Question

Why do bonds have the greatest exposure?

Answer 1

There are various reasons for bonds havng great exposure

1. Interest Risk:- Now every bond investor knows that if interest rate rises in future then the bond prices will decrease & investor can look for attractive return elsewhere so before investing , make sure you assess the duration of bond(short ter, long term) and invest wisely

2. Risk of Inflation:- As bonds carry a fixed rate of return, they are vulnerable to inflation rise because inflation ultimately leads to high interest rate and declining bond prices

3. Liquidity Risk:- Now this risk depends upon type of bond. If Bonds are Government Bonds then they are highly iquid whereas if you invest in Corporate bonds, you may find difficulty for finding a buyer & you may sell it at discount & therefore resulting in loss

4. Credit Risk:- The risk that issuer will default in paying interest or principal payments are high in Corporates which are prone to more risk or corporates which have been assigned negative rating by rating agencies