Credit risk is the probable risk of loss resulting from a borrower's failure to repay a loan or meet contractual obligations. Traditionally, it refers to the risk that a lender may not receive the owed principal and interest, which results in an interruption of cash flows and increased costs for collection.
Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to meet financial obligations. Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to meet financial obligations.
Inflationary risk refers to the the risk that inflation will undermine the performance of an investment. Looking at results without taking into account inflation is the nominal return. The value an investor should worry about is the purchasing power, referred to as the real return.
Liquidity risk is the risk that stems from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. Liquidity risk is typically reflected in unusually wide bid-ask spreads or large price movements.
Longevity risk is risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. Longevity risk exists due to the increasing life expectancy trends among policyholders and pensioners, and can result in payout levels that are higher than what a company or fund originally accounts for.
Market risk, also called systematic risk, is a risk that will affect all securities in the same manner. In other words, it is caused by some factor that cannot be controlled by diversification. This is an important point to consider when you are recommending mutual funds, which are appealing to investors in large part because they are a quick way to diversify.
Reputational risk is a threat or danger to the good name or standing of a business or entity. Reputational risk can occur through a number of ways: directly as the result of the actions of the company itself; indirectly due to the actions of an employee or employees; or tangentially through other peripheral parties, such as joint venture partners or suppliers.
Strategic Risk Management Lab in the Kellstadt Graduate School of Business and Ledger & Quill Alum-ni Foundation Distinguished Profes-sor in the School of Accountancy at DePaul University in Chicago. He also is an advisor to management teams and boards in the area of Strategic Risk Management and strategy development and execution, and he is an IMA member.