Cash Flow at Risk (CFaR) is a financial metric used to quantify the risk to a firm's cash flows over a specific time period under normal market conditions. It leverages the concept of Value-at-Risk (VaR) to estimate the potential deviation in cash flows, helping firms to manage liquidity risk and financial planning.
A financial arrangement in which both the maximum (cap) and minimum (floor) rate of interest payable on a loan are fixed in advance, offering protection against interest rate fluctuations.
Collateral refers to a valuable asset that a borrower offers to a lender as a way to secure a loan. This asset provides security to the lender in the event the borrower defaults on the loan.
A leveraged company is a business that has debt in addition to equity in its capital structure. The term is often used to describe companies that are highly leveraged, typically industrial companies with more than one-third of their capitalization in the form of debt.
A naked position, also known as an uncovered or open position, refers to the practice of entering into a derivatives contract—such as options or futures—without holding the underlying asset involved in the contract.
Purchasing power risk refers to the risk that inflation will erode the value of the currency in which an investment or deal has been made, effectively reducing the real return on investment over time.
Risk financing transfer involves paying an insurance premium to an insurance firm to cover certain risk hazards, thereby transferring the financial consequences of those risks.
Risk-financing techniques involve strategies used to reduce financial risk through methods such as risk retention or risk-financing transfer.
Translation risk, also known as currency risk, is the monetary value risk that occurs in international trade when two or more currencies are used in a transaction. The longer the period before the transaction ends, the greater the translation risk.
