Q1: 20 years: In the late 1990s the gold price reached its lowest level in real terms for two decades. The reasons why it was so weak during the so-called “Clinton boom” from 1995 to 2001 come surprisingly from MMT (modern monetary theory), a theory that in many points opposes gold, in particularly because its proponents are in love with fiat, “the lawful act to declare paper as money”. However, they do not like excessive private debt, which is an idea common to Austrian economists. But much of the stage was set in 2008 for gold’s rise in 2009 – and for the next few years – when the global financial crisis was entering its darkest days. To recap what happened in the last quarter of 2008, the U.S. Treasury seized control of mortgage lenders Fannie Mae and Freddie Mac in September 2008 and said it offered a $200 billion cash injection for firms dealing with mortgage default losses. The most immediate reason for gold’s woes is the strong dollar. Gold is priced in dollars, so if the American currency goes up, investors mark down the yellow metal accordingly. An added factor is that the dollar is rising because of the revival of the American economy, which is bringing the prospect of higher interest rates. 6 menthes: In December, the price of gold was at the top level and that due to at the end of December the price of gold was decreased suddenly. The big news of course is that the Fed hiked rates another 25 basis points. So far, stock market speculators don’t seem to care. They should. The present value of all future earnings depends on the interest rate, and every upwards tick is a substantial downward revision of earnings in out years. However, the bull is so strongly entrenched that it may take a while for this to sink in. We also think of the companies who were borrowing to buy their own shares, and for that matter borrowing to pay dividends. Q2: a. Credit risk: is the type of risk of evasion on a debt that may emerge from a borrower failing to do needed payments. Firstly, the risk is that of the lender which includes lost principal and interest, interruption to cash flows, together with improved collection costs. This loss may be complete or partial. In an efficient market, higher points of credit risk will always be related with huge borrowing costs in an efficient market type. Following this measures of borrowing costs which includes yield spreads can be used to surmise credit risk levels grounded on assessments by current market participants. A good existing example is what happens in local retail shop where buyer in this case will lend money or take goods on credit suggesting to pay later but unfortunately fail to respect that deal. There actually two kinds of risks associated with bonds that is interest risk and credit risk. They can have very dissimilar impacts on various assets within the bond market. As earlier learnt that interest is the vulnerability of a bond or fixed income asset class to movements in the prevailing rates b. In ...

1. Q1:
20 years: In the late 1990s the gold price reached its lowest
level in real terms for two decades. The reasons why it was so
weak during the so-called “Clinton boom” from 1995 to 2001
come surprisingly from MMT (modern monetary theory), a
theory that in many points opposes gold, in particularly because
its proponents are in love with fiat, “the lawful act to declare
paper as money”. However, they do not like excessive private
debt, which is an idea common to Austrian economists.
But much of the stage was set in 2008 for gold’s rise in 2009 –
and for the next few years – when the global financial crisis was
entering its darkest days. To recap what happened in the last
quarter of 2008, the U.S. Treasury seized control of mortgage
lenders Fannie Mae and Freddie Mac in September 2008 and
said it offered a $200 billion cash injection for firms dealing
with mortgage default losses. The most immediate reason for
gold’s woes is the strong dollar. Gold is priced in dollars, so if
the American currency goes up, investors mark down the yellow
metal accordingly. An added factor is that the dollar is rising
because of the revival of the American economy, which is
bringing the prospect of higher interest rates.
6 menthes: In December, the price of gold was at the top level
and that due to at the end of December the price of gold was
decreased suddenly. The big news of course is that the Fed
hiked rates another 25 basis points. So far, stock market
speculators don’t seem to care. They should. The present value
of all future earnings depends on the interest rate, and every
upwards tick is a substantial downward revision of earnings in
out years. However, the bull is so strongly entrenched that it
may take a while for this to sink in. We also think of the
companies who were borrowing to buy their own shares, and for
that matter borrowing to pay dividends.

2. Q2:
a. Credit risk: is the type of risk of evasion on a debt that may
emerge from a borrower failing to do needed payments. Firstly,
the risk is that of the lender which includes lost principal and
interest, interruption to cash flows, together with improved
collection costs. This loss may be complete or partial. In an
efficient market, higher points of credit risk will always be
related with huge borrowing costs in an efficient market type.
Following this measures of borrowing costs which includes
yield spreads can be used to surmise credit risk levels grounded
on assessments by current market participants. A good existing
example is what happens in local retail shop where buyer in this
case will lend money or take goods on credit suggesting to pay
later but unfortunately fail to respect that deal.
There actually two kinds of risks associated with bonds that is
interest risk and credit risk. They can have very dissimilar
impacts on various assets within the bond market. As earlier
learnt that interest is the vulnerability of a bond or fixed income
asset class to movements in the prevailing rates
b. Interest rate risk: is the kind of risk that arises for bond
proprietors from changing interest rates. The amount of interest
rate risk a bond has is determined by how complex its price is to
interest rate variations in the wide market. The sensitivity is
influenced by two things, the bond's period to development, and
the coupon rate of the bond. For example when an investor buys
securities that offer a fixed rate of return, they will be exposing
themselves to rate risk. This can happen in bonds and also for
preferred stocks. There actually two kinds of risks associated
with bonds that is interest risk and credit risk. They can have
very dissimilar impacts on various assets within the bond
market. As credit risk is to mean bond sensitivity to default, or
the chance that a portion of the principal and interest will not be
paid to investors. Bonds are actually elevated interest risks tend
to perform well when rates are falling but they will
underperform when interest rates are rising.

