Question

What risks are associated with fixed interest securities, such as bonds? How do these risks differ with those associated with money market securities?

Answer 1

Rrisks associated with fixed interest securities:

• Interest rate risk (referring to prevailing interest rates in the market)
• Reinvestment risk
• Call risk [if bonds are redeemable at any time at the option of issuer]
• Credit risk [related to credit rating of issuer]
• Inflation risk
• Volatility risk
• Forex risk
  See more: https://thismatter.com/money/bonds/risks.htm

How do these risks differ with those associated with money market securities?
Most of the risks in fixed income securities such as bonds apply to other securities, but not all risks apply to every fixed income security. When all of the risks mentioned in the earlier section apply to all investments, some of them apply much less to fixed income securities. Money market securities are a subset of fixed income securities, but have a shorter maturity period. This cuts down the risks futher because it can be expected to mature in a shorter and more appropriately foreseeable future (usually less than one year).

(A recommended word limit for this answer would be very useful.)

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