Risk - The probability that an actual return on an investment will be lower than the expected return.

Risk Management - The identification, analysis, assessment, control, and avoidance, minimization, or elimination of
unacceptable risks.

Financial risk - The possibility that shareholders will lose money when they invest in a

company that has debt, if the company's cash flow proves inadequate to meet its financial
obligations. When a company uses debt financing, its creditors will be repaid before its
shareholders if the company becomes insolvent.
Financial risk management - is the practice of economic value in a firm by
usingfinancial instruments to manage exposure to risk, particularly credit risk and marketrisk.
Enterprise risk management (ERM) is the process of planning, organizing, leading, and
controlling the activities of an organization in order to minimize the effects of riskon an
organization's capital and earnings.

Systematic Risk - The risk inherent to the entire market or an entire market segment.
Systematic risk, also known as undiversifiable risk, volatility or market risk, affects the
overall market, not just a particular stock or industry. This type of risk is both unpredictable
and impossible to completely avoid. It cannot be mitigated through diversification, only
through hedging or by using the rightasset allocation strategy.
Unsystematic Risk - Company- or industry-specific hazard that is inherent in each
investment. Unsystematic risk, also known as nonsystematic risk, "specific risk,"
"diversifiable risk" or "residual risk," can be reduced through diversification. By
owning stocks in different companies and in different industries, as well as by owning other
types of securities such as Treasuries and municipal securities, investors will be less
affected by an event or decision that has a strong impact on one company, industry or
investment type. Examples of unsystematic risk include a new competitor, a regulatory
change, a management change and a product recall.
Operational risk is the risk not inherent in financial, systematic or market-wide risk. It is
the risk remaining after determining financing and systematic risk, and includesrisks resulting
from breakdowns in internal procedures, people and systems.

Credit risk is the risk of loss of principal or loss of a financial reward stemming from a
borrower's failure to repay a loan or otherwise meet a contractual obligation. Credit risk
arises whenever a borrower is expecting to use future cash flows to pay a current debt.

The interest rate risk is the risk that an investment's value will change due to a change in the
absolute level of interest rates, in the spread between two rates, in the shape of the yield curve
or in any otherinterest rate relationship.
Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is a
financial risk that exists when a financial transaction is denominated in acurrency other than
that of the base currency of the company.
Liquidity risk is the risk that a company or bank may be unable to meet short term financial
demands. This usually occurs due to the inability to convert a security or hard asset to cash
without a loss of capital and/or income in the process.
The risk that tax laws relating to dividend income and capital gains on shares and other securities might change,
making stocks less attractive.

Political risk is a type of risk faced by investors, corporations, and governments

thatpolitical decisions, events, or conditions will significantly affect the profitability of a business
actor or the expected value of a given economic action.

Call risk - The risk, faced by a holder of a callable bond, that a bond issuer will take
advantage of the callable bond feature and redeem the issue prior to maturity. This means
the bondholder will receive payment on the value of the bond and, in most cases, will be
reinvesting in a less favorable environment (one with a lower interest rate).
Reinvestment risk is the chance that an investor will not be able to reinvest cash flows from
an investment at a rate equal to the investment's current rate of return.
Inflation risk, also called purchasing power risk, is the chance that the cash flows from an
investment won't be worth as much in the future because of changes in purchasing power due
to inflation.

Legal Risk - A description of the potential for loss arising from

the uncertainty of legal proceedings, such as bankruptcy, and potential legal proceedings.
Return - The annual return on an investment, expressed as a percentage of
the total amount invested. also called rate of return.
A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as
well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held
directly by investors and/or managed by financial professionals.
Risk averse is a description of an investor who, when faced with two investments with a

similar expected return (but different risks), will prefer the one with the lower risk.
Risk neutral is indifference to risk. The risk-neutral investor would be in the middle of the
continuum represented by risk-seeking investors at one end, and risk-averse investors at the
other extreme. Risk-neutral measures find extensive application in the pricing of derivatives.

Risk seeking is the search for greater volatility and uncertainty in investments in exchange for
anticipated higher returns.

Scenario analysis is the process of estimating the expected value of a portfolio after a given
period of time, assuming specific changes in the values of the portfolio's securities or key
factors that would affect security values, such as changes in the interest rate.
Range - The difference between the low and high prices for a security or index over a
specific time period. Range defines the price spread for a defined period, such as a day or
year, and indicates the securitys price volatility. The more volatile the security or index, the
wider the range. The range expands over greater time periods; a securitys daily range will
generally be smaller than its52-week range, which in turn will be tighter than its five-year or
10-year range. Technical analysts closely follow ranges since they are very useful in
pinpointing entry and exit points for trades.
The probability of an event is the measure of the chance that the event will occur as a result of
an experiment.

Standard deviation is a measure of the dispersion of a set of data from its mean; more
spread-apart data has a higher deviation. Standard deviation is calculated as the square
root of variance. In finance, standard deviation is applied to the annual rate of return of an
investment to measure the investment's volatility.
A coefficient of variation (CV) is a statistical measure of the dispersion of data points in a
data series around the mean. It is calculated as follows: (standard deviation) / (expected
value). The coefficient of variation represents the ratio of the standard deviation to the
mean, and it is a useful statistic for comparing the degree of variation from one data series

to another, even if the means are drastically different from one another. It is calculated as
follows:

The correlation is one of the most common and most useful statistics. A correlation is a single
number that describes the degree of relationship between two variables. Correlation is a
statistical technique that can show whether and how strongly pairs of variables are related.
Beta coefficient is a measure of sensitivity of a share price to movement in the market price. It
measures systematic risk which is the risk inherent in the whole financial system. Beta
coefficient is an important input in capital asset pricing model to calculate required rate of
return on a stock.
The capital asset pricing model (CAPM) is a modelthat describes the relationship between
risk and expected return and that is used in the pricing of risky securities. The general idea
behind CAPM is that investors need to be compensated in two ways: time value of money and
risk.

The risk-free rate of return is the theoretical rate of return of an investment with zero risk.
The risk-free rate represents the interest an investor would expect from an absolutely riskfree investment over a specified period of time.
The security market line (SML) is a line that graphs the systematic, or market, risk versus
return of the whole market at a certain time and shows all risky marketable securities. Also
referred to as the "characteristic line." The SML essentially graphs the results from the capital
asset pricing model (CAPM) formula.
Value at risk (VaR) is a statistical technique used to measure and quantify the level of
financial risk within a firm or investment portfolio over a specific time frame.
The Basel Accords are a set of agreements set by the Basel Committee on Bank Supervision
(BCBS), which provides recommendations on banking regulations in regards to capital risk,
market risk and operational risk.