3. c. Off-balance-sheet risk: also known as incognito leverage,
which basically means that an asset or debt activity that is not
on the company's balance sheet. A good example of an off-
balance sheet item is total return swaps. Other companies can
have important quantities of off-balance sheet assets and
liabilities. For instance financial institutions habitually
compromise asset management services to some of their clients.
The assets are managed as part of offered services which
include securities that usually belong to the individual clients or
in trust, even though the company offers management,
depository or other necessary services to the new clients. The
company actually has no direct link to the assets, making no
record on its balance sheet therefore being off-balance sheet
assets, while usually having some elementary fiduciary
obligations with deference to the client.
d. Foreign exchange risk: is a financial risk that emerges when a
certain financial transaction is denominated in a currency other
than that of the base currency of the company. This risk also
exists when the foreign supplementary of a firm preserves
financial statements in any other currency compared to the
reporting currency of the consolidated unit. The existing risk is
that for instance an adverse effort in the exchange rate of the
value currency in relation to the base currency beforehand when
the transaction is accomplished. Major investors and businesses
both exporting and importing goods and services or rather
establishing foreign savings have a certain exchange rate risk
which can have severe financial magnitudes probably negative
but several steps may be engaged to manage a reduction this
kind of risk. The major relations of this type of risk with others
is the sovereignty type of risk which go hand with foreign
exchange risk. The best existing example in this case is for
investors who import and export goods and services in and out
of the country in so doing they are making foreign exchange
rates to have risks.

4. In the following situation when foreign exchange rate
risk and country risks merge when anyone who faces sovereign
risk is exposed to foreign country in one way or another.
Foreign exchange traders and also investors face the risk that a
foreign central bank will change its monetary policy so that it
affects currency trades at large.
e. Country or sovereign risk: Sovereign or country credit risk is
the type of risk of a certain government or state being
disinclined or unable to deal with its loan compulsions. Several
countries really dealt with this sovereign risk during the global
recession period. This type of risk being in existence translate
that creditors should do a two-stage pronouncement process
when determining who to lend to a firm based in a foreign
country. If this is done one may have to consider the sovereign
risk worth of the country then deliberate on the firm's credit
quality. Sovereignty risk may result from credit risk this is
because almost both of this risks are the same it is just that
sovereignty risk is established across nations or countries. In
the following situation when foreign exchange rate risk and
country risks merge when anyone who faces sovereign risk is
exposed to foreign country in one way or another. Foreign
exchange traders and also investors face the risk that a foreign
central bank will change its monetary policy so that it affects
currency trades at large. In a some certain circumstances if
rarely does sovereignty risk relates to technological risks that is
when the prices and variations in the country or sovereign
matters are influenced by technological difference or
improvement therein.
f. Technology risk: Technology risks intimidates assets and
practices significant to a business that may hinder compliance
with rules and regulations, impact profitability, furthermore
damage the company’s reputation in the wide market. This can
risk result from human error, malicious intentions and also
compliance guidelines. This type of risk occurs for example

5. when there is a potential for technology disappointments that
interrupts your business on things like information, security and
service outages. In a some certain circumstances if rarely does
technological risk relates to country risks that is when the
prices and variations in the country or sovereign matters are
influenced by technological difference or improvement therein.
g. Market risk: is basically caused due to movements in market
prices. Type of risk that is possible for an investor to be
involved in huge losses due to factors that normally impact on
the general performance of the financial market in which he or
she is involved. This risk cannot be eradicated through
broadening. For examples of market risk include political
turmoil, recession changes in interest rates, natural disasters
like floods and finally terrorist attacks. When in a certain
situation market liquidity happens where an asset cannot be sold
due to the lack of liquidity in the market that is essentially a
subset of market risk. This can always be accounted for through
widening offer spread and making explicit liquidity reserves.
h. Liquidity risk: is the risk that a certain company may be
incompetent to meet short term monetary demands. The above
normally occurs due to the inability to convert a hard asset to
cash without a loss of capital and income in the process of
conversion. A basic example where liquidity risk normally
emerge when a business or individual with instant cash
necessities, holds a valuable asset that may not sell at market
value because of lack of buyers, or having an incompetent
market where it is hard to bring buyers and sellers together in
the market. For example is selling real estate. In some cases
may be difficult to sell a property at a given moment should be
needed unlike securities or blue chip stock. The relation
between market risk and liquidity risk is as follows. When in a
certain situation market liquidity happens where an asset cannot
be sold due to the lack of liquidity in the market that is
essentially a subset of market risk. This can always be

6. accounted for through widening offer spread and making
explicit liquidity reserves.