Korea Omega Management: Risk of Interest Rate

SEOUL, South Korea - Nov. 9, 2022 - PRLog -- Risk of Interest Rate

Risks that may deviate bonds or other debt investments.

This risk is present for getting a loan to start your investment.

The risk of losing cash is due to a change in the interest rate. For starters, the stock value of bonds will decrease if the interest rate goes up.

Credit Risk

This risk pertains to the risk of financial problems being faced by the government institution or corporation issuing the bond and not paying the interest or redeem the principal at maturity. For debt assets such as bonds, collateral risk applies.

By looking at the bond's credit value, you will determine credit risk.

Currency Risk

Currency risk refers to foreign investments you have made.

This risk is the possibility of losing money due to a change in the exchange rate.

Your U.S. currency would be worth less than Canadian dollars, for instance, as the U.S. currency becomes less expensive compared to the Canadian dollar.

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Risk of Liquidity

The risk comes in when you cannot trade off your investment at a reasonable price and not be able to get your money out when you like to.

You will have to consider a discounted price to sell the investment.

In certain situations, like exempt market transactions, selling the investment will not be feasible at all.

Horizon Risk

The possibility of cutting your investment period due to unexpected events, like being fired from your work.

This event will cause you to sell long-term assets that you were hoping to retain.

You may lose money if you must sell at a time when the markets are down.

Risk of Inflation

Inflation is one risk we cannot control.

The risk of a decline in your buying power because inflation negatively affects the value of your investments.

Over time inflation weakens money's buying power-the same quantity of money can acquire fewer goods and services.

Real estate also provides some protection since rents can be raised over time.

If you possess debt or cash assets such as bonds, inflation risk is especially significant.

Shares provide some insurance from inflation, and the rates they charge most firms will increase their customers.

Therefore, share prices need to increase in line with inflation.

By Korea Omega Management (https://omegamngmnt.com)