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Country risk General

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Definition of Country risk General

Country Risk General Image 1

Country risk General

Level of political and economic uncertainty in a country affecting the value of loans or
investments in that country.



Related Terms:

Asset-specific Risk

The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as company-specific risk or
unsystematic risk.


Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.


Basis risk

The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
price risk.


Beta risk

risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.


Business risk

The risk that the cash flow of an issuer will be impaired because of adverse economic
conditions, making it difficult for the issuer to meet its operating expenses.



Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.


Commercial risk

The risk that a foreign debtor will be unable to pay its debts because of business events,
such as bankruptcy.


Country Risk General Image 2

Company-specific risk

Related: Unsystematic risk


Companyspecific Risk

See asset-specific risk


Completion risk

The risk that a project will not be brought into operation successfully.


Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk
to the option buyer that the option writer will not buy or sell the underlying as agreed.
country economic risk Developments in a national economy that can affect the outcome of an international
financial transaction.


Country beta

Covariance of a national economy's rate of return and the rate of return the world economy
divided by the variance of the world economy.


Country financial risk

The ability of the national economy to generate enough foreign exchange to meet
payments of interest and principal on its foreign debt.


Country selection

A type of active international management that measures the contribution to performance
attributable to investing in the better-performing stock markets of the world.


Credit risk

The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
payment may not be made on a negotiable instrument. Related: Default risk


Credit Risk

Financial and moral risk that an obligation will not be paid and a loss will result.


Country Risk General Image 3

Cross-border risk

Refers to the volatility of returns on international investments caused by events associated
with a particular country as opposed to events associated solely with a particular economic or financial agent.


Currency risk

Related: Exchange rate risk



Currency risk sharing

An agreement by the parties to a transaction to share the currency risk associated with
the transaction. The arrangement involves a customized hedge contract embedded in the underlying
transaction.


Default risk

Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
issuer of a bond may be unable to make timely principal and interest payments.


Diversifiable risk

Related: unsystematic risk.


Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.


Equilibrium market price of risk

The slope of the capital market line (CML). Since the CML represents the
return offered to compensate for a perceived level of risk, each point on the line is a balanced market
condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a
unit change in risk.


Event risk

The risk that the ability of an issuer to make interest and principal payments will change because
of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural
or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.


Exchange rate risk

Also called currency risk, the risk of an investment's value changing because of currency
exchange rates.


Exchange risk

The variability of a firm's value that results from unexpected exchange rate changes or the
extent to which the present value of a firm is expected to change as a result of a given currency's appreciation
or depreciation.


Fallout risk

A type of mortgage pipeline risk that is generally created when the terms of the loan to be
originated are set at the same time as the sale terms are set. The risk is that either of the two parties, borrower
or investor, fails to close and the loan "falls out" of the pipeline.


Country Risk General Image 4

Financial risk

The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
Also referred to as the additional risk that a firm's stockholder bears when the firm utilizes debt and equity.



financial risk

risk to shareholders resulting from the use of debt.


Firm-specific risk

See:diversifiable risk or unsystematic risk.


Flat price risk

Taking a position either long or short that does not involve spreading.


Force majeure risk

The risk that there will be an interruption of operations for a prolonged period after a
project finance project has been completed due to fire, flood, storm, or some other factor beyond the control
of the project's sponsors.


Foreign exchange risk

The risk that a long or short position in a foreign currency might have to be closed out
at a loss due to an adverse movement in the currency rates.


Funding risk

Related: interest rate risk


General Agreement

on Tariffs and Trade (GATT) a treaty
among many nations setting standards for tariffs and trade
for signees


GENERAL-AND-ADMINISTRATIVE EXPENSES

What was spent to run the non-sales and non-manufacturing part of a company, such as office salaries and interest paid on loans.


General cash offer

A public offering made to investors at large.


general cash offer

Sale of securities open to all investors by an already-public company.


General ledger

A book that contains all the accounts of the company and the balances of those accounts.


General ledger

The master set of accounts that summarizes all transactions occurring
within a company. There may be a subsidiary set of ledgers that summarizes into the
general ledger.


General obligation bonds

Municipal securities secured by the issuer's pledge of its full faith, credit, and
taxing power.


General partner

A partner who has unlimited liability for the obligations of the partnership.


General partnership

A partnership in which all partners are general partners.


Generally Accepted Accounting Principals (GAAP)

A technical accounting term that encompasses the
conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.


Generally accepted accounting principles

The rules that accountants follow when processing accounting transactions and creating financial reports. The rules are primarily
derived from regulations promulgated by the various branches of the AICPA Council.


generally accepted accounting principles (GAAP)

This important term
refers to the body of authoritative rules for measuring profit and preparing
financial statements that are included in financial reports by a business
to its outside shareowners and lenders. The development of these
guidelines has been evolving for more than 70 years. Congress passed a
law in 1934 that bestowed primary jurisdiction over financial reporting
by publicly owned businesses to the Securities and Exchange Commission
(SEC). But the SEC has largely left the development of GAAP to the
private sector. Presently, the Financial Accounting Standards Board is
the primary (but not the only) authoritative body that makes pronouncements
on GAAP. One caution: GAAP are like a movable feast. New rules
are issued fairly frequently, old rules are amended from time to time,
and some rules established years ago are discarded on occasion. Professional
accountants have a heck of time keeping up with GAAP, that’s for
sure. Also, new GAAP rules sometimes have the effect of closing the barn
door after the horse has left. Accounting abuses occur, and only then,
after the damage has been done, are new rules issued to prevent such
abuses in the future.


generally accepted accounting principles (GAAP)

Procedures for preparing financial statements.


