4. SYSTEMETIC 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 right asset
allocation strategy.
6. Definition of 'Market Risk'
The possibility for an investor to experience
losses due to factors that affect the overall
performance of the financial markets. Market
risk, also called "systematic risk," cannot be
eliminated through diversification, though it
can be hedged against. The risk that a major
natural disaster will cause a decline in the
market as a whole is an example of market
risk. Other sources of market risk include
recessions, political turmoil, changes in
interest rates and terrorist attacks.
7. Definition of 'Interest Rate Risk'
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 other interest rate
relationship. Such changes usually affect
securities inversely and can be reduced by
diversifying (investing in fixed-income
securities with different durations) or
hedging (e.g. through an interest rate
swap).
8. Definition of 'Purchasing Power'
1. The value of a currency
expressed in terms of the amount
of goods or services that one unit
of money can buy. Purchasing
power is important because, all
else being equal, inflation
decreases the amount of goods or
services you'd be able to
purchase.
9. Definition of '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.