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Definition of Market risk
risk that cannot be diversified away. Related: systematic risk
The amount of total risk that cannot be eliminated by portfolio
Economywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk.
The part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient.
risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.
The slope of the capital market line (CML). Since the CML represents the
A measure of the extra return, or risk premium, that investors demand to bear risk. The
A measure of foreign market risk that is derived from the capital asset pricing model.
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
Line representing the relationship between expected return and market risk.
Also called undiversifiable risk or market risk, the minimum level of risk that can be
If the average maturity of a bank's liabilities is less than that of its assets, it is said to be
A model for estimating equilibrium rates of return and values of
The amount of total risk that cannot be eliminated by portfolio
Theory of the relationship between risk and return which states that the expected risk
an amount or percentage deducted from an equity interest to reflect lack of marketability.
model for calculating DLOM for minority interests r the discount rate
markets in which the prevailing price is determined through the free interaction of
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
Any market in which prices are in a declining trend.
An illegal market.
A market where an intermediary offers search services to buyers and sellers.
Any market in which prices are in an upward trend.
The foreign market in the United Kingdom.
The risk that the cash flow of an issuer will be impaired because of adverse economic
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
Also called spot markets, these are markets that involve the immediate delivery of a security
The risk that a foreign debtor will be unable to pay its debts because of business events,
An agreement between two or more countries that permits the free movement of capital
Common stock market
The market for trading equities, not including preferred stock.
Related: Unsystematic risk
Complete capital market
A market in which there is a distinct marketable security for each and every
The risk that a project will not be brought into operation successfully.
Corner A Market
To purchase enough of the available supply of a commodity or stock in order to
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Refers to the volatility of returns on international investments caused by events associated
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
A market where traders specializing in particular commodities buy and sell assets for their
The market for trading debt instruments.
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
markets for derivative instruments.
Direct search market
Buyers and sellers seek each other directly and transact directly.
Related: unsystematic risk.
Part of a nation's internal market representing the mechanisms for issuing and trading
In project financing, the risk that the project's output will not be salable at a price that will
Efficient capital market
A market in which new information is very quickly reflected accurately in share
Efficient Market Hypothesis
In general the hypothesis states that all relevant information is fully and
In the interbank Eurodollar deposit market, an either-way market is one in which the bid
The financial markets of developing economies.
The money market for borrowing and lending currencies that are held in the form of
The risk that the ability of an issuer to make interest and principal payments will change because
Excess return on the market portfolio
The difference between the return on the market portfolio and the
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
Also referred to as the international market, the offshore market, or, more popularly, the
Fair market price
Amount at which an asset would change hands between two parties, both having
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Federal funds market
The market where banks can borrow or lend reserves, allowing banks temporarily
An organized institutional structure or mechanism for creating and exchanging financial assets.
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
See:diversifiable risk or unsystematic risk.
The market for trading bonds and preferred stock.
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
Foreign banking market
That portion of domestic bank loans supplied to foreigners for use abroad.
Foreign bond market
That portion of the domestic bond market that represents issues floated by foreign
Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Part of a nation's internal market, representing the mechanisms for issuing and trading
A market in which participants agree to trade some commodity, security, or foreign
Direct trading in exchange-listed securities between investors without the use of a broker.
Related: interest rate risk
A market in which contracts for future delivery of a commodity or a security are bought or sold.
risk that arises when an issuer has policies concentrated within certain geographic areas,
Purchases and sales of eurobonds that occur before the issue price is finally set.
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.
Index and Option Market (IOM)
A division of the CME established in 1982 for trading stock index
Also called purchasing-power risk, the risk that changes in the real return the investor will
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
spread The spread between the interest rate offered in two sectors of the bond market for
Intermarket spread swaps
An exchange of one bond for another based on the manager's projection of a
The mechanisms for issuing and trading securities within a nation, including its domestic
Internally efficient market
Operationally efficient market.
Related: See external market.
International Monetary Market (IMM)
A division of the CME established in 1972 for trading financial
Intramarket sector spread
The spread between two issues of the same maturity within a market sector. For
A futures market in which the nearer months are selling at price premiums to the more
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
A market is locked if the bid = ask price. This can occur, for example, if the market is
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