Various Types of Risk

Interest Rate Risk

Interest rate or yield risk is to often used in the context of financial financial instruments and represents the exposure of the owner of the instrument to fluctuations in the value of the instrument in response to changes in interest rates.

Market Risk

The exposure of a security or firm to fluctuations in value as result of operating within an economy is referred to as market risk. Market risk is sometimes referred to as nondiversifiable risk because it is a risk inherent in the operation within the economy.

Credit Risk

Credit Risk impacts borrowers. Exposure to credit risk includes a company's inability to secure financing or secure unfavorable credit terms as a result of poor credit ratings. As credit ratings declines, interest rates demanded by lenders increase and other terms are generally less favorable to the borrower.

Defult Risk

Defult risk impacts lenders. An organization is exposed to defult risk to the extent that it is possible that its debtors may not repay the principal or interest due on their indebtedness.