Risk factor (finance)

[5] Liquidity Risk is when securities cannot be purchased or sold fast enough to cut losses in a volatile market.

[6] Speculative risks are made based on conscious choices, and results in an uncertain degree of gain or loss.

[7] Currency risk is when exchange rates changes will affect the profitability of when one is committed to it and the time when it is carried out.

[8] An example of currency risk would be if interest rates were higher in U.S compared to Australia, the Australian dollar would drop in comparison to the U.S.[9] This is due to the increase in demand for USD as investors take advantage of higher yields, thus exchange rate fluctuates and the individual is exposed to risks in the foreign exchange markets.

[11][12] An example is during the 2007-2008 global financial crisis, when a core sector of the market suffered, the volatile risk created effected the monetary well-being of the entire marketplace.

Businesses can also experience credit risk as the borrowers, as they must manage cash flows in order to pay back their accounts payable (Chen, 2019) (Maverick, 2020) (LaBarre, 2020).

Stock investing comes with very high risks as every single piece of information would cause market prices to fluctuate.

An example is the Fukushima nuclear crisis in 2011, which punished their stocks and caused excessive backlash against any businesses related to the story.

An example of this is the Long Term Capital Management (LTCM) debacle, which caused them great financial loss because of a small error in their computer models, which was magnified by their highly leveraged trading strategy.

[21][22] The change in interest rates would cause aggregate demand to increase or decrease, forcing the market to adjust to the new equilibrium in the long run.

[20][23] For example, if the government were to increase interest rates, business sales would decrease, due to people more willing to save, and vice versa.

[25][26][27] By measuring the securities intrinsic value, they are able to predict the stock price movements and reduce potential risk factors.

[28] Through technical analysis, investors are able to determine the volatility and momentum of the securities, thus reducing financial risks when they decide on who the invest.

[28] Quantitative analysis is the process of gathering data in numerous fields and evaluating their historical performance through financial ratio calculations.