Identity and briefly discuss five sources of risk.

Expert Solution

Sources of risk-

Interest rate risk

There is always an inverse relationship between price and interest rate in the market. It depends on the market volatility. Performance of the securities are rely on the Percentage of interest rate. Annual returns will be affected from it.

Inflation risk

Inflation risk is associated with purchasing power of the investors. High inflation period will reduce the investment ability of foreign investors. As a result business will not be able to maximize their capital growth.

Market risk

It deals with fluctuations in the stock market due to price volatility. Equity stocks are mostly affected in the secondary market due to price variations and sales of portfolio securities.

Liquidity risk

Liquidity risk is the risk associated with purchase and sale of a security which can deliver immediate cash to the market or investors. Liquidity risk will be high in relation to time aspect arid to price concession.

Exchange rate risk

It deals with international investment and rate of exchange associated with foreign currency conversion. Variations in returns will occur due to currency rate fluctuations in the Forex market trading.

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