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Financial Terms | |
market risk |
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Definition of market riskmarket riskEconomywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk. Market riskrisk that cannot be diversified away. Related: systematic risk Market RiskThe amount of total risk that cannot be eliminated by portfolio Market RiskThe part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient.
Related Terms:market risk premiumrisk premium of market portfolio. Difference between market return and return on risk-free Treasury bills. Equilibrium market price of riskThe slope of the capital market line (CML). Since the CML represents the Market price of riskA measure of the extra return, or risk premium, that investors demand to bear risk. The Capital Asset Pricing Model (CAPM)A model for estimating equilibrium rates of return and values of ![]() capital asset pricing model (CAPM)Theory of the relationship between risk and return which states that the expected risk Foreign market betaA measure of foreign market risk that is derived from the capital asset pricing model. Idiosyncratic RiskUnsystematic risk or risk that is uncorrelated to the overall market risk. In other words, Security market lineLine representing the relationship between expected return and market risk. Systematic riskAlso called undiversifiable risk or market risk, the minimum level of risk that can be Systematic RiskThe amount of total risk that cannot be eliminated by portfolio Unmatched bookIf the average maturity of a bank's liabilities is less than that of its assets, it is said to be Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Auction marketsmarkets in which the prevailing price is determined through the free interaction of ![]() Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. Basis riskThe uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for Bear marketAny market in which prices are in a declining trend. bear marketA market in which stock or bond prices are generally Bear MarketA prolonged period of falling stock market prices. Beta riskrisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. Black marketAn illegal market. Brokered marketA market where an intermediary offers search services to buyers and sellers. Bull marketAny market in which prices are in an upward trend. bull marketA market in which stock or bond prices are generally rising. Bull MarketA prolonged period of rising stock market prices. Bulldog marketThe foreign market in the United Kingdom. Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic Call riskThe combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Capital marketThe market for trading long-term debt instruments (those that mature in more than one year). Capital marketThe market in which investors buy and sell shares of companies, normally associated with a Stock Exchange. Capital MarketA market that specializes in trading long-term, relatively high risk Capital MarketThe market in which savings are made available to those needing funds to undertake investment projects. A financial market in which longer-term (maturity greater than one year) bonds and stocks are traded. Capital market efficiencyReflects the relative amount of wealth wasted in making transactions. An efficient Capital market imperfections viewThe 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. capital marketsmarkets for long-term financing. Cash marketsAlso called spot markets, these are markets that involve the immediate delivery of a security Commercial riskThe risk that a foreign debtor will be unable to pay its debts because of business events, Common marketAn agreement between two or more countries that permits the free movement of capital Common stock marketThe market for trading equities, not including preferred stock. Company-specific riskRelated: Unsystematic risk Companyspecific RiskSee asset-specific risk Complete capital marketA market in which there is a distinct marketable security for each and every Completion riskThe risk that a project will not be brought into operation successfully. Corner A MarketTo purchase enough of the available supply of a commodity or stock in order to Counterparty riskThe risk that the other party to an agreement will default. In an options contract, the risk Country financial riskThe ability of the national economy to generate enough foreign exchange to meet Country risk GeneralLevel of political and economic uncertainty in a country affecting the value of loans or Credit riskThe risk that an issuer of debt securities or a borrower may default on his obligations, or that the Credit RiskFinancial and moral risk that an obligation will not be paid and a loss will result. Cross-border riskRefers to the volatility of returns on international investments caused by events associated Currency riskRelated: Exchange rate risk Currency risk sharingAn agreement by the parties to a transaction to share the currency risk associated with Dealer marketA market where traders specializing in particular commodities buy and sell assets for their Debt marketThe market for trading debt instruments. Default riskAlso referred to as credit risk (as gauged by commercial rating companies), the risk that an Derivative marketsmarkets for derivative instruments. Direct search marketBuyers and sellers seek each other directly and transact directly. Diversifiable riskRelated: unsystematic risk. DLOM (discount for lack of marketability)an amount or percentage deducted from an equity interest to reflect lack of marketability. Domestic marketPart of a nation's internal market representing the mechanisms for issuing and trading Economic riskIn project financing, the risk that the project's output will not be salable at a price that will Efficient capital marketA market in which new information is very quickly reflected accurately in share efficient capital marketsFinancial markets in which security prices rapidly reflect all relevant information about asset values. Efficient Market HypothesisIn general the hypothesis states that all relevant information is fully and Efficient Markets HypothesisThe hypothesis that securities are typically in equilibrium--that they are fairly priced in the sense that the price reflects all publicly available information on the security. Either-way marketIn the interbank Eurodollar deposit market, an either-way market is one in which the bid Emerging marketsThe financial markets of developing economies. Equity marketRelated:Stock market Eurocurrency marketThe money market for borrowing and lending currencies that are held in the form of Event riskThe risk that the ability of an issuer to make interest and principal payments will change because Excess return on the market portfolioThe difference between the return on the market portfolio and the Exchange rate riskAlso called currency risk, the risk of an investment's value changing because of currency Exchange riskThe variability of a firm's value that results from unexpected exchange rate changes or the External marketAlso referred to as the international market, the offshore market, or, more popularly, the Fair market priceAmount at which an asset would change hands between two parties, both having Fair market valueThe price that an asset or service will fetch on the open market. Fair Market ValueThe highest price available, expressed in terms of cash, in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to transact. Fallout riskA type of mortgage pipeline risk that is generally created when the terms of the loan to be Farm Improvement and Marketing Cooperatives Loans ActSee here Federal funds marketThe market where banks can borrow or lend reserves, allowing banks temporarily Federal Open Market Committee (FOMC)Fed committee that makes decisions about open-market operations. Financial marketAn organized institutional structure or mechanism for creating and exchanging financial assets. financial marketsmarkets in which financial assets are traded. Financial riskThe risk that the cash flow of an issuer will not be adequate to meet its financial obligations. financial riskrisk to shareholders resulting from the use of debt. Firm-specific riskSee:diversifiable risk or unsystematic risk. Fixed-income marketThe market for trading bonds and preferred stock. Flat price riskTaking a position either long or short that does not involve spreading. Force majeure riskThe risk that there will be an interruption of operations for a prolonged period after a Foreign banking marketThat portion of domestic bank loans supplied to foreigners for use abroad. Foreign bond marketThat portion of the domestic bond market that represents issues floated by foreign Foreign equity marketThat portion of the domestic equity market that represents issues floated by foreign companies. Foreign Exchange MarketA worldwide market in which one country's currency is bought or sold in exchange for another country's currency. Foreign exchange riskThe risk that a long or short position in a foreign currency might have to be closed out Foreign marketPart of a nation's internal market, representing the mechanisms for issuing and trading Forward Exchange MarketA market in which foreign exchange can be bought or sold for delivery (and payment) at some specified future date but at a price agreed upon now. Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |