NISM Series XV : Research Analyst Certification Exam Notes
Page 54 Of 62
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Liquidity Risk: Liquidity risk refers to an absence of liquidity in an investment. Thus, liquidity risk implies that the investor may not be able to sell his investment when desired, or it has to be sold below its intrinsic value, or there are high costs to carrying out transactions
Call Risk: Call risk is specific to bond issues and refers to the possibility that a debt security will be called prior to its maturity. Call risk usually goes hand in hand with reinvestment risk
Reinvestment Risk: Re-investment risk arises from the probability that income flows received from an investment may not be able to earn the same interest as the original interest rate.
Political Risk: Risk associated with unfavourable government actions - possibility of nationalization, change in tax structures, licensing etc. is called political risk
Country Risk refers to the risk related to a country as a whole. There is a possibility that it will not be able to honour its financial commitments. When a country defaults on its obligations, this can affect the performance of all other securities in that country as well as other countries it has relations with. Country risk applies to all types of securities issued in that country
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