Generally Accepted Accounting Principles (GAAP)

A common set of standards and procedures
for the preparation of general-purpose financial statements that either have been established
by an authoritative accounting rule-making body, such as the Financial Accounting
Standards Board (FASB), or over time have become accepted practice because of their universal
application.


Generally Accepted Accounting Principles (GAAP)

GAAP is the term used to describe the underlying rules basis on which financial statements are normally prepared. This is codified in the Handbook of The Canadian Institute of Chartered Accountants.


Geographic risk

risk that arises when an issuer has policies concentrated within certain geographic areas,
such as the risk of damage from a hurricane or an earthquake.


Herstatt risk

The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.


High-Risk Small Business

Firm viewed as being particularly subject to risk from an investors perspective.


Idiosyncratic Risk

Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
the risk that is firm specific and can be diversified through holding a portfolio of stocks.


Inflation risk

Also called purchasing-power risk, the risk that changes in the real return the investor will
realize after adjusting for inflation will be negative.


Insolvency risk

The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.


Interest rate risk

The risk that a security's value changes due to a change in interest rates. For example, a
bond's price drops as interest rates rise. For a depository institution, also called funding risk, the risk that
spread income will suffer because of a change in interest rates.


Interest Rate Risk

Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.


judgmental method (of risk adjustment)

an informal method of adjusting for risk that allows the decision maker
to use logic and reason to decide whether a project provides
an acceptable rate of return


Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.


Liquidity risk

The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
between the "true value" of the asset and the likely price, less commissions.


Market price of risk

A measure of the extra return, or risk premium, that investors demand to bear risk. The
reward-to-risk ratio of the market portfolio.


Market risk

risk that cannot be diversified away. Related: systematic risk


Market Risk

The amount of total risk that cannot be eliminated by portfolio
diversification. The risk inherent in the general economy as a
whole. Also known as systemic risk.


market risk

Economywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk.


Market Risk

The part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient.


market risk premium

risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.


Mortgage-pipeline risk

The risk associated with taking applications from prospective mortgage borrowers
who may opt to decline to accept a quoted mortgage rate within a certain grace period.


Nondiversifiable risk

risk that cannot be eliminated by diversification.


Nonsystematic risk

Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
called unique risk or diversifiable risk. Systematic risk refers to risk factors common to the entire economy.


Operating risk

The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
created by operating leverage. Also called business risk.


operating risk (business risk)

risk in firm’s operating income.


Overnight delivery risk

A risk brought about because differences in time zones between settlement centers
require that payment or delivery on one side of a transaction be made without knowing until the next day
whether the funds have been received in an account on the other side. Particularly apparent where delivery
takes place in Europe for payment in dollars in New York.


Political risk

Possibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of
foreign currency, or other changes in the business climate of a country.


Price risk

The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of
mortgage-pipeline risk created in the production segment when loan terms are set for the borrower in advance
of terms being set for secondary market sale. If the general level of rates rises during the production cycle, the
lender may have to sell his originated loans at a discount.


Product risk

A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or
inventory but does not have a sale commitment at a prearranged price.


Purchasing-power risk

Related: inflation risk


Rate risk

In banking, the risk that profits may decline or losses occur because a rise in interest rates forces up
the cost of funding fixed-rate loans or other fixed-rate assets.


Regulatory pricing risk

risk that arises when regulators restrict the premium rates that insurance companies
can charge.


Reinvestment risk

The risk that proceeds received in the future will have to be reinvested at a lower potential
interest rate.


Residual risk

Related: unsystematic risk


Reverse price risk

A type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an
investor at rates prevailing at application but sets the note rates when the borrowers close. The lender is thus
exposed to the risk of falling rates.


Risk

Typically defined as the standard deviation of the return on total investment. Degree of uncertainty of
return on an asset.


risk

uncertainty; it reflects the possibility of differences between
the expected and actual future returns from an investment


Risk

The degree of uncertainty associated with the return on an asset.


Risk

A state in which the number of possible future events exceeds the number of events that will actually occur, and some measure of probability can be attached to them.


risk

risk measures the possibility that your investment may lose or gain value as compared to the expected rate of return. risk is different from uncertainty, which is not measurable.


Risk

Calculated chance of loss.


Risk-adjusted

return Return earned on an asset normalized for the amount of risk associated with that asset.


risk-adjusted discount rate method

a formal method of adjusting for risk in which the decision maker increases the rate used for discounting the future cash flows to compensate for increased risk


Risk-adjusted profitability

A probability used to determine a "sure" expected value (sometimes called a
certainty equivalent) that would be equivalent to the actual risky expected value.


Risk arbitrage

Speculation on perceived mispriced securities, usually in connection with merger and
acquisition deals. Mike Donatelli, John Demasi, Frank Cohane, and Scott Lewis are all hardcore arbs. They
had a huge BT/MCI position in the summer of 1997, and came out smelling like roses.


Risk averse

A risk-averse investor is one who, when faced with two investments with the same expected
return but two different risks, prefers the one with the lower risk.


Risk class

A group of insureds who present similar risk to the insurance company. risk classes include - standard, preferred, nonsmoker, substandard, uninsurable.


Risk classes

Groups of projects that have approximately the same amount of risk.


Risk controlled arbitrage

A self-funding, self-hedged series of transactions that generally utilize mortgage
securities as the primary assets.


Risk-free asset

An asset whose future return is known today with certainty.


Risk-free rate

The rate earned on a riskless asset.


Risk-free Rate

The rate of return on an investment with known future benefits; a
riskless rate of return, often estimated using the return earned on
short-term U.S. Treasury securities


Risk-Free Rate

The rate of return obtainable on government of Canada treasury bills.



 

 

 

 

 

 

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