates, so investors are subject to
capital loss
Capital loss is the difference between a lower selling price and a higher purchase price or cost price of an eligible Capital asset, which typically represents a financial loss for the seller. This is distinct from losses from selling goods below ...
when rates rise.
In the investment world, there are two types of risk rating. One is to manifest company's credit and another to equity securities. The former is represented by the systems of
Fitch Ratings
Fitch Ratings Inc. is an American credit rating agency and is one of the " Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) ...
,
Moody's
Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides international ...
and
Standard & Poor's
S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is con ...
whereas the later by that of
Comisión Clasificadora de Riesgo
Comisión Clasificadora de Riesgo (CCR) (Risk Rating Commission, RRC) is a Chilean organization which was established in 1985 with the incorporation of Chilean Decree
A decree is a legal proclamation, usually issued by a head of state (such as t ...
, although the two types have some similarities to some extent.
Financial economics
Market risk
Interest rates
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