Question: Risk facing investors Edit
Answer: Risks facing investors and companies with global exposure may be categorized into two broad
categories. Although not orthogonal, these are:
Financial risks, and
Financial Risk: Currency Risk, Economic Risk & Accounting Risk
Financial risk involves the risk having loss that can be calculated in monetary terms.
Currency risk: It is the risk involving loss due to fluctuation in exchange rate.
Economic Risk : It is the risk where economic fundamentals of a country changes for e.g. change in
Accounting Risk : It is the risk when there is mistake done in accounting that may cause financial losses
Political Risk; Firm Risk , Country Risk( transfer & culture), Global Risk
Political risk : Political risk means the risk arising due to political reasons.
Firm Risk : The financial uncertainty faced by an investor who holds securities in a
specific firm. Company risk can be mitigated through diversification; by purchasing securities in
additional companies and uncorrelated assets, investors can limit a portfolio's exposure to the ups and
downs of a single company's performance.
Country Risk : Country risk is the risk that a foreign government will default on its bonds or other
financial commitments. Country risk also refers to the broader notion of the degree to which political
and economic unrest affect the securities of issuers doing business in a particular country.
Global Risk : A global risk is defined as an occurrence that causes significant negative impact for several
countries and industries over a time frame of up to 10 years. Edit
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