Module IV·Article I·~1 min read
Types of Risks
Risk Management
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Types of Risks
Types of risks
Market risk (systematic risk) — the risk that the entire market will fall (cannot be avoided by diversification)
Specific risk (unsystematic risk) — company risk (bad CEO, competition) — can be avoided by diversification
Credit risk — risk of default (the borrower does not return the money)
Liquidity risk — risk that you cannot quickly sell an asset without losses
Currency risk (FX risk) — risk of changes in exchange rates
Interest rate risk — risk of changes in interest rates (bonds become cheaper when rates rise)
Inflation risk — risk that inflation will eat away at income
Political risk — risk of sanctions, revolutions, war in the country of investment
Regulatory risk — risk of changes in laws (for example, banning crypto)
Operational risk — risk of human error, system failure (not business risk, but management risk)
Counterparty risk — risk that the counterparty in the transaction goes bankrupt (for example, a broker)
Concentration risk — risk that you invested everything in one thing (diversification is needed)
Tail risk — risk of extreme event (“black swan,” probable tail of distribution)
Black swan events — completely unexpected events with great impact (COVID, 2008 crisis)
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