Completion risk refers to the inherent risk within project financing schemes that the project might not be completed on time, within budget, or to the required specifications. This type of risk is a critical concern for investors and stakeholders in large-scale projects.
Cumulative liability is the total of the limits of liability that an insurer or reinsurer has outstanding on a single risk. It includes all contracts from various insurers and covers all lines of coverage for that risk.
A financial ratio illustrating the proportional relationship between a company's debt and its equity, reflecting its financial leverage and risk.
The delinquency rate is a statistical measure that indicates the percentage of loans with overdue payments within a loan portfolio. It is used to assess the financial health and risk exposure of the portfolio.
The likelihood of a specific occurrence affecting a given business or investment. Unlike market or systemic risk, which affects all entities within the same class, event risk is particular to an individual company or portfolio.
Financial risk refers to the potential for volatility in investment performance due to the use of borrowed money. It indicates the possibility of losing money when investing in financial instruments.
A fixed fee is a set price agreed upon for the completion of a project, representing a predetermined total cost regardless of the incurred expenses. This arrangement can provide budget certainty for clients while imposing some financial risk for contractors.
A hedge is a financial transaction designed to mitigate the risk of other financial exposures by balancing potential losses with gains in other financial instruments.
Highly leveraged situations in business or investments involve financing to a large degree using borrowed money, which raises the stakes in terms of financial risk and the potential for both gains and losses.
Liquidity risk refers to the potential risk that an investment cannot be liquidated during its life without significant costs or losses. This is particularly relevant in lending operations, where the ability to quickly convert an asset to cash is crucial.
A long bond is a bond that matures in more than 10 years. These bonds are riskier than shorter-term bonds of the same quality but normally pay investors a higher yield.
Loss of a key person in a business refers to the significant impact on the firm due to the departure of an essential individual from the organization due to death, disability, sickness, resignation, incarceration, or retirement. It can lead to financial instability, loss of market share, and additional expenses in training replacements. Key person insurance helps mitigate these risks.
Market risk is the potential financial loss arising from fluctuations in market prices. This can include risks from buying in a falling market or selling in a rising market. Hedging with futures contracts or options can mitigate, but not eliminate, these risks.
Finance that lies between pure equity and pure debt, often used in management buy-outs. It can take various forms, is usually provided by specialist financial institutions, and offers higher returns than pure debt but lower returns than equity.
A trading position where a trader holds commodities, securities, or currencies that are bought but unsold or unhedged, exposing them to market fluctuations until the position is closed or hedged.
Permanent Interest Bearing Shares (PIBS) are non-redeemable securities issued by building societies that offer a fixed interest rate, usually between 10% and 13.5%, providing high yields in perpetuity. However, they carry significant risks and have a limited second-hand market.
Understanding risk-averse investors who prioritize security over potential higher returns.
A Special Purpose Vehicle (SPV) is a separate legal entity created by a parent company to isolate financial risk. The SPV is often used for a single specific purpose, such as to facilitate complex financial transactions, isolation of assets, and credit enhancement in securitization.
A Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE) is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company allows separation of the parent organization from financial risk.
Speculative risk refers to the possibility of both financial loss and financial gain, characterized by uncertainty and typically not covered by insurance.
A market participant who seeks to profit from buying and selling financial instruments, generally taking on substantial risk and adding liquidity and capital to the markets.
The classification of stocks and bonds according to risk, issued by Standard & Poor's Corporation. S&P's ratings range from Investment Grade for low-risk investments to speculative grades for higher-risk investments.
Translation exposure, also known as accounting exposure, is a type of financial risk that results from the translation of an entity's assets and liabilities from one currency to another.
Unlisted securities, also known as unquoted securities, are typically issued by companies not listed on an official stock exchange. These securities often present higher risks due to less stringent compliance requirements compared to listed securities.
Valuation risk refers to the uncertainties and potential errors that arise when determining the fair value of an asset, liability, or business. This risk can occur in various scenarios, such as during the acquisition of a business or the valuation of over-the-counter market options.
Value-at-Risk (VaR) is a statistical technique developed to measure and quantify the level of financial risk within a firm or portfolio over a specific time frame. It represents the maximum potential loss with a given confidence level.
Value-at-Risk (VaR) is a statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over a specific time frame.
Writing naked refers to a highly speculative strategy where an options trader sells options without holding the underlying security, exposing them to significant risk